Syl Lmba
Syl Lmba
Syl Lmba
A. ADMINISTRATIVE INFORMATION
Contact Information
Materials
B. COURSE OVERVIEW
This course applies tools from microeconomics, industrial organization and organizational
economics to competitive decision making. The emphasis is on the application of these concepts
to business situations, and as such the course relies heavily on the analysis of case studies. The
course is divided in three parts. The first part introduces tools to understand industry economics
and the determinants of industry-wide profitability; it then studies the determinants of the
individual firms strategy and profitability, focusing on both organizational and positional aspects.
The second part studies firm and industry dynamics, focusing on technological discontinuities
and changes in competition and the reaction of individual firms to these changes in their
environment. The third part introduces basic game theory as a tool to analyze competitive
interactions when the number of players is small and the industry is being shaped by the
interactions between these players. This tool is used to analyze issues such as bargaining power,
price competition, entry and exit decisions, standard setting and technological competition.
The course is heavily based on case discussions. Students will be expected to prepare in depth up
to two cases per week. For each class meeting, study questions will be assigned concerning a case
study. We will discuss these questions and the material in the case for most of the class period.
Before each case discussion, each student will be required to submit a memorandum (up to two
pages) of analysis and recommendations (for a total of around 12 to 15 memoranda). Group work
is encouraged, but not required on these short memoranda. Memoranda with up to three names on
them are acceptable. All required cases and supplementary readings will be in the course packet.
1
A note on case analysis: Students often ask instructors of case-based classes to hand out their own
case analysis after the class has discussed the case. We will not do this. First, the best cases are
deliberately written to be ambiguous. While there are no right answers, there are good arguments
and bad arguments. This course is designed to help you learn to distinguish between sensible and
senseless arguments. Handing out our analyses would reduce the ambiguity in the cases and
partially defeat the purpose of doing cases. (A corollary of this is that being comfortable with the
ambiguity inherent in ‘real-world’ situation is a prerequisite to take this course.).
2
C. COURSE REQUIREMENTS AND GRADING [REPLACES SECTION IN PACKAGE]
Grades
Based on class participation (35%), case write-ups (10%), two group blog contributions to
Strategy Today (20%; 10% each one ) and an in-class case-based final, which students will
receive and have time to prepare at home for several days (35%).
a. Class Participation
Professors will come to class each day with a teaching plan that will try to achieve a logical
progression through the key issues in a given case. To this end, study questions (see section F
below) have been prepared to lead the discussion. However, it is important to appreciate that the
students in the class are co-producers of the class discussions. Class members need to listen
carefully to one another and to build on or critique prior comments. Class members should also
try to resist the temptation to jump to topics that are not specifically open for discussion. When
that happens, it is the responsibility of the class and the professor to bring the discussion back on
track. The discussion should be a conversation in which all participants recognize that they have
an obligation to advance our understanding of the issue at hand. Your contributions to this
learning process will be appraised in addition to the content of what you contribute.
You should be prepared for every class. If for some reason you are not prepared, please let us
know before the start of class. We may open the class by asking someone to summarize the
readings or cases briefly, or answer a short question. With a reading, you should be able to
outline the problem that the article addresses, describe the core points of the reading, and, most
importantly, offer your analysis of the strengths and weaknesses of the reading’s central
argument. With a case, you should be able to identify the key issues, problems, and opportunities
facing the central protagonists, to articulate and evaluate alternative approaches to the problems,
and to describe the course of action that you recommend and the reasons for your
recommendations.
Before a case is analyzed in class, you should neither read an analysis of the cases nor discuss it
with students who have previously discussed it in class (either in a previous year or in a different
course or section). Similarly, you should not share the notes handed in class with another student
3
who may take the course at some later time. If you are in violation of this policy, or know of
someone who is, please discuss it with us.
Also, make sure that we have your picture. The Dean of Students supplies us with photos of all
registered students. If you did not supply the GSB with a photo when you registered please bring
a picture to class with your name on the back and hand it to the instructor.
b. Case Write-ups
You can find in your package several study questions for each case (they are in the package under
Case Questions). One of them is often boldfaced. For most of the class period, we will consider
these questions and the material in the case.
