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Edinburgh Business School MBA AUC Academic Partner Strategic Planning Cases Instructor: Moataz Darwish, MBA
Introduction The strategist has to think more widely and deeplythan the individual functional specialists. This is an extremely difficult game to play and it goes without saying that unless you practiceyou will never get into the top right hand box of Strategic thinking. Introduction – Moataz Darwish 2
Augmented Model - summary Who Decides To Do What Analysis And Diagnoses Analysis And Diagnoses Choice Implementation OBJECTIVES THE GENERAL INTERNAL FACTORS GENERIC STRATEGY RESOURCES AND Business Definition ENVIRONMENT Value chain ALTERNATIVES STRUCTURE Mission Macroeconomic analysis: Shareholder value analysis Corporate and business Divisional, functional, Shareholder wealth unemployment, inflation, Competence strategy matrix Gap analysis interest rate, exchange (resources/routines matrix) Stability, expansion, Managerial style Means and ends rate Architecture Retrenchment, Combination Critical success factors Ethics Forecasting Experience curve Cost leadership, Incentives Profit maximisation Competitive advantage of Economies of scale Differentiation, Focus Resource allocation Growth vector (Ansoff) nations Economies of scope Segmentation Opportunity cost Stakeholder map Environmental scanning Innovation Strategy variations Marginal analysis Credible, quantifiable, PEST Synergy Diversification: related and Optimisation disaggregated, economic, Scenarios Joint production Unrelated (Fam Matrix) Budgets financial The industry and Opportunity cost Vertical integration Critical success factors international Marginal analysis Mergers and acquisitions Evaluation and control STRATEGISTS environment Ratios Joint ventures and alliances Performance measures Prospector, analyzer, defender, reactor Demand and supply, price Gearing Pricing: leadership, limit, Ratios Principal agent determination, elasticity Cash flow predatory Degree of Planning and Risk aversion Barriers to entry Benchmarking Strategy choice type Team composition Forms of competition: Human resource management Risk analysis of Control perfect, imperfect, Managerial perceptions Monitoring systems Group dynamics oligopoly, monopoly Culture: power, role, task, Corporate Governance personal Net present value Segmentation FEEDBACK Competitive position Familiarity Differentiation Product life cycle Scenarios Quality Communication Market share Break even Strategic groups Management style Portfolio analysis (BCG) Payback Perceived differentiation Sensitivity Adaptability Strategic groups SWOT Learning organisation Competitive reaction Game theory First mover Five forces Elements of competitive adv ETOPS Strategic advantage profile (SAP) Introduction – Moataz Darwish
Objective –> Strategy -> Recommendations nvironmental/Industry/Internal Scanning ETOP SWOT SAP Introduction – Moataz Darwish
SWOT to Strategy ETOP Short term Corporate Ex. Cost/mkt share/efficiency SWOT SBU SAP Long Term Corporate Ex. Move along Ansoff matrix SBU In strategic terms the distinction is between actions that are intended to deal with immediate issues (short term), such as reducing cost to avoid bankruptcy, rather than those that deal with the basis on which the company competes, such as building competences, developing a portfolio and adjusting market position to generate competitive advantage (Long term). There is often a conflict between the need to deal with the immediate imperatives and building long term competitive advantage; this can be a permanent feature of companies in a volatile environment in which there is a continual need to make trade offs. Introduction – Moataz Darwish
SP Exam • Question 1: Data Based Case (1/3 of the exam grade) • Question 2: Real Life Case (1/3 of the exam grade) 1. Identify what the story is about - success/failure/new venture…etc 2. Identify reasons/causes (ex. for the failure…) • Question 3: Essay (1/3 of the exam grade) • Present a balanced argument (for and against) • Arrive to conclusion backed w/ argument • Plenty of opportunities to incorporates ideas Introduction – Moataz Darwish 8
Exam Tips • No right and wrong • Read the question first • Put things in order (STUCTURE) - note taking (closet organizer), (Case Model Tools->Analyses->conclusion) • Don’t simply mention the tool/concept…APPLY IT • Explain WHY you’re applying a certain tool/concept • Make use of ALL data…it’s there for a purpose • Leave space after every case and sub-sections of the model to revisit if possible • Have a go at ALL Questions and ALL PARTS of Questions • Watch out for comparisons in the single case (between 2 periods, 2 companies…), that would entail duplicating the model structure of both. • Do not panic because you have not completely filled in the answer book; we are looking for good quality applications and reasoned arguments. Introduction – Moataz Darwish 9
Exam Tips Examination grading • Each of the three questions in the examination carries equal weighting. • Usually each question consists of more than one part, but marks are not specifically awarded to each individual part. • This is because there is often a degree of overlap among different parts and the examiner takes an overall view of how the question was answered. • Obviously if part of a question is not tackled, the mark will be downgraded. • Finally, the examination paper as a whole is evaluated in terms of its analytical content, the application of strategic concepts, any insights and the quality of the arguments; in marginal cases, the decision is made on the basis of overall content rather than simply taking the sum of the marks on the three questions. • Long vs. short term (see notes below) EBS MBA / AUC Introduction – Moataz Darwish 10
