Strategy (prof. Noci) by Cremaschi

Strategy

Sommario

• 1.0 Introduction to corporate governance......................................................................2
• 1.1 The Company........................................................................................................ 3
• 1.2 Corporate Governance.......................................................................................... 3
• 1.3 Value & Objectives................................................................................................ 5
• 1.4 Trends & Challenges.............................................................................................. 7
• 2.0 Introduction to strategy............................................................................................ 8
• 2.1 Introduction........................................................................................................... 8
• 2.2 Value Creation..................................................................................................... 11
• 3.0 Environment & Macro-level demand analysis.........................................................13
• 3.1 SWOT................................................................................................................... 13
• 3.2 PESTE.................................................................................................................. 13
• 3.3 Macro-Level demand analysis............................................................................. 14
• 4.0 Micro-level demand analysis in B2B and B2C.........................................................21
• 4.1 Introduction......................................................................................................... 21
• 4.2 B2C...................................................................................................................... 22
• 4.2.1 Cultural and social factors............................................................................. 23
• 4.2.2 Decision Making and psychological factors...................................................23
• 4.2.3 Personal Factors............................................................................................ 26
• 4.2.4 Phases of the buying process........................................................................27
• 4.2.5 Roles............................................................................................................. 28
• 4.3 B2B...................................................................................................................... 29
• 5.0 Competitive analysis.............................................................................................. 32
• 5.1 Porter’s five forces model.................................................................................... 32
• 5.2 Internal determinants of competitive advantage................................................35
• 5.3 Porter’s value chain – Pipeline Model...................................................................38
• 5.4 Platforms, Ecosystems & Hub economy..............................................................39
• 6.0 Competitive advantage.......................................................................................... 43
• 6.1 Porter’s generic strategies................................................................................... 43
• 6.2 New strategic paradigms..................................................................................... 46
• 6.3 Today................................................................................................................... 49
• 7.0 Corporate strategy – Product scope........................................................................50
• 7.1 Introduction......................................................................................................... 50
• 7.2 Portfolio Analysis................................................................................................. 52
• 7.3 Today................................................................................................................... 56
• 18.0 Corporate strategy – Geographical scope...............................................................57
• 8.1 Introduction......................................................................................................... 57
• 8.2 Selection of geographical location.......................................................................58
• 8.3 Modes of international expansion........................................................................60
• 8.4 Mergers & Acquisitions (M&A).............................................................................63
• 9.0 Business modelling and Business planning............................................................68
• 9.1 Business model................................................................................................... 68
• 9.2 Business plan...................................................................................................... 73
• 10.0 Blue ocean and Red ocean Strategy.....................................................................78
• 11.0 Big-Bang disruption.............................................................................................. 86
• 11.1 Disruptions coming from technological discontinuities.....................................87
• 11.2 Ingredients for success...................................................................................... 88
• 12.0 Crowdsourcing & Crowdfunding............................................................................92
• 12.1 New forms of user involvement.........................................................................92
• 12.2 Crowdsourcing/co-creation................................................................................94
• 12.3 Crowdfunding.................................................................................................... 96
• 13.0 Data analytics & Bio-marketing............................................................................ 97
• 13.1 Big data............................................................................................................. 97
• 13.3 Biometric data: neuro-marketing & bio-marketing..........................................101
• 14.0 Start-up.............................................................................................................. 105
• 14.1 Engines of growth............................................................................................ 105
• 14.2 Lean start-up method...................................................................................... 105
• 14.3 Funding rounds................................................................................................ 106

1.0 Introduction to corporate governance

1.1 The company

Stakeholders: all subjects who have an interaction with the company, all of them have different objectives.

In Italy most companies are middle sized B2B.

Supply chains are getting less linear, they now create very complex flows which overlap and diverge in different points, due to globalization. In some instances, there are different suppliers for the same component or material.

