Graduate School of Business BA 388T The University of Texas at Austin Fall 2004 Professor James W. Fredrickson DEMBA James.fredrickson@mccombs.utexas.edu

STRATEGIC MANAGEMENT

Text: Porter, Michael E. Competitive Strategy. (New York: Free Press, l998).

Course Description Perspective and Themes This course is about the creation and maintenance of a long-term vision for the organization. This means that it is concerned with both the determination of strategic direction and the management of the strategic process. As such, it deals with the analytical, behavioral, and creative aspects of business simultaneously. The course is organized around five themes in strategic management: the role of the general manager, the components of business strategy, corporate strategy development, divisional-level strategy development, and managing strategic change. Our perspective in this course is that of the general manager whose responsibility is the long-term health of the entire firm or a major division. The key tasks involved in general management include the detection of and adaptation to environmental change; the procurement and allocation of resources; the integration of activities across subparts of the organizations; and, at the most senior levels, the determination of purpose and the setting of corporate direction. General managers, from our perspective, are managers who are in the position to make strategic decisions for the firm. Note that such managers are not "generalists" in the sense that they need to know a little bit of everything, but not very much of anything. To be effective, general managers need to have in-depth understanding of the generic problems in all the relevant functional areas. Furthermore, they must be able to deal with problems and issues at the level of the total enterprise and its relationships with relevant external environments. Functional specialists can benefit from the general management perspective even though they may not be general managers. Every function's actions should be coordinated with the overall needs of the business. In fact, functional specialists are the people on whom general managers must rely to implement their strategies. Since such functional managers can be subject to suboptimizing pressure, they too need to understand the general manager's perspective. Components of the Course

The pervasive concept in this course is that of strategy. We will start our study of strategy at the business level and examine the challenges of managing a firm competing in a single industry. An integral part of this study will be an exploration of the components of strategy and how they vary among various settings and situations. In most large firms and medium-sized firms, corporate strategy is different from business strategy because of the multiplicity of businesses in which the firm in involved. We will explore the differences in corporate and business-level (or divisional-level) strategies and the requirements each places on managers at different levels in the firm. At each level of strategy, competitive strategy considerations will be considered. Successful general managers are highly competent in problem identification and analysis and have a strong action orientation. One purpose of this course is to provide an environment that will allow you to hone these skills, while at the same time gain a conceptual understanding of the strategic manager's task. Strategic management is more than analysis. To be sure, strategic analysis is a major part of this course, and we will explore and apply several analytical techniques for positioning a firm or a business unit within a competitive environment. But, strategic analyses are complicated by the trade-offs inherent in any situation. These trade-offs reflect the fact that organizations consist of many players with multiple, competing objectives. When dealing with these tradeoffs, general managers must confront the judgmental issues involved in establishing organizational purpose and balancing economic and noneconomic objectives. To the extent possible in each class, we will attempt to balance these tradeoffs and to test our ideas about the appropriate relationships among them. Finally, strategic management requires moving beyond analysis and trade-offs into the realm of strategic action. Once the analytical problem of selecting a business or corporate strategy has been dealt with, we should know what to do. Knowing how to execute the selected strategy is essential to success. To the extent possible in each case, we will concern ourselves with the various combinations of systems (for example, information, control, reward, etc.), organization structures, and people necessary to execute a given strategy. We will test our ideas about the relationships between strategy and these other elements as we proceed through the course. General Flow of the Course The assignments are detailed in a later section. Please read through them to get an idea of the specific content of the course and each class meeting. In general, we will start with single-business or dominant-business companies and proceed to multiple-business companies. Similarly, we will begin with basic techniques of analysis and then expand and modify them to fit a range of situations. We will examine many sectors of the economy (for example basic industries, consumer products, service businesses, hybrids). As we proceed through the course, the classes and cases used in them will "build" on each other in such a way that the knowledge and skills gained in analyzing one session can be used in subsequent cases. Throughout the course we will maintain our concern with both analysis and implementation.

Required Readings One book is required reading for the course. In addition, there are often articles that will be used to support conceptual development for a particular class. Our readings and class discussions will help us in understanding how firms formulate and implement strategies under the impetus of competition, technology, government action, and other major contextual forces. This in turn requires a deep understanding of the functional strategies associated with marketing, operations, finance, and human resources. Thus, you will need to bring what you have learned in other courses and your career to bear in Strategic Management. Part of our challenge in this course will be to synthesize these functional strategies into overall business, corporate, and division-level strategies and to concern ourselves deeply with the implementation of the chosen strategies

Course Objectives

1. Development and reinforcement of a general management point of view -- the capacity to view the firm from an overall perspective in the context of its environment.

2. Development of an understanding of fundamental concepts in strategic management:

the role of the general manager, the levels and components of strategy, competitive analysis, and organizational evolution.

3. Development of those skills and knowledge peculiar to general management and the

general manager's job that have not been covered in previous functional courses. 4. Synthesis of the knowledge gained in previous courses and understanding what part

of that knowledge is useful to general managers. 5. Development of an awareness of the various impacts of external environmental

forces on business and corporate strategy. 6. Practice in distinguishing between basic causes of business problems and attendant

symptoms. 7. Practice in working out business strategies and implementation plans. 8. Development of habits of orderly, analytical thinking and skill in reporting

conclusions effectively in both written and oral form. 9. Familiarity with some of the practical realities of running different types of

businesses.

