BUSINESS STRATEGY

MBA 250

University of North Carolina

Kenan-Flagler Business School
MBA First Year Core Course, Mod II

Professor: Jeffrey J. Reuer Office: McColl 4603

E-mail: reuer@unc.edu Phone: 962-4514
Fax: 962-4266 Office Hrs.: F 10-noon and by appointment

Course Objectives

Business strategy deals with one central question: How can firms attain and sustain
competitive advantage? The strategic management field suggests that a key responsibility of
management is to discover and implement the sources of superior performance.

The course’s primary objective is to introduce you to some of the most important
analytical frameworks and concepts of strategic analysis. These frameworks and concepts are
designed to help you analyze complex business situations more effectively. They also help you
to ask the “right questions” and frame your conversations and analyses in interactions with
clients or superiors.

In order for a business strategy to be successful, clearly it must permeate all functional
areas and departments of a firm. Therefore, the knowledge and skills you are acquiring in the
functional areas of business (e.g., marketing, finance, operations, etc.) are important in
developing a general management view of the firm. The field of strategy is unique in examining
complex decisions in light of the total enterprise, and it also offers distinct frameworks to
address these types of multifunctional decisions.

We will cover three major topics in this course. The first set of sessions will help you
analyze industry environments. Industry dynamics have an important influence on firm
performance, and we will consider important topics such as the structural features of industries,
industry evolution, competition in industries with network externalities, and the emergence of
new markets and technological threats. The second set of sessions will help you analyze firm-
specific sources of competitive advantage. While industry membership affects firm
performance, the profitability of firms also varies greatly within industries, and it is possible to
earn significant economic profits in industries that are structurally unattractive. These sessions
will cover the competitive positioning and repositioning of firms. These sessions will also
introduce you to a competitive strategy framework called the resource-based view of the firm
that emphasizes internal, rather than external, sources of firm performance. The third set of
sessions will help you analyze strategic investment decisions. In these sessions, we will focus
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on some of the newest concepts in strategy and will focus specifically on the role that uncertainty
plays in strategic investment decisions. We will examine problems such as launching new
businesses and investing in new technology in the presence of different types of uncertainties. In
this section of the course, you will be exposed to game theory and real options analysis as two
tools that are helpful in analyzing strategic investments under uncertainty.

Given these three primary topics, the course material is most suitable for participants
engaged in or pursuing careers as (1) analysts, (2) general managers, (3) consultants, or
(4) entrepreneurs. For students taking positions in functional areas, the course can help you
understand how functional activities align with a company’s strategy as well as how functional
decisions can have an impact on other parts of the organization. Moreover, the flattening of
corporate hierarchies and the restructuring of firms has recently placed a greater premium on
strategic thinking by mid-level managers and functional specialists in corporations. Given that
case studies and class participation are important aspects of this course, the course can also help
prepare you for some more immediate tasks such as case interviews and client presentations.

By the end of the course, you will be able to:

1. Analyze industry structure and environmental trends to evaluate industry potential.
2. Understand the limitations of, and recent extensions to, the popular Five Forces
model of competition.
3. Understand the two primary ways to position a business strategically.
4. Assess a firm’s resources for their potential to create a competitive advantage.
5. Analyze decisions in which the key source of uncertainty is the actions of rivals.
6. Apply tools that value strategic investment decisions subject to uncertainty (e.g., real
options).
7. Synthesize qualitative and quantitative data to make strategic decisions.

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 COURSE OVERVIEW

Session and Topic Required Reading Case

Module I: Introduction

1 Introduction to Strategy Chs. 1-2 ---

Module II: Analyzing Industry Environments

2 Industry Structure Ch. 3 Cola Wars

3 Industry Restructuring Reuer BP-Mobil

4 Network Effects Ch. 11 Palm Computing

5 Emerging Markets and Bower & Christensen HP

Technological Threats

Module III: Sources of Firm-Specific Competitive Advantages

6 Cost-Based Positioning Chs. 7-8 Airborne Express

7 Differentiation-Based Positioning Ch. 9 Sunrise Medical

8 Resource-Based View of the Firm Ch. 5 Marks and Spencer

9 Competition for Strategic Assets --- CarnaudMetalbox

Module IV: Strategic Investment Decisions

10 Strategy under Uncertainty Amram & Kulatilaka ---

Luehrman

11 Investing in New Technology --- Polaris

12 Competitive Dynamics Bradenburger & Nalebuff ---

13 Market Entry Yoffie & Cusumano Judo Economics

14 Review of Business Strategy Ghemawat

Frameworks

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 COURSE REQUIREMENTS AND GRADING

Course Materials

1. Course pack of cases and readings.

2. Grant, R. M. 2002. Contemporary Strategy Analysis. Malden, MA: Blackwell.
This text will also be used in the corporate strategy MBA course.
The textbook offers a good treatment of the fundamental strategy frameworks and concepts.
The final exam will focus on the required readings only. For the sessions, I will also
provide you with optional, enrichment readings that provide some recent thinking and are
useful references for you if you would like to spend more time on a particular topic. I
would also be glad to recommend additional readings on topics of interest to you.