Each student will submit a two-page memorandum of analysis and recommendations at the
beginning of each week starting on Week 2. You may miss one week. This means you need to
hand in a total of 8 memoranda. This memorandum should focus on one of the questions that
appear in bold in the Case Questions. If you are working in a group, we will accept one
memorandum from the group and count it for all students in the group. Each memorandum should
be typed and double-spaced. Write these as if you were writing a recommendation to the major
decision-maker in the case. The two-page limit is for text only. You may attach as many
numerical calculations as you wish. Memoranda will not be accepted after the class has met. A
memorandum will be given credit if it is handed in and no credit if it is not. Initially, therefore,
we will not grade them. However, we will use the memoranda to determine final grades for those
students who are on the border of an A or B, the border of a B or C, or the border of a C, D, or F.
The memoranda count for 10% of the final grade. The memoranda will have greater importance
for those students on the A / B, B / C, or C / D / F borders.
During week 10, I will give you a case to take home and read, but I will not give you any
questions. You can write individually all over the case itself as well as prepare additional notes
with tables, calculations, etc. of up to 1 single sided page (8 1/2 by 11). No group collaboration or
use of outside information is allowed in preparing for the exam. On the date the exam is
scheduled, I will hand in the questions and you will write, using your notes and cheat sheet.
4
they had not thought about, rather than on making a boring on the one hand on the other hand
analysis (you are not economists here!).
This would add up to a 700-1000 words piece roughly. To see good examples of what I have in
mind, go to Slate.com (www.slate.com) and check out what people such as Jack Shafer and
William Slatan or, on business matters Daniel Gross. For example:
http://www.slate.com/id/2115217/ is a great example.
Other students are welcome to post comments on your post. I will evaluate the 2 contributions of
each group; they will count for 20% of your grade. But I will not grade you on the
comments/responses etc. you may post on other students’ articles; you may write them, and that
will be fun for all of us, but this part is not obligatory.
Groups must reserve ahead of time dates they want to post. At most, 4 groups can post on one
day. E-mail your preferred days to the TA. When you e-mail her give the names of each person
in your group. We will then allocate dates on a first-come first served basis. We will post a
5
calendar on the blog that describes which groups will be posting when. If there are already 4
groups posting on a date, don’t e-mail me, that date is not available.
D. HONOR CODE
Students enrolled in this class are expected to adhere to the terms of the GSB’s honor code. In
this particular class, it involves, among other things:
• Students may not discuss with students who have taken the class previously (either in another
section or in a prior year)
• Students may freely discuss a case with other students who have not yet discussed the case
(for example, with other students in the same section)
• Students may not discuss the midterm case with anyone prior to turning in the answers to the
midterm
6
E. CLASS SCHEDULE
Characteristics of an industry that affect the firm’s profitability. Implications for firm’s strategy.
Firm level strategy. Cost and benefit drivers. Analyzing the relative market position of a firm.
Strategy formulation and evaluation. Organization and Competitive Advantage. Determinants of
sustainability of advantage. Intro to Corporate Strategy. Synergies. Organizing for synergies.
7
Week 3. Organization and Competitive Advantage I: Business Unit
Industry life cycle. First and Second mover advantages. Internal and external changes in
environment. Technological discontinuities.
Week 6. Dynamics of Firm and Industry II: Changing Industry Structure. Technological
Discontinuities
8
Cases: Adolph Coors in the Brewing Industry (HBS 9-388-014)
BDSS: Chapter 13
Review of basic concepts in game theory required to analyze oligopolies. Static and Dynamic
Pricing games. Changing the Rules of the Game. Entry Deterrence. Entry Strategies. Using
commitments to alter rivals' behavior. War of Attrition. Standard Setting. Antitrust Implications.
Week 7: Intro to Game Theory. Understanding Bargaining Power. Competing for the Market and
in the Market
Week 8. Price Wars, Tacit Coordination and the Rules of the Game.
Week 9. Entry: Entry Opportunities, Entry Strategies, Entry Deterrence and Preemption
9
Cases: Dogfight over Europe: Ryan Air (A)
In-class case: Dogfight over Europe: Ryan Air (B)
10
F. STUDY QUESTIONS
Week 1: A 1. Using SS&P Chapter 6, perform an industry analysis of the U.S. metal can
industry in 1989. Be prepared to discuss buyer and supplier power,
competition and barriers to entry and the value chain in which the
industry participates. Is this an industry in which the average metal can
company can expect to earn an attractive return over the long run?
a. Key Data : MES and penalty for producing below it: (a) Using
Reynolds plant as a starting point, calculate the minimum efficient scale
for a 2 piece can plant; use this estimate to estimate MES relative to
market size. (b) Estimate the cost penalty of producing below MES—for
example at 50% of capacity. Make your assumptions explicit
2. What has been Crown Cork's strategy under Connelly? How does its strategy
respond to (fail to respond to) the challenges and opportunities in its external
environment?