Performance Measures and Feedback

Performance evaluation and feedback will be based on your performance in two different settings -- class participation and written work. Class Participation In a typical class session, one or more students will be asked to start the class by answering a specific question or discussing a specific issue. Preparation of the case (including the assignment questions) and associated readings should be sufficient to handle such a lead-off assignment. After a few minutes of initial analysis, we will open the discussion to the rest of the class. As a group, we will then try to complete the analysis of the situation and address the problems and issues presented in the case. We will also spend time talking about the implementation of those recommendations and some of the complexities of effecting change in strategic management situations. Most general managers spend very little time reading and even less time writing reports. The vast majority of their interactions with others are verbal. For this reason, the development of verbal skills is given a high priority in this course. The classroom should be considered a laboratory in which you can test your ability to convince your peers of the correctness of your approach to complex problems, and of your ability to achieve the desired results through the use of that approach. Some of the behaviors that contribute to effective class participation are captured in the questions that follow: 1. Is the participant a good listener? 2. Are the points that are made relevant to the discussion? Are they linked to the

comments of others? 3. Do the comments add to our understanding of the situation? 4. Do the comments show evidence of analysis of the case? 5. Does the participant distinguish among different kinds of data (that is, facts,

opinions, beliefs, concepts, etc.)? 6. Is there a willingness to share? 7. is there a willingness to test new ideas, or are all comments "safe"? (For example,

repetition of case facts without analysis and conclusions or a comment already made by a colleague.)

8. Is the participant willing to interact with other class members? 9. Do comments clarify and highlight the important aspects of earlier comments and lead to a clearer statement of the concepts being covered? 10. Does the student ask questions rather than limit participation to responding to other’s

questions? The questions above deal with both the process of class participation and (of equal or greater concern) the content of what you say. As will be noted subsequently, class participation will be a major portion of your grade in this course. The appendix to this course description

provides additional information on our views of the case method and why it is used so extensively in Strategic Management. Because quality class participation figures prominently in this course, the GSB Honor Code mandates that you not rely on notes, handouts, or cases from students who have taken this course previously. Thus, and consistent with the previous statement about copyright protection, you should not use duplicated readings/cases/handouts since these are likely to be “marked up” or highlighted according to the judgments of others; a critical job of the strategist is to discriminate between meaningful data and “noise.” Written Examinations There will be two substantive pieces of written work required for this course. First, the mid-term case analysis will be a group effort of up to five individuals, and will be due at the beginning of class on November 5thth. The second is an individually written final case analysis that will be due on December 4thth. In preparing a paper, you may of course use exhibits to support your arguments or conclusions. The results of your application of various analytical or conceptual tools, for example, are appropriate for exhibits. Your may use as many exhibits as you deem necessary. Be sure to refer to each exhibit in the relevant places in the paper. Other requirements (e.g., maximum number of pages, format) will be conveyed to you in class. Please note: Do not put your name on case write-ups. Instead, only your student number(s), the assignment title, the date, and the course name should be on the back of the last page of the paper. Papers should be submitted without folders, cover sheets, or any other incidental pages. Grading Policies The purpose of grading in Strategic Management, as in all courses, is twofold. One is to evaluate your performance for purposes of the academic system. The other (and more important) is to provide you with feedback on your ability to develop, utilize, and share your ideas and conclusions concerning the topics and situations covered in the course. Your grade for the course will be based on the following components: 30% Written, mid-term group case analysis 40% Written, individual final case analysis 30% In-class contribution Other Administrative Details Since faculty members tend to have somewhat different expectations as to class behavior and course norms, I'd like to outline a few of our expectations concerning such matters.

1. I plan to be prepared for every class and I hope you will do the same. Since I frequently call on individuals whose hands are not raised, you should let me know

before the start of the class if some emergency has made it impossible for you to be prepared adequately for that class. This should occur only rarely.

2. I consider attendance at every class to be very important. Please schedule other

activities at times other than those when BA 388T meets. In the event that you do have to miss a class during the semester, I would appreciate it if you would let me know in advance of that class. Also, if you miss a class it is your responsibility to find out from your classmates what materials were covered, what additional assignments were made, and what items may have been distributed in class.

3. I will be happy to discuss the course, your progress, or any other issues of interest

to you on an individual basis. Please see me in class or contact me by e-mail. 4. Given the importance of this course, I will do everything that I can to use class time

effectively and would ask that you do the same. This will include arriving, starting, and ending on time. It is not all right to come to class 10 to 15 minutes after the scheduled start time.

5. Group work is acceptable and strongly encouraged for purposes of case preparation

for classroom discussion. (I will say more about group composition on the first day of class.). For the mid-term assignment, you should not discuss the case in any way with anyone outside your group prior to submitting your paper. The final case is an individual assignment: no discussion with others is permitted. Any outside assistance on the final case or outside-the-group assistance on the mid-term case will constitute a violation of the Honor Code.

