Strategic Management Course Overview and Strategy Concept

Strategic Management 

1 

© 2007 Prof. Dr. Bernd Venohr 

Course Overview and 

Strategy Concept 

Prof. Dr. Bernd Venohr 

Berlin, April 2007

Agenda 

Introduction to Strategy 

1 

2 

3 

Business Strategy 

4 

5 

6 


Course Overview and Strategy Concept 

Economics of Strategy 

Shareholder Value 

External Environment 

Internal Environment 

Competitive Positioning 

Corporate Strategy 

7 

8 

9 

Strategy Process 

10 

11 

Diversification 

Mergers & Acquisitions 

Global Strategy 

Organizational Structure and Control 

Strategic Leadership 

2

Agenda 


1 



- Course overview 

- Definition of strategy and history of strategy concept 

- Assignment of “case study” companies 

- Next session 

3

Learning Objectives 

� Understand course objectives and design 

– What is expected from you? 

– How will we work together? 

– How you will be graded? 

� Introduction strategy concept 

– Key definitions 

– Framework of Course 


4

Current Events 

� Why are Volkswagen and DaimlerChrysler in trouble, whereas BMW and 

Toyota are successful? 

� What is the rationale of Bayer AG buying Schering AG? 

� Why has BenQ not been able to turn-around the mobile phone division of 

Siemens ? 


5

Returns on Invested Capital vary widely by Industry 

Pharmaceuticals, biotechnology 

Household, personal products 


Software, services 

Media 

Commercial services, supplies 

Semiconductors, semiconductor equipment 

Health care equipment, services 

Food, beverage, tobacco 

Consumer services 

Technology hardware, equipment 

Automobiles, components 

Capital goods 

Consumer durables, apparel 

Food, staples retailing 

Retailing 

Materials 

Energy 

Transportation 

Telecommunication services 

Utilities 

Median annual ROIC (%)* 

1963-2004 

1995-2004 

Total sample 

75th percentile 

Median 

25th percentile 

0 5 10 15 20 25 30 

1963-2004 

Source: A long-term look at ROIC , Bin Jiang and Timothy M. Koller, McKQuartely 2006 Number 1; *ROIC excl. 6 

goodw.) 

17.9 

11.1 

6.4 

1995-2004 

22.2 

12.2 

5.6

Returns on invested capital within an industry differ 

sometimes far more dramatic than between sectors 

Pharmaceuticals, biotechnology 

Household, personal products 


Software, services 

Media 

Commercial services, supplies 

Health care equipment, services 

Semiconductors, semiconductor equipment 

Consumer services 

Food, beverage, tobacco 

Capital goods 

Automobiles, components 

Consumer durables, apparel 

Technology hardware, equipment 

Retailing 

Food, staples retailing 

Materials 

Energy 

Transportation 

Telecommunication services 

Utilities 

Median annual ROIC1963-2004 (%)* 

0 5 10 15 20 25 30 35 40 

25th 

percentile 

50th 

percentile 

75th 

percentile 

Source: A long-term look at ROIC , Bin Jiang and Timothy M. Koller, McKinsey Quartely 2006 Number 1;*, 

excluding goodwill, 

7

Return on Invested Capital (ROIC) measures the 

return on the investment provided to the company’s 

investors (debt and equity investors) 


ROIC = 

Net operating profit 

less adjusted taxes 

NOPLAT 

Invested Capital 

Capital provided by 

debt and equity 

investors 

Ratio Analysis 

8

Research results on long-term company performance 

measured by ROIC 

� The average US company has returned its cost of capital over 

time: median ROIC 10 percent 

� Historical ROICs can vary widely by industry. These 

differences in the way industries perform haven't changed 

substantially over time 

� Intra-industry differences (spread between the top and bottom 

quartile of companies) are sometimes far more dramatic than 

those among sectors 

Source: A long-term look at ROIC, Bin Jiang and Timothy M. Koller 

McKinsey Quartely 2006 Number 1; ROIC histories of about 7,000 publicly listed nonfinancial US companies from 

1963 to 2004. These companies had revenues of more than $200 million in 2003 dollars, adjusted for inflation. 


9

Course Motivation: Strategy is the study of why some firms 

outperform others over time 

� Average returns (profits) among industries vary (industry attractiveness) 

� Returns among companies within industries vary even more 

� Returns for individual companies vary over time 


Why are some industries more attractive than others? 

Why are some firms more successful than others? 

Why can can certain firms sustain their superior returns 

over time while for other firms profits disappear quickly? 

