Download Strategy: A View from the Top Chapter 3

Team 2
Heather McMahon
Jacob Western
Brittany Thomason
Scott Devore
Ryan White
Cory Gregory
Mitchell Stack
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Losing the way of life
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In everything you do, personal and business
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Political Globalization
◦ Collapse of communism 1989
◦ Democracy
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Economic Globalization
◦ NAFTA, WTO, and many over
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Technological Globalization
◦
computers, travel, etc.
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Regional Trading blocks account for 60% of
world trade
Some view it as a stepping stone
Some view it as solutions to problems and
pressure and that they may become rigid.
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India and China are vastly becoming
economic powers
Over the past 5 years India’s economy has
grown 5% annually
By some measure China’s economy is already
larger than Germany’s
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India is becoming the new silicon valley
◦ It has become the location of choice for software
development and many other technical services
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This leads to:
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growing investment
foreign capital and technology are coming in
western style competition is predominant
state intervention is diminishing
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China has become the preferred location in
manufacturing
◦ Because of an abundance of cheap labor
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Created a global competitive advantage by
combining cheap labor with new technology
◦ Opened doors and encouraged incentives for
technology transfer
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Biggest trading partner for Japan, Korea, and
many other key Asian economies
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China’s economic progress is still uneven
◦ Some places are still having Coca Cola delivered by
mule
◦ Majority of deliveries are still made by bicycle or
motor scooter
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Western countries recognize vast potential in
China’s growth
◦ Number of U.S. companies such as Wal-Mart, KFC,
and Nike have begun doing business in China
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China is still a tough market to enter because
the government still controls much of the
business environment.
◦ Competing with domestic Chinese firms for control
of Chinese market is not a easy path to follow
◦ Companies have to include Chinese in the
production of the products in order to sell them in
China
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20 years ago only a few companies could be
considered global, now almost all businesses
are affected by globalization
Companies expand beyond their comfort
zones into unfamiliar cultures
This provides more risk to companies in more
undeveloped economies
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Global Tectonics- the process by which
developing trends in technology, nature,
and society slowly revolutionize the
business environment
3 different categories
◦ Environmental- arise from the interactions between
people & their environment
◦ Technological- advances in biotechnology,
nanotechnology, and information systems power
economic growth and development, global integration
and speed for a knowledge economy
◦ Societal- shifts in international governance and
political and cultural values, such as current wave of
democratization, deregulation, and governance
reform
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The Penn State Center for Global Business Studies
conducted a study of the global trends that are likely
to present the most significant challenges to business
leaders in the next 30 years.
The project identified 12 global trends
Developments in areas such as demography,
infectious diseases, resource degradation, economic
integration, nanotechnology, international conflict,
and governance all have major consequences for
corporate strategy.
Companies that are attuned to these challenges,
prepare for them, and respond appropriately will
likely thrive; those that ignore them do so at their
own peril.
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Population
◦ Across the planet, demographic trends are
transforming societies, changing patterns of
economic activity, creating new economic social
dependencies, and altering the geopolitical
landscape.
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Why?
◦ The world population is rising – fast! From 6.4
billion today to an expected 7.8 billion by 2025 and
about 9 billion by 2050!
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What can we expect?
◦ As markets in developed nations mature, the
economies of developing nations will take off,
thereby shifting economic growth, the flow of
capital, the tastes and preferences of consumers, as
well as the use of the world’s natural and “strategic”
resources, including food, water, and energy.
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Urbanization
◦ Migration from rural to urban areas is rapidly
becoming a major challenge.
◦ Today, less than half of the world’s population lives
in cities. However, by 2030 this number is expected
to increase to nearly 60 percent.
 Local & federal governments will be hard pressed to
provide the necessary infrastructure and social
services.
 These trends offer large opportunities for business,
but “mega cities” (10m people or more) requires large
amounts of innovation, investment, and economic
growth.
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Spread of Infectious Diseases
◦ As levels of migration and cross-border flow of
labor and goods increase, so will the likelihood of
epidemics and the spread of infectious diseases.
◦ Ex: HIV/AIDS has impaired the labor force and all
but overwhelmed social systems such as education
and health care.
 Statistic: According to a 2007 World Report, AIDS has
now reached “pandemic” level. Stating that and
estimated 33.2 million people are living with the
disease worldwide and 2.1 million people died and of
those 330,000 were children.
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Resource Management
◦ The strategies of many companies around the world
depend on the availability of such critical resources
as water, food, and energy.
 Forecasts suggest that future conflict over water
resources is increasingly likely.
