Assignment 8
BU470 Strategic Management
Directions: Be sure to make an electronic copy of your answer before submitting it for grading. Unless otherwise stated, answer in complete sentences, and be sure to use correct English spelling and grammar. Sources must be cited in APA format. Your response should be four (4) pages in length; refer to the “Assignment Format” page for specific format requirements.
Part A
The questions in Part A refer to the material discussed in Lesson 5 of this course.
As you learned in Lesson 1, managing strategically involves formulating strategic responses and putting them into action. In Lesson 2 you learned about functional strategies (also called operational strategies), competitive strategies (also called business unit strategies), and corporate strategies. Let’s now discuss implementing strong competitive and functional strategies to exploit resources, capabilities, and core competencies.
Respond to the following:
1. What functional strategies does an organization need?
2. What might provide the basis upon which an organization decides on a competitive strategy?
3. Apply what you have learned in this lesson by reading the case below and answer the questions that follow.
There’s no doubt that people like to watch movies, but how they watch those movies has changed. Although many people still prefer going to an actual movie theater, more and more are settling back in their easy chairs in front of home entertainment systems, especially now that technology has improved to the point where those systems are affordable and offer many of the same features as those found in movie theaters. Along with the changes in where people watch movies, how people get those movies has changed. For many, the weekend used to start with a trip to the video rental store to search the racks for something good to watch, an approach Blockbuster built its business on. Today’s consumers can choose a movie by going to their computer and visiting an online DVD subscription and delivery site where the movies come to the customers—a model invented by Netflix.
Launched in 1999, Netflix’s subscriber base grew rapidly. It now has more than 24.4 million subscribers and more than 100,000 movie titles from which to choose. “The company’s appeal and success are built on providing the most expansive selection of DVDs, an easy way to choose movies, and fast, free delivery.” A company milestone was reached in late February 2007, when Netflix delivered its one billionth DVD, a goal that took about seven-and-a-half years to accomplish— “about seven months less than it took McDonald’s Corporation to sell one billion hamburgers after opening its first restaurant.”
Netflix founder and CEO Reed Hastings believed in the approach he pioneered and set some ambitious goals for his company: build the world’s best Internet movie service and grow earnings per share (EPS) and subscribers every year. In 2011, though, Hastings made a decision that had customers complaining loudly.
Netflix’s troubles began when it announced it would charge separate prices for its DVDs-by-mail and streaming video plans. Then, it decided to rebrand its DVD service as Qwikster. Customers raged so much that Netflix reversed that decision and pulled the plug on the entire Qwikster plan. As Netflix regained its focus with customers, it was once again ready to refocus on its competitors. Success ultimately attracts competition. Other businesses want a piece of the market. Trying to gain an edge in how customers get the movies they want, when and where they want them, has led to an all-out competitive war. Now, what Netflix did to Blockbuster, Blockbuster and other competitors are doing to Netflix. Hastings said he has learned never to underestimate the competition. He says, “We erroneously concluded that Blockbuster probably wasn’t going to launch a competitive effort when they hadn’t by 2003. Then, in 2004, they did. We thought. . . well they won’t put much money behind it. Over the past four years, they’ve invested more than $500 million against us.”
Not wanting to suffer the same fate as Blockbuster (it filed for bankruptcy protection in 2010 and was sold to Satellite TV service provider DISH Network in 2011), Netflix is bracing for other onslaughts. In fact, CEO Hastings, defending his misguided decisions in 2011 said, “We did so many difficult things this year that we got overconfident. Our big obsession for the year was streaming, the idea that ‘let’s not die with DVDs.’” The in-home filmed entertainment industry is intensely competitive and continually changing. Many customers have multiple providers (e.g., HBO, renting a DVD from Red Box, buying a DVD, streaming a movie from providers such as Hulu, Apple, and Amazon) and may use any or all of those services in the same month. Video-on-demand and streaming are becoming extremely competitive. To counter such competitive challenges, Hastings is focusing the company’s competitive strengths on a select number of initiatives. He says, “Streaming is the future; we’re focused on it. DVD is going to do whatever it’s going to do. We don’t want to hurt it, but we’re not putting much time or energy into it.” Others include continually developing profitable partnerships with content providers, controlling the cost of streaming content, and even licensing its original series. In fact, it just licensed its first original series called “House of Cards” and starring Kevin Spacey.
With other companies hoping to get established in the market, the competition is intense. Does Netflix have the script it needs to be a dominant player? CEO Hastings says, “If it’s true that you should be judged by the quality of your competitors, we must be doing pretty well.”