10

Why may be differences in the long-run performance 

of companies? 

� Different industries? 

� Different times → different macroeconomic conditions? 

� Different competitive positions? 

� Different levels of operational effectiveness? 

� Luck? 

� Other factors…. 


All of these matter 

11

The “art of strategy”: to find an advantaged 

competitive position in an attractive industry 

Advantage 

Competitive 

position 

Disadvantage 


Increasing returns 

Lo Hi 

Industry attractiveness 

12

My Personal Background 

� 20+ years of experience in the strategy area 

– MBA Northwestern 1983 

– Dissertation PIMS-Programme (1987) 

– 13 years at Bain & Company („classic“ strategy consulting); 

Consultant to Partner 

– 5 years at Accenture (Managing Director): venture capital 

and corporate development 

� My personal objectives for this course 

– teach you the „essence“ of my experience 

– have some fun together: I still enjoy the field after 20 years 


13

Course Objectives: to provide a set of concepts and 

“tools” to analyze the conditions under which a firm can 

develop and sustain a superior competitive position 

Develop knowledge and skills needed to: 

� Evaluate a firm’s strategy 

– role of Analyst 

� Recommend future strategic actions 

– role of Consultant 

� Manage the strategic direction of a firm 

– role of Manager 


14

Course Emphasis 

� Generalist perspective 

– Integrative course (drawing on insights from finance, marketing and other 

areas) 

– Broad principles that can be applied across many firms and markets 

(grounded in basic economics) 

� Strategic thinking 

– Uncertainty, ambiguity, complexity 

– No “one best way” 

– Structured problem-solving (frameworks; quantitative and qualitative 

evidence to support analysis) 

� Practice 

– Strategic thinking as skill rather than a collection of techniques and 

concepts 

– The best way to learn a skill is to practice it (“learn how to swim”) 


15

Learning Philosophy 

� Teach Strategic Thinking 

– learning concepts, models and tools of strategic analysis 

– apply these to „real situations“ (case studies) 

– develop problem structuring and problemsolving skills for „messy situations“ 

– develop a fact-based approach 

� Active class work involvement 

– active listening 

– value-adding contributions 

� Teamwork 

– work together in problem structuring and problem solving 

– learn from each other 

– appreciating and leveraging differences 


16

Course Overview: Format 

� Classes will consist of: 

– Case analysis and discussions 

– Lectures 

– In-class exercises 

� Required reading and preparation: No prescribed textbook. Main 

focus will be applying the strategic frameworks and tools to 

practical company situations. There will usually be short practice 

assignments for each session based on company cases assigned 

to student groups 

� Electronic copies of lecture slides (concepts, analytical 

techniques) are posted on ILIAS 


17

Course Overview: Format 

� Classes will consist of: 

– Case analysis and discussions 

– Lectures 

– In-class exercises 

� Required reading and preparation: No prescribed textbook. Main 

focus will be applying the strategic frameworks and tools to 

practical company situations. 

� Electronic copies of lecture slides (concepts, analytical 

techniques) are posted on ILIAS 


18

Course Overview: Grading 

� Oral One-on-one examination: week from July 2nd to July 

7, 2007 

� Questions will focus on applying frameworks and tools 

to practical situations 

� Intensive preparation through constant application of 

frameworks and tools in class 


19

Grading last semester and lessons learned 

� Grade distribution from 1.3 – 5.0 

� Average grade about 3.0 

� Those who succeed 

– show interest in the subject 

– do weekly assignments 

– are active in class 

� Sure road to failure 

– have no interest 

– don‘t do homework 

– not showing up/doing other things in class 


20

Other Housekeeping / Questions 

Office adress 

FHW Berlin - Berlin School of 

Economics 

Room 518 

Badensche Str. 50-51 

D-10825 Berlin 

Phone +49 (0)30 857 89-334 

Mobile: +49 (0)177 576 8477 

Email: venohr@fhw-berlin.de 

Office hours: by appointment 


Suggested course timing 

Start and “first half” session: 

10.00 – 11.30 

1 - 2 mini-breaks 

Break: 11.30 – 11.50 

“Second half” session 11.50 – 13.20 

1 - 2 mini-breaks 

21

Agenda 


1 







22

The Etymology of “Strategy”- Greek origin: 'military 

commander' during the age of Athenian Democracy 

� strategus – a military commander in ancient Athens and a 

member of the Council of War 


• stratos (στατοζ) – army 

• agein (αγειν) – to lead 

� General meaning today: long term plan of action designed to 

achieve a particular goal, as differentiated from tactics or 

immediate actions with resources at hand. 