Written work is due no later than the beginning of the class session noted. Late papers will be accepted only in the event of a personal emergency.

6. Given the atmosphere that we are attempting to establish in the classroom, I would

appreciate it if you would not eat during class.

STRATEGIC MANAGEMENT COURSE OVERVIEW

We'll spend the first few minutes of the first class session discussing the course – topics, perspective, expectations, grading, and so no. Please note that in the schedule that follows four-hour sessions will be broken into two equal parts, designated as A & B, and with assignments for each part noted accordingly.

I. THE CONCEPT OF BUSINESS STRATEGY Session 1 (A): August 27 (a.m.) This session will provide an overview of the processes of strategy identification, evaluation, and formulation in single business firms. A critical task for any top executive is to develop a strategy for his or her organization to assure its survival in the face of a changing environment. Critical steps in that process include identifying the firm's current strategy and its key components, evaluating that strategy in light of the need for change, and then making the necessary changes. In addition, formulating a competitive strategy requires an analysis of industry structure, as well as actions that attempt to create a competitive advantage. These and other issues will be addressed in our discussion of Crown, Cork & Seal by applying the concepts presented in the assigned readings. This is the third case written on CC&S. The first covered the company up to 1964. At that time, Connelly had turned a very sick company around. A major issue for discussion was whether success would continue. This case describes CC&S up through 1976, and the issue of continued success is still important. One of the things that make a general manager's job interesting is that the issue never goes away. We will be concerned with both business strategy and industry dynamics in this case. Management style also becomes an issue in this case. Connelly's style is evident from the case. You may want to compare Connelly with other general managers you will meet in the cases. Why are some more successful than others? How can managers with such different styles be successful? Readings: • Porter, Chapter 1, “The Structural Analysis of Industries” • Porter, Chapter 2, “Generic Competitive Strategies” • Porter, Chapter 4, “Market Signals” • Porter, Chapter 5, “Competitive Moves” Case: Crown Cork & Seal in 1989

Preparation Questions:

1. What are the industry structure and dynamics of the metal container industry? What are the industry trends? Implications of these trends?

2. What strategy does CC&S have for competing in this industry? What advantages

does a firm the size of CC&S have for competing with American Can and Continental Can?

3. In some sense, a competitive strategy describes the amount and types of risk that a company is willing to take. What is CC&S's "risk profile"? 4. What are the major issues that William Avery faces in 1989? What advice would

you offer him about these issues? Session 1 (B): August 27 (a.m.) Robert Mondavi, one of the leading American premium wine producers, faced a number of challenges in 2001. The company’s legendary founder stepped down, the economy began to sour, and Australian imports continued to flood the US market. In addition, the global wine industry had begun to consolidate in recent years and large diversified alcoholic beverage firms use the plentiful cash flow from their beer and distilled spirits businesses to move aggressively into the premium wine industry. Greg Evans, Mondavi’s new CEO, had chosen to focus on organic growth, rather than pursuing acquisitions. As Evans looked ahead, he needed to decide whether to stay the course as the wine industry’s global transformation continued. This case describes the changing structure of the global wine industry and the critical activities in the wine production, marketing, and distribution processes. In addition, it chronicles Robert Mondavi’s history and describes the firm’s product portfolio, marketing approach, and distribution capabilities. A numbers of competitors are examined in detail, including recent changes in their strategies. You are asked to assess Mondavi’s position in this changing industry and recommend actions to counter those changes. Assignment: • Porter, Chapter 6, “Strategy Toward Buyers and Suppliers” • Porter, Chapter 8, “Industry Evolution” • Porter, Chapter 10, “Competitive Strategy in Emerging Industries” • Porter, Chapter 11, “The Transition to Maturity” Case: Robert Mondavi and the Wine Industry Preparation Questions:

1. Evaluate the structure of the global wine industry. How and why is the structure changing? What threats do these changes present for Robert Mondavi?

2. How attractive are the economics of owning an independent ultra premium winery on a 100 acre vineyard in Napa Valley? Would you invest in such a venture? What advantages and/or disadvantages does Mondavi have relative to small independent wineries such as that?

3. Why are large alcoholic beverage firms such as Diagoe, Foster’s, and Allied

Domecq entering the premium wine business? Do their strategies make sense? What advantages or disadvantages does Mondavi have relative to these firms?

4. What is Mondavi trying to accomplish with its international joint venture approach?

How does this approach differ from the global strategies pursued by its rivals?

5. Do you agree with Mondavi’s decision to focus on organic growth rather than acquisitions? What actions would you take to sustain and enhance Mondavi’s competitive position?

Session 2 (A): September 11 (p.m.) Being profitable in an industry characterized by a high level of competition is always a challenge. However that is particularly the case when you are one-ninth the size of your largest rival and the industry offers significant economies of scale. That is precisely the situation in which Airborne Express finds itself. In spite of its apparent disadvantage Airborne has not only survived, in the most recent quarter its performance has been particularly strong. Revenues for the quarter are up 29% over the prior year, and earnings have increased by more than 500%. What we want to do in this session is come to understand how Airborne has managed to survive in its competition against it much larger and more resource rich rivals, Federal Express and UPS. We also want to consider what management must do if it recent success is to continue. Assignment: • “Creating Competitive Advantage”, HBS Note by Rivkin and Ghemawat Case: Airborne Express Preparation Questions:

1. How and why has the structure of the express mail industry evolved in recent years? How have the changes affected small competitors?

