Very complete summary of everything we saw in the lessons. Contains a formulary and various schema's for the topics. In short, everything you need to study to succeed. :) Good luck
Table of Contents
TOPIC 1: WHAT IS STRATEGY?..........................................................................................................................6
STRATEGY & GNOMES… .....................................................................................................................................6
EXAMPLE: THE AIRLINE INDUSTRY: RYANAIR ............................................................................................................6
STRATEGY IS… ................................................................................................................................................ 11
Not Only Profitability .............................................................................................................................. 11
Leadership Communication Alignment .................................................................................................... 11
Smallest set of Choices to optimally guide (or force) other choices........................................................... 11
Choice of a Future................................................................................................................................... 12
Characteristics........................................................................................................................................ 12
Be different! ........................................................................................................................................... 12
Trade-offs............................................................................................................................................... 12
Coherence and Consistency..................................................................................................................... 12
Which Decisions are Strategic? ............................................................................................................... 13
Analysis .................................................................................................................................................. 13
PHASE 2 ....................................................................................................................................................... 14
WHO DOES WHAT FOR STRATEGIC DECISION-MAKING? ............................................................................................. 14
TOPIC 2: VALUE CREATION & VALUE CAPTURE ..............................................................................................15
IS VALUE CREATED BY THE BUSINESS? ................................................................................................................... 17
A Simple Framework for Value Creation & Value Capture ........................................................................ 17
Willingness to pay & Demand ................................................................................................................. 17
Drivers of Value Creation ........................................................................................................................ 17
A relative measure ............................................................................................................................................. 19
IS VALUE CAPTURED BY THE BUSINESS (RELATIVE TO THE CAPITAL INVESTED)? ................................................................. 20
The Drivers of Capturing Value – Measuring Enterprise Value ................................................................. 20
Capturing Value at a Moment in Time..................................................................................................... 20
Identify the fundamental metrics for measuring and evaluating the performance of the business........................ 20
From NOPAT to NOPLAT and why that may be necessary, sometimes! ................................................................ 21
Calculate the key variable for evaluating strategy: ROIC ...................................................................................... 21
Definition Invested Capital ...................................................................................................................... 22
Economic profit or economic value added (EVA) most important criteria for evaluating performance ...... 22
How can economic value added grow? ............................................................................................................... 23
IS VALUE CAPTURED SUSTAINED BY THE BUSINESS (RELATIVE TO THE CAPITAL INVESTED)? ................................................... 23
Determine free cash flow ........................................................................................................................ 23
Drivers of free cash flows ........................................................................................................................ 23
Use future evolution of free cash flow to estimate enterprise value* & value of strategic plan................. 24
Drivers of value capture: ROIC and growth .............................................................................................. 24
Enterprise Value with Perpetuity Formula ............................................................................................... 24
ROIC Strategic Curve .......................................................................................................................................... 25
A strategy creates economic value… ....................................................................................................... 25
Performance differences between companies are difficult to explain ....................................................... 26
STRATEGY AND THE DRIVERS OF ENTERPRISE VALUE................................................................................................. 27
EXERCISE ROIC, EVA AND ENTERPRISE VALUE ....................................................................................................... 27
1
,TOPIC 3: THE COMPETITIVE LANDSCAPE ........................................................................................................29
DEVELOPING A SUSTAINABLE COMPETITIVE ADVANTAGE ........................................................................................... 29
1. Understanding the Competitive Landscape ..................................................................................... 29
Strategy and the Drivers of Enterprise Value ....................................................................................................... 29
Industry Attractiveness....................................................................................................................................... 30
Average Returns across Industries .................................................................................................................. 30
Porter’s 5-Forces Model ................................................................................................................................. 30
The Industry Value System ............................................................................................................................. 31
CASE: POT OF GOLD? THE US LEGAL MARIJUANA INDUSTRY ..................................................................................... 32
TOPIC 4: BUILDING COMPETITIVE ADVANTAGE .............................................................................................34
Defining Competitive Advantage............................................................................................................. 34
Types of Competitive Advantage............................................................................................................. 34
Routes to competitive advantage............................................................................................................ 34
Choice between Strategic Positions ......................................................................................................... 35
2. DEFINE THE SCOPE OF YOUR BUSINESS ......................................................................................................... 37
Product Scope, Customer Scope, Geographical Scope .............................................................................. 37
Illustrative examples............................................................................................................................... 37
3. SELECT THE ACTIVITY SET OF YOUR BUSINESS .................................................................................................. 38
Activity analysis ...................................................................................................................................... 38
1. Catalog the firm’s activities: The Value Chain ............................................................................................. 38
Relocation and outsourcing: Global Value Chains............................................................................................ 40
Value Chains (Pipelines) versus Platforms ....................................................................................................... 41
2. Examine the costs associated with each activity, and use differences in costs to understand how and why
costs differ from those of the competitors .......................................................................................................... 42
Comparative Cost Analysis ............................................................................................................................. 42
Cost drivers ................................................................................................................................................... 43
3. Analyze how each activity generates WTP and try to understand differences in WTP .................................. 44
4. Consider changes in activities to widen the wedge between Costs and WTP ............................................... 45
Explore options and make choices.................................................................................................................. 45
