Strategic Management MIDTERM REVIEW GUIDE (Fall 2024) Prof. JS Montes Key Readings, Cases, Frameworks, Concepts, & Issues

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STRATEGIC MANAGEMENT

MIDTERM REVIEW GUIDE (Fall 2024) Prof. JS Montes


Key Readings, Cases, Frameworks, Concepts, & Issues

Note that this is meant to be illustrative but not 100% comprehensive!

• The Midterm emphasizes understanding the core frameworks, concepts, and issues of Strategy presented
in all the course materials and the discussions we held in class, including those listed below.

• The Midterm will aim to evaluate command of these concepts, mainly through their APPLICATION TO
PARTICULAR SITUATIONS. So, be prepared to apply concepts & analysis by yourself. First, start with
your study using the course pack, session notes, PPTs posted on Canvas Modules, and the review guide.
Then, I recommend you study in groups of 3 or 4 people, using business newspapers and randomly picking
articles to select industries and companies to apply the course tools and contrast opinions among the group
members. Practice and application of concepts is the best way to learn strategy.

• The Midterm is an OPEN-BOOK EXAM, so you can use your notes and the course pack. Additionally,
you can not share any material during the exam, so it is highly recommended that you have your materials
and notes.

• The Midterm may involve many types of questions, true-or-false, text, or bullet point responses of short,
medium, or longer lengths based on fictional or real mini-cases.

I) INTRODUCTION
Key Readings:
• M. Porter, “What is Strategy?” (HBR 1996)
• PDF - PPT #1 Intro & What’s Strategy

Key Frameworks, Concepts, & Issues:


• What is strategy?
• Operational effectiveness vs. strategy
• Tradeoffs in strategy
• What is a “Strategic Activities Map” (according to Porter) & how can an activities map be
constructed? Core activities and clusters of activities. Why organizational “fit” is necessary (and
elusive)?
• Why do we focus on firm profitability in strategy? How do we measure firm profitability (value, value
creation, value-added) and its relationship with the economic context and industry? What is the right
benchmark to compare profitability across industries and within industries?
• Comparing industry profitability across & within industries. Understanding the “piston chart” graph
(PPT #3; Slides #9-12)

The guide was reviewed by Prof. JS Montes, Strategic Management, BC_CSOM_Fall 2024. 1
II) INDUSTRY ANALYSIS
Key Readings:
• Five Forces Analysis: “The Five Competitive Forces that Shape Strategy” Understanding Michael
Porter's Best-Known Framework.
• Case: Cola Wars: The soft drink industry, industry value chain analysis, concentrate producers, and
bottlers. Explain the difference in performance using Porter’s five forces framework.

• PDF - PPT_#3 & #3.2 Industry Analysis; #4 Cola Wars; #5-6 Competitive Advantage &
Positioning_Ducati; #Simulation_Coffee & E-Scooter Industry; and #Ice-Fili Exercise (see PPT #7)

Key Frameworks, Concepts, & Issues:


• Five Forces Analysis (Steps -> See PPT #3 Industry Analysis, especially Steps 1-4! slides 17-18)

o Defining an industry and its role in conducting a Five Forces analysis (broad and narrow
definition of an industry (“Big box & Small box”).
o Defining each force and identifying key factors affecting each force (use the “Industry
Analysis_Cheat Sheet” ; PPT#3, slide 18).
o Identifying and assessing the strength of each force (i.e., understanding the factors that affect the
strength of each force, moving such force in one or another direction: “high” or “low”). For
example:
§ What is high rivalry?
§ How are firms in an industry affected when the power of substitutes is high?
§ How are firms in an industry affected when buyer power is high?
§ How are firms in an industry affected when supplier power is high?
§ How are firms in an industry affected when barriers to entry are low?
o Assessing the overall strength of Five Forces, which forces are more relevant in the
configuration of a particular industry, i.e., pharmaceutical industry: IP protection/Threat of
entry.
o Reconciling Five Forces analysis with data on industry average profitability. How good or bad
is one industry? (Attractiveness, from the perspective of incumbent shareholders, returns over
invested capital, not users!). You should be able to support your assessments on data from the
case and be specific when you grade each force. For instance, in the Ice-Fili exercise, say, “I
grade Rivalry as 4.5 because +300 firms are competing, and they compete on prices that are
extremely low (10 Rubles equal 30 cents, USD)” instead of “Rivalry is relatively strong.”
o Industry change – identifying the impact of shocks, changes & trends on expected future
industry profitability. See Industry Analysis Simulation Coffee Industry.
o The tradeoff between improving firm profitability and improving industry average profitability.
§ How might firms wreck their industry structure? Think about the differences between
carbonated soft drinks (Coca-Cola & Pepsi, Session #4) and the video game industry in
the early 80’s (Atari, Session #14)
§ Attractive (good) and not attractive (bad) industries. Examples? Why?
o How can firms act to improve industry average profitability? as well as related issues, such
as:
§ The roles of switching costs, economies of scale, & forward and backward integration
§ The difference between rivals & substitutes
§ The role of Industry Concentration in affecting Rivalry
§ The roles of price sensitivity & bargaining power in affecting buyer & supplier power

