Strategy – Module 1

Strategic management can be divided into business level and corporate level. Business Level
deals with strategy on the level of the single organization (ex. Rolex, operating in an individual
business). On a corporate level we deal with multiple businesses firms that involve different
sectors (ex. Volkswagen, Samsung) and the question here is how you develop a strategy to
create value for all the sub-brands involved and create a parenting advantage.
On the business level you discuss about how to create a corporate advantage that is perceived
by your customers, while on the corporate level the main target group for the strategy is the
shareholders. On the corporate level you set a goal and align all the elements of an
organization to reach that goal. On the business level strategy is more of a plan to make your
vision reality. If you want to design a strategy you follow the strategy process. It starts with a
strategy analysis, proceeds with the strategy formulation and making a strategic choice and
then we have the strategy implementation, which is the most difficult part of the process.
On the business level, you start by looking into the environment (external analysis) and
analyze the company from within (internal analysis). Then you can evaluate your strategic
options and decide what’s best.
Theoretical concepts: market-based view and resource-based view. How can we explain
outperformance? Some people say that you need to define the market and if you choose a
very attractive market, you are very successful (market-based view). Other people say that it
doesn’t matter what market you choose, if you have superior resources, you will always be
successful. Both the resource-based view and the market-based view help to explain why
some companies outperform others. Therefore, it’s important to both look at the market and
analyze companies’ strengths and weaknesses.
On the business level, you want a competitive advantage. To achieve it, you need a customer-
oriented market positioning (be positioned in the market in a way that you are superiors to
competitors) and then you need and adequate business system (internal capabilities to
support you build competitive advantage). To sustain your competitive advantage, you then
need to have a flexible reaction to environmental change.
Customer-oriented market positioning (we are a technological leader – we are cost leader). If
you are better than your competition in one or several dimensions important for your
customers, you have a competitive advantage. Your customers define if you have a
competitive advantage. They consider the price/performance relationship to define if you
have a competitive advantage. If the perceived price/performance relationship is
better/worse than the competition, then you have/have not a competitive advantage.
Michael Porter has been very influential in strategic management. He said that if you want to
have a competitive advantage, you can either have a performance advantage (unique product
with a price-premium, ex. Apple, Rolex) or a price advantage (similar product at a much lower
price, ex. Walmart, Aldi).
• “Differentiation” - if you have a unique, superior product or service (as perceived by
customers), then you need to focus of differentiation. If you want to differentiate
yourself you can do this through technology, service, brand image or efficiency. Ask
yourself what creates customer value and what creates uniqueness.
- Through technology: ex. Merck (liquid crystals), they are world leader in this technology
(B2N).
- Though superior service: ex. Hilti (construction equipment), they are world leader in service
(and a very strong brand). They offer leasing opportunities and can get a replacement in a
very short frame in case of damage (B2B).
- Through brand image: ex. Patek Philippe (and almost all luxury brands).
- Through efficiency: ex. Zara, very famous for its supply chain (they produce close to the
market where they want to sell and can therefore be very reactive to trends.
• “Cost leadership” – if you have the lowest price, you need to focus on cost leadership
(to have low costs as well). Ex. Airline Industry. You need to focus on the overall cost
level (bring your cost-per-unit down) or superior cost structure (work on fix and
variable costs proportion to make it flexible). The concept of the experience curve is
very important. It describes that your costs per unit decrease exponentially with your
cumulative output. The more you produce, the lower your cost per unit becomes
(because of efficiency, learning...). And the same is true for fix costs (ex. For Coca-Cola
that sells millions of bottles would be much easier to spread a 500 million dollars
investment in advertising than for smaller brands).
One possible way to go, if you are being outperformed on the experience curve by
another company that is better positioned in terms of costs, would be to merge with
another company and move down to the curve.
Competitive advantage can be obtained by a price or performance advantage. Strategic
positions graph by Michael Porter (Perceived performance – Relative Price/Cost):
1) High perceived performance – More expensive (Top left – Differentiation position):
ex. BMW, Rolex. Costs are relatively low compared to costs, relatively high margin.
2) Low perceived performance – Cheaper (Bottom – Right position – Cost Leadership
position): ex. Dacia, Walmart. Costs are quite high, but you sell many products.
3) Low perceived performance – More expensive: rare position
4) Middle perceived performance – Middle between expensive and cheaper: if you lose
your high perceived performance or your cheaper position you could get stuck in the
middle, where for the same quality or the same price another competitor would be
better positioned. No competitive advantage in this position.
5) High perceived performance – Cheaper (Top-Right – Outpacing position): you combine
high differentiation value, for which people are willing to pay price-premium, with
very low costs (ex. Apple, Singapore Airlines). Very high margin and huge number of
products sold.

