Week 1-1 PDF

15/09/2018
WORK 6002: STRATEGIC MANAGEMENT

Week 1 – Introducing strategy
Presented by
Senior Lecturer David Oliver
Discipline of Strategy, Innovation and
Entrepreneurship
15 September 2018
The University of Sydney Page 1
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Please make a name card and write your name on it

• Fold the page lengthwise, write your name
• Underline and capitalise the name you would like to be called
• If you have a nickname or other name you would like to be called,
please write this on the right (in capital letters!)
DAVID Oliver
Catherine Smith (CATHY)
This morning’s agenda...

Lecture 1:
• Introductions
• Unit of study outline : Expectations
• Setting up groups for presentation/facilitation
• What is strategy?
• The origins of strategy
• A short case study discussion
(we will also take two short breaks)
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Some info about my background...
Some organisations I’ve worked with...
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My teaching approach…
• Very interactive (both during lectures and seminars)
• Flexible (within limits)
• Case study driven
• Strategy is not just about theory and frameworks; you need to
work hard to develop your strategic management skills!
Now it’s your turn…
• Name
• Program
• Something about yourself that would help me remember you (e.g. a
hobby, interest, where you are from, where you work, etc.)
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Lecture aims:
Week 1 (morning): Introducing Strategy
By the end of the morning you will be able to:

– Provide a definition of organisational strategy
– Explain the origins of strategic management thinking
Plus
– Have a good understanding of the overall objectives of
this course and the way you will be assessed.
Chosen by your lecturer for

this subject
Strategic
Management:
Competitiveness and
Globalisation
6th Asia-Pacific Edition
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Unit of study readings...
• Textbook
• See lecture and seminar readings and cases listed under each
“Week” on Canvas (e.g. Week 1, Week 2, etc.). There is also a
separate file “Reading List” posted under “Resources”.
• Readings not in the textbook can be downloaded through eReserve
(also on Canvas).
• More readings on current events may be added as we progress.
Seminars
• Due to the intensive format, some seminars will be integrated with

lectures and take the form of ‘group work’
• At other points, we will divide into two separate seminar groups
for your presentations and other activities. We have two break-out
rooms for this purpose: Abercrombie 2003 and 3003
• I will be assisted by our tutor Corinna Galliano
• We will make extensive use of case studies of different lengths,
coming from Harvard Business School, Ivey Business School, IMD
International, your textbook, and other sources
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Welcome
Where you can find us:

Room 4232, Abercrombie Building
Phone 91141110
Email: david.oliver@sydney.edu.au
Tutor: Corinna Galliano

Email: corinna.galliano@sydney.edu.au
Office hours: By appointment only
Outline
This unit of study has two parts:
Part 1: The fundamentals of strategy (Weeks 1-3)
Week Lecture Topic

Week 1 Introducing strategy (warm up case); External
strategic analysis (Cola Wars)
Week 2 Internal strategic analysis (Starbucks); Business-level

strategy and rivalry (Trader Joe’s)
Week 3 Corporate-level strategy (Newell); Strategic

Leadership; Strategy Implementation, Minto’s
Pyramid method (case analysis Q&A)
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Outline
This unit of study has two parts:
Part 2: Contemporary issues and tools in strategy (Weeks 4-6)
Week Lecture Topic
Week 4 Globalisation (IKEA in India); Dealing with risk and

uncertainty (Boeing 797)*
Week 5 Strategy and corporate social responsibility (Michelin
Partnership); Strategy and innovation (Wine industry);
Strategy in the Internet era and new business models*
Week 6 Strategy and Practitioners (Guest Speaker), integrative
case study (LEGO Mindstorms), Wrap up & exam
preparation
* May be switched—to be confirmed next week
Case study analysis Part A (10%)

Individual assessment
Format: Report: 1,000 words
Due: 11 October 2018 at 10am
Task Description:
You have been asked to provide strategic advice to John Foss, the CEO of Chia Co. He is
interested on your analysis of:
1. Chia Co’s external environment
2. Chia Co’s most significant resources and capabilities
3. A preliminary assessment of Chia Co’s current strategy and competitive position.
To complete this assignment, you should judiciously apply strategy concepts, tools and
frameworks from the first half of the unit of study.
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Case study analysis Part B (30%)

Format: Report: 2,000 words + 1 page appendix (optional)
Due: 6 November 2018 at 10am
Task Description:
You have been asked to provide strategic advice to John Foss, the CEO of The Chia Co.
He has asked for a report in which you:
1. Describe Chia Co’s current strategy