 The availability of food affects population growth,
technology, and governance.
 Increasing crop yields, enhancing foods with vitamins,
and improving distribution systems will be critical.
 Energy availability is also an ongoing concern in many
industries.
Environmental Degradation
Global Warming – Effects of decades of pollution on
long-term weather patterns.
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Rising sea levels
Increased frequency of severe storms
Retreat of glaciers and icecaps
Average temperatures increase
The most devastating effects and also the
hardest to predict, will be the effects on the
world’s living ecosystems.
Environmental Degradation
cont.
Other Environmental Concerns
1)Water Pollution
3)Desertification
2)Deforestation
4)Erosion
Solutions to these problems will require a partnership between the
private sector and regulatory authorities on a global scale.
The Kyoto Treaty was written to reduce carbon dioxide and other
greenhouse gas emissions worldwide. Thirty-five industrialized nations
have committed to reducing their output of these gases to varying
degrees.
Economic Integration
Higher levels of cross-border economic activity
have increased interdependence among the world’s
economies and created a fully integrated economic
system on a global scale.
Example – Airbus
Wings – Britain
Germany
Doors & Cockpit – Spain
Fuselage & Tail Final Assembly – France
In all, more than 2,000 companies, located in more
that 30 different countries, supply components,
spare parts, ore provide services.
Knowledge Dissemination
The emergence of a global economy based on
knowledge and ideas has changed the very nature
of strategic opportunity and risk.
In a knowledge-based Internet economy, ideas
spread all across the world almost overnight at an
extremely low cost, making it easier for small
companies, new ones and those from developing
countries to compete.
Smart Products – interactive products that become
smarter the more they are used and can be customized.
Tire – Informs driver of pressure
Garment – Heats and cools in response to climate
changes
Information Technology
Information technology is changing the quality of
peoples’ lives everyday.
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Flexible work hours
Emergence of fully equipped home office
New forms of communication (blackberry)
Blending work with family
Biotechnology
Rapid advances in humankind’s ability to
understand and manipulate the basic elements of
life are likely problems that could not be solved
before.
Biotech has greatest potential in three areas
1. Medicine – new drugs will help eradicate diseases
2. Environment – Advancements in pollution cleanup
3. Agriculture – Grow plants that make plastic
Motorola has already begun to investigate the
potential of genetic engineering in computing – the
first step toward a DNA –based computer
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The ability to create new materials one atom
at a time
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Reshaping our vision of the future
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Stronger and lighter materials will:
• Reduce the cost of transportation
• Reduce the amount of pollution
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“Nanomedicines”
◦ Able to:
 Monitor
 Repair
 Control human biological systems
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Threats to business
◦ Terrorism
◦ Civil society
◦ Cyber attacks
• Solution
◦ Companies must protect their information systems
◦ Develop security standards
◦ Create redundancies in supply chains
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Laws that relate society and corporations
◦ Law defined by local and national legislatures
◦ Multilateral agreements
◦ Emerging body of international law
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Management structures and practices
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Business Culture evolving
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Cross-border investments
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Seek Revenues from abroad
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Marketing
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There are many characteristics of GK, they
are:
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No longer law of scarcity, but law of
abundance “knowledge shared”
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Location is irrelevant, virtual marketplaces &
virtual organizations
“around the clock
operations”
National laws, barriers and taxes –
knowledge and information “leak”
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Knowledge-enhanced products or services
set price premiums “different value”
Knowledge, when locked into systems or
processes,
“walk out of the door”
Human Capital – acquired skills and
competencies
“key component”
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Procter & Gamble, pioneer in mass marketing
◦ Shift from selling to a vast, anonymous crowd to
millions of particular customers
◦ Other consumer giants such as:
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Coca Cola
McDonald’s
General Motors
Unilever Group
American Express
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McDonald’s devotes less than 1/3 of U.S.
marketing budget to network television
◦ 5 years ago it was 2/3
◦ The remainder is spent on media such as:
 Closed circuit sports programming
 Customer-published magazines
 In-store video
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“To capture the lack of predictability, decision
making situations often are described along a
continuum of states ranging from certainty to
risk to uncertainty.”
In other words… Decision making situations
are often put in classes based on certainty,
risk, and uncertainty in order to determine
their predictability.
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Certainty = accurate, measurable information
is available about the outcome of each
alternative considered.
Risk = Can’t predict its outcome with
certainty, but we have enough info to assess
its probability.
Uncertainty = Little is known about the
alternatives and their outcomes.