Strategy – Module 2

Adequate business system comes from the resource-based perspective (competitive

advantage through unique capabilities and features). Both resources and capabilities lead to
core competencies.
There are tangible resources (everything you can touch, like machines or equipment) and
intangible resources (technology, patent, know-how, brand...), and there are capabilities
(process, structure, system – how you can use your resources to create value, e.g., unique
production process, system for managing knowledge, structure as global presence around the
world).
All companies have resources and capabilities. But if they become core competencies you can
create competitive advantage. To check if you have core competencies you follow the VRIO.
If you want to have core competencies, your resources or your capabilities need to be:
 - Valuable - your resources need to be valuable for your customers.
- Rare - that nobody can have it.
- Inimitable - your competitors cannot imitate it very easily.
- Organizational appropriation - something that you can scale across your organization
and use it in a broader context.

Business system analysis - to have a competitive advantage is important that your business
system matches your positioning. For example, if you are differentiating, it might be
important to focus on innovation, patents, and creativity...
There are many business systems that you can have, depending on the industry. It’s then
important to think first about what your business looks like and then develop your business
system accordingly. The business system analysis is the core analysis that you can do to create
and sustain a competitive advantage from the internal perspective. There are three different
steps: start defining the overall business system - then think about the critical success factors
- think about what your strengths and weaknesses are. There is a crucial difference the
between critical success factors (always from the perspective of the customer) and your
strengths and weaknesses (from the perspective of the organization). The next step is to
check whether your strengths and weaknesses match with the critical success factors
(compare the critical success factors from the perspective of the customer with the strengths
and weaknesses from the perspective of the organization). “Can we leverage our existing
strengths further or is there anything we can do about our weaknesses to better meet our
critical success factors?”
Flexible reaction to environmental changes is then fundamental to sustain your competitive
advantage because changes are the only constant over time. We are living in a time in which
new competitors reach global scale much quicker than before. Uncertainty e volatility have
also increased in many fields, as people change their minds more frequently than before. In
addition, technologies are moving through exponential waves. Companies need to react to
changes during a certain phase called “Shake Up” phase. If you react later, during the “Speed
Up” phase, you can still be successful, but the difference is that you are not exponential from
the very beginning (that is if you react during “Shake up” phase, e.g., HP, Axel Springer).
General Motors, instead, reacted relatively late to the autonomous car driving revolution, but
then they reacted decisively acquiring another company called “Cruise”. If you fail to react
quickly and decisively, you will eventually miss the opportunity to reach exponential growth
and lose your competitive advantage with detrimental effects on the organization.
The different phases of reaction that must happen during an organization show that there are
several natural breaking points along the way. To react to disruption, you need to:
- Perceive that change is coming. Example of breaking point: you could be blind and not
perceive what’s going on around us.
- Evaluate this change. Example of breaking point: you need to evaluate the change as
a threat, otherwise you don’t react.
- Make decisions to react. Example of breaking point: you need to decide to really
commit significant resources to change your company.
- Implement those decisions. Example of breaking point: high difficulty at getting this
step right.
How can you create flexible strategies? Scenario planning is a tool that allows you to think
about different possible futures (and not just one). It develops three or four possible scenarios
and then go back to present to think about how to make that happen.
The strategy scenario approach follows four steps:
1) Identify the company’s strategic goal - What kind of company do you want to have in
5 years from now (for example).
2) Develop core strategies - Analyze the result of our competitive positioning and the
business system. How do we want to achieve our strategic goal?
3) Develop flexible strategies - Use a tool called Premortem analysis. This changes one
word in thinking about strategies (From “what might go wrong” to “what did go
wrong”). This way you are much more open to look for problems that your strategies
could have in the future and think about how to counter them. So, you list reasons for
failure and then a list for countermeasures. Ask yourself if countermeasures are
effective in balancing reasons for failure. If not, you change strategies.
4) Create a strategy scenario in which you combine adequate core strategies and flexible
strategies to make the organization successful for the future.