Sources: S. Woo and I. Sherr, “Netflix Recovers Subscribers,” Wall Street Journal, January 26, 2012, pp. B1+; J. Pepitone, “Netflix CEO: We Got Overconfident,” CNNMoney.com, December 6, 2011; D. McDonald, “Netflix: Down, But Not Out,” CNN.com, November 23, 2011; H. W. Jenkins, Jr., “Netflix Isn’t Doomed,” Wall Street Journal, October 26, 2011, p. A13; C. Edwards, “Netflix Drops Most Since 2004 After Losing 800,000 Customers,” BusinessWeek.com, October 25, 2011; N. Wingfield and B. Stelter, “How Netflix Lost 800,000 Members and Good Will,” New York Times Online, October 24, 2011; C. Edwards and R. Grover, “Can Netflix Regain Lost Ground,” BusinessWeek.com, October 19, 2011; and R. Grover, C. Edwards, and A. Fixmer, “Can Netflix Find Its Future By Abandoning the Past?” Bloomberg BusinessWeek, September 26–October 2, 2011, pp. 29–30.
a. Describe what you think Netflix’s competitive strategy is using Miles and Snow’s and Porter’s frameworks. Explain each of your choices.
b. What competitive advantage(s) do you think Netflix has? Have its resources, capabilities, or core competencies contributed to its competitive advantage(s)? Explain.
c. How will Netflix’s functional strategies have to support its competitive strategy? Explain.
d. What do you think Netflix is going to have to do to maintain its competitive position, especially as its industry changes?
Part B
The questions in Part B refer to the material discussed in Lesson 6 of this course.
In Lesson 5 you learned about functional and competitive strategies, including how to implement these strategies to exploit resources, capabilities, and core competencies. It is now time to delve more deeply into corporate strategy, with special attention paid to growth strategies.
Respond to the following:
1. Indicate how corporate strategy is related to the other organizational strategies and describe each of the three (3) corporate strategic directions.
2. Access the following article using ProQuest, the Ashworth College online library:
Campbell outlines progress on strategies, sets stage for long-term growth. (2012, Jul 24). Business Wire Retrieved from https://ashworth.idm.oclc.org/login?url=http://search.proquest.com/docview/1027721081?acco…
Respond to the following.
• What are some of the growth strategies Campbell’s will implement?
3. Provide two (2) other suggestions for growth strategies that Campbell’s might utilize.
Part C
The questions in Part C refer to the material discussed in Lesson 7 of this course.
Respond to the following:
1. Describe international strategy and why it’s important.
2. Explain the issues that arise as organizations go international.
3. Describe the important international strategic decisions.
4. Apply what you have learned in this lesson by reading the case below and answer the questions that follow.
The Tata Group, based in Mumbai, India, is the largest conglomerate in that country. It holds the number 6 spot on the list of the world’s most admired companies in the steel industry. Its latest revenues are estimated at $67.4 billion, of which 61 percent is from business outside India. Tata has more than 100 operating companies in seven main business groups doing business in 80 countries: chemicals, information systems and communications, consumer products, energy, engineering, materials, and services.
Its two largest businesses are Tata Steel and Tata Motors. Its Tata Tea, which owns the valued Tetley brand, also is one of the largest tea producers in the world. Ratan Tata, Tata Group’s chairperson, has forged a strategy that encompasses the globe. In 1999, he issued a “clarion call to push outside India with acquisitions and exports.” One of the company’s executive directors recalled, “We didn’t know what to expect, to be honest.” Today, Tata controls many businesses ranging from Eight O’Clock Coffee Co. in the United Sates to the Taj Group of hotels, which took over management of the landmark Pierre Hotel on Central Park in New York City. Tata made its boldest global strategic push, however, in October 2006 when Tata Steel formally proposed buying British steelmaker Corus Group PLC for about $8 billion USD. Corus, which was formed by a merger of British Steel and Hoogovens, was three times the size of Tata Steel.
The buyout offer soon turned into a bidding war when Tata Group discovered another company, Companhia Siderúrgica Nacional of Brazil (CSN), was also preparing a bid and therefore upped its opening offer to $9.2 billion; CSN then raised the stakes by offering to pay $9.6 billion. A Tata Group spokesman said that the company’s attempt to acquire Corus was “based on a compelling strategic rationale.” Ratan Tata explained further by saying, “The revised terms deliver substantial additional value to Corus shareholders.” The increased takeover bid did not impress investors as the company’s share price fell 6 percent after the news was announced.
Analysts and investors both “expressed concern that Tata is overpricing Corus, whose operating costs are among the highest of any steel maker—something that would affect its profitability and its plans to expand in India.” However, Ratan Tata knew that the acquisition could catapult Tata Steel from its mid-50s ranking in the global steel list to the sixth-largest industry competitor. He said, “Analysts were taking a short-term, harsh view of the deal. Hopefully, the market will look back and say it was the right move.” By the end of January 2007, the U.K. Takeover Panel called an auction in order to end the bidding war and “presided over the contest that started on Tuesday, January 30.” The “contest” continued for several hours until CSN pulled out. Tata Steel won its coveted prize for $12.2 billion—a 22 percent premium over what it had originally offered. That acquisition represented the latest consolidation in the global steel industry. The combined Tata-Corus can produce 25 million tons of steel a year. The deal also represented the largest foreign acquisition by an Indian company and made the diversified Tata Group the largest company in India. In 2008, Tata made an even bigger global splash, at least in terms of recognized consumer brand names. It acquired the Land Rover and Jaguar brands from Ford for an estimated $2.3 billion.