2. Analyse Chia Co’s current strategy and future prospects in a changing world.
3. Providing strategic recommendations for Chia Co for the coming 3-5 years
You may re-use material from your preliminary case report to support your arguments,
but devote most of your efforts to answering questions 2 and 3.
Participation (10%)
Due: Ongoing
Task description:
• Attend weekly and arrive on time
• Prepare readings
• Prepare case studies; think about study questions
• Contribute to class discussions
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Final exam (40%)

When: University exam period (12-24 November 2018)
Task Description:
• The final exam will consist of a series of questions requiring a combination
of long and short answer responses.
• The questions will mostly relate to material from the second half of the
course (i.e. from Weeks 4-6)
• You will receive a case study in the last week of the Unit of Study (a
minimum of one week prior to the exam), and some exam questions will
pertain to this case.
• Further details of the exam and the material to be assessed will be
provided in Week 6.
Seminar presentation/facilitation (10%)

Group assessment
Your group will take responsibility for presenting/facilitating in one of the seminars. We will try to give you
some flexibility in choosing a case and group, but in the end each case must be covered by a group.
Task description:
Your group presentation (max 20 minutes), involves identifying a media item (e.g. an article from a newspaper
or the popular press, a YouTube or social media clip, etc.) that relates to the case or the case’s key strategic
issue. In your presentation, you will:
a) describe how the strategic issue(s) from the case are highlighted by your media item,
b) describe how the strategic issue(s) from the case can be analysed using that session’s assigned readings,
c) critique the concepts from the readings based on your application of them to the case, and identify possible
ways these limitations might be overcome.
➢ Each group will then facilitate a discussion and/or activity (max 20 minutes) on these topics.
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Seminar presentation/facilitation (10%) (continued)
• Your presentation should not spend time simply summarising readings. Don’t
“re-teach” the lecture!
• Good presentations are highly engaging and extend beyond the readings
and lecture material.
• Due to the limited time available to make your points, keep your
presentation focused and argument-driven.
• As a group, you should decide on a division of labour for the presentation
early on, ensure that all group members have a clear understanding of who
is doing what, and when it is required.
Criteria for Group Presentation and Facilitation, WORK 6002,

Semester 2, 2018
Seminar Group: _____________________ Name of case study: ________________________
Selection of media item and link to case’s strategic issue /5
Connection with literature/readings /10
Quality of analysis /10
Criticality (discussion of the limits of concepts and ways to overcome) /5
Presentation style (visual and oral aspects, timing, everyone speaking /10
Facilitation (initiative taken, quality and depth of discussion) /10
SUBTOTAL: /50
(divide by 5 to give mark out of 10) /10
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SID Gender Family Name Given Names Preferred Name

311209041 F ACKLAND REBECCA LEE REBECCA ACKLAND
430345126 M BASCKIN MICHAEL SEAN MICHAEL
430176276 M BHAMA KANAV KANAV
480524357 F BIRKFELLNER TANJA TANJA
Seminar group 1: 470109696
450658798
F
M
CHAI
EGGINS
YAORONG
MICHAEL
YAORONG
MICHAEL
(David) 312048408
470171822
M
F
GARCIA LUNA
GORASIA
DIEGO
KEYURI RAMESHCHANDRA
DIEGO
KEYURI
GOVID
470243495 F GUHA ANTARA ANTARA
470510618 F HENSBY NATALIE KAYE NATALIE
480489894 M HU JIACHENG JIACHENG
480333483 M JUNG JAE HYOUNG JAE HYOUNG
470173376 F LI YANTONG SHELLY
480477101 F LI SIHAN CECILIA
480449212 F LING CHENXIN CHENXIN
470330120 F LU ZIMO ZIMO
450644779 M MAHASHAY ISHAN ISHAN MAHASHAY
480541941 M MUDJIANTO ERWIN BUDIANTO ARIS ERWIN BUDIANTO ARIS MUDJIANTO
480132680 F QIAO SIYUAN SIYUAN
470271465 M ROGERS MATTHEW MATT
450185401 F SHAO NAN NANCY
480243377 F SOMPHON VADSANA VADSANA
470465134 F TANG YI YI
470305597 F TRUONG MILLICENT BEISIM MILLIE
480137814 F WANG HONGYIN HONGYIN
470226672 F WEN JIAYUE JIAYUE
480552327 F XIA YIPAN YER
480235888 F YAGAVAKOTE CHANDANA CHANDANA
JANARDHANARAO
480477743 F YANG SHUYUN SHARON
480166168 M ZHAO WEI WEI
SID Gender Family Name Given Names Preferred Name
440520351 F ANNETT ROBYN ELLEN ROBYN