Strategy - Module 3

Decision-making is a skill that we can learn. Why decisions matter? We have two different
types of decisions in a company, individual and organization decisions. The first one has
individual consequences for us (e.g., hiring someone). The organizational dimension has a
direct effect on the team and on the organization. Decision making is the first thing needed
to be a good manager (Boston Consulting Group). Ineffective strategic decisions can decrease
total shareholder return by 6 percentage points (McKinsey Quarterly). Decision making must
be boosted from both a leadership and a financial perspective.
The bigger the decision, the bigger the outcomes and downsides. Ex. Yahoo was offered to
buy Google for 1 million dollars, but they didn’t buy it. Ex. Blockbuster, they failed because
they missed streaming.
A study found that only 28% of strategists are satisfied with the decision quality achieved in
the strategy process (McKinsey Quarterly). Another study found out that fewer than 20% of
corporations have an adequate decision process to react to changes in the firm’s environment
(MIT Sloan). Processes matter. So why decision-making matters? Because:
1) Decision-making is the most crucial leadership ability.
2) Good decisions directly affect the firm’s profitability.
3) Many companies do not have the right processes in place to make good decisions.

We only focus on the problems that are directly in front of us and have important effects on
us, missing what’s happening around us. Problems in decision-making process are of two
kinds: we have errors, which are random, and biases, which are systematic. Biased are
systematic deviations from our rationality in our thinking, subconscious errors that we make.
The overconfidence effect (bias) describes the tendency that we overestimate our predictive
abilities. Biases affect everyone. Often, we do not see what is happening right in front of our
eyes. Biases are subconscious and thus dangerous for important decisions. We are bad at
making predictions, though we behave as if we weren’t. Overconfidence leads to bad
forecasts, and it increases our willingness to take risks. Even the best experts are
overconfident. The second bias that affect our perception is the illusion of control bias. It
describes the tendency to think that we can control random outcomes with our behavior.
Illusion of control influences important and simple decisions. More situations than we think
are driven by randomness. Another kind of bias is anchoring. Anchoring plays a main role on
negotiations. Our environment influences our decisions. Anchoring affects our decisions on a
subconscious level, and if applied correctly, it can be used in negotiations. Example to
understand what anchoring is: The Economist sells subscriptions as it follows:
1) Online only subscription - 59€
2) Print only subscription - 125€ ANCHORING
3) Print and Online subscription - 125€
They use n.2 as anchoring options to sell n.3, because it makes people believe that you get
online subscription for free. So, an anchor is a random information that is placed in the
environment, and it affects us when we make decisions.
Framing then is similar to anchoring because it is also determined by the environment. The
framing bias describes how the entire situation is described and this description changes how
we behave and choose in these situations. We are really influenced by how a decision is
presented to us. We evaluate gains different than losses. The presentation of decision options
changes the decision. Framing directly influences our perception of quality (ex. Lean meat at
93% vs. fat meat at 7%, even though it’s the same product, a survey showed that the first one
was perceived as better-quality product).
What is a good decision? Some of the tools used to improve decision-making processes can
be divided into two main areas: consideration of multiple decision alternatives and
consideration of different point of views. Both these areas taken into consideration can make
our decisions become good decisions. Good decisions do not have to be slow. Different
perspectives, as well as alternatives, lead to better decisions.
The first tool that we can use to make better decision is called “Why, why, why”. It allows you
to differentiate between symptoms and the underlined problems we need to face. Focus on
the causes and not on the symptoms. Ask yourself “what else could be the problem”. Thus,
opening to new perspectives and broadening your alternatives. Here is the process:
1) Take 30 mins of uninterrupted time.
2) Write your problem on a blank sheet of paper.
3) Either ask yourself “Why, why, why” or “What else could be the problem”, or both.
Every analysis should start by identifying the right question. Symptoms and causes need to be
differentiated. A little time to reflect at the beginning of the process reduces a lot of time at
the end.
Another tool to optimize the decision-making process is the premortem analysis. Imagine that
your project has completely failed five years from now, and then you go back and imagine
what led to this failure and come up with potential countermeasures and either continue or
stop the project. Don’t just think “What could go wrong”, think about “What did go wrong”!
Subconscious biases need to be reduced on a subconscious level. Thinking about failure
prevents failure. The premortem analysis uses a team’s full potential.
Checklists are something we can use to improve decisions. For decision quality control, think
about yourself, the proposal, and the recommenders: 3 questions to challenge yourself, 6
questions to challenge the people proposing a solution, 3 questions to challenge the proposed
action. Checklists focus attention on the most crucial elements, they should be part of every
strategic decision and include multiple dimensions.
A debiasing tool called silent meeting helps decision-making processes. It starts with the
organizer writing down a proposal that summarizes the problem and solution suggested. The
meeting starts with everybody reading the memo in silence. Everybody individually writes
down their arguments, then after around 30 minutes, the discussion starts. Silent meetings
integrate more introverted team members. If you do not discuss, you will not exchange
different perspectives.
Red Team - Blue Team approach, in which you divide your team into two sub teams, and you
give them two different tasks, but actually the same one. You ask the red team to look from
the external perspective and the other one from the internal perspective. Then you have a
discussion, that will consider several perspectives. Different perspectives lead to different
analyses that lead to more open discussions. This method can be used even in very large-scale
decision-making processes.
Another debiasing technique: mindfulness. You can use it to train your brain and sharpen your
focus. It also helps you regulate your emotions. Meditation is an exercise of mindfulness.
Another one comes from the navy seals “Breathe for 4 seconds, hold your breath for 4
seconds, breathe out for 4 seconds, wait 4 seconds and start again”.
Only evaluate the decision in the time you make it.