Source: Wikepedia, Strategy 

23

Etymology of “Strategy”- Sun Tzu (Famous Quotes) 

� “One hundred victories in one hundred battles is not the most skillful. 

Seizing the enemy without fighting is the most skillful“. 

� „So it is said that if you know your enemies and know yourself, you will not 

be imperiled in a hundred battles; if you do not know your enemies but do 

know yourself, you will win one and lose one; if you do not know your enemies 

nor yourself, you will be imperiled in every single battle“. 

� „Strategy without tactics is the slowest route to victory. Tactics without 

strategy is the noise before defeat“. 

� „All men can see these tactics whereby I conquer, but what none can see is 

the strategy out of which victory is evolved“. 

Source: Wikepedia, Sun Tzu; The Art of War (circa 500 B.C.) 


25

The Etymology of “Strategy”- von Clausewitz (Background) 

� Carl Philipp Gottfried von Clausewitz (June 1, 1780 - November 

16, 1831); Prussian general and influential military theorist 

� Served as 

- field soldier (extensive combat experience against 

France/Napoleon) 

- staff officer (Major-General) with political/military responsibilities 

- prominent military educator 

� Book “On War” (“Vom Kriege”) 

- translated into every major language 

- compilation of his observations following the Napoleonic War 

- most influential work of military philosophy in the Western world, 

introducing systematic philosophical thought into military 

instruction and operational planning 

Source: Wikepedia, Carl von Clausewitz, On War 1832 


26

The Etymology of “Strategy” - von Clausewitz (famous quotes) 

� “War is not an independent phenomenon, but the continuation of politics 

by different means”: war as a rational instrument of national policy. 

– Decision to wage war "ought" to be rational, based on estimated costs and 

gains of war. 

– War "ought" to be instrumental to achieve some goal, never for its own sake; 

and also in the sense that strategy and tactics ought to be directed towards 

just one end, namely towards victory. 

– War "ought" to be national, in the sense that its objective should be to 

advance the interests of a national state and that the entire effort of the 

nation ought to be mobilized in the service of the military objective. 

� Strategy – “… is concerned with drafting a plan of war shaping the individual 

campaigns...” versus “tactics …involve the use of armed forces in 

the engagement…”, strategy [is] the use of engagements for the object 

of war” 

Source: Wikepedia, Carl von Clausewitz, On War 1832; Wikepedia, Philosophy of War 


27

Strategy concept for business was developed at Harvard 

Business School 

� First course in business policy offered 1912: integrate knowledge from 

functional areas like accounting and operations 

� Search for core issue facing a company to tie together the other 

symptoms and problems in a company‘s situation and provide insight 

to the needed solution: “..all the messy, unsolved and perhaps undefined 

problems of importance charactising business management“ were 

summarized under the term strategy (Joseph Bower) 

� Strategy as „analytical construct“ to summarize core issue as the socalled 

“purpose of the firm”: “to help the practitioner translate the chaos 

of events and decisions he faced every day into an orderly way of sizing up 

the firm‘s position in its environment“ (Michael Porter) 

Source: Michael Porter, Industrial Organisation ant the evolution of concepts for strategic planning 


28

Strategy as concept of how a firm was attempting to 

compete in its environment, including a choice of goals as 

well as key operating policies 

The „classic“ Harvard framework 

1 2 

Company 

Strengths and 

Weaknesses 

3 4 

Personal Values 

of the Key 

Implementers 

Source: Michael Porter, Industrial Organisation and the evolution of concepts for strategic planning 


Economic, Technical 

and 

Industry 

Opportunities 

and Threats 

Broader 

Societal 

Expections 

� Aim of strategy: match 

internal competencies and 

values of a firm to its 

external environment 

� Effective strategy 

formulation: 

relating the four key 

elements 

� Consistency tests for a 

good strategy (“Fit”) 

29

Famous strategy definitions in business 

� Chandler, Strategy and Structure (1962): 

“Strategy is the determination of the basic long-term goals and objectives of 

an enterprise, and the adoption of courses of action and the allocation of 

resources for carrying out these goals“ 

� Kenneth Andrews, The Concept of Corporate Strategy (1971): 

“Strategy is a pattern of objectives, purposes or goals and the major 

policies and plans for achieving these goals, stated in such a way as to 

define what business the company is in or is to be in and the kind of 

company it is or is to be“ 


30

What is “Strategy”? : Working Definition 

� The businesses the firm is in or is to enter and how it will compete in them 

(objectives and positioning statement) 

� An integrative pattern of decisions engaging all the levels of the firm 

-fundamental positioning: product-market focus and key stages of the value 

chain 

-important elements of functional policies describing the fundamental 

positioning in detail 

� The long-term actions and resource allocation priorities of the firm 

(“big decisions” and / or sum of many operational decisions) 


… to achieve long-term sustainable 

competitive advantage in its industry and 

ultimately success 

31

What does “Success” means? 