Performance Evaluation
Your final course grade will be based on your performance on (1) class participation (30
percent), (2) two 2-page group case write-ups (20 percent), and (3) a final exam (50 percent).
Below I provide details on each of these three components.

CLASS PARTICIPATION

Although the readings provide important background material, much of your learning in
the course will take place in the classroom as you and your colleagues apply the course concepts
and your distinctive skills to a case, share your insights, and engage each other in debate.
Because strategic decisions tend to be multifunctional and ambiguous by their very nature, the
concepts are often learned most effectively through application using case studies. In my
experience, those who do well on this dimension of the course also tend to do well on the final
exam.

Since class participation is an important aspect of the course, a few guidelines might be
helpful. While my preference is to rely on voluntary participation, I may call upon you at any
time, whether to open the case with a summary of the key issues, to discuss the required
readings, or to answer a specific question on a case on a given day.

I expect everyone to have prepared the case prior to coming to class. In order to help
with this, I have provided a set of study questions for each case. Although cases will cover a lot
of territory and part of the challenge is to sort out what is key versus superfluous, these questions
will help focus some of your efforts. When preparing a case for class, you should also do any
appropriate financial, analytical, and qualitative analyses to arrive at your recommended set of
actions based on the alternatives you identify.

The readings will provide you with important conceptual background material. In some
sessions, the reading for that day will help you analyze a case. In other sessions, the mapping
between prior concepts and the case will be less clear, and part of the exercise will be to select
among the various tools in your toolkit. Finally, for some sessions, we will develop a framework

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or concept in class, either as part of a workshop or at the end of class after sorting through a
company’s problems.

My role in the course is first to bring challenging strategic questions before the group and
to familiarize you with the most important theories and tools of the strategy field. In class, I will
act as a moderator and sometimes as a devil’s advocate as the discussion goes forward to make
sure key issues are brought up for discussion. I will occasionally expand upon the readings in
the form of mini-lectures at the beginning or end of class to deepen your knowledge of
individual tools or to bring current debate or thinking into the course.

I will use the following criteria to judge in-class performance: Effective class
participation entails providing good answers when chosen to answer a case question, actively
listening to others, making comments that cut to the core of the case, making comments that are
linked to those of other participants, critiquing ideas and concepts rather than people, integrating
material from readings or prior sessions, and showing evidence of analysis rather than merely
opinion or “gut feeling.” It does not entail faking answers, monopolizing class time by seeking
“air time,” ignoring the contributions of others, or repeating case facts without analysis.

Naturally, the data in a given case will be incomplete, and the case study places us in a
management simulation context. Thus, an answer such as “the firm simply needs more data” or
“the firm needs to do such and such analysis” may be quite true, but is not particularly helpful.
Part of the intent behind the case method is to help you make complex decisions with limited
information and sort through the data that are available to a decision-maker. In preparing cases,
the following guidelines regarding data may be helpful: (1) recognize that the data in a case are
invariably incomplete, (2) do not overlook the data that are available, (3) if an essential piece of
data is missing, make reasonable and explicit assumptions, (4) you are not required to get data
from other sources, (5) believe the facts and data in a case, but be more suspicious of stated
opinions.

CASE WRITE-UPS

In order to help in the preparation of the cases and to enhance the in-class discussion for
the group, everyone is asked to submit two, two-page (single-spaced) case write-ups during the
course. While you should not go over this limit for the text, appendices containing the results of
numerical analyses may be attached. These write-ups should be position papers that summarize
your position on the study question(s) marked by asterisks (***) for a given case. Although you
should think through all of the questions, the position paper itself should focus only on the
question(s) with an asterisk.

The position papers should be done in your study groups in order to develop your ideas
prior to class. The paper is due immediately before the discussion of the case begins in class,
and late papers will not be accepted. You are free to select the two cases that interest you most
among the following: Cola Wars, Sunrise Medical, Marks and Spencer, Polaris, and Judo
Economics.

