Business Unit Strategy Training Program

Business Unit Strategy Training Program Exercise workbook

Contents • General information and instructions • Exercises for Module I: Identification of the key issues of the engagement • Strategy literature review: Introduction and instruction slides • Exercises for Module II: Structure and dynamics of the industry • Exercises for Module III: Characteristics and dynamics of the individual companies • Exercises for Module V: Definition and evaluation of strategic alternatives • Solutions to selected exercises • Feedback forms

General information and instructions • Purpose of the exercise workbook • Test and reinforce the techniques and frameworks taught in the course • Stimulate classroom discussion and debate • Serve to guide exercises and to structure presentations • Structure of the exercise workbook • Four sections that correspond to course Modules I, II, III and V* with the following cases corresponding to each module • Module I - The Big Kahuna (graphite fly-fishing rods) • Module II - The U.S. Airline Industry • Module III - Cola Wars Continue • Module V - Oil and gas industry • Each section contains the following information and practice materials • Detailed instructions that pertain to the specific section • Business brief • Exercises that correspond to most of the techniques and frameworks taught in that module • One section that pertains to the strategy literature review (behind tab three) • One section that contains solutions to selected exercises (issue analysis, mission/vision and strategic planning framework) (behind tab seven) • One section that contains course feedback forms (behind tab eight) • How to use the exercise workbook • Read the detailed instructions • Read the business brief or case • Complete the assigned exercise, which will refer to the preceding business situation • Structure the solution in the same or similar format to the one shown on the question page • Work in teams as stated in the detailed instructions * Please note that the workbook does not contain exercises to test the techniques found in Modules IV and VI Source:

Contents • General information and instructions • Exercises for Module I: Identification of the key issues of the engagement • Strategy literature exercise: Introduction and instruction slides • Exercises for Module II: Structure and dynamics of the industry • Exercises for Module III: Characteristics and dynamics of the individual companies • Exercises for Module V: Definition and evaluation of strategic alternatives • Solutions to selected exercises • Feedback forms

Instructions to complete the exercises (2) that correspond to Module I • Work structure: • Business brief: • Industry: • Case focus: • Instructions: Teams of two individuals each Cessna Aircraft Single engine, piston powered airplanes Expansion into a new market • Cut out all of the boxes that contain questions • Reassemble the boxes as a structured issue analysis to answer the following overriding question: Should Cessna Aircraft enter the market for single engine, piston powered airplanes? *Exercise is located as last page of the section Teams of two individuals each The Big Kahuna Fly-fishing Expansion into a new market • Read The Big Kahuna case brief • “Brain storm” to uncover all of the issues that affect the company’s decision to enter the new market • Fit the issues into a framework that is identical or similar to the one detailed in Module I • Develop hypotheses • Determine which analyses will be required to test the hypotheses • Estimate the sources of information that will be required to perform the analyses • Divide responsibilities • Establish a timeframe for completing the analyses and reaching a recommendation • Other: • The individual activities in the module (brainstorming, issue breakdown, etc.) should not be viewed as separate techniques, but as the component steps of the larger issue analysis technique Module I

Key issues of the engagement Issue analysis Start the issue analysis by “brain storming” to identify all of the pertinent questions and issues contained in the preceding client brief Module I Source: A.T. Kearney

Situation Complication Overriding question Key issues of the engagement Issue analysis Define the situation, complication, and overriding question Module I Source:

Overriding question Main issues Sub issues Key issues of the engagement Issue analysis Break down the overriding question into the major issues and sub-issues drawing upon ideas identified during the “brain storming” session Module I Source

Key issues of the engagement Issue analysis For each sub issue, formulate hypotheses and create a preliminary workplan to test them Respon-sibility Hypothesis Timing Issues Sub-issues Analysis Source Module I Source