470278970 F BEN LIU LIU
420135612 M BINGARD GERARD MICHAEL MICHAEL BINGARD
470498877 F CAO YIXUAN YIXUAN CAO
Seminar group 2 470173354 F CHEN MEIHUI CHEN
480565637 F FROST EMMA EMMA
(Corinna): 199236914
460493314
M
F
GILCHRIST
GOUR
BRAITH SCOTT
NIKITA
BRAITH
NIKITA
480535065 F HARDER ANASTASIA ANASTASIA
450581441 F HOWARD VANESSA JANE VANESSA
480557997 M JACUPS DANIEL BRETT DANIEL
450632259 F LASKA REBECCA REBECCA
470374906 F LI JIAHUI DEMI
470052369 M LIMAYE HARSHAD MANAVENDRA HARSHAD
470330119 F LU ZIRONG ZIRONG
480157948 F LU ZHONGYU ZHONGYU
440271970 F MARCOU ANGELA ANGELA
460482695 F POON CHOR YING JOYCE JOYCE
199064095 M RODEN WILLIAM DOUGLASS WILL
470374065 M SEGAWA KAZUFUMI KAZUFUMI
470439423 F SHI RUYU VICKEY
480083533 F SUN HAOXUAN HAOXUAN
460225874 M TIAN HAOYE TIAN
450638228 M WANG ANQI ANQI
480309189 M WANG YUHAO YUHAO
420180058 F WILDER KATRIONA LAUREN KATE
480280718 F XU ZIYANG CARINA
480327378 F YAN YIMEI YIMEI
480068862 F ZHANG CHUJIA CHUJIA
480452603 M ZHENG DAIDONG DAIDONG
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Group presentations
1. Starbucks (22 September)
2. Trader Joe’s (22 September)
3. Newell (6 October)
4. IKEA in India (13 October)
5. Boeing 797 (13 or 20 October)
6. Michelin Partnership (20 October)
Take a minute or two ….

Imagine…
You are at a party and some-one asks, “What are you studying this
semester?”
“Strategic Management” you answer.
“What’s that?”
What would you say?

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You reply...
The definition from our textbook…

Strategy is an integrated and coordinated set of commitments and actions
designed to exploit core competencies and gain a competitive advantage
Strategic competitiveness is achieved when a firm successfully formulates

and implements a value-creating strategy
Q: What do you see here? What don’t you see here?
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Strategy should respond to these questions:
Where do you want to go /

What do you want to be?
and
How are you going to get there ?
In more detail…
Where do you want to go / what do you want to be?

• Long term orientation
• Provides guidance for development of the organisation
How are you going to get there ?

• Which product(s)/service(s)?
• Which markets/clients?
• Which peripheral services?
• Which geographies?
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A model of strategy: SERVO
Management
Values
WANT TO DO
Organisation Strategy Environment
CAN DO NEED
TO DO
Resources
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The elements of a strategy

The(i.e. what is inside
elements of the ‘Strategy’ bubble)
a strategy
Product-Market
Combination
Goals and
objectives
Competitive Business
Advantage System
Impact of strategy
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Two elements are key to strategic analysis…
EXTERNAL INTERNAL
• Environmental • Internal strengths and

opportunities and threats weaknesses
• Competitive situation • Resource characteristics
• Positioning • Building competitive
advantage
The creative leap…
Matching: To decide…
➢ Strengths & weaknesses ➢ What business to be in ?
➢ How to compete?
with
➢ What kind of organisation
to be?
➢ Opportunities and
threats
An art and a science!
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The Origins of Strategy
Origins of strategy
Historic Timeline
– Ancient Greece: stratos (army) + agein (to lead)
– 1920s: Emergence of ‘Business Policy’ at Harvard
– 1950s: ‘Business Planning’ takes hold
– 1965: Publication of ‘Corporate Strategy’ by Igor Ansoff
– 1970s: Popularisation of ‘Strategy’ & ‘Strategic Management’
– 1980s: Strategic Management Society/Strategic Management Journal
are created
Consequence
– Pluralistic , interdisciplinary field: military history, engineering, industrial
economics, organisational sociology, behavioural, cognitive and social
psychology, anthropology and political science…
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The military tradition of strategy

“An army may be likened to water, for just as flowing
water avoids the heights and hastens to the lowlands, so
an army avoids strength and strikes weakness.”
Sun Tzu, The Art of War
- Implication: Avoid your competitor’s strengths, and attack
their weaknesses
“Generally in war, the best policy is to take a state

intact; to ruin it is inferior… For to win one hundred
victories in one hundred battles is not the acme of skill.
To subdue the enemy without fighting is the acme of
skill.”
Sun Tzu, The Art of War
- Implications: Try to win all without fighting. Capture your Sun Tzu, 544-496 BC
market without destroying it
The military tradition of strategy
– The battlefield as strategic context