Strategy - Module 4

So far, we have talked about single business firms (business strategy), such as Rolex.
Corporate organizations are active in different number of businesses that can be more or less
homogeneous (heterogeneous). We have three different forms of diversification strategies:
1) Focused diversification - it means that you are active in a larger number of businesses,
but these businesses are very similar to each other (e.g., Volkswagen, several car
companies). It has the advantage of having many synergies along sales channels or
production optimization (the platform for Audi is similar to the platform used for VW
- saving costs).
2) Relational diversification (Horizontal/Vertical) - it means that you have integrated
under one roof different businesses along the value chain (e.g., Tesla, car industry,
energy storage, energy generation - fully integrated ecosystem along the value chain
- benefit from synergies). You have synergies along the value chain (in the case of
Tesla, they benefit from having batteries, production of cars and energy - beneficial
from revenues point of view and saving costs).
3) Conglomerate diversification - it means that you have completely heterogeneous
businesses under one roof (e.g., Samsung, construction businesses, cellphones, micro-
processes under one roof - different advantages and disadvantages). The main benefit
here is not about synergies, but about being able to diversify your risk (if there’s a
problem in one of the businesses that you’re active in, you can compensate it with
another business that you’re active in).

On the corporate strategy level, we also have different target audience for our strategies. For
business strategy the target is the customer. Corporate strategy is instead created for
shareholders and other external parties. The stakeholder value concept considers different
stakeholder groups: shareholders (who invest money in the company), financier (such as
banks), government and society, suppliers... The stakeholder value concept says that a
company exists (and is successful) to create (if it creates) value for all of these different
stakeholders. However, big corporates leaders (especially for listed companies) largely follow
the shareholder value concept. The shareholder value concept specifically singles out the
shareholders out of the different stakeholder groups that we have in an organization. It states
that if we create value for the shareholders, that is enough because they are the owners of
the organization. This view is highly criticized because it’s just a mono-dimension way of
looking at the whole ecosystem. But proposers of this view say that if you create value for the
shareholders, you have also created value for suppliers, customers, society, government, and
financiers. Corporate strategy is based on the shareholder value concept.
In listed companies, if you don’t care about shareholders, your share price would decrease
creating a down-spiral that makes it difficult for the company to survive. But how can you
create shareholder value? Why should different companies be all under one roof? Let’s talk
about the parenting advantage (as opposed to the competitive advantage sought after at the
business level). On the corporate level you have the corporate center, which is the institution
that manages all the different independent businesses. You need to ensure that the work that
you are doing on the corporate center is creating more value that it costs, and that is a
parenting advantage. If you want parenting advantage on the corporate level, you need to
consider “how can you create synergies”.
- Top-line synergies à revenues-driven
- Bottom-line synergies à cost-driven
If all the different parts are more valuable by being all under one roof (compared to the
opposite), then you have parenting advantage.
The strategy formulation on the corporate level requires more or less the same steps as for
the business level (Analysis à Formulation and Choice à Implementation). What’s different
now is the content (Tools, how you do your analysis, the kind of diversification...).
Let’s go through the different parts of the process:
- Goal setting (e.g., LVMH): vision for shareholders is to become world leader in luxury
(they assembled a wide variety of different businesses in different segments that can
benefit from each other and having synergies).
- Strategy analysis: to assess the feasibility of your story, you do both external and
internal analysis. On the external analysis, the tools that you use are slightly different
than the business level. You still have what defines your competitive advantage in the
middle (customers-company-competitors), but here we don’t focus on the industry
environment, we focus on a larger environment (PESTLE framework for example).
Another thing you can do is to analyze long-term changes in the environment (using
value migration tool). On the internal analysis you focus on portfolio analysis and
portfolio planning. The most famous market portfolio would be the BCG portfolio. It
is a very effective tool to help you analyze the position of your organization, because
it’s based on both the experience curve and the life-cycle concept. The intersection on
the relative market share (your market share vs. that of the biggest competitor) axe is