2. How has Airborne survived, and recently prospered, in this industry?

3. Quantify Airborne’s source of advantage. NOTE: I will provide further direction on

the kind o analysis you might do

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

Session 2 (B): September 11 (a.m.) Through the late 1990s, Dell Computer Corporation has had 15 years of a remarkable performance. Starting from his dormitory room at the University of Texas at Austin in 1983, Michael Dell built an industry powerhouse that was soon to become the leading PC maker in the US. With over 26,000 employees and a growing word-wide presence, it was the #2 provider of PCs worldwide, with a 9.1 % market share, and $21.7 billion in sales. Much has been said about the source of Dell’s success, in particular it’s business model, in which it sold to customers “direct”. However, the key to Dell’s success may not be as obvious as it first seems. Therefore we will discuss the Dell case with the intention of determining the source of this remarkable success. Assignment: • Porter, M.E., “What Is Strategy?”, Harvard Business Review, 1996 Case: Dell: Selling Directly, Globally Preparation Questions:

1. What is Dell’s strategy as of 1999?

2. Why has it worked so well for Dell?

3. What is the likelihood that Dell’s historical strategy will work in China?

4. How, if at all, will it have to be modified? Session 3 (A): September 24 (a.m.)

Edward Jones is one of the largest and most profitable brokers in the financial services industry. For example, with 3,900 offices it is five times the size of Merrill Lynch, and its 36% ROE during the 1990s was twice that of the average national full-service broker. Therefore, it is particularly surprising that very few people are aware of it. To understand the success of this firm, we need to understand the strategy it pursues. And to do that, we must get beyond superficial, vague characterizations of strategy, and deal instead with the critical decisions that it’s executives have made over the years, and which combine to for Edward Jones’ strategy. Assignment: • Hambrick, D.C. and Fredrickson, J.W., “Are You Sure You Have a Strategy?” Academy of Management Executive, November 2001. Case: Edward Jones

Preparation Questions:

1. Using Hambrick and Fredrickson’s “Strategy Diamond” framework, what is Edward Jones’s strategy as of 1998? Which elements of the strategy represent recent changes?

2. Pay particular attention to the “Economic Logic” of Edward Jones’ strategy. Why

Does the company have such a high return on equity (ROE)? Can you think of other instances in which a relatively low-share player in an industry is significantly more profitable than some (or all) of the higher-share players?

3. If you were Mr. Bachmann, the CEO, what would you be losing sleep over? Session 4 (B): September 20 (p.m.) The environment in which firms operate is a major source of uncertainty, and managing in the face of such uncertainty is a critical task to top executives. Moreover, while such uncertainty can be unsettling and a source of myriad threats, it can also offer opportunities that allow firms to dramatically improve their prospects for long-term survival. In spite of its historical success, the primary environment in which Edward Jones operates is increasingly uncertain. How top management chooses to deal with that uncertainty will be critical to the firm’s continuing success. Assignment: • Courtney, H. Kirkland, and Viguerie, P., “Strategy Under Uncertainty,” Harvard Business Review, November-December, 1997. Case: Retail Financial Services in 1998 Presentation Questions:

1. As a strategist at Edward Jones in 1998, what are the most important changes that have occurred in you business environment in the past five years?

2. What are the most important changes you believe will (or might) occur in your business environment over the next five years?

3. Using the framework set forth in the Courtney e.t. al. article, what “uncertainty

level” does Edward Jones face?

4. What strategic recommendations would you make to Mr. Bachmann? Session 4 (A): October 4 (p.m.)

In previous sessions we will have discussed the process of creating a competitive advantage in a variety of industries and contexts, and have highlighted some of the critical steps in that process. Yet it is important to recognize that such an advantage is optimally valuable only if it can be sustained over an extended period of time. In this session we will discuss sustainable advantage using the context of the world's largest retailer -- Wal-Mart. Competitive advantages can be built on a variety of factors, but those that are sustainable are typically built on some distinctive competence possessed by a firm and which are difficult for others to copy, or some first-mover advantage that cannot again be replicated. Among the issues we will discuss are the multiple sources of sustainable advantages -- those that are highly tangible and those that are less so -- and the risks inherent in entering business that may not offer the same advantages. Assignment: • Porter, Chapter 14, “The Strategic Analysis of Vertical Integration” • Ghemewat, "Sustainable Advantage" Harvard Business Review, 1986 • Prahalad and Hamel, “Core Competence of the Corporation,” Harvard Business

Review, 1990 Cases: Wal-Mart Stores, Inc. Wal-Mart in 2002 Preparation Questions:

1. What, historically, has been Wal-Mart's key source of competitive advantage in discount retailing?

2. How sustainable is Wal-Mart's competitive advantage in discount retailing? 3. Evaluate their diversification into the food industry. 4. How transferable are Wal-Mart’s historical advantages, particularly as it moves into

new formats and new international locations?