Tata’s leaders believe the group “can survive on the world stage only by being both too big to beat and too good to fail.” In December 2012, when Chairman Ratan Tata steps down, Cyrus Mistry will take over as chairman of Tata Group and he “faces the daunting challenge of steering a giant, increasingly multinational conglomerate of more than 100 companies through economic headwinds at home and abroad.”
Sources: Based on Tata Group [www.tata.com], February 26, 2012; A. Sharma, “Tata’s New Boss Faces Headwinds,” Wall Street Journal, November 25, 2011, p. B1; A. Taylor III, “Tata Takes on the World,” Fortune, May 2, 2011, pp. 86–92; G. Colvin, “The World’s Most Admired Companies,” Fortune, March, 21, 2011, pp. 109+; A. Graham, “Too Good to Fail,” Strategy + Business Online, Spring 2010; and P. Wonacott and J. Singer, “Ratan Tata Builds Indian Behemoth Into Global Player,” Wall Street Journal, October 7–8, 2006, pp. B1+.
a. Discuss the advantages and drawbacks of going international using Tata Group’s experiences.
b. What strategic challenges do you think Cyrus Mistry might face as he guides his company?
c. Using what you know about managing strategically, how might he respond to these challenges?
Part D
The questions in Part D refer to the material discussed in Lesson 8 of this course.
To round-out your understanding of the strategic management process, this lesson applied the concepts to entrepreneurial ventures and small businesses, as well as not-for-profit organizations. Demonstrate your knowledge of entrepreneurial ventures and small businesses by responding to the following:
1. Describe the overall approach to the strategic planning process in entrepreneurial ventures and small businesses.
2. Explain the advantages and disadvantages of strategic planning with entrepreneurial ventures and small businesses.
3. Apply what you have learned in this lesson by reading the case below and answer the questions that follow.
It all started with a simple plan to make a superior T-shirt. As special teams captain during the mid-1990s for the University of Maryland football team, Kevin Plank hated having to repeatedly change the cotton T-shirt he wore under his jersey as it became wet and heavy during the course of a game.1 He knew there had to be a better alternative and set out to make it. After a year of fabric and product testing, Plank introduced the first Under Armour compression product—a synthetic shirt worn like a second skin under a uniform or jersey. And it was an immediate hit! The silky fabric was light and made athletes feel faster and fresher, giving them, according to Plank, an important psychological edge. Dash/Shutterstock.com Today, Baltimore-based Under Armour (UA) is a $1.4 billion company.
In 16 years, it has grown from a college start-up to a “formidable competitor of the Beaverton, Oregon behemoth” (better known as Nike). The company has nearly 3 percent of the fragmented U.S. sports apparel market and sells products from shirts, shorts, and cleats to underwear. In addition, more than 100 universities wear UA uniforms. The company’s logo—an interlocking U and A—is becoming almost as recognizable as the Nike swoosh. Starting out, Plank sold his shirts using the only advantage he had—his athletic connections. “Among his teams from high school, military school, and the University of Maryland, he knew at least 40 NFL players well enough to call and offer them the shirt.” He was soon joined by another Maryland player, Kip Fulks, who played lacrosse. Fulks used the same “six-degrees strategy” in the lacrosse world. (Today, Fulks is the company’s COO.) Believe it or not, the strategy worked. UA sales quickly gained momentum. However, selling products to teams and schools would take a business only so far. That’s when Plank began to look at the mass market.
In 2000, he made his first deal with a big-box store, Galyan’s (which was eventually bought by Dick’s Sporting Goods). Today, almost 30 percent of UA’s sales come from Dick’s and The Sports Authority. But they haven’t forgotten where they started, either. The company has all-school deals with 10 Division 1 schools. “Although these deals don’t bring in big bucks, they deliver brand visibility . . .” So, what’s next for Under Armour? At the end of 2011, revenues had increased 38 percent over the prior year. Sustaining those growth rates will be a challenge. Some potential growth areas include women’s apparel, which only make up 25 percent of the company’s apparel sales; footwear, which makes up only 12 percent of corporate sales, but only 1 percent of the $14 billion U.S. athletic footwear market; and global sales, which right now are only 6 percent of revenue. A telling sign of the company’s philosophy is found over the doors of its product design studios: “We have not yet built our defining product.”
a. What examples of corporate strategies do you see in this mini-case?
b. What strategic challenges do you think Kevin Plank must deal with?
Grading Rubric
Please refer to the rubric below for the grading criteria for this assignment.