– Clausewitz (1832) – On War: “[strategy]
forms the plan of the war... it links together
the series of acts which are to lead to the
final decision...”
– Shapes view of strategy as
– Created by heroic / isolated ‘generals’
– Individual genius critical to victory
– Need order and hierarchy
Carl von Clausewitz, 1780-1831

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The economics-based tradition of strategy: ‘Homo

economicus’
– Rational planning
– Profit maximisation
The classical model of strategy

– Acting with perfect rationality to maximise
economic advantage
– Strategy formulation should be a controlled
conscious process; CEO as sole strategist
– Strategy implementation should be a
structured and almost operational process
...Despite much contrary research, this classical

model still dominates...
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The strategy “gurus”

– Alfred P. Sloan
– Alfred D. Chandler
– Igor Ansoff
– Michael Porter
– Karl Weick
– Henry Mintzberg
This list includes academics and industrialists
A.P. Sloan
President of General Motors from 1923-56
▪ Introduced practices emphasising structure (e.g.
decentralised divisions)
▪ Strategy as ‘position’ in markets leading to maximum
profits
▪ Strategy as ‘policy’, separate from operations
▪ Separated formulation from implementation
My Years with General Motors (1963)
Academic links > A.D. Chandler
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A.D. Chandler
– Professor at MIT and Harvard
– Strategy drives structure and is a result of
rational (top down) planning
– Strategy is: “The determination of the basic, long
term goals and objectives of an enterprise and the
adoption of courses of action and the allocation of
resources necessary for those goals”.
– Key contribution: changes in environment drive
need for new strategies
Igor Ansoff
– Strategy: “the common thread across activities and
product-markets”(Ansoff,1965)
– Strategic decisions: “decisions on what kind of business
the firm should seek to be in”
– Four components:
1. Product-market scope (clear focus—years before Peters
& Waterman “stick to the knitting”)
2. Growth vector (how to orient your growth)
3. Competitive advantage (over a decade before Porter!)
4. Synergy (2+2=5, heard this one before?)
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Emergence of “Design School” (1960s)
– Strategy is created at the intersection of an external appraisal

of threats and opportunities facing an organisation and an
internal appraisal of its strengths and weaknesses.
– SWOT!
Michael Porter
– Competitive Strategy” (1980)
– Systematic empirical research
– Rational analysis and planning as foundation of
strong strategy
– Key contributions:
– Generic strategies (few desirable strategies,
rather than tailor made!)
– Link between profitability and industry structure
– Environment matters more than resources
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The “Industrial Organisation” (I/O Model) of above

average returns
Karl Weick
– The planning school neglects social and human

dynamics
– Strategy is emergent
– Driven by ‘bounded rationality’ (see Herbert A.
Simon): we “satisfice”
– Reconceptualise organisations as collections of
choices
• Problems, choices, solutions and decision-
makers interface in various ways
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Henry Mintzberg
– Strategy as a process rather than a state
– Link between strategy and day-to-day
activities
– “A pattern in a stream of actions”
– Strategy must match the situation
– Prescriptive strategy > simple, stable situations
– Emergent strategy > complex, changing
situations
– Represents a set of pragmatic compromises
between various stakeholders in the organisation
http://www.youtube.com/watch?v=4srFC0de4ww
Strategic management process
Adapted from Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same
Source:H. Mintzberg and J. A. Waters, “Of Strategies, Deliberate and Emergent,” Strategic Management Journal 6 (1985), pp. 257-72.
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Deliberate versus emergent strategy
– Deliberate strategy (Plan): – Emergent strategy (Process):

– Close relationship – No intention, rather clear
between intended and pattern of behaviour
realized strategy – Continuum – intention,
choice and pattern of
– Focus on external formation.
The resource-based model of above average returns
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Strategy as practice
– What is it that strategists actually

do?
– Strategy is an important social

practice.
Richard Whittington
Said Business School, Oxford University
So what do we know about strategy?

– Concerns both organisation and environment
– Is complex
– Affects overall welfare of the organisation
– Involves issues of content and process
– Never purely deliberate
– Involves various thought processes
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Strategic management’s four characteristics:
– Interdisciplinary
– Externally focused
– Internally focused
– Future focused
Recapping …
– Defined strategic management
– Examined the origins of strategic management thinking
– Given you a sense of how we will approach our study of strategic
management
ANY QUESTIONS??
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For further background on these ideas...