II. CORPORATE STRATEGY AND THE MULTI-BUSINESS FIRM We will introduce corporate-level strategy with a discussion on multi-business organizations and the “scope of the firm.” Session 4 (B): October 22 (p.m.) This case describes the introduction and fuse of portfolio planning techniques in the Swiss pharmaceutical and chemical company, Ciba-Geigy. These techniques were introduced to Ciba-Geigy in the early 1980s as part of a broader effort to begin formal strategic planning and systematize what had previously been an ad hoc approach to resource allocation inside this increasingly diverse company.

Portfolio planning is now a critical element in the strategic management of Ciba-Geigy. Corporate management uses it to help choose its set of businesses, to allocate resources to the divisions, to set SBU targets and assess performance, and to influence SBU strategies through the selection of senior personnel. The approach has, accordingly, become internalized by all managers at both the corporate and division levels, where it has become a “language” of business. The mandate of portfolio planning at Ciba-Geigy is, however, challenged by a major investment decision in one of the mature industrial business – pigments. Its placement in the portfolio as a core business implies that its goal is to generate cash. Yet the division wants to make a $140 million investment in clearing up a “Superfund” site and beginning U.S. production of a very successful pigment – DPP – at its Newport Delaware facility. This would violate the target for cash generation set for the division. Corporate management must decide whether to break or uphold the practice of portfolio planning in this instance. Assignment: • Porter, Chapter 12, "Strategy in Declining Industries" • Collis & Montgomery, “Creating A Corporate Advantage”, Harvard Business Review, 1998. Case: Portfolio Planning at Ciba- Geigy and the Newport Investment Proposal Preparation Questions:

1. Should Ciba-Geigy make the Newport investment? Which option? 2. How does portfolio planning help or hinder the decision? 3. What are the purposes of portfolio planning? Does it fulfill those goals?

Session 5 (A): October 23 (a.m.) The related diversified firm operates in multiple businesses but exhibits a variety of critical differences from the conglomerate. These differences are manifest in its goals, its daily operations, and the role of its top management, to mention just a few. Our purpose in this session is to develop an appreciation for the unique characteristics of this type of organization, and to come to understand the actions that are needed to make it successful. We will also discuss the role of acquisitions in organizational renewal, and the task of developing and maintaining a core competence in such a firm. The issues identified above will be addressed in conjunction with our discussion of Cooper Industries. Cooper is a large, successful, diversified firm that has grown by acquisition but which remains fundamentally an operating company. As you read the case, pay particular attention to the systems, procedures, and processes that Cooper has installed to enable it to run multiple, seemingly unrelated businesses as an operating company, yet with limited corporate overhead.

Assignment: • Haspeslagh & Jemison, "Acquisitions: Myths & Reality", Sloan

Management Review, 1986 Case: Cooper Industries’ Corporate Strategy Cooper Industries Corporate Strategy (B) – to be distributed in class Preparation Questions:

1. What is Cooper’s corporate strategy? How does it create value? What are its key resources?

2. Should Cooper Industries acquire Champion Spark Plus? Why or why not?

3. What are the limits of Cooper’s strategy?

Session 5 (B): October 18 (a.m.) The related diversified firm operates in multiple businesses but exhibits a variety of critical differences from the conglomerate. These differences are manifest in its goals, its daily operations, and the role of its top management, to mention just a few. Our purpose in this session is to develop an appreciation for the unique characteristics of this type of organization, and to come to understand the actions that are needed to make it successful. We will also discuss the role of acquisitions in organizational renewal, and the task of developing and maintaining a core competence in such a firm. Assignment: • Goold, M. and Campbell, A. “Desperately Seeking Synergy”, Harvard Business Review, September-October, 1998. Case: Vivendi: Revitalizing a French Conglomerate Vivendi (B): Revitalizing a French Conglomerate – to be distributed in class Preparation Questions:

1. What is Vivendi’s corporate vision? How does this firm intend to create value? 2. Is this a good strategy for the company? 3 Is this a good strategy for the investor?

4. How does the business environment in France affect Messier’s plans and his ability to carry them out?

III. STRATEGY IMPLEMENTATION

Session 6 (A): November 5 (a.m.) The initial exposure that we had to strategy implementation in the prior session is extended and expanded in this session. Among the topics that will be addressed are the "levers" available to top executives to make major changes in their organization, and the role of such executives in managing the strategic change process. To develop an understanding of these issues, we will discuss the actions of Lou Gerstner, who took over as CEO of the most profitable unit (i.e., Travel Related Services), of a very profitable company, American Express. During his first seven years on the job Gerstner instituted major changes, and American Express and TRS improved substantially on their already admirable record. During our discussion of TRS we will try to develop a deep understanding of the changes instituted by Gerstner, and how those changes affected the unit's performance. We will also consider the role of Gerstner's management style in implementing the changes he initiated. Cases: American Express Travel Related Services Co. Lou Gerstner (The cases should be read in the order listed) Preparation Questions:

1. What are the major changes Lou Gerstner made at TRS? 2. How have those changes affected TRS' performance? 3. What is your assessment of TRS' prospects for continued success?