The guide was reviewed by Prof. JS Montes, Strategic Management, BC_CSOM_Fall 2024. 2
§ The ability of buyers and suppliers to affect the prices & costs obtained by industry firms.
§ The impact of firm-level decisions on the strength of rivalry and its difference with
buyer’s power.
§ The role of government & how to assess the impact of technological change & innovation

Suppose you forget or don’t know the definition of one concept. In that case, you can find it in any microeconomics
textbook or Wikipedia (e.g., switching costs are “any impediment to a customer's changing of suppliers”). You need
to know the concepts used in the course to be able to apply them! You can apply such concepts to different industries
(e.g., soft drinks, motorcycles, cars, retail banking, utilities, airlines, software, etc.)

III) POSITIONING AND COMPETITIVE DYNAMICS.


Key Readings:
• Pankaj Ghemawat & Jan Rivkin “Creating Competitive Advantage”
• Cases: Ducati, Ice-Fili, Lego, Gucci & NutraSweet
• In Ducati’s case, see industry segments and positioning, “strategic groups” (Japanese and niche),
drivers of value, and strategic assets => Minoli’s focus during the turnover.
• Cases & PPT’s (Positioning: #5 & 6; Competitive Dynamics: #7, #8, #9, #10,#11 and #14): Ducati
(Internal Analysis based on Resources & Capabilities: In Ducati’s case creating intangible resources to
create a differentiated positioning); Ice-Fili (Industry analysis; leading cost, differentiation, and niche,
as “generic strategies”); Lego & Gucci (Internal Analysis, Resources & Capabilities, core
competences, internal and external fit, VRIO test, activity map and business model); NutraSweet
(game theory, negotiation, and equilibrium); Gucci (Internal Analysis, Productivity Frontier).

Key Frameworks, Concepts, & Issues:


• What is competitive advantage?
• Competitive positioning options (Porter’s “Generic Strategies”)
o source of advantage: cost leadership vs. differentiation
o scope of market: narrow vs. broad segment; focused strategies
• What is being “stuck-in-the-middle”: examples.
• The wedge is the tension between willingness-to-pay (WTP) and costs and their relationship to
competitive advantage. It involves trade-offs.
• Dual advantage. Is it possible to eliminate the trade-off between cost or differentiation? Examples.
• Revisit what is an activity map & how can an activities map be constructed. (from “What is Strategy?”
article). Distinctive capabilities and strategic assets for each organization to compete (Resources and
Capabilities).
• Drivers of differentiation and cost drivers. Identify and build your strategy around them.
• The role of activities and specific mechanisms (e.g., contract clauses) in creating competitive advantage.
For example:
o … driving WTP, average costs, & profits relative to industry average
• The difference between the use of the term ‘differentiation’ in Marketing (where it means “being
different” or “intrinsic differentiation”) and in Strategy (where it means “premium prices” … “show
me the money!”)
• How focus/niche can lead to either cost advantages or premium prices.
• Key: Insights from the Ice-Fili case and in-class exercise. Review your exercise compared with PPT
posted on Canvas Modules and your notes from the explanation in class (PPT #7).