the number 1. When the relative market share is 1, you have exactly the same market
share of your competitor (meaning you are on the same spot on the experience curve,
and nobody has a competitive advantage). When your relative market share is higher
than 1, you have a very sustainable competitive advantage in terms of cost per unit.
Everything on the left does not have a competitive advantage (or not yet). The life-
cycle concept on the y-axe suggests that Question marks and Stars are on the part in
which the market is still growing, while Cash Cows and Poor Dogs are on the part in
which the market share is declining. You can map existing businesses in this portfolio.
It also represents the life cycle of a company, starting from question marks à stars à
cash cows à poor dogs. Question marks and Stars are cash-negative (you need to
invest money), while poor dogs and cash cows are cash positive (produce money to
 invest in question marks and stars). McKinsey and Arthur D. Little also created their
own portfolios, focusing as well on both external factors and internal factors.
McKinsey Portfolio matrix: you have several aspects considered (such as market
growth, market size, barriers to entry...) in one index Industry Attractiveness as well
as Business Strength (Market share, financial resources, R&D position...). It covers
many more factors than the BCG matrix, but on the other hand being much more
complicated in terms of collecting all the necessary information. Then there is the
Roland Berger portfolio, which is also multi-dimensional and with different indicators.
The goal of all these portfolios is always to manage and analyze portfolios of the
organization and generate meaningful insights to create parenting advantage.
The value-based portfolio is meaningful because it’s appreciated and understood by
shareholders. The Economic Value Added (EVA) must be higher than 0 in order to
create value and you Return on Capital Employed (ROCE) must be greater than your
WACC in order to create value.
- Strategy formulation and Choice. There is no general type of diversification that is
better than others. It depends on what the capital market believes in in a certain
period of time. Studies show that there is a relationship between focused
diversification and performance. The more focused you are (the more related your
businesses are), the higher your performance and parenting advantage. Likewise, the
more conglomerate your businesses are, the lower your performance. The
conglomerate discount explains the reason why. Conglomerate companies normally
trade at conglomerate discount, meaning that the sum of the parts under one roof is
valued less than the value of its individual parts as separate (stand-alone) entities. In
other words, you are not able to create a parenting advantage for these companies.
The capital market does not perceive you as the best parent for these companies (e.g.,
Siemens). However, there are some conglomerates (called premium conglomerates)
that outperform the reference index. If you manage conglomerates in an effective and
successful way and create value for your shareholders, you can outcompete the
reference index (e.g., S&P 500). How do you do that? General Electric for example had
a very clear purpose saying that they wanted to either be n.1 or n.2 in a specific
industry or exit that industry. They also wanted to apply common management
processes and systems along different businesses and create synergies from these
processes rather than integrating all of these elements and creating synergies through
these integrations. Synergies decrease based on the number or diversity of
businesses. You have product-related specific resources (very high synergies at the
beginning, but they quickly drop), and you have management-related unspecific
resources (lower synergies but they last much longer). When you focus on product-
related synergies you have a much smaller diversification than when you focus on
management-related synergies. For example, if you are Volkswagen and you only have
product-related synergies, you should have fewer companies under one roof because
you would reach your ideal diversification earlier compared to who focus on
management-related synergies. Synergy potential decreases with higher
diversification while costs increase with higher diversification. The intersection point
between synergy potential and costs is the ideal diversification.

In conclusion, in principle rather focus on focused diversification, and if you build

conglomerates you need to be careful in looking for product-related synergies and
management-related synergies and make sure that the larger the organization gets, the more
you focus on management-related synergies along the way. However, Alphabet is managing
its portfolio in a different way than we discussed. It has completely different organizations
under one roof (Google, Waymo, Google Ventures, Nest, Google X...). In fact, based on what
we said, Alphabet should be at a huge conglomerate discount because there is no relatedness
nor synergies among these businesses. How is Alphabet one of the most successful companies
then? Because actually there are some synergies, and they are management-relatedness
(culture, values, unified recruiting processes) and they also have data.