Key issues of the engagement Issue analysis Separate the boxes below and then reassemble them as a structured issue analysis to answer the following overriding question: Should Cessna Aircraft enter the market for single engine, piston powered airplanes?* • Are profit margins increasing? • Does Cessna have the ability to compete in the market? • Is the market for airplanes growing? • Would Cessna be able to mimic the profits of its competitors? • Can new airplanes be priced comparably to the price of old Cessna airplanes? • Are existing players manufacturing and selling their products at capacity? • Is the market for homebuilt airplanes growing? • Is the market for homebuilt airplanes growing domestically? • Does Cessna have the financial resources required to construct a new facility or modify an existing one? • Is Cessna’s image a positive one in the targeted market? • Would the cost of advertising make airplane manufacture unattractive? • Was the industry capacity close to the number of airplanes that were sold last year? • Could Cessna achieve a minimum efficient scale? • Is it possible to sway the buyers of used airplanes to purchase new products? • Will airplane buyers want to purchase a new Cessna airplane? • Does Cessna have the expertise to manufacture the airplanes? • Should Cessna enter the market for single engine, piston powered airplanes? • Will the features on the new airplanes be far superior to those on older Cessna airplanes? • Is the market large enough to accommodate another player? • Is the market inherently attractive from a profit perspective? • Do buyers in the targeted market know about Cessna? • Does Cessna have the ability to manufacture the airplanes? • Did the industry sell substantially fewer airplanes than were produced last year? • Is the market for pre-assembled airplanes growing internationally? • Does Cessna have excess plant capacity that could be used to manufacture the airplanes? • Is Cessna’s image a positive one in the general aviation industry? • Are the average profit margins attractive to Cessna relative to its other potential investments? • Does Cessna have the level of technology necessary to attract buyers? • Are Cessna’s competitors’ products attractive to potential buyers from a technological perspective? • Does Cessna have the reputation required to attract buyers? • Is the market for homebuilt airplanes growing internationally? • Are existing players bringing additional production capacity on-line? • Is Cessna’s level of technology comparable to that of its competitors? • Are the various players in the industry operating profitably? • Can the market for new airplanes be expanded? • Is it possible to entice buyers of other types of airplanes to purchase single engine, piston powered airplanes? • Is the market for pre-assembled airplanes growing? • Is Cessna situated favorably in terms of future technological advancements relative to competitors'? • Is the market for pre-assembled airplanes growing domestically? • Does Cessna have a well-known brand name in the general aviation industry? • Will the statute of limitations that restricts victims of airplane accidents from suing the airplane manufacturer, if the airplane is greater than 18 years old, be passed in Congress? *Please note that unless specifically stated otherwise, airplanes will refer to single engine, piston-powered airplanes Module I

The purpose of the literature review exercise is threefold Purpose of the exercise • Introduce participants to the compilation of strategy literature document that will be available for review in hard copy in every ABC office worldwide • Contains approximately 60 of the best articles and textbook chapters used to develop the Business Unit Strategy Training Program • Literature written by the world’s leading strategy thinkers • Contains cutting edge strategy theory as well as classic strategy concepts - timeframe of writings ranges from the early 1980s through 1997 • Continuous improvement team will add additional materials to the compilation as they become published • Expose participants to the actual materials that are contained in the compilation document and interest them in further strategy reading • Develop over many courses a set of summaries of all literature contained in the compilation that can be made available to consultants online - participants’ actual summaries will be available for all member of ABC to read

Materials required to perform the strategy literature review Materials to be distributed • Each team receives its own unique packet of strategy literature that contains two or three articles or textbook sections • All members of a team receive the same literature packet

These instructions are stapled as the final page of the strategy literature packet Description of activities to be performed and deliverables required Activities performed individually Group requirements and deliverables • Read the strategy literature contained in the packet • Summarize the literature • Compare and contrast the articles and/or textbook sections • Decide whether you agree or disagree with the author(s)’ ideas (why or why not) • Determine what ideas, if incorporated, would make the articles even more meaningful or practical • Discuss the articles and the results of the activities that were performed individually and arrive at some type of consensus of opinion • Create a 15 minute presentation to discuss the literature and the aforementioned analyses • Write a summary, in outline form, of each piece of strategy literature to be emailed to the appropriate trainer for inclusion in the online database

Industry structure Instructions to complete the exercises that correspond to Module II • Work structure: Teams of four or more individuals each • Business brief or case: The U.S. Airline Industry, 1978-1988 (A) and (B) (Abridged) • Industry: U.S. Airline • Case focus: How and why the industry has changed over time • Instructions • Read The U.S. Airline Industry case • Perform the individual exercises as requested by the trainer • Follow the instructions for each exercise that are detailed in the slide titles Module II

Competitor Current strategy Objectives Capabilities Other Industry structure Players analysis List the most important players in the industry and assess their strategies, objectives, strengths and weaknesses and any other important factors that describe the company (Expound upon the player profile detailed in the case) Module II Source:

Industry structure Strategic group analysis Group the players in the industry according to relevant dimensions Module II Source

Industry structure Substitution analysis Define the potential substitute products based on the level of the customer need Potential substitutes Module II Source

Cost for customer Industry structure Substitution analysis Map the substitute products or services on a value/cost matrix Value to customer Module II Source:

Industry structure Supply chain analysis Draw the supply chain for the industry and indicate the concentration of players at each stage Module II Source

Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages independent of scale Government policy Industry structure Exit and entry barrier assessment Assess the strength of the structural entry barriers in the industry Module II Source

History Incumbents have significant sunk costs Threats of aggressive response from incumbents Industry growth Industry structure Exit and entry barrier assessment Assess whether the behavioral entry barriers are high or low in the industry Module II Source:

Specialized assets Fixed cost of exit Strategic interrelationships Emotional barriers Government and social restrictions Industry structure Exit and entry barrier assessment Assess the strength of the exit barriers in the industry Module II Source