Globalization is important because Europe's population is decreasing, if we close our doors to other nations a lot of European companies will die because of over production.

A company can realize a single output or a diversified portfolio of outputs. It can be vertically integrated or outsource activities. Some companies don’t produce the product internally like Coca-Cola. Companies can serve a single geographical market or several countries (internationalization).

1.2 Corporate governance

Publicly traded companies suffer from conflicts of interest problems resulting from the different objectives of: management, shareholders, stakeholders. A system of checks and balances called Corporate Governance is necessary for listed companies to impose and enforce rules, to control that the company is transparent and to give factual and true information to investors. Corporate Governance is used in un-listed companies too.

Corporate governance refers to the set of systems, principles and processes that provide guidelines as to how the company can be directed or controlled such that it can fulfil its goals and objectives in a manner that adds to the value of the company and is also beneficial for all stakeholders in the long term. CG is not just a set of ideas, there are a significant number of very technical legal requirements:

• Cadbury Report (UK, 1992)
• Sarbanes-Oxley Act (US, 2002)
• OECD principles (2004)

The main principles of Corporate governance are:

• Rights and equitable treatment of shareholders
• Interest of other stakeholders
• Role and responsibilities of the board
• Integrity and ethical behaviour
• Disclosure and transparency

These principles work at 3 different levels.

1. Shareholder level: the rights must be preserved
2. Stakeholder level: the rights must be preserved
3. Internal decision-making level: ground rules

Shareholder level

Shareholders rights should include the right to:

• Convey or transfer shares
• Obtain relevant information on the corporation on a regular basis
• Participate and vote in general shareholder meetings
• Participate in decisions concerning fundamental corporate changes
• Elect and remove members of the board
• Share in the profits of the corporation

All shareholders of the same class should be treated equally:

• Minority shareholders should be protected from abusive actions
• Foreign shareholders should have the same rights

Stakeholder level

The organization should recognize that they have legal, contractual, social and market driven obligations to employees, investors, creditors, suppliers, local communities, customers and policy makers. Thus, the corporate governance should encourage active cooperation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

The scarcest resource are humans and talents. Today the attention of the company towards the employee is increasing, providing them with complementary services and reasons to stay.

Decision-making level

The board needs sufficient relevant skills and understanding to review and challenge management performance. In particular, the company should fulfil certain key functions:

• Setting performance objectives
• Overseeing major capital expenditures, acquisitions and divestitures
• Reviewing annual budgets and business plans
• Monitoring the effectiveness of the company’s governance practices
• Selecting, compensating and monitoring key executives
• Managing potential conflicts of interest of management, board members and shareholders
• Overseeing the process of disclosure and communications

Integrity should be a fundamental requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making.

Disclosure of materials matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information. Disclosure should include material information on:

• The financial and operating results of the company
• Company objectives
• Major share ownership and voting rights
• Information about board members
• Remuneration policy for members
• Foreseeable risk factors
• Issues regarding employees and other stakeholders
• Governance structures and policies

Corporate governance is so important because:

1. There could be opportunistic behaviours by managers, shareholders or board members.
2. The economic system is becoming more complex (many distinct interests)
3. The growing level of interconnection of distinct economic systems

1.3 Value & Objectives

Main company’s objective:

1. Short term profits
2. Shareholder's value creation
3. Economic value creation
4. Stakeholder's value creation

An important question to ask is if it’s better to pursue short term profits or long-term profits. Selling & Marketing are used to maximize short term profits. A company aims to survive in the long term and short-term profits will harm long term probability. Customer satisfaction (or quality of the product) is important but cannot be the master objective because while it can be a long-term strategy this might reduce profitability and worst-case scenario kill the company. The real value is delivered to shareholders through the management's ability to grow earnings, dividends and share price. It is the sum of all strategic decisions that affect the firm's ability to efficiently increase the amount of free cashflow over time.