– Chapter 1 of your text
– Fleisher, C. and Bensoussan, B. (2007) Business and competitive analysis: Effective
application of new and classic methods. Pearson Education.
– Carter, C, Clegg, S and Kornberger, M (2008) A Very Short, Fairly Interesting and
Reasonably Cheap Book about Studying Strategy, Sage Publications, London.
– Hambrick, D G and Chen, M J (2008) “New Academic Fields as Admittance-
Seeking Social Movements: The case of Strategic Management”, Academy of
Management Review, Vol 33(1),pp 32-54.
– Mintzberg and J. A. Waters, (1985) Of Strategies, Deliberate and Emergent,”
Strategic Management Journal, 6, pp. 257-72.
– Mintzberg, H and Lampel, J (1999) “Reflecting on the Strategy Process”, Sloan
Management Review, Spring, 21-30.
– Whittington R (1993) What is Strategy? And What does it Matter?, Routledge,
London.
Edward Marshall Boehm Inc.
– What strategy should they follow ?

– Why?
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WORK 6002: STRATEGIC MANAGEMENT

Week 1 (afternoon) – External
Analysis
Presented by
Work and Organisational Studies
15 September 2018
Lecture aims
By the end of this afternoon, you will:
• Understand the importance of the external environment to strategic

management
• Have been introduced to some strategy tools for assessing the
external environment, including PESTEL / “EPSGTPD”, Porter’s five
forces model, life cycle analysis, and strategic groups, along with
some of their limits and interconnections
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The industrial organisation (I/O Model) of above

average returns
Question: what external factors in a firm’s

environment should be taken into account when
developing strategy?
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A few thoughts on strategy tools

• Several strategy tools can help us analyse the environment
• Strategy tools emphasise and help visualise the most important
parameters That need to be considered in the analysis
• It is important to understand
• When each strategy tool should be used
• How each strategy tool should be used
• How to combine strategy tools
• Tools can be adapted
• Only use tools when they’re useful
Two levels of external analysis...
Nature of Issue Macro

Political
Industry
Legal
Economic
Technological Company
Nature of Competition
Socio-Cultural Market concentration
Environmental Competitiveness
Regional vs. Global
Power
Threats
Industry lifecycle
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An organisation’s external environment
The University of Sydney Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 3- 67 Page 67
Different tools for different levels
Industry Lifecycle
PESTEL or
“EPSGTPD”
Macro
Industry
Porter’s 5 Forces
Company
Strategic Group Analysis
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The General Environment
The external environment
• Firms cannot directly control the general environment’s

segments.
• However, these segments influence the actions that firms
take.
• Successful firms learn how to gather the information needed
to understand all segments and the implications for selecting
and implementing the firm’s strategies.
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“EPSGTPD” Analysis
The external environment: EPSGTPD
• The general environment can be grouped into seven

environmental segments:
1. demographic 5. technological
2. economic 6. global
3. political/legal 7. physical environment.
4. sociocultural
– To successfully deal with uncertainty in the external

environment and achieve strategic competitiveness, firms must
be aware of and understand these segments.
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The general environment: Key elements of ‘EPSGTPD’

Demographic segment Population size
Age structure
Economic segment Inflation rates
Interest rates
Budget deficits/surpluses
Political/legal segment Competition/monopoly laws
Taxation laws
Socio-cultural segment Women in the workforce
Workforce diversity
Technological segment Product innovations
Application of knowledge
Global segment Newly industrialised countries
Another tool: PESTEL
• Political:
• Economic:
• Socio-Cultural:
• Technological:
• Environmental:
• Legal:
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PEST(EL) Analysis
• Political
• Change in government
• Controls on merger and acquisitions policies
• Use of subsidies and/or nationalisation
• Economic
• Total GDP and GDP per head
• Inflation
• Consumer expenditure
• Interest rates
• Investment by state, foreign companies, etc
• Unemployment
• Resource costs
PEST(EL) Analysis
• Socio-cultural
• Shifts in values and culture
• Changes in lifestyle
• Attitudes to work and leisure
• Education and health
• Demographic changes
• Income distribution
• Technological
• New patents and products
• Speed of change and adoption of new technology
• Industry expenditure on R&D
• New research initiatives
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PEST(EL) Analysis
• Environmental (ecological)
• Attitudes towards the environment
• Waste and product disposal and recycling
• Energy consumption
• Availability of resources
• Environmental (government) policies
• Legal
• Employment law and regulations (e.g. wages)
• Health and Safety
• Product safety and arising liability
Notes about using general environment tools