Strategic paradigm Key events Key players Other Development of the industry Industry strategic era analysis Perform a strategic era analysis of the industry . Module II Source

Sales Time Development of the industry Industry life cycle analysis Draw the industry life cycle Module II Source

Sector Trends Growth Positive Negative Development of the industry Trends analysis List and rate the relevant trends occurring in the industry and their implications Module II Source

Product/market analysis Size and growth of the market Determine the size of the industry, then plot the industry size for every year that data is available and calculate the CAGR Industry:___________________ Size of the market, measured as:_________ CAGR 19____ to 19____ equals Module II Source

Product/market analysis Product/market segmentation Segment the market by one of the four generic segmentation dimensions (product, customer, geography or distribution channel) Generic segment Sub segments Module II Source

Product/market analysis Product/market segmentation Segment the industry using criteria that best represent the reason for product sales and list the offering components that would vary according to the segmentation criteria High Medium Low Importance of offering component with respect to segmentation criterion 5 3 1 Offering components Segmentationcriteria Module II Source:

Industry analysis frameworks Structure-Conduct-Performance Perform a Structure-Conduct-Performance analysis of the industry External Shocks STRUCTURE CONDUCT PERFORMANCE Feedback Module II Source:

Industry analysis frameworks The five forces Perform a five forces analysis of the industry Module II Source

Customers Value Value Company Competitors Cost Industry analysis frameworks The strategic triangle From the perspective of a single industry player, suggest business strategies for each corner of the the strategic triangle, making sure they can be unified into one business unit strategy Module II Source

Instructions to complete the exercises that correspond to Module III • Work structure: Teams of four or more individuals each • Business brief or case: The Cola Wars Continue: Coke vs. Pepsi in the 1990s • Industry: Beverage - soft drinks • Case focus: Strategies of the specific companies in the industry • Instructions • Read The Cola Wars Continue case • Scan the supplemental information that has been added to the case • Perform the individual exercises as requested by the trainer • Follow the instructions for each exercise that are detailed in the slide titles • Other • Perform the exercises for Module III on Coke • Assume that Coke’s business includes both concentrate and bottling operations • Evaluate Coke and Pepsi for the exercises that require a comparison of two companies • Assume that Pepsi consists of beverage, restaurant and snack foods businesses and that it has never announced the divestitures of its non-core businesses Module III

Overall company profile Purpose of the organization On the following pages, write a statement or description for several of the items listed below for the two featured companies Core values Core ideology Core purpose Mission/vision 10-30 year long-term goal Envisioned future Vivid description Module III Source

Overall company profile Purpose of the organization Write the mission/vision statements of the two featured companies Module III Source:

Overall company profile Purpose of the organization State the objectives of the two featured companies Module III Source

Overall company profile Purpose of the organization Define the strategies of the two featured companies Module III Source:

Overall company profile Stakeholder analysis List the major stakeholders of the company, their objectives and their value measurement criteria Stakeholder Objective Value measurement criteria Module III Source:

Overall company profile Stakeholder analysis Position the company’s major stakeholders in the power/interest and power/dynamism matrices High High Power Power Low Low High High Low Low Level of interest Predictability Module III Source:

Strategic paradigm Key events Key players Other Overall company profile Strategic era analysis Perform a strategic era analysis of the company . Module III Source

Key data: Activities Position Strategy Overall company profile Strategic planning framework Develop a strategic planning framework of the company Module III Source

Product/market focus Evaluation of product/market segments Provide summary data for the segments and the company’s position within them Summary statistics 1988 1993 Change Overall market size Segments Company share data Module III Source

Product/market focus Evaluation of product/market segments Segment the industry and illustrate the company’s position in each segment Company’s share of the segment (%) Company’s share of the segment (%) 1988 1993 100 100 75 75 50 50 25 25 Size of the overall market (Indexed values) Size of the overall market (Indexed values) Module III Source

Overview of the value chain Value chain analysis Draw the value chain of the company Module III Source

5 3 1 Strong Medium Weak Overview of the value chain Value chain analysis Map the apparent skills base of the company and its major competitors Company Player A: Player B: Player C: Player D: Player E: Module III Source

Cost Drivers Margin Drivers Overview of the value chain Cost and margin driver analysis List and comment on the company’s cost and margin drivers Module III Source:

Financial resources and performance Financial ratios Calculate the following profitability ratios for the company Ratio ABBR Equation Calculation EBIT Return on Investment ROI Average Total Book Capital Net Income Return on Equity ROE Average Book Equity Net Income Return on Assets ROA Average Assets Sales – COGS Gross Margin GrossMargin Sales EBIT Operating Margin EBITMargin Sales EBT EBT Margin EBTMargin Sales Return on Sales (ROS)/Net Income Margin Net IncomeMargin Net Income Sales Module III Source:

Business Unit Strategy Training Program