Strategy - Module 5

When you are a manager on the corporate level, you have three different options to create
growth:
1) internal development (focus on your own core business and the organic growth of that
business).
2) external development (acquiring other companies or merging with another company).
3) “in-between alternative” called Joint development (two or more companies
developing a business unit jointly without formal integration).

Examples of mergers and acquisitions

- T-Mobile bought Sprint in order to gain market share.
- Facebook bought Instagram in order to gain access to new technology.
- Lufthansa bought Swiss Airline in order to gain network synergies.
- AOL merged with Time Warner in order to get content synergies.

The acquisitions can be structured in the following ways:

1) Horizontal acquisitions, in which two different producers or suppliers that are in the
same market and that have the same products work together or one acquires the
other. E.g., Salesforce that bought Slack - Top-line synergies
2) Vertical acquisitions, happen along the value chain. For example, a producer buys a
supplier (or vice versa) in order to integrate the system and be more effective when
working together. E.g., Microsoft that bought Activision - Bottom-line synergies
3) Conglomerate acquisitions, different producers working together with no particular
relationship. E.g., Facebook that bought WhatsApp - Risk Management

After an acquisition, the stock price of the buyer decreases while the stock price of the
acquired increases significantly. This reaction means that the investors think the acquisition
is better for the target than for the buyer (e.g., Microsoft acquired LinkedIn).
The majority of M&A eventually fail in creating value for shareholders (intended/expected
value). The acquisition price premium is the premium that you as a buyer have to pay to the
target, that otherwise wouldn’t sell to you. But why would you pay this premium price? You
buy another company because you think that you can generate some synergies (bottom-line
or top-line synergies). In order to create value in M&A transactions the synergy potential has
to be larger than the price premium. The price premium is 100% certain and paid upfront. The
synergy potential, however, is not certain as it is based on assumptions and (hopefully)
generated in the future. The reason why so many M&A transactions fail rely on the
overestimation or overconfidence about expected synergies. Daimler & Chrysler is an
example of least successful mergers of all times. They didn’t consider the huge cultural
difference, and the difference among the targeted segment (luxury vs. mass market cars). The
projected synergies therefore did not realize.
Why are acquisitions in most cases not successful:
- Because mistakes are made during the acquisition process, with overoptimistic
assessment of value added through integration, and they may not be able to realize
these synergies post-acquisition. Another reason would be that you tend to overbid
and pay unreasonable acquisition premium.
Acquisition process: acquisition planning à takeover à integration.
1) With the acquisition planning, we start with the formulation of acquisition objectives,
target identification, selection of “best match” and assessment of financial
attractiveness/risk.
2) With the takeover phase there’s the due diligence part, after approaching candidates
and negotiate the takeover. Afterwards, you determine the price, sign and close.
3) However, the main phase happens now with integration. Here you realize or don’t the
value creation.
The break-even time depends on synergies and acquisition price premium. On average,
synergies are around 5%. In addition, the average of price premium in Europe is 20%, that
leads to 6 years before reaching a break-even point (i.e., start creating value).
The post-merger integration process starts typically with the functional integration (what
functions you want, staffing...), then you have a business integration (realize synergies,
harmonizing systems...) and eventually the culture integration (create new cross-company
identity/culture).

- Because managers don’t intend to create value with the acquisition:

1) Principal-Agent Theory (managers act according to their own objectives).
2) Theory of managerialism (managers strive to maximize company size.
3) Evolutionary theory (managers strive to spread their ideas.

- Because the wrong kind of companies are doing acquisitions for the wrong reasons. It
may be that companies that are not successful on their own in the market tend to rush
into acquisition just in order to ensure that they remain competitive over the long-
term.