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 In grading the position papers, I am not looking for one ‘right answer’. Rather, the goal
is to make sure you have thought through the question in depth, have used appropriate theoretical
tools and frameworks to address the question, and have developed a consistent and logical
argument. Thus, the focus is on applying the tools and concepts in the course to a complex
business situation. Based on the goal of enhancing our in-class experience, the case write-ups
will be graded according to the simple system of ‘check,’ ‘check minus,’ and ‘check plus.’ Most
write-ups will receive a grade of check, indicating that the position paper has satisfied the
criteria listed above and it should lead to a good discussion. In some cases, a check plus grade
will be awarded when the write-up is exceptionally good. A check-minus grade will be given
when the write-up is substantially less than the norm for that day’s case.

If, after writing your final case write-up, you find that one or more members of your
group did not contribute satisfactorily toward the group’s efforts, please submit a statement
which allocates 100 percentage points across your group members based on contributions to the
write-ups. Such statements may result in lower points for some group members, but they will
not be used to elevate others’ grades.

FINAL EXAM

The final exam will focus on evaluating your ability to understand and apply the concepts
and frameworks presented in the textbook and class. This exam will consist of questions on
business problems reported in the business press, analytical questions on hypothetical business
problems, and/or essay-type questions on the tools themselves. The final exam is closed book,
but you can have one sheet of notes. Please bring a calculator. Additional details about the
exam, including sample questions from prior exams, will be provided in a future class session. I
will also provide you a set of helpful guidelines for the exam.

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 ABOUT YOUR INSTRUCTOR

Jeffrey J. Reuer is an Associate Professor at the Kenan-Flagler Business School at the

University of North Carolina. Prior to joining UNC, he served on the faculties of INSEAD, the
European Institute of Business Administration in Fontainebleau, France, and the Fisher College
of Business at Ohio State University. He received his Ph.D. in strategic management from
Purdue University, with a minor in industrial organization economics.

Dr. Reuer has led courses and seminars on business and corporate strategy, strategic
investment decisions, and strategic alliances in MBA and Ph.D. programs as well as for
organizations such as 3I Group PLC, Ernst and Young, Euroforum, KLM Royal Dutch Airlines,
LG, Owens Corning, Packard Bell - NEC, Pfizer, Philips International BV, and the World Bank.
He has also taught in executive education programs at the Harvard Business School, Duke
University, and INSEAD.

Professor Reuer’s research interests are in the area corporate strategy, and his current
work uses information economics and real options theory to examine the structuring and
implications of corporate investments such as alliances, acquisitions, and foreign direct
investment. Recent projects are on the contractual design of alliances and M&A, the roles IPOs
play in corporate development processes, and firm outcomes associated with corporate
investments in real options.

His research has appeared in various academic journals, including the Strategic
Management Journal, the Academy of Management Journal, Organization Science, the Journal
of Economic Behavior and Organization, the Journal of International Business Studies, and the
Journal of Management. Some of the results of his research have also appeared in a number of
practice-oriented articles in outlets such as the Harvard Business Review, the Financial Times,
Long Range Planning, and the Academy of Management Executive. He is currently working on
two books entitled Strategic Alliances: Theory and Evidence, published by Oxford University
Press, and the Handbook of Strategic Alliances, published by Sage.

Professor Reuer serves on the boards of the Strategic Management Journal, Strategic
Organization, the Journal of International Business Studies, the Journal of Management, the
Journal of Management Studies, and the European Management Journal.

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 Module I: Introduction

Session 1: Introduction to Strategy

Required Reading:

·Grant, Chapter 1, “The Concept of Strategy”

·Grant, Chapter 2, “Goals, Values, and Performance” (just skim)

Enrichment Reading:

·If you have time, you might wish to skim the Ghemawat (2002) reading for Session 14, which
provides a broad overview of the strategy field and some of the tools that have formed the basis
of the strategy course and the practice of strategic management.

·Skim the following short article on case studies, if you would like some helpful tips: Hammond,
J. S. 2002. Learning by the case method. HBS 9-376-241. (Available from Harvard Business
School Publishing’s website).

Case:

·None

Study questions:

·In business, “strategy” is a word that is misunderstood, over-used, and means many different
things to different people. How does Grant’s presentation of the concept of strategy differ from
what you might have encountered on a previous job or earlier courses?

·What is the core question that business strategy seeks to address?

