150 Business Diagrams | Cost Of Capital | Strategic Management

150 Business Models...

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150 Business Diagrams
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Key Words...
Break-even – Financing Life Cycle – Economies of Scale – Elasticity – Sales Cycles – Market Potential – Portfolio Matrix – Product Model – Four P’s – Push/Pull Strategy – Marketing Mix – PDCA Cycle – SWOT – Value Chain – Ansoff Matrix – BCG Matrix