Alliances or partnerships between companies are a good compromise between internal and
external development (e.g., Waymo and Fiat Chrysler). In this way you might many of the
advantages of M&A without having the downsides and be able to realize synergies and
strategic collaboration opportunities and get access to new markets and technologies without
having to pay a price premium. There are obviously also some disadvantages (you need to
consider what are the power dynamics and who is actually creating what kind of value in the
alliance, e.g., does this strengthen you in the long-term or just in the short-term?).
You may have strategic alliance in horizontal cooperation, where you join competitive
strengths and share risks (e.g., Renault-Nissan-Mitsubishi); In vertical cooperation you
harmonize value-chain interfaces (e.g., Waymo - FCA); In conglomerate cooperation you meet
complementary customer needs (e.g., Uber - Spotify).
A framework for assessing opportunities for value creation à McKinsey’s restructuring
Hexagon:
It’s a very holistic way to look at your company! The first thing to do is to look at the difference
between the current market value and the company value as it is, then start operating
improvements (optimizing core businesses, looking for ways to reduce costs and increase
revenues...). After that you can think about portfolio adjustment (e.g., do we want to be
focused or conglomerate? Do we have a balanced portfolio, enough question marks and stars
or are we largely in dying poor dog business). Establish which businesses you no longer need
and start selling them. Invest new resources in growth opportunities. Eventually you have
some financial engineering and realize your maximum opportunity.
Companies are driven by short-term values (value of existing businesses that you sustain) and
long-term value (value of growth and innovation that you have). In Cisco example, most of
the value increase between 2008 and 2012 are based on future expectations that go beyond
2012. This is important to know to be aware that future expectations are included in the stock
price and as a CEO you need not only to live up to expectations but also do more to further
increase the price. In other words, if you become the CEO of Cisco at that point of time with
that share price you have to grow the company 10% every year for 6 years and then after by
11.3% per year until infinity in order to justify the share price that you already have today! In
order to grow the share price, you have to find ways to grow by more than 10% for the first 6
years and by more than 11.3% until infinity, and this is a very high goal to achieve. The key to
this is to realize that if you become the CEO of a listed company, many of the expectations
that determine the level and degree of future growth that you’re expected to deliver from
the capital market are already priced-in and you have to create more value than that in order
to increase the share price.
If you want to do corporate valuation, you can run a multiple analysis or a discounted cash
flow analysis (DCF):
- The multiple analysis is based on comparable, publicly listed companies used to
compare and analyze a company. Multiples can get you quickly and easily insights to
value a company. For example, you may use price-to-sales multiple (but you need to
be on the same industry) or the price-to-ebitda multiple (you need to be in a similar
industry and similar core business). However, you have to find the right multiple!
- In the DCF you have to do projections for future development of the cash flows of the
company and discount them down in order to get the value of the company.

Strategy - Module 6

Leadership is the most fundamental aspect of strategy implementation. Leaders have a vision,
and they are able to transform it into reality by aligning and motivating different people
toward the goal. In organizations there are different management levels, and for managers
the most significant thing to do in order to transform a vision into reality is to build and shape
organizational culture. Culture plays a major role when it comes to strategy implementation.
The degree of control and risk tolerance are examples of what’s part of the organizational
culture. Managers need to make sure that the culture-built matches corporate objectives
(e.g., if you need creativity, you should reduce control policies).
What is culture? Model of Schein:
 1) Visible (Conscious) Culture. - Artefacts (symbols and patterns of action) are easily
managed from the top even when large number of employees are managed (e.g.,
Google, Nordstrom).
2) Invisible (Unconscious) Culture, which are assumptions that we have in our head
based on what we want.

Organizational culture has many different advantages. Strong organizational cultures give
meaning to people working in the organization and creates a reference point to guide
employees’ behavior. It accelerates decision-making processes, and it promotes stability.
What makes a culture strong:
- The conciseness - how clear are the values or behaviors expected?
- The degree of diffusion - how many people in the organization have understood what
is expected?
- The depth of anchorage - are these values deeply rooted in the consciousness of the
employees? It’s not enough to just write things down!

There are some conditions and measures favorable to changing the culture of an organization:
- Dramatic crisis (e.g., Uber).
- Executive turnover.
- Young and small organization - the younger and the smaller your organization, the
easier to change culture.
- Weak culture.
What can you do to change culture? Set symbols, change the structure (and who holds power
within the organization), change the processes and change the personnel.

What role does organizational structure plays in strategy implementation? Different ways to
change the structure of your corporate centers (e.g., by geographical region). The
organization of multi-business firms is determined by four core elements (and their
interception). However, you need to set clear decision rules in a matrix organization to reduce
conflicts (otherwise you have no responsiveness, effectiveness, or efficiency).