·In class, I will briefly mention a study by McKinsey that covers the development needs of MBA
students. As you read Chapter 1, think about how the study of strategy can help you as you
transition into your (1) summer internship, (2) initial job out of the MBA program, and (3) future
career.

·Often we distinguish business strategy, also called competitive strategy, from corporate strategy.
How do the two differ?

Notes:

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 Module II: Analyzing Industry Environments

Session 2: Industry Structure

Required Reading:

·Grant, Chapter 3, “Analyzing the Industry Environment”

Enrichment Reading:

·Besanko, D., Dranove, D., Shanley, M., & Schaefer, S. 2003. Economics of Strategy (3rd
Edition). New York, NY: Wiley. This book offers a very good treatment of industrial
organization economics and strategy applications.

Case:

·Cola Wars Continue: Coke and Pepsi in the 21st Century, HBS 9-702-442.

Study questions:

·***Why has the soft drink industry been so profitable over the years?

·***Compare the economics of the concentrate business to the bottling business: Why is the
profitability so different?

·How has the competition between Coke and Pepsi affected the industry’s profits?

Notes:

·In this session, we will apply the Five Forces Model to evaluate the attractiveness of the
carbonated soft drink industry. We will also have a discussion of some of the limitations of, and
extensions to, this framework, which we will discuss in greater depth in Sessions 3-5.

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Session 3: Industry Restructuring

Required Reading:

·Reuer, J. J. 1999. Collaborative strategy: The logic of alliances. Financial Times (Oct. 4): 12-13.
(To be distributed in class).

Enrichment Reading:

·McGahan, A. 2004. How Industries Evolve: Principles for Achieving and Sustaining Superior
Performance. Boston, MA: HBS Press.

·Grant, Ch. 10, “Industry Evolution” and Ch. 12, “Strategies for Declining Industries”

Case:

·BP-Mobil and the Restructuring of the Oil Refining Industry, INSEAD Case, European Case
Clearing House, Ref. #300-005-1.

Study questions:

·What are the problems confronting firms in the oil industry? What are the most important
evolutionary developments?

·Evaluate the joint venture as a solution to the industry’s changing conditions.

·If you were made the general manager of the joint venture, how would you make it work?

Notes:

·The Five Forces Model can be used to describe how an industry is changing and how that
affects the need for a firm’s strategy to change. In this session, we will examine how
competitive forces change as industries mature, and we will consider alternative competitive
responses by firms, which requires a new framework that we will develop together in class.

·This case is not available for a write-up.

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Session 4: Network Effects

Required Reading:

·Grant, Ch. 11, “Technology-Based Industries and the Management of Innovation” (just skim)

Enrichment Reading:

·Evans, P., & Wurster, T. S. 2000. Blown to Bits: How the New Economics of Information
Transforms Strategy. Boston, MA: HBS Press.

Case:

·The Rise and Fall (?) of Palm Computing in Handheld Operating Systems, HBS 9-703-519.

Study questions:

·What did Palm do to create a winner-take-all market for itself?

·How strong are network effects in handheld computing operating systems, compared to those in
PCs?

·How did Microsoft try to break Palm’s dominance of the market? Why hasn’t Microsoft taken
over this market?

Notes:

·In this session, we will extend the Five Forces Model by considering the role of network effects
as well as complements, as opposed to substitutes.

·This case is not available for a write-up.

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Session 5: Emerging Markets and Technological Threats

Required Reading:

·Bower, J. L., & Christensen, C. M. 1995. Disruptive technologies: Catching the wave. Harvard
Business Review, (January-February): 43-53. HBS #95103.

Enrichment Reading:

·Christensen, C. M., & Overdorf, M. 2000. Meeting the challenge of disruptive change. Harvard
Business Review, (March-April): 67-76.

·Christensen, C. M., & Raynor, M. E. 2003. The Innovator’s Solution. Boston, MA: Harvard
Business School Press.

Case:

·Hewlett-Packard: The Flight of the Kittyhawk, HBS #9-697-060.

Study questions:

·What makes a technology disruptive? Why do incumbents have difficulties responding to such
technologies and developing new markets? How do the incentives, behaviors, and strategies of
entrants and incumbents differ?

·What are the key strengths and weaknesses of the way Hewlett-Packard structured and
supported the Kittyhawk development team?

·Why do you think that HP made the mistakes it did?

·Upon graduation, you are asked to head a project similar to the Kittyhawk project. What would
be your plan of action, and what would you have done differently?

Notes:

·The Five-Forces Model is effective in examining existing industries, but what about industries
that have yet to be created? In this session, we will consider how industry analysis needs to
account for innovation. We will also examine the challenges implied by emerging technologies
in conducting industry analysis.