Above-Average Returns 

� Returns greater than investments of similar risk (opportunity cost of 

capital; risk adjusted) 

� Exist when rate of return on invested capital (ROIC) exceed cost of 

capital (r): ROIC > r 


32

Strategy Making: Design or Process? 


Strategy as Design 

Planning and 

rational choice 

INTENDED 

STRATEGY 

REALIZED 

STRATEGY 

Source: Henry Mintzberg, Of Strategies, Deliberate and Emergent, in: SMJ, Vol. 6 (1998), pages 257 -272 

Strategy as Process 

Many decision makers 

responding to multitude of 

external and internal 

forces 

EMERGENT 

STRATEGY 

33

Examples for different types of strategy 

Emerging Strategy: Aldi 


34


Intended Strategy: Bayer AG purchasing Schering 

AG 


35


Realized Strategy: Daimler acquiring Chrysler 


36

The Basic Framework: Fundamentals of Strategy 


Attractive Industry 

Structure 

High returns for the 

average participant 

Superior Long-Run 

Performance 

Superior Competitive 

Position 

Do different things than 

rivals 

The central goal 

Competitive Advantage 

Outperform the average 

industry participant 

Operational 

Effectiveness 

Do the same things as 

rivals but better 

37

One important distinction: 

Business, Corporate and Functional Strategy 

� Most companies are diversified: active in more than one industry with 

different organizational units (business units) 

� A diversified company has 3 levels of strategy 

– Business Strategy 

• How a firm competes within a particular market and industry? 

• Create a competitive advantage in its given industry 

– Corporate Strategy 

• Which businesses should we be in? 

• How to create value for the corporation as a whole? 

– Operational/Functional Strategy 

• How each part of the business is organised to deliver the corporate and 

business-unit level strategic direction 

• Focuses on issues of resources, processes, people, etc. 


38

The problem of defining the business – 

“What business are you in”? 

“The railroads did not stop growing because the need for 

passenger and freight transportation declined… The railroads are 

in trouble today not because the need was filled by others (cars, 

trucks, airplanes, even telephones), but because it was not filled by 

the railroads themselves. They led others take customers away 

from them because they assumed themselves to be in the railroad 

business rather than in the transportation business. The reason 

they defined their industry wrong was because they were railroad - 

oriented instead of transport oriented; they were product oriented 

instead of customer oriented”. 

Source: Theodore Levitt Marketing Myopia, Harvard Business Review (HBR) ; 

1960 

Most popular article ever with 850,00 reprints 


Ted Levitt (1960) 

3 

39

Starting point of business definition: market definition 

1. Product- and supplier-oriented approaches 

All products and services which have physicaltechnical 

similarity/ functional similarity 

2. Customer-oriented approaches 

All products/services which are perceived as substitutes 

by the (potential) buyers (relevant market) 


Key measure: cross-price elasticity 

40

Business definition: the market and industry segments a 

firm is operating in 

� Business = industry segment in which company operates where it is 

possible to build barriers against other firms (=competitive advantage), by 

having lower costs or differentiation 

� There are basically two types of barriers 

– cost barriers: large differences in value chain activities leading to different 

cost positions 

– customer value barriers: different customer groups and needs 

� A business can be defined by 

– products/services 

– customer segments 

– company activities and technologies (value chain) 

– regions 

– different distribution channels 

Source: Bain & Company, Business DEfinition; Richard Koch, The Financial Times Guide to Strategy 


41

The concept of value proposition helps to define the 

customer groups and needs resulting in customer 

value barriers 


What 

Customers? 

� What end users? 

� What channels? 

What Relative 

Price? 

Entrepreneurial/creative process: 

A new value proposition can 

create a new industry 

Source: Michael M. Porter; What is strategy? World Business Forum, June 6, 2006 

Which 

products? 

� Which customer 

needs? 

� Which features? 

42

The concept of value chain helps to define differences in 

cost structures leading to cost barriers 

Separate value chains One Integrated value chain 

Support 

Activ ities 

Inbound 

Logistics 

(e.g. 