One of the main challenges in terms of strategy implementation for companies nowadays is
the digitalization. You need to balance somehow the new business that you have to build to
be successful in the future with the existing business that you already have and that generates
money for you. You have then mature business and growth business, a that requires a
completely different management style and organizational culture. If you manage a mature
business your goal is profitability, to defend your market share with focus on efficiency and
scale. This looks completely different from what you would do with a growth business, where
you goal would be instead revenue growth, you wouldn’t care about efficiency, but you would
care about innovation and flexibility. It requires different priorities and culture. How can you
balance both then? Build ambidexterity. If you are able to focus on both mature and growth
business at the same time you are ambidextrous. You need to be efficient (focus on
exploitation of resources) and flexible (growing new businesses in the organization) at the
same time. There are two ways to do this:
1) Structural Ambidexterity (easier and more widely used) - it means that you create
completely different business that are structurally distinct from your core business
 (e.g., Deutsche Telekom, new mobile business created in an independent place, with
different rules and location, and separated the business out to make it grow).
2) Contextual Ambidexterity (very hard to achieve) - it means that you have different
management styles and culture and somehow try to mingle all of this together (e.g.,
Google, with 20% of the time rule (for employees to work on what they want -
outcomes such as Google Maps, Gmail came from that). It works for Alphabet because
of the culture!

There are four different approaches to ambidexterity:

1) Static approach - you do nothing.
2) Separation (structural ambidexterity) and Switching (contextual ambidexterity).
3) Self-organizing (Alphabet, Haier - company based in China with self-organizing teams,
with people that form their own culture and way of working together and are
responsible of their own work).
4) External ecosystem (e.g., Alibaba, Apple - App Store allows Apple to focus on the
ecosystem in the hardware but not in the software, because everyone creates content
so that they don’t have to do it).

Another way of bringing innovation to your existing system is accelerator and incubator.
Incubators are mostly internal, and you bring in external founders to develop ideas (e.g.,
Merck). Accelerators are mostly external (to the organization), and they look for external
teams or companies that they can help grow (e.g., APX). We also have different goals: for
incubator you have a focus on idea development whether for accelerator you focus on
prototyping and growth (much later stage of the business). There are different studies around
accelerators showing that the success of them depends on what are your goals, why do you
do it and how you implement it. There are different models of accelerators:
- Listening post - you use the accelerator to identify innovations outside the
organization.
- Unicorn hunter - you try to buy very successful startups/players in the game.
- Value-Chain investor - you identify and develop new products into parent company’s
value chain.
- Test laboratory - create a protected environment to test promising internal and
external business ideas.

Incubators and Accelerators should not be used as a showcase by managers.

Ways to foster innovation are Joint ventures, alliances, and strategic acquisitions. Joint
venture (e.g., ShareNow - collaboration between BMW and Daimler to experiment with car-
sharing, they overcome the rivalry between the two main competitors).

Greenfield innovation: Moonshot thinking! It involves making things 10x better rather than
incrementing them by 10x. e.g., Alpha, and X (by Alphabet). X is really fostering the moonshot
thinking in the organization creating different projects. If you want to increase for example
the mileage of a car, don’t think about how you can increase it from 100 km to 105 km, but
from 100 to 1,000 km! In this way you know that you need to rethink everything (e.g., this is
how SpaceX that built innovative re-usable new rockets).
Exponential organizations are companies that outperform the industry average in important
KPIs by 10x or more (e.g., Airbnb, GV, Valve...)! Exponential organizations have 4 key
differentiators that set them apart. They use leveraged assets (organizations that instead of
building their own structures, they leverage it (using AWS, Foxconn (for Apple)), have specific
management techniques (e.g., High Fidelity with employees voting on the CEO every quarter)
and community & customer engagement (e.g., gamification to increase customer
engagement (Trivago), and use technologies that ease processes and make it easier to scale
processes (e.g., Salesforce, Dropbox, using AI and chatbots).

“You cannot manage what you cannot measure” - You can use for example a Balanced
Scorecard, a widely used tool that translates your vision and strategy into fundamental
dimensions that are important for internal and external stakeholders (e.g., what do we need
to do from a financial perspective to implement our vision? How do we need to innovate to
achieve our goals...?). Using a Balanced Scorecard Matrix, you split all of this into what are
your perspectives, your objectives, measures, targets, and initiatives to get the target become
reality. Example: How should we appear to our customers? à Excellence with regards to
price/performance! How can you measure this? à Revenue share of new products/Customer
satisfaction à Set your targets à Establish initiatives and periodical check of progress.
The balanced scorecard allows you to put your goals into manageable initiatives that you can
communicate throughout the organization.
Communication is key! If nobody knows your goals or vision, nobody can act accordingly! How
do you communicate efficiently? Through the SUCCESS principles:
- Simplicity.
- Surprise effect.
- Concreteness.
- Credibility.
- Emotions.
- Stories.