3. Should CCS acquire Continental Can?
Week 2: A 1. How and why has the express mail industry structure evolved in recent years?
2. How have the changes affected small competitors?
3. How has Airborne survived, and recently prospered in its industry? What
are the sources of Airborne’s competitive advantage?
a. Key Data: Drivers of cost position: Use the data in exhibit 3 of the case
and in the text to argue your position on the basis of a comparison
between the cost of shipping an overnight letter on Airborne and FedEx.
Specifically, using the information given and your understanding of
what influences each cost item, estimate each item that affects the cost
for Airborne and compare it to the FedEx cost.
4. Is Airborne’s position sustainable? What must Robert Brazier, Airborne’s
President and COO, do in order to strengthen the company’s position?
Week 2: B 1. What is Husky’s strategy? Why has the company been so successful in the
period prior to its recent problems?
2. Are the Husky injection molding systems worth the premium price the
company charges?
a. Key Data: Drivers of Buyer Value: Calculate how much more a
Thinwall system and a PET system by Husky is worth than one of the
competitor. Are they worth the premium? What are the drivers of this
value?
3. What has caused Husky’s recent difficulties?
4. How should Schad and the company respond?
Week 3: A 1. Describe and evaluate Bombardier’s strategy for the U.S. railcar market.
2. Describe and evaluate Morrison Knudsen’s strategy for entering this
11
industry.
3. What are Bombardier’s main strategic options in light of MK’s entry? Which
strategy should it adopt?
Week 3: B 1. Perform an industry analysis of the rental car industry. What is the source of
Enterprise’s superior performance?
2. How does Enterprise differ from other rental car agencies? Why is this key?
3. Should Enterprise expand into other segments of the rental car industry? If so, which?
And why?
Week 4. A 1. What do you think were the key success factors for Disney during the Walt
Disney years?
2. Evaluate Disney's corporate strategy during the Walt Disney era. What role did
Disney's array of businesses play in its success? Which divisions provided
greater “synergy” than others? Why?
3. Assess Disney's corporate strategy under Eisner. How has the underlying
logic changed since the days of Walt Disney? Do you think Disney's
corporate strategy has become more or less compelling?
12
the past twenty years.
3. How much confidence do you have in Kodak’s new strategy? Which
portions of the strategy are most likely to fail and which are most likely to
succeed.
4. What would you do if you were Daniel Carp?
Week 7A 1. Read and analyze the Shrimp Exercise description. Be prepared to participate
Week 7B 1. How did Nintendo's strategy expand the size of video game industry PIE?
How did this strategy allow it to capture a big slice of the PIE?
2. Evaluate NEC's and Sega's strategies for challenging Nintendo in video games.
3. Evaluate Nintendo’s decision to delay introducing a 16-bit video game system.
What are Nintendo’s options concerning backward compatibility? Why would the
trade-offs you identify be different here than in PC OS or software?
Week 8b 1. What aspects of industry structure make the concentrate producers so
profitable?
2. How do Coke and Pepsi manage the value chain? How has competition
between Coke and Pepsi affected industry profits in each part of the value
chain?
3. In the wake of flattening demand and the growth of non-carbonated drinks, how
can Coke and Pepsi maintain their profitability?
Week 9A 1. Can Ryan Air make money at the launch fare price of 98?
Key data: Estimating cost of entrant. Calculate the expected costs of
Ryan Air using the cost structure of BA and AirLingus (exh 4) and the
data in the case.
2. How would you expect Ryan Air’s rivals to respond? Why?
Key Data: Estimate the cost of accommodation for BA and Ryan Air
and the cost of matching Ryan Air costs.
3. What is your evaluation of the entry strategy in the light of your answer to
question 2?
Week 9B 1. Why has RTE cereal been such a profitable business? What changes have led to
the current industry crisis?
2. Profits have not been dissipated by entry. Why? What are the costs of
entering this market? Analyze them from the perspective of a giant
consumer goods company not yet in the market (say P&G).
3. Why did things change? What are the entry costs to the private label brands?
4. How would you react to this entry if you were an incumbent? Analyze this from
the perspective of each incumbent
Week 10 1. Evaluate the structure of this industry in terms of its attractiveness to
incumbents. Key data: use the spreadsheets 5 and 6 (in electronic form in the
web site) and undertake some sensitivity analyis to answer the following
qusiton
1. How do you expect competition to look in this industry in the long-run? Can the
two rivals survive in this industry? Why?
2. Choose one of the companies and analyze its actions, considering the way it tries to
13
affect what its rival will do.
14