Incoming 

Material 

Storage, 

Data 

Collection, 

Serv ice, 

Customer 

Access) 


Ability to Leverage Key Activities Across Businesses 

Firm Infrastructure 

(e.g. Financing, Planning, Inv estor Relations) 

Human Resource Management 

(e.g. Recruiting, Training, Compensation System) 

Technology Dev elopment 

(e.g. Product Design, Testing, Process Design, Material Research, Market Research) 

Procurement 

(e.g. Components, Machinery, Adv ertising, Serv ices) 

Operations 

(e.g. 

Assembly, 

Component 

Fabrication, 

Branch 

Operations) 

Outbound 

Logistics 

(e.g. Order 

Processing, 

Warehousing, 

Report 

Preparation) 

Primary Activ ities 

Marketing 

& Sales 

(e.g. Sales 

Force, 

Promotion, 

Adv ertising, 

Proposal 

Writing, Web 

site) 

Source: Michael M. Porter; What is strategy? World Business Forum, June 6, 2006 

After-Sales 

Serv ice 

(e.g. 

Installation, 

Customer 

Support, 

Complaint 

Resolution, 

Repair) 

M 

a 

r g 

i 

n 

Value: 

What 

buyers are 

willing to 

pay 

43

Demand and/or value chain differences lead to 

cost barriers and/or customer value barriers which create a 

separate business arena 

Low 

Cost barriers 


High One 

Business 

Separate 

Business 

High Low 

Customer value barriers 

Source: Bain & Company, Business Definition; Richard Koch, The Financial Times Guide to Strategy 

44

Business definition helps to determine what business 

„battlefield“ is most defensible 

� Business definition describes defensible segment 

–too broadly defined: company can be overtaken by more 

focused competitors 

–too narrowly defined: company overtaken by more broadly 

based competitors 

� Business definition can be used to re-segment an industry 

–either by creating a new, smaller segment out of an existing 

segment or by merging two segments together 

–“can we obtain lower costs and/or higher prices (create 

competitive advantage) by redefining the segment and 

changing the rules of the game”? 



45

Quick test if two potential segments are one 

business or two „businesses“: direct competitors are 

„inside“ this boundary, indirect competitors are „outside“ 

� “Are the competitors in the two potential industry 

segments different or the same”? and 

� “Do the competitors have roughly similar market 

share positions in the two potential segments”? 

� If so, two industry segments are probably one single 

business segment; if not, they are two different 

business segments 



46

Examples for redefining an industry 

� Low Cost Airlines and traditional „Flag Carriers“ 

� Discount retailing and full-service retailing 

� Direct selling of personal computers and sales 

through channels 


47

An industry map illustrates the difference between business 

strategy and corporate strategy 

Other 

Variable 

(e.g. 

regions; 

value 

chain/ 

cost 

structure) 


Corporate Strategy: Diversification Strategy 

Business Strategy 1 

Business Strategy 2 

Business A Business B Business C 

Market : Product – Customer Segments 

48

Corporate vs. business strategy: a diversified 

company, which is active in more than one business, 

has two levels of strategy 

Example: Deutsche Post World Net 

CORPORATE 

STRATEGY 

BUSINESS 

STRATEGY 

Source: Corey Phelps; Mgmt 430 


Mail 

Example: Deutsche Post World Net 

Express 

DPWN 

Logistics 

Financial 

Services 

49

Agenda 


1 







50

Mini-Case assignments 

� A number of companies are selected to apply frameworks and tools 

throughout the course 

� At the end of each session there will be usually a short assignment 

with 1 or 2 questions to be worked on 

� In the beginning of next session teams present their solutíon 

(format: 1-4 pages; max 10 minutes presentation) 

� Class will split in a number of teams with 3-6 members each 

� Companies can be chosen from the following list: 

– BMW 

– Hugo Boss 

– Lufthansa 

– SolarWorld 

– Beiersdorf 


51

Mini-Case assignments 

www.bmw.de 

www.group.hugoboss.com www.lufthansa.com 

www.solarworld.de www.beiersdorf.de 


52

Team list 

Team 

Members 


53

Agenda 


1 




- Break 

- Strategy concept 



54

Next session 

� Read slides on session 1 on ILIAS 

� Finalize your team 

� Visit company web page and prepare as team a brief description of the 

company strategy 

– Product and Service offering 

– Markets served, customer groups and competitors 

– Overview organization chart 

– Key financials: Revenue and profits (last business year) 

� Topics of next session: 

– Brief 4 page presentation; bring on usb stick 

– Lecture: Economics of Strategy 


55

Strategic Management Course Overview and Strategy Concept

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