Session 6 (B): November 15 (p.m.) Few companies have gained as much notoriety in recent years as has Southwest Airlines. Some of that notoriety has been due to the often unconventional behavior of their CEO Herb Kelleher, while other stems from their unbroken stream of profitability. Many observers of organizations have studied Southwest in an attempt to learn what has made them so successful. We will be no exception. However, not only will we try to determine the source of their historical success, we will grapple with the unique set of challenges that they face due to the events of September 11th , the rise of low cost competitors, and the subsequent restructuring of the airline industry. Assignment: • None Case: Southwest Airlines 2002: An Industry Under Siege Preparation Questions:

1. Why has Southwest Airlines been so successful?

2. What recommendations would you make about the issues raised on pages 13 – 17 of the case?

Session 7 (A): November 19 (a.m.) Case: (TO BE DISTRIBUTED IN CLASS) Assignment: • Bernick, C.L., “When Your Culture Needs a Makeover,” Harvard Business Review, 2001. Preparation Questions:

1. Use the Star model to map the initiatives Bernick undertook to Change Alberto-Culver’s culture.

2. To what degree do you think the culture actually changed? Session 7 (B): November 19 (a.m.) The relationship between the process by which an organization's strategy is developed, and that used to implement it, is not well understood. However, the relationship has a variety of potentially important implications, which will be discussed in this session. In addition, we will again consider the role of top-level executives in implementation, the range of factors critical to successful implementation of any major strategic change, and the unique situation faced by an executive new to the top management job. By considering these issues in the context of a firm in a declining industry, the Cleveland Twist Drill case allows us to examine them through the eyes of an executive who is trying to make strategic changes in an already difficult situation. Assignment: • Gabarro, “When a New Manager Takes Charge," Harvard Business Review Case: Cleveland Twist Drill Preparation Questions:

1. What are the major problems facing Jim Bartlett at Cleveland Twist Drill? How serious is the situation?

2. As Bartlett, what is your detailed plan of action for accomplishing the objectives that

you and Ames have for the business? 3. Which of the three options that Bartlett was considering in April 1982 would you

pursue? Why? Are there others that make more sense given his objectives?

Session 8 (A): November 20 (a.m.) In this session we will continue our discussion of strategy implementation by considering the events subsequent to those discussed in the prior session, with the intent of bringing additional clarification and understanding to the issues summarized there. Case: Cleveland Twist Drill (B) (to be distributed at the end of the prior session) Session 8 (B): November 20 (a.m.) Children’s Hospital and Clinics in Minneapolis, Minnesota is a major tertiary care hospital for children that was formed in 1994 as a result of a merger of Minneapolis Children’s Medical Center and Children’s hospital – St. Paul. Julie Morath, recently hired as the Chief Operating office of Children’s a major initiative to improve patient safety at the hospital, and begins to transform the entire organization. She makes many changes in systems and processes, among them a blameless reporting system that people to communicate confidentially and anonymously about medical accidents without being punished. Her hope is that the new reporting system will encourage people to surface more errors, which she sees as a first step in learning how to improve the hospital’s processes to avoid similar failures in the future. By early 2001 Morath has made significant progress with the safety initiative. However, she also faces several major challenges. First, some managers are concerned that the initiative undermines their ability to hold employees accountable for poor performance. Second, some staff members continue to worry that the safety initiative has increased the hospital’s legal exposure. In addition, she has not yet developed an accurate way to measure the results of the safety initiative and some managers have expressed concern over her having chosen to hire an outsider to become the new leader of the entire safety effort. Assignment: A. Edmondson, R.M. Bohmer & G. Pisano, “Speeding Up Team Learning,” Harvard Business Review, 2001. Case: Children’s Hospital and Clinics Preparation Question:

1. What is your assessment of the Patient Safety Initiative at Children’s? In particular, what do you think about blameless reporting?

2. What is your assessment of Morath’s role as leader of the change process at Children’s? Consider the challenges she faced at each stage of the transformation process and evaluate her effectiveness in addressing those challenges.

3. Has Morath move prematurely to hire Dr. Eric Knox as the new Director of the

Safety Initiative?

4. What do you recommend Morath do and say in the meeting with Mathew’s parents?

5. Reflect on a time during your career when you were/and were not, comfortable

expressing your views, asking questions, etc. What factors contributed to the atmosphere of openness, or what aspects of the work environment discouraged you from speaking up?

Session 9 (A): December 3 (a.m.) In this session we are exposed to the history and long rivalry of Philips and Matsushita as they evolve during the pre- and post war era to emerge as major competitors in the global consumer electronics industry from the 1970s to the twenty-first century. We are initially exposed to the capsulized history of Philips, a company that dominated the global consumer electronics industry in the post-war era. It did this by building highly independent, fully integrated national organizations (NOs) that were able to sense and respond to local market needs. However, this approach ran into difficulties in the mid 1970s, and for over two decades management struggled to integrate and coordinate independent NOs to allow them to deliver a more scale-sensitive and competitively coordinated response to global competitors such as Matsushita. We also see the worldwide expansion of Matsushita around a very centralized scale-intensive approach. It is this global scale efficiency and coordinated global approach that allows Matsushita to overtake Philips in the 1980s. By 2001, however, we see the Japanese company also struggling to adjust its strategy to pressures from national markets and host governments to respond to their local needs. In addition, a strengthening yen put at risk Matsushita’s highly centralized sourcing approach, forcing the company to close some of its central operations. The case provides an opportunity to observe a series of CEOs in each firm grapple with the process of making need changes in strategy and organizational process over an extended period of time. Assignment: • Ghemawat, P. “The Forgotten Strategy,” Harvard Business Review, 2003. • Bartlett and Ghoshal, Managing Across Borders: The Transnational Solution, 1989, pps. 48-55, 57-71. Case: Philips versus Matsushita: A New Century, A New Round Preparation Questions:

1. How did Philips become the leading consumer electronics company in the world in the post war era? What distinctive competence did it build? What distinctive incompetencies?

2. How did Matsushita succeed in displacing Philips as No. 1? What were its

distinctive competencies and incompetencies?

3. What do you think of the change each company has made to date – the objectives, the implementation, and the impact?

4. What recommendations would you make to Gerald Kleisterlee? To Nakamura?

Session 9 (B): December 3 (p.m.)

Paolo DeCesare, President of Proctor and Gamble’s Beauty Care Business in Japan member of P&G’s global leadership team (GLT) for Beauty Care is at a major decision point. Specifically, he is trying to decide if he should recommend to the GLT that SK-II, a prestige skin care product developed in Japan, should be rolled out as a global brand. In particular, he is wondering whether to recommend developing the market further in Japan, expanding into China, or introducing the product into Europe.

After a dramatic turnaround, the performance of P&G Japan has relapsed in the early

1990s. And the new beauty care category that had been added to Japan’s portfolio is struggling. The new CEO (Durk Jager) had led a radical transformation of the company under the heading Organization 2005 (O2005). After several decades of managing overseas operations under a country-based organization and then a matrix, this change involved reorganizing the company around seven global business units that would finally have profit responsibility. O2005 also involved other changes that were intended to encourage the risk taking and innovation that Jager wanted to build as a core capability.

As a result of the above and other changes, Japan has become a source of innovation and

new product development, particularly in areas such as beauty care where the Japanese consumer was seen to be at the leading edge. It is in this context that DeCesare must make his decision of whether to build the market for this $120-a-bottle product in Japan, to expand the regional market into a promising Chinese market opportunity, or to launch SK-II in Europe. Assignment: • Bartlett, C. & Goshal, S., “Going Global: Lessons from Late Movers”, Harvard Business Review, 2000. Case: P & G Japan: The SK-II Globalization Project Preparation Questions:

1. As Paolo DeCesare, what factors do you need to consider before deciding what to recommend in your SK-II presentation to the global leadership team (GLT)? What kind of analysis will you need to do in preparing for that meeting?

2. Does SK- II have the potential to become a global brand within Proctor &

Gamble’s worldwide operations? Why or why not?

3. Which of the three market options should Paolo DeCesare recommend to the GLT? What benefits do you expect to gain? What risks do you see?

4. How should he implement your recommended option? What are the

implications for P & G’s new post-O2005 organization? What support and/or resistance do you expect? How will you manage it?

Session 10 (A): December 4 (a.m.) This case focuses on two key product launch decision faced by Christopher Carson, Managing Director of BRL Hardy Europe and Steve Millar, Managing Director of the parent company, BRL Hardy Limited, Australia’s second largest wine producer. The decisions that these individuals make will shape not only the company’s strategy, but also the organization model and the management approach that it takes in this fast-growing global business. Assignment: • Bartlett, C. & Goshal, S., “Tap Your Subsidiaries for Global Reach”, Harvard Business Review,1986. Case: BRL Hardy: Globalizing an Australian Wine Company Preparation Questions:

1. How do you account for BRL Hardy’s remarkable post merger success? 2. What is the source of tension between Stephen Davies and Christopher Carson? How effectively has Steve Millar handled their differences?

1. Should Millar approve Carson’s proposal to launch D’istinto Why/why not?

2. What recommendation would you make to the organization concerning the

conflicting proposals for Kelly’s Revenge and Banrock Station? What would you decide to do as Carson? As Millar?

Session 10 (B) December 4 (a.m.) This final case provides an opportunity to review and extend principles of strategy implementation that we have discussed n prior weeks, while also extending our discussion of the important factors to consider in changing international strategies. We will explore the unique challenges faced by a mid-level general manager in an overseas position in deciding how to implement major strategic changes. . Assignment: • Kotter, J., “Leading change: Why transformation efforts fail”, Harvard

Business Review, 1995. Cases: Walt Disney’s Dennis Hightower: Taking Charge Dennis Hightower: Walt Disney’s Transnational Manager Preparation Questions:

3. What challenges and opportunities does Dennis Hightower face in his new position?

4. Prepare a detailed plan of action for Hightower to pursue over the next 3 months.

3. Evaluate the pacing and sequencing of Hightower’s actions from 1988 to 1994. How would you evaluate his approach to bring about change in this organization? How would you compare his general management style with

Gerstner’s approach or Jim Bartlett’s approach?