Case Study Analyses Put things in order – note taking – closet organizer Case Relate to Break down to Deduct Paragraphs Tools Model Matrices Analyses Key (Buzz) Concepts words Introduction – Moataz Darwish 11
‘Focus on Nestlé’ Case Question 2, Jun 07 Exam Required: 1. What changes to the strategic process in Nestlé did Mr Brabeck introduce after taking over from Mr Maucher? 2. There is some doubt on future strategic moves. Set up a SWOT analysis and advise Mr Brabeck on a course of action. Introduction – Moataz Darwish 12
Active-Reading Methodology - Nestlé’ Case Objective->Name+what industry? 1. By 2004 Nestlé, a Swiss food and drink group, Implementation->org str 2. was by far the biggest in its sector. Industry/Internal->Mkt share 3. For twenty years, Nestlé had been growing through Past objective -> growth 4. a series of acquisitions and new market entries, Past Strategy->expansion-> >Acq+mkt entry->Ansoff? 5. but its CEO, Mr Brabeck, still had plans to Strategist->Defender? 6. maintain or even increase its rate of growth. Objective->profitability? Strategy->stabilization? 7. In order to do so he recognized that he would 8. have to transform Nestlé from being a group of 9. Unrelated businesses into an efficient and Strategy->from unrelated diversification to coordinated operation. internal efficiency through change mgt -> from expansion to stabilization? Introduction – Moataz Darwish 13
Exercise • Please practice the active-reading methodology for the rest of the case and solve the case accordingly. Introduction – Moataz Darwish
Nestlé’ Case 1. A major difference between Mr Brabeck and His competitors is the approach to growth. 2. While Nestlé was expanding, most of the other big companies in the sector either shrank or remained stable. For example, between 2000 and 3. 2004, Unilever cut its workforce by 14%, closed 100 factories, and reduced its brands from 1600 4. to 400. In 2003, Cadbury announced the closure of 25 factories and a 10% reduction in the 5. workforce. Yet while Nestlé kept growing, its profit margins lagged behind those of its major 6. competitors. It has been argued that Nestlé should have returned cash to shareholders rather 7. than using it to fund growth but, on the other hand, between 1975 and 2004, Nestlé’s share 8. price rose by about three times the S&P index. 9. The growth trail 10. Nestlé’s current growth trajectory began under Mr Brabeck’s predecessor, Mr Maucher, who took 11. over in 1981 after Nestlé had made a misguided expansion into hotels and restaurants. Mr 12. Maucher sold off the unprofitable businesses and decided that Nestlé would focus on mineral 13. water,ice cream, pet food and confectionery. In 1988, Mr Maucher bought Rowntree, famous for 14. Kit Kat and Smarties, and in 1992 Perrier; he also purchased the market dominant ice cream 15. makers in Spain, Australia and Canada. When he took over in 1997, Mr Brabeck continued 16. buying, culminating in 2001 with the purchase of Ralston Purina, a US pet food company, for $10 17. billion; this made Nestlé one of the two biggest pet food makers in the world. Introduction – Moataz Darwish 15
Nestlé’ Case 1. Mr Brabeck versus Mr Maucher 2. The two CEOs initially appeared to have a similar approach and issued a circular setting out what 3. would not change under Mr Brabeck. There were two ‘unique’ features they wished to preserve: 4. first, IT would not be important in the day to day running of Nestlé because the focus was on its 5. people, products and brands; second, the commitment to decentralisation would remain to 6. cater to local tastes and maintain emotional links with distant clients. 7. But within two years Mr Brabeck recognised that these ‘unique’ features were not contributing to 8. competitive advantage. Decentralisation was abandoned with the establishment of SBUs 9. dealing with similar products. But this was resisted by many managers who did not want to 10. lose their independence; the result was a management shake-out. But Mr Brabeck was now 11. faced with a conundrum. Companies such as Danone, which focused only on water, diary 12. products and biscuits, were doing better than Nestlé. So the question had to be faced whether 13. focus was necessary in the food industry. At the same time, the attempt to transform Nestlé into a 14. global business ran the risk of losing the ability to adapt to local conditions. For example, there are 15. 200 varieties of Nescafé, the instant coffee brand. Mr Brabeck turned his attention to cost cutting 16. and efficiency and closed 150 under-performing factories; he also aimed to reduce administrative 17. costs by 1% by 2006. In 2000, Mr Brabeck June 2007launched the ‘Global Business Excellence’ project 18. with SAP, a German software company, to develop a company wide resource planning 19. system which will be based on one technology platform providing more accurate information on 20. raw materials and stock levels. This standardisation is necessary because different 21. versions of software are in use because of the legacy from acquisitions. There was no 22. coordination in purchasing, resulting in Nestlé paying 20 different prices for vanilla to the same 23. supplier. In some regions, such as the US and Asia, steps have already been taken to 24. standardise systems with considerable success. But whether this can be made to work at a global 25. level remains to be seen. It had not taken Mr Brabeck long to dispense with 26. the two ‘unique’ features. But some analysts claim to have been puzzled that Mr Brabeck 27. signed up to those in the first place, and that he was now acting in the same way as other CEOs of 28. big complex companies. Introduction – Moataz Darwish 16