• Not only about identifying environmental factors
• Must understand how and how much these factors would impact the firm
• Identify important factors, do not create long lists!
• Focus on the future (the past only matters if it impacts today or
tomorrow)
• Ask yourself:
• What are the major issues that the sector confronts now and will confront
in the coming years?
• What impacts will these have on the nature and size of demand?
• How will all this affect the company’s current strategy?
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Notes about using general environment tools (2)

• Analysis should be balanced across categories: the environment not
determined by economic factors only (!)
• Analysis should lead to the identification of opportunities and threats
• Categories overlap
• In practice it doesn’t matter how an issue is categorised
• Adapt the tool to your own practice; omit categories without impact
Aguilar (1967); Fahey & Narayanan (1986)

Example: Angwin et al (2007)
PESTEL: Royal Air Maroc
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5 Forces
Different tools for different levels
Industry Lifecycle
PESTEL or
“EPSGTPD”
Macro
Industry
Porter’s
5 Forces Company
Strategic Group
Analysis
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Industry environment analysis:

The five forces of competition model
• The five forces model of competition expands the arena for

competitive analysis. Historically, firms concentrated only on
direct competitors.
• Defining an industry is tricky. You look for strategically
relevant industries – those with which you compete. For
example, Qantas competes in the global airline industry and
the domestic airline industry.
Porter’s Five Forces: Competitive Dynamics
Source: Adapted from ME Porter, ‘How competence forces shape strategy’, Harvard Business Review, March–April 1979. Adapted and reprinted by permission of Harvard Business Review. © 1979
by the Harvard Business School Publishing Corporation; all rights reserved.
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Supplier Power
High when:
• Suppliers concentrated (not fragmented)
• High switching costs: differentiation makes it costly for buyers to switch
suppliers (they can’t play one supplier off against another).
• If their product is unique or differentiated (e.g. strong brand)
• They sell to many industries, so that one particular industry does not
represent a major fraction of sales
• High risk of forward integration - supplier purchases buyer to satisfy own
price needs
Customer/Buyer Power
High when:
• Highly concentrated or purchase large volumes
• The product being purchased accounts for a significant portion of seller’s
annual revenues.
• They could switch to another product at little cost (low switching costs)
• The industry’s products are undifferentiated or standardised
• Buyers can integrate backwards (buyer purchases supplier)
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Threat of new entrants…
• New entrants bring new industry capacity

• They bid down prices, inflate costs, reduce profitability
• Inversely related to barriers to entry…
Barriers to Entry…
• High entry barriers tend to increase the returns for existing

firms in a industry and may allow some firms to dominate
the industry
• Industry incumbents want to maintain high entry barriers in
order to discourage potential competitors from entering the
industry
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Barriers to Entry (continued)

Some examples of BtE:
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channels
• Cost disadvantages independent of scale
• Government regulation
Barriers to Entry (continued)

And one more: Expected retaliation
• Vigorous retaliation can be expected when an existing firm has a
major stake in the industry
• It has fixed assets with few alternative uses.
• It has substantial resources (deep pockets).
• Industry growth is slow or constrained.
• Locating market niches not being served by incumbents allows a new
entrant to avoid entry barriers.
• Small entrepreneurial firms are generally best at identifying and
serving neglected segments.
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Threat of Substitutes…
• Goods or services outside a given industry performing similar

functions at a competitive price (e.g. plastic replacing steel in
many applications).
• They limit an industry’s profit potential by putting a ceiling on the
price you can charge
• The threat of substitute products increases when:
• substitute product’s price is lower
• few switching costs
• substitute product’s quality and performance equal to or
greater than the existing product
Pay attention to substitutes…
• Search for other products that can perform the same function as
your product
• Focus on substitutes that:
• Are approaching your price-performance level
• Would entail minimal switching costs
• Are produced by profitable industries
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Rivalry between competitors
Can be high if:

• Industry growth is slow
• Fixed costs are high
• Product is viewed as a commodity
• Industry overcapacity
• Competitors have divergent strategies, origins, cultures, etc.
• Exit barriers are high (e.g. specialised assets, labour agreements,
strategic interrelationships, emotional barriers, government and
social restrictions)
Industry environment analysis: The five forces of

competition model
INTERPRETING INDUSTRY ANALYSES
Low entry barriers

Strongly positioned
suppliers and buyers Unattractive
Strong threats from industry
substitute products
Intense rivalry among
competitors
LOW PROFIT
POTENTIAL
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Industry environment analysis: The five forces of

competition model
INTERPRETING INDUSTRY ANALYSES
High entry barriers

Weakly positioned
suppliers and buyers Attractive
Few threats from industry
substitute products
Moderate rivalry
among competitors
HIGH PROFIT POTENTIAL
From Michael Porter’s mouth:
To succeed a company must fit its strategy to the industry’s

environment in which it operates or must be able to shape the
industry’s environment to formulate and implement strategies to
its advantage through its chosen strategy
http://www.youtube.com/watch?v=mYF2_FBCvXw
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Can you think of any limitations to Porter’s 5 Forces model?
Is there a 6th force?
• Government?
• Complementators?
• Industry growth?
• Technology and innovation?
• Stakeholders?
• According to Porter, these are ‘factors’, not ‘forces’
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Life Cycle
The environment
PESTEL or
Industry Lifecycle “EPSGTPD”
Macro
Industry
Porter’s 5 Forces
Company
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Product and industry lifecycles