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“To make a proper analysis of the strategic
environment, we must be able to assess:
◦ the degree of uncertainty associated with relevant
events,
◦ the speed with which changes are likely to occur,
◦ and the possible outcomes they foreshadow.”
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Changes to look for…
◦ Gradual & Knowable (Predictable / Understood)
 Example: Social Trends
◦ New Regulations (Immediate Uncertainty)
 Example: Structure will either be adopted or not
◦ Collapse of boundaries (Identifiable /Not Predictable)
◦ Sudden Collapse of foreign governments, outbreaks in
war, and major technological discoveries (Random/Not
Predictable)
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Originally developed in London
It’s one of the most widely used techniques for
constructing alternative possible futures of a
business external environment.
Purpose:
◦ to analyze the effects of various uncontrollable forces
◦ to test the resiliency of specific strategy alternatives.
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Used most by businesses that are highly sensitive
to external forces.
◦ Example: Energy Companies
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Divides information into 2 categories:
◦ Things we believe we know something about
 Example: Demographic shifts
◦ Elements we consider uncertain or unknowable.
 Example: Future Interest Rates, or results or results of
presidential elections
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Scenarios depict possible futures, not specific
strategies to deal with them.
So…Outsiders (such as customers, suppliers, and
consultants) are invited in:
◦ To see the future broadly in terms of fundamental trends.
◦ To build a shared framework for strategic thinking that
encourages diversity and sharper perceptions about
external changes and opportunities.
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The Scenario Building Process  4 Steps
◦ 1. Decide what future events to probe, which trends
to include, and what time horizon to consider.
◦ 2. Identify which forces or developments are likely
to have the greatest ability to shape the future.
◦ 3. Construct a comprehensive set of future
scenarios based on different combinations of
possible outcomes. (Few scenarios will become the
focus of a more detailed analysis)
◦ 4. Generate scenario-specific forecasts that allow
an assessment for strategic choices.
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http://www.energy.ca.gov/ab1007/documents/
2007-05-31_joint_workshop/2007-0531_RENEWABLE_DIESEL.PDF
California Energy Commission prepared a
scenario analysis that focused on renewable
diesel fuel blends that could replace the
normal diesel fuel in California for the year
2050.
By doing this analysis, the staff concluded that
the renewable fuels can replace petroleum
demands and are worth implementing.
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Created 3 possible scenarios that could
develop in the 21st Century based on wildly
different social visions:
◦ Conventional Worlds
◦ Barbarization
◦ Great Transition
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21st Century has no major surprises or major
transformations for human civilization
Dominant values and institutions shape the
world future
World economy develops rapidly and
developing countries mirror those of
industrial countries
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Scenario 1: Market Forces
◦ Gradual changes for both technology and
population
◦ Problems are solved with logic and competition
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Scenario 2: Policy Reform
◦ Strong government action to achieve social equity
and environmental protection
◦ Use of environmentally friendly technology to
proactively sustain the ecosystem
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Collapse and Failure of Underpinnings of:
◦ Society
◦ Economics
◦ Morals
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Scenario 3: Breakdown
◦ Crises combine and spin out of control
◦ Unbridled Conflict, Institutional Disintegration,
Economic Collapse
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Scenario 4: Fortress World
(authoritarian response)
◦ Governments protect the privilege by
controlling the impoverished
majority
◦ Manage critical resources
◦ Chaos outside the ‘Fortress World’
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Exploration of visionary solutions to sustain
the ecosystem
Society preserves the natural systems,
provides high levels of welfare, and equal
distribution of goods
Population levels stabilize
Lower consumerism and massive use of green
technologies
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Scenario 5: Eco-Communalism
◦ Bioregionalism and localism
◦ Face-to-face democracy and small technology
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Scenario 6: New Sustainability Paradigm
◦ Seek to change the character of the urban and
industrial situation instead of replacing it.
◦ Building of a more humane and equitable global
civilization rather than retreat into localism
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Traditionally:
◦ Attention paid to stakeholders (not shareholders)
was limited
◦ Issues to communities and the environment where
dealt with PR and lawyers.
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Now:
◦ New way of thinking regarding the community and
environment
◦ Higher morals and corporate social responsibility
1.
Size Means Scrutiny
2.
Cutting Costs Raises Compliance Risk
3.
Strategy Must Involve Society
4.
5.
Reducing Risks Means Building Trusts
Satisfying Shareholders Means Satisfying
Stakeholders
6.
Global Growth Requires Global Gains
7.
Productivity Requires Sustainability
8.
9.
Differentiation Relies on Reputation
Good Governance Needs Good Representation