·This case is not available for a write-up.

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 Module III: Sources of Firm-Specific Competitive Advantages

Session 6: Cost-Based Positioning

Required Reading:

·Grant, Chapter 7, “The Nature and Sources of Competitive Advantage” (just skim; focus on pp.
246-250)

·Grant, Chapter 8, “Cost Advantage”

Enrichment Reading:

·Womack, J. P., Jones, D. T., & Roos, D. 1990. The Machine that Changed the World. New
York, NY: Rawson Associates.

Case:

·Airborne Express (A), HBS #9-798-070

Study questions:

·How and why has the express mail industry evolved in the way it has? How have the changes
affected small competitors?

·How has Airborne survived, and more recently prospered, in its industry?

·Quantify Airborne’s specific sources of advantage.

·What must Robert Brazier, Airborne’s President and COO, do in order to strengthen the
company’s position?

Notes:

·In this session, we will examine cost-based positioning as a means of achieving competitive
advantage. We will also use value chain analysis in analyzing competitive positioning.

·This case is not available for a write-up.

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Session 7: Differentiation-Based Positioning

Required Reading:

·Grant, Chapter 9, “Differentiation Advantage”

Enrichment Reading:

·Porter, M. E. 1996. What is strategy? Harvard Business Review, 74 (November-December): 61-

78.

Case:

·Sunrise Medical, HBS 9-794-069

Study questions:

·The average ROS in the US wheelchair industry is 1-2% in 1993. What are the most important
structural conditions that make the industry unattractive? How are these conditions changing?

·Does Sunrise’s Quickie division have a competitive advantage in wheelchairs? What accounts
for the differences in ROS among Quickie and its rivals (see Exhibit 4)?

·***Should Chandler allow Guardian to introduce a lightweight standard wheelchair? How

would Invacare react? How will industry structure be affected?

Notes:

·In this session, we will consider how firms develop a competitive advantage based on
differentiation-based positioning. We will also consider decisions firm make concerning
competitive repositioning.

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Session 8: Resource-Based View of the Firm

Required Reading:

·Grant, Chapter 5, “Analyzing Resources and Capabilities”

Enrichment Reading:

·Barney, J. B. 1995. Looking inside for competitive advantage. Academy of Management

Executive, 9: 49-61.

Case:

· Marks and Spencer, Ltd. (A), HBS #9-391-089

Study questions:

·***Why has Marks and Spencer been so successful in UK retailing? In chilled foods?

·***What is different about its positions in France and Canada?

Notes:

·In this session, we will apply the resource-based view of the firm, and we will show how this
perspective differs from strategy frameworks emphasizing external sources of competitive
advantage.

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Session 9: Competition for Strategic Assets

Required Reading:

·None.

Enrichment Reading:

·None.

Case:

· Crown Cork and Seal/Carnaud Metalbox, HBS #9-296-019 (skim)

Study questions:

·Please focus only on the following three questions:

1. How has CC&S’ strategy changed since Avery took over for Connelly?

2. Has Avery’s strategy added economic value to Crown Cork and Seal?

3. Is the acquisition of Carnaud Metalbox (CMB) consistent with CC&S’ strategy?

·This case presents detailed financial data for an acquisition. In class, we will have a workshop
that will also go through the valuation of the target and then present the key concepts related to
the acquisition of resources under the lens of the resource-based view of the firm.

Notes:

·In this session, we will focus on attaining rather than sustaining competitive advantage and will
study the role played by factor (or input) market competition. We will also consider the
important distinction between value creation and value appropriation in M&A to exploit or
acquire resources.

·This case is not available for a write-up.

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 Module IV: Strategic Investment Decisions

Session 10: Strategy under Uncertainty

Required Reading:

·Amram, M., & Kulatilaka, N. 1999. Disciplined decisions: Aligning strategy with the financial
markets. Harvard Business Review, (January-February): 95-104. HBS #99101.

·Luehrman, T. A. 1998. Investment opportunities as real options: Getting started on the numbers.
Harvard Business Review, 76 (July-August): 51-67. HBS #98404.

Enrichment Reading:

·Amram, M. 2002. Value Sweep: Mapping Corporate Growth Opportunities. Boston, MA: HBS
Press.

Case:

· None.

Study questions:

·How does the tool of real options bridge strategy and corporate finance?

·How are financial and real options similar, and how are they dissimilar?

·Which strategic investment decisions are amenable to real options analysis? What types of
options are embedded in strategic actions by firms?