• A reminder…
• Traditional representation
• Scenarios
• Different phases
• Financial implications
The traditional representation

Sales
Maturity
Growth
Decline
Introduction
Time
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Differing possible scenarios
Sales
Products A
Products C
Products B
Time
The cycle’s financial implications
Sales
maturity
decline
growth
sales
introduction
cashflow
Profit and loss
time
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Another look at the product life cycle…
Each phase of the product life cycle:
a) has specific implications for managing

b) generates different strategic issues and questions
The introduction phase
IMPLICATIONS
R&D
– Major uncertainties
Sales
– Markets
– Technology
– Priority to R-D
Maturity
Growth – Financial losses
Decline
Introduction
Time
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The growth phase

Implications
Production
– Accelerating demand
– New competitors
entering the market
Sales – Priority: build production
capacity
Maturity
> Lowest cost or best
Growth Decline product ?
Introduction
The University of Sydney Time Page 107
The maturity phase

Implications
– Relative Stability of
Marketing – Demand
Sales – Technology
– Strong rivalry
– Priority: marketing
Maturity > How to exploit one’s
Growth Decline
position and increase
profit ?
> Which costs to reduce ?
Introduction
The University of Sydney time Page 108
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The decline phase

Implications:
– Demand moves
Finance toward substitutes
Sales
– Lower margins
– Priority: finance
Maturity
Growth Decline > When to get out ?
> Where to redeploy ?
Introduction
The University of Sydney time Page 109
Industry life cycle

Introduction Growth Maturity Decline
Buyers Rich, curious Widening Mass market Sophisticated
Products Poor quality Good quality Superior quality Little

differentiated differentiation
Competitors Few Many new Price Fewer
entrants competition; competitors
shake off weak
competitors
Margins High Fair Falling Low
Profits Low High High but falling Can be ok
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Industry life cycle

• Be careful...
• The duration of some lifecycles are difficult to determine
• Some industries miss stages or cannot be clearly identified
• Companies can actually change the shape of the curve
• At each stage the nature of competition might be different
Klepper (1996); McGahan (2000)

Strategic Groups
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The environment
Industry Lifecycle PESTEL or

Macro
“EPSGTPD”
Industry
Porter’s 5 Forces
Company
Strategic groups within industries
• Organisations in a strategic group occupy similar positions in the

market, offer similar goods to similar customers and may also make
similar choices about production technology and other organisational
features.
• Additional analytical tool
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Firms in the same strategic group may…
• Sell in same price/quality range

• Cover the same geographic areas
• Have comparable product line breadth
• Use similar distribution channels
• Offer buyers similar services
• Use similar technologies
Strategic group analysis
• Tool used to map industry competitors to identify strategic groups

• Strategic groups consist of relevant / direct competitors within
the industry
• Not all members of an industry are competing directly
• Better understanding of industry segments
• Identify strategic gaps to exploit
• A map of strategic groups in a sector can help establish a firm’s

truest competitors.
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The world automobile industry in 2005: Strategic groups
Adapted from: Strategic Management: Creating Competitive Advantages, by Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor, McGraw-Hill, 2005
Strategic group analysis

• Steps:
• Identify competitive characteristics that differentiate firms within the
industry (e.g. price, quality, service, geographic coverage, etc)
• Plot firms on a two-variable map using pairs of differentiating
characteristics
• Assign firms that fall in the same strategy space to same strategic
group
• Circle each group, with circle size corresponding to share of total
industry sales
• Not all positions on the map are equally attractive; barriers to
entry/mobility
Hunt (1972); Porter (1980), Harrigan (1985)
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A final key question: How much impact does one’s

industry have on performance?
Firm
Industry
Other
effects
What is the major criticism of I/O “Outside-In” Models?
They ignore the internal workings of the firm!