In the 90's the master objective was to maximize the shareholders’ value. There is a privileged stakeholder, and his interests MUST be maximized. HOW? An example could be dividends, for short term, but on the long term this is harmful. If you consider the shareholders too much you are milking the company’s resources to produce new value. This heyday ended with the stock-market collapse that began in 2000. The burst of the tech-stock bubble demolished the notion that stock prices are reliable gauges of corporate value. Researchers realized that it was awfully hard to motivate employees or entice customers with the motto “We maximize shareholder value”.

Today the master objective is Company Value Creation. Management is concerned of creating cash flows throughout the day to day activities. What is CASH FLOW? The financial component between revenues and cost. It's a financial representation of a company! ∞ CASHFLOW∑NPV(0) = t(1+k )t=0

How do you increase economic value?

• Make strategic decisions that maximize expected future value—even at the expense of lower near-term earnings
• Carry assets only if they maximize the long-term value of your firm
• Return excess cash to shareholders when there are no value-creating opportunities in which to invest
• Reward operating-unit executives for adding superior multiyear value
• Reward middle managers and frontline employees for delivering superior performance on key value drivers they influence directly
• Provide investors with value-relevant information

Managers don't reach optimal solutions since they can't predict further than 6 months away or 3 years blurrily. This is no excuse to think short term, managers must take the best possible decisions, that maybe won't be optimal, but still are better than short term decisions. The board of directors will try to balance investments and dividends out of cash-flow. Investors look at the past of a company. But this is wrong, because what they should look at is the capability to create new value. And the past should be only one indication that the company is able to do so.

Manager perspective: the objectives of management may in some situation differ from those of the company’s shareholders. Even when corporate executives own shares in the company, their viewpoint on the acceptance of risk may differ from that of shareholders.

Stakeholder perspective: CSR states that corporations should be socially responsible and serve the broader public interest as well as shareholder interests.

1.4 Trends & Challenges

1. Environmental Concern: A company can exploit competition by being an ethical being. Through green products and low environmental impact, the image of the company will increase. An example is BIO-food, which is growing at +30% pace damaging normal food companies. People have money, so they look for more sophisticated needs to satisfy like investing in companies which are responsible on Environment and Social issues. In many cases companies in the past shifted production to NON-REGULATED areas. This made them perceived as heavy polluters and human rights abusers. Today the trend is to enforce environmental standards, that are getting stricter than country’s standards, for marketing and image purposes. For example, China was a country characterized with a limited environmental control. A lot of companies moved to China to reduce costs, but when the economic condition improved they started to demand tighter environmental control. In very few years China became the largest investor in clean technologies. Such changes may happen very rapidly, and this could be an issue for companies, if it comes unexpectedly.
2. Social Responsibility: increased sensitiveness to topics regarding the working conditions and the health of company’s employees and clients.
3. Globalization:
   • Globalization of supply chains: the possibility to interact and work with suppliers over the world.
   • Globalization of demand: nowadays companies have an easier access to broader international market. This is both a downside and upside. WTO liberalized flows of goods, evolution of transportation systems, reduction of airline fares, digital revolution made it easier to have a global presence. Globalization deeply contributed to Italy's economy. Globalization is different to standardization, in China before globalization people were watching America as a cultural compass, but after globalization they rediscovered their traditions. As another example, menus in big food chains or beverage chains such as Starbucks or McDonald are different in different countries. Companies will take care of local cultures.
4. Digitization: Fastest and most profound change in the history of humankind. Industrial internet is arriving. Ability to connect every piece of object to everything else. This will have a dramatic effect on the life of individuals. This is the fourth industrial revolution, bringing increased profitability. Digital revolution would not necessarily improve performance: media companies are reducing their performances. Digital tech requires a CHANGE in the business models and value chains and the way they work. There are plenty opportunities for new arrivals. Old companies have extreme risks and have to rethinking their identity. 3D printing is tremendously pushing for personalization, moving production in the hands of consumers. 5G will allow