·What are the key value drivers of real options? What is the advantage of the approximation
technique presented in the Luehrman reading over the Black-Scholes methodology from
financial economics?

Notes:

·In this session, we will discuss real options analysis as one of the most recent advances in
strategy. We will consider how real options theory reshapes thinking on various strategic
investments, how it improves upon traditional valuation techniques, and has the potential to link
strategy and finance. Applications for investments in new technology and the valuation of
entrepreneurial ventures will occur in the next session.

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Session 11: Investing in New Technology

Required Reading:

·None.

Enrichment Reading:

·Copeland, T., & Antikarov, V. 2001. Real Options: A Practitioner’s Guide. New York, NY:
Texere.

Case:

·Real Options at Polaris Energy Corporation (A), INSEAD Case Series 6/2002-5043. (ECCH
302-093-1).

Study questions:

·Describe the real options embedded in the investment and operational practices of electric utility
companies such as Polaris.

·*** Evaluate Polaris’ investment in Spectrum. What is the value of the proposed deal to
Polaris? To Spectrum?

·What are the potential pitfalls of structuring this deal as a real option?

Notes:

·In this session, we will consider how firms’ investment and operational practices contain
embedded real options, and we will illustrate the application of the approximation technique to
value real options. We will also discuss the implementation of the real options approach.

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Session 12: Competitive Dynamics

Required Reading:

· Brandenburger, A. M., & Nalebuff, B. J. 1995. The right game: Use game theory to shape
strategy. Harvard Business Review, (July-August): 57-71. HBS #95402.

Enrichment Reading:

·Dixit, A. K., & Nalebuff, B. J. 1993. Thinking Strategically. New York: W. W. Norton.
·Besanko, D., Dranove, D., Shanley, M., & Schaefer, S. 2003. Economics of Strategy (3rd
Edition). New York, NY: Wiley.

Case:

·None.

Study questions:

·What is game theory, and how can it be used in strategic analysis?

·What are the basic inputs needed to use game theory?

·When would you use game theory instead of the other tools discussed in class?

Notes:

·In this session, we will introduce some of the fundamental concepts of game theory, and these
concepts will be used in session 13 to analyze firm’s market entry decisions under uncertainty.

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Session 13: Market Entry

Required Reading:

· Yoffie, D. B., & Cusumano, M. A. 1999. Judo strategy: The competitive dynamics of internet
time. Harvard Business Review, (January-February): 71-81. HBS #99110.

Enrichment Reading:

· None.

Case:

· Judo Economics, HBS # 9-794-103

Study questions:

·***Suppose that: (a) each buyer has a willingness to pay of $200 for one unit of either the
incumbent’s or the entrant’s product; and (b) both the incumbent and entrant have a $100 unit
cost of serving buyers. Formulate a strategy for the entrant. How much money can the entrant
make?

·*** Now suppose that: (a) each buyer has a willingness to pay of $200 for one unit of the
incumbent’s product and $160 for one unit of the entrant’s product; and (b) the incumbent has a
$100 unit cost and the entrant has a $120 unit cost. Formulate a strategy for the entrant. How
much money can the entrant now make?

·*** Finally, suppose that: (a) each buyer has a willingness to pay of $200 for one unit of either
the incumbent’s or the entrant’s product; and (b) the incumbent has a $120 unit cost and the
entrant a $80 unit cost. Formulate a new strategy for the entrant. How much money can the
entrant make this time?

· How much value does the entrant add in each of the games described above? How does that
amount of value that the entrant adds in each game compare with the amount of money it can
make in the game? Explain the differences, if any, between the two quantities.

Notes:

·In this session, we will apply game theory concepts to analyze a small firm’s decision to enter
into an industry dominated by a large incumbent.

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Session 14: Review of Business Strategy Frameworks

Reading:

·Ghemawat, P. 2002. Competition and business strategy in historical perspective. Business

History Review, 76 (Spring): 37-74.

Case:

·None

Study questions:

·What have been the main accomplishments, and obstacles, to the development of strategy in
consulting and practice?

·How do the frameworks and concepts we have discussed in class relate to one another as the
field has progressed in the last thirty years?

·How do these tools build upon earlier concepts from general management and relate to
developments in other areas of management practice?

Notes:

·In this session, we will provide a course wrap-up as well as have an opportunity to discuss
remaining questions and issues in preparation for the final exam.

·The article is intended to be a reference for you that puts together the history of business
strategy in one source and relates some of the strategy concepts to one another chronologically.

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