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Further readings and sources

• Hanson, Dowling, Hitt, Ireland and Hoskisson (2013) Strategic Management Competitiveness and Globalisation,
Thompson, Melbourne.
• Porter, M E (2008) “The Five Competitive Forces that Shape Strategy” in Harvard Business Review, January, pp. 79-93.
• White, C (2004) Strategic Management, Sydney Palgrave.
• You Tube - http://www.youtube.com/watch?v=mYF2_FBCvXw
• Rumelt R. (1991) “How much does industry matter?” Strategic Management Journal 12(3): 167-185.
• McGahan AM & Porter ME (1997) “How much does industry matter really?” Strategic Management Journal, Summer
Special Issue 18: 15-30.
• Aguilar, F. (1967) Scanning the business environment. New York, Macmillan
• Fahey, L., & Narayanan, V. K. (1986) Macroenvironmental Analysis for Strategic Management (The West Series in
Strategic Management). St. Paul, Minnesota: West Publishing Company
• Angwin, D., Cummings, S., Smith, C.(2007) The Strategy Pathfinder – core concepts and micro-cases, Blackwell
Publishing, Oxford, United Kingdom
• Hunt, M. (1972) "Competition in the Major Home Appliance Industry", doctoral dissertation, Harvard University,
1972.
• Porter, M. (1980) Competitive Strategy, Free Press, New York
• Harrigan, K. (1985) “An application of clustering for strategic group analysis”, Strategic Management Journal, 6, 55-
73.
Cola Wars: Understanding Rivalry
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Understanding the soft drinks industry business

system/value chain
Inputs Concentrate Bottlers Distributors
producers
Players: Packaging Coke Company- Food stores
Sweeteners Pepsi owned
Dr. Pepper Independent
7-up (exclusive Fountain
RC franchise)
Vending
Value Commodities Secret formula Mixing
added: Brand identity Distribution
Warehousing Convenience
Direct store service
Brand mgmt Big Box /
Price Warehouse
Forces to analyse for concentrate producers AND bottlers
Buyers: Starbucks1, Starbucks2
Suppliers: Trader Joe’s1, Trader Joe’s2
New entrants/barriers to entry: Newell1, Newell2, IKEA1
Substitutes: IKEA2, Michelin Partnership1
Rivalry: Michelin Partnership2, Boeing

797-1, Boeing 797-2
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Coming up next week:

– Internal analysis
– Case study: Starbucks
– Business-level strategy
– Competitive rivalry
– Case study: Trader Joe’s
63

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15/09/2018

WORK 6002: STRATEGIC MANAGEMENT

The University of Sydney Page 1

The University of Sydney Page 2

Please make a name card and write your name on it

Catherine Smith (CATHY)

The University of Sydney Page 3

This morning’s agenda...

The University of Sydney Page 4

Some info about my background...

The University of Sydney Page 5

Some organisations I’ve worked with...

The University of Sydney Page 6

The University of Sydney Page 7

Now it’s your turn…

The University of Sydney Page 8

By the end of the morning you will be able to:

The University of Sydney Page 9

Chosen by your lecturer for

6th Asia-Pacific Edition

The University of Sydney Page 10

Unit of study readings...

The University of Sydney Page 11

• Due to the intensive format, some seminars will be integrated with

The University of Sydney Page 12

Where you can find us:

Senior Lecturer David Oliver

Tutor: Corinna Galliano

Office hours: By appointment only

The University of Sydney Page 13

Week Lecture Topic

Week 2 Internal strategic analysis (Starbucks); Business-level

Week 3 Corporate-level strategy (Newell); Strategic

The University of Sydney Page 14

Week Lecture Topic

Week 4 Globalisation (IKEA in India); Dealing with risk and

Case study analysis Part A (10%)

Case study analysis Part B (30%)

1. Describe Chia Co’s current strategy

The University of Sydney Page 18

Final exam (40%)

When: University exam period (12-24 November 2018)

Seminar presentation/facilitation (10%)

The University of Sydney Page 20

Seminar presentation/facilitation (10%) (continued)

Criteria for Group Presentation and Facilitation, WORK 6002,

Selection of media item and link to case’s strategic issue /5

Connection with literature/readings /10

Quality of analysis /10

Criticality (discussion of the limits of concepts and ways to overcome) /5

Facilitation (initiative taken, quality and depth of discussion) /10

SID Gender Family Name Given Names Preferred Name

The University of Sydney Page 23

SID Gender Family Name Given Names Preferred Name

440520351 F ANNETT ROBYN ELLEN ROBYN

The University of Sydney Page 24

The University of Sydney Page 25

Take a minute or two ….

“Strategic Management” you answer.

What would you say?

The University of Sydney Page 27

The definition from our textbook…

Strategic competitiveness is achieved when a firm successfully formulates