The Porter Value Chain .................................................................................................................................. 45
4. ASSEMBLE THE NEEDED RESOURCES AND DEVELOP THE KEY CAPABILITIES .............................................................. 46
Resources & Capabilities ......................................................................................................................... 46
From activities to capabilities ................................................................................................................. 46
Capabilities have five critical dimensions................................................................................................. 47
Capabilities and Activities ....................................................................................................................... 47
Capabilities can be developed in many ways ........................................................................................... 47
Strategic thinking on resources and capabilities: illustrative examples..................................................... 48
5. SET UP THE BUSINESS MODEL (BM) TO LINK VALUE CREATION AND VALUE CAPTURE AND CREATE A VIRTUOUS CYCLE ..... 50
Determine the Business Model ................................................................................................................ 50
TOPIC 5: SUSTAINING COMPETITIVE ADVANTAGE .........................................................................................52
6. UNDERSTAND THE SUSTAINABILITY OF YOUR COMPETITIVE ADVANTAGE................................................................ 52
Are there any patterns in ROIC? Persistency? .......................................................................................... 52
Threats to Sustainability ......................................................................................................................... 52
1. IMITATION ................................................................................................................................................ 54
2. SUBSTITUTION .......................................................................................................................................... 54
3. HOLDUP .................................................................................................................................................... 54
4. SLACK........................................................................................................................................................ 54
7. TEST YOUR STRATEGY ............................................................................................................................... 56
1. Internal consistency – coherence..................................................................................................... 56
Defining Scope of a Business: Where you Play..................................................................................................... 56
Selecting Activities: What you do........................................................................................................................ 56
2. External consistency – coherence .................................................................................................... 56
The Industry Value System ................................................................................................................................. 56
3. Dynamic consistency....................................................................................................................... 57
Threats to Sustainability ..................................................................................................................................... 57
2
, TOPIC 6: PUTTING IT ALL TOGETHER: TESTING YOUR STRATEGIC THINKING ..................................................58
TOPIC 7: CORPORATE STRATEGY....................................................................................................................59
DEFINING CORPORATE OR PARENTAL ADVANTAGE .................................................................................................. 59
MEASURING VALUE CAPTURE FROM CORPORATE ADVANTAGE ................................................................................... 59
CORPORATE STRATEGY AND PORTFOLIO MANAGEMENT ............................................................................................. 64
Step 1: Building your Portfolio of Businesses & Defining your model for Corporate Advantage ................. 64
Overview of Portfolio Management .................................................................................................................... 64
BCG’s Learning Curve ..................................................................................................................................... 64
BCG’s Growth-Share Matrix ........................................................................................................................... 64
The Industry Attractiveness-Business Strength Matrix (McKinsey) ................................................................... 64
Problems Growth/Share Matrix (BCG) or Industry Attactiveness/Competitive Advantage (McKinsey) .............. 65
Finding the Ideal Portfolio .................................................................................................................................. 65
Growth by Large Companies ............................................................................................................................... 65
Growth Map: Horizons ................................................................................................................................... 66
Growth Map: Patterns ................................................................................................................................... 66
Strategy - what questions to ask? ....................................................................................................................... 67
Value Based Portfolio Management: 2 tests to evaluate a merger ....................................................................... 68
Value Adding or Substracting.............................................................................................................................. 68
Building businesses over time is the essence of corporate strategy...................................................................... 68
Step 2: Designing your Group and Organizing for Corporate Advantage .................................................. 69
Building blocks and superstructure ..................................................................................................................... 70
TOPIC 8: DIVERSIFICATION STRATEGY............................................................................................................72
DIVERSIFICATION DISCOUNT ............................................................................................................................... 72
EMERGING MARKETS........................................................................................................................................ 73
MARTIN AND SAYRAK (2003) WHAT IS THE PUZZLE? .............................................................................................. 74
TOPIC 9: GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY ...............................................................75
“PURPOSE” ................................................................................................................................................... 75
THE ROLE OF THE FIRM: ECONOMIC AND SOCIAL PERFORMANCE ................................................................................ 81
TOPIC 10: THE STRATEGY PROCESS ................................................................................................................85
GETTING THINGS DONE ..................................................................................................................................... 85
THE MANAGEMENT SYSTEM .............................................................................................................................. 86
TOP MANAGEMENT TEAM & STRATEGY ............................................................................................................... 88
CHALLENGES IN DEALING WITH EXECUTION ............................................................................................................ 88
Biases in Decision Making ....................................................................................................................... 88
1. Overconfidence & Overoptimism ............................................................................................................... 88
How to counter? ............................................................................................................................................ 89
2. Confirmation bias & Groupthinking............................................................................................................ 89
How to counter? ............................................................................................................................................ 89
3. Loss aversion (Prospect Theory) ................................................................................................................. 89
How to counter? ............................................................................................................................................ 89
4. Status quo bias & preference for even allocations ...................................................................................... 89
How to counter? ............................................................................................................................................ 90
5. Sunk-cost fallacy........................................................................................................................................ 90
How to counter? ............................................................................................................................................ 91
Importance of the network ..................................................................................................................... 92
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