The guide was reviewed by Prof. JS Montes, Strategic Management, BC_CSOM_Fall 2024. 3
• Internal Analysis & Competitive Advantage. Insights from Ducati, Lego, and Gucci cases. You need
to understand the business model of one company and how it “fits” with the environment (external fit)
and the firm’s internal resources and capabilities (internal fit). Analyze the logic/strategy of each
turnaround. Ducati’s or Gucci’s strategic assets before and after the turnaround. Strategic choices before
and after the turnaround? What is competitive parity, and what is a source of competitive advantage (see
Lego PPT)

• Internal Analysis. What kind of resources do firms use to compete? Is there any difference in
competitive advantage when firms compete using tangible vs. intangible assets? Examples? What is
VRIO Analysis? (PPT Session #10-11). What is the difference between tangible and intangible
resources? Resources and capabilities? Can you identify different kinds of strategic resources and
capabilities as sources of competitive advantage in various industries?
• Early moving advantages or disadvantages. When? How? Examples? Timing and size advantages.
• Differentiate the sources of competitive advantage: distinctive resources, capabilities, and activities.
Internal analysis: How do firms differentiate from each other? What explains differences in performance
for firms operating in the same industry? How do firms create resources and capabilities that are
valuable, rare, and difficult to imitate and provide organizational value (VRIO Framework)? How
difficult is copying and transferring such distinctive resources and capabilities across markets and even
within the firm? You can compare insights from Lego and Ducati’s cases.

• Explain and apply the concept of the Productivity Frontier. Graph different situations in different
industries. Operational effectiveness vs. companies that operate on the frontier edge. Is it possible to
move the frontier? How? Is there a limit? (Review PPT #11)

• Dynamic Analysis: Game Theory. Being able to differentiate among different types of games and
define your best strategy/rule to create and capture value (use of decision trees and game theory
matrices to visualize alternatives). Games could be (1) cooperative or competitive; (2) simultaneous or
sequential. Each kind of game requires the use of a different set of rules! (PPT #10-11)

• Be prepared to select and explain the rationale for a specific company strategy (like in the case of
Nutrasweet). Why did you choose one strategy instead of another? Examples: Auctions, winning a
contract, price competition, and price wars. Shocks and scenario planning (i.e., think about the effects of
different scenarios for the war in Ukraine or a conflict in Taiwan and its potential impact in different
industries like grains or semiconductors)

IV) CORPORATE STRATEGY


Key Readings:
• Piskorski “Choosing Corporate & Global Scope”
• Cases: Disney-Pixar acquisition.
• PPT #12 & 13 Corporate Strategy.

Key Frameworks, Concepts, & Issues:


• What is the difference between business strategy and corporate strategy (and product strategy)? Levels
of analysis (first class, PPT#1).
• Are companies more efficient than markets or shareholders when they attempt diversification
strategies?
• Why do so many mergers and Acquisitions fail to create value for shareholders? Possible causes?
Examples?
• What is vertical diversification? Examples? Upstream/Downstream?
• What is horizontal diversification? Examples?

The guide was reviewed by Prof. JS Montes, Strategic Management, BC_CSOM_Fall 2024. 4
• When can you consider whether diversification is related or unrelated?
• How can you test a diversification strategy? Piskorski’s test:
o Better-off Test
o Ownership Test
o Examples and different degrees in both cases? For example, Nintendo has partnerships with companies
that develop variations of their games. What could be the optimal contract for managing the
relationship? Disney and cruises? Disney and Pixar? … Disney and Minecraft?
V) SUSTAINING COMPETITIVE ADVANTAGE.

Key Readings:
• Pankaj Ghemawat, “Sustaining Superior Performance”
• Case. The Golden Age of Video Games: Atari vs. Nintendo
• PDF - PPT_#14_Atari-Nintendo_ Sustainability

Key Frameworks, Concepts, & Issues:

• Sustainability and Threats to Competitive Advantage.


• Creating value and capturing value.
• Main threats to sustainability: Imitation, Substitution, Hold Up, Slack. How do they operate?

• Think about examples of different industries and different levels of threats. How do firms defend
against the erosion of their competitive advantages? Are there specific mechanisms of defense (e.g.,
contracts)? How do they operate? Examples?

The guide was reviewed by Prof. JS Montes, Strategic Management, BC_CSOM_Fall 2024. 5

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