Nestlé’ Case 1. Some lurking issues 2. There is some doubt as to how long it will take to make the new resource planning system fully functional. The initial 3. prediction was for 2006, revised to 2007, and some analysts doubt whether it will be running before 2010. This will 4. inevitably delay the full transformation of Nestlé that Mr Brabeck needs to compete effectively. Nestlé is so well known that 5. it is exposed to a high level of reputational risk. In the 1970s, Nestlé was involved in a scandal that it has never 6. shaken off over sales of baby-milk formulae in poor countries. In 2002, Nestlé made a blunder by trying to extract payments 7. from Ethiopia, which at the time was impoverished. Continuing efforts are directed at maintaining Nestlé’s reputation which 8. is essential for a food company; the consumer complaints hotlines follow up every complaint; also, every year some products 9. are withdrawn. The obesity epidemic has forced Nestlé to reconsider its image and Mr Brabeck is attempting to reposition 10. Nestlé as a ‘food, nutrition, health and wellness’ company. A new Nutrition division has been created that produces 11. clinical nutrition, performance nutrition and baby food. Nestlé is now selling a ‘new nutritional message’ that food provides 12. health benefits rather than making people fat. By 2004, Nestlé had introduced 600 new or reformulated products in 50 13. countries by adding minerals and vitamins to products such as yogurt and ice cream. But there is no guarantee of success 14. even in the new health conscious climate. For example, the new line of yogurts, LC1, that is meant to improve the 15. immune system and digestion, failed in several European countries in the face of competition 16. from a similar product Actimel, produced by Danone. The push into new markets is continuing, and 17. Nestlé is willing to enter countries such as Iraq and Iran so long as there is a free market, a large 18. enough population, and a welcome for foreign investors. The result was that organic growth 19. (excluding acquisitions) from 1999 to 2003 was 5.7% compared with 2.7% for Unilever; but there 20. are significant risks associated with entering new and untried markets. 21. Any attempt to grow further by acquisition is likely to cause problems with antitrust laws. 22. There is also the problem that existing portfolios do not often fit; for example, if Nestlé went 23. ahead with a potential acquisition of General Mills it would probably have to sell off about half the 24. business. Nestlé still has some non-core businesses. It has major ownership of Alcon, an ophthalmological equipment maker, 25. and L’Oréal, the French cosmetics company. It has been rumoured that Nestlé is considering acquiring total ownership of 26. L’Oréal and producing innovative nutritional cosmetic products. The big issue is whether Mr Brabeck will make any further acquisitions before Nestlé transforms itself into an effective global company with strong controls and a low cost base. Introduction – Moataz Darwish 17
Case 3 - June 2008 • Question 3 • The CEO of a large multinational diversified company was concerned that profitability had been falling for the previous two years and that the company had not been exploiting opportunities effectively. He employed two famous management consultants to provide independent remedies and they provided two completely different sets of recommendations. One focused on the need to reduce the management structure (delayering) and improve internal communications; the other criticised product positioning and the composition of the product portfolio. Each was supported by highly convincing arguments. The CEO asked you to help choose between them. Your response was that there was no scientific basis for choosing between them and, depending on their impact on the strategic process, it may be advisable to apply both. • Why is it impossible to produce scientifically acceptable evidence that either of the approaches is correct? • Demonstrate the potential impact of the two sets of recommendations on the strategic process. Is it advisable to apply both? Introduction – Moataz Darwish
Case 3 - Dec 2007 • Question 3 • A major multinational had announced losses for the first time ever, primarily due to poor performance in 7 out of 15 Divisions. The non-executive Board members had met to decide on the fate of the CEO. The Chairman said that as he saw it the problem was due to the CEO’s lack of control both in financial terms and in the strategic direction of the company; he felt that this shortcoming should have been spotted before. The Deputy Chairman disagreed saying that the CEO had consciously adopted the emergent rather than the planning approach to strategy. The Chairman found it difficult to accept that the difference was one of managerial approach rather than efficiency. • Your job is to explain to him the differences in the two approaches, their benefits and drawbacks and how they would impact on the strategy process. Introduction – Moataz Darwish
Case 3 - June 2007 Question 3 AcmeRadios has developed from its home base producing high performance radios to a leading multinational electronics conglomerate producing and selling a portfolio of 14 products in 23 countries. The portfolio now includes transmitters, telephone components, laser direction finders and electronic gun sights. It had been pointed out to the CEO that AcmeRadios was facing increasing competition in all of its markets and that overall profitability had decreased steadily for the past three years. He made, therefore, the following announcement. If we are going to maintain our market position, we need to set ourselves high level objectives. There is no point to resting on our laurels; even excellent performance can be improved on. So let’s stretch ourselves: here’s what we are going to do Establish AcmeRadios as a leading high quality low cost brand in all markets Increase return on sales for every product by 5% 1. Are managers likely to regard these ‘stretch’ objectives as credible? 2. What does the CEO not understand about setting objectives? Introduction – Moataz Darwish
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