APPENDIX

WHY WE USE THE CASE METHOD1

The case method is one of the most effective means of management education. It is widely used in schools of business throughout the world, and this use is predicated upon the belief that tackling real business problems is the best way to develop practitioners. Real problems are messy, complex, and very interesting. Unlike other pedagogical techniques, many of which make you the recipient of large amounts of information but do not require its use, the case method requires you to be an active participant in the closest thing to the real situation. It is a way of gaining a great deal of experience without spending a lot of time. It is also a way to learn a great deal about how certain businesses operate, and how managers manage. There are few programmable, textbook solutions to the kinds of problems faced by real general managers. When a problem becomes programmable, the general manager gives it to someone else to solve on a repeated basis using the guidelines he or she has set down. Thus the case situations that we will face will require the use of analytical tools and the application of your personal judgment. Sources of Cases All the cases in this course are about real companies. You will recognize many of the names of the companies, although some of them may be new to you. These cases were developed in several different ways. Occasionally, a company will come to a business school professor and request that a case be written on that company. In other situations, a professor will seek out a company because he or she knows that the company is in an interesting or difficult situation. Often, the company will agree to allow a case to be written. Occasionally, cases will be written solely from public sources. This is perhaps the most difficult type of case writing because of the lack of primary data sources. In those situations where a company has agreed to have a case written, the company must "release" the case. This means that they have final approval of the content of a given case. The company and the case writer are thus protected from any possibility of releasing data that might be competitively or personally sensitive. Public source cases, obviously, do not need a release. Given the requirement for release, however, it is amazing the amount of information that companies will allow to be placed in a case. Many companies do this because of their belief in the effectiveness of the case method. Preparing for Class When you prepare for class, it is recommended that you plan on reading the case at least three times. The first reading should be a quick run-through of the text in the case. It should give you a feeling for what the case is about and the types of data that are contained in the case. For example, you will want to differentiate between facts and opinions that may be expressed. In every industry, there is a certain amount of "conventional wisdom" that may or may not reflect the truth. On your second reading you should read in more depth. Many people like to

1 This note was prepared by Associate Professor Dan R.E. Thomas. It is intended solely as an aid to class preparation.

underline or otherwise mark up their cases to pick out important points that they know will be needed later. Your major effort on a second reading should be to understand the business and the situation. You should ask yourself questions like: (1) Why has this company survived? (2) How does this business work? (3) What are the economics of this business? On your second reading, you should carefully examine the exhibits in the case. It is generally true that the case writer has put the exhibit there for a purpose. It contains some information that will be useful to you in analyzing the situation. Ask yourself what the information is when you study each exhibit. You will often find that you will need to apply some analytical technique (for example, ratio analysis, growth rate analysis, etc.) to the exhibit in order to benefit from the information in the raw data. On your third reading, you should have a good idea of the fundamentals of the case. Now you will be searching to understand the specific situation. You will want to get at the root causes of problems and gather data from the case that will allow you to make specific action recommendations. Before the third reading, you may want to review the assignment questions in the course description. It is during and after the third reading that you should be able to prepare your outlined answers to the assignment questions. There is only one secret to good case teaching and that is good preparation on the part of the participants. Since the course has been designed to "build" as it progresses, class attendance is also very important. Class Discussions In each class, we will ask one or several people to lead off the discussion. If you have prepared the case, and are capable of answering the assignment question, you should have no difficulty with this lead-off assignment. An effective lead-off can do a great deal to enhance a class discussion. It sets a tone for the class that allows that class to probe more deeply into the issues of the case. The instructor's role in the class discussion is to help, through intensive questioning, to develop your ideas. This use of the Socratic method has proved to be an effective way to develop thinking capability in individuals. The instructor's primary role is to manage the class process and to insure that the class achieves an understanding of the case situation. There is no single correct solution to any of these problems. There are, however, a lot of wrong solutions. Therefore, we will try to come up with a solution that will enable us to deal effectively with the problems presented in the case. After the individual lead-off presentation, the discussion will be opened to the remainder of the group. It is during this time that you will have an opportunity to present and develop your ideas about the way the situation should be handled. It will be important for you to relate your ideas to the case situation and to the ideas of others as they are presented in the class. The instructor's role is to help you do this. The Use of Extra or Post-Case Data You are encouraged to deal with the case as it is presented. You should put yourself in the position of the general manager involved in the situation and look at the situation through his or her eyes. Part of the unique job of being a general manager is that many of your problems are dilemmas. There is no way to come out a winner on all counts. Although additional data might

be interesting or useful, the "Monday morning quarterback" syndrome is not an effective way to learn about strategic management. Therefore, you are strongly discouraged from acquiring or using extra- or post-case data. Some case method purists argue that a class should never be told what actually happened in a situation. Each person should leave the classroom situation with his or her plan for solving the problem, and none should be falsely legitimized. The outcome of a situation may not reflect what is, or is not, a good solution. You must remember that because a company did something different from your recommendations and was successful or unsuccessful, this is not an indication of the value of your approach. It is, however, interesting and occasionally useful to know what actually occurred. Therefore, whenever possible, we will tell you what happened to a company since the time of the case, but you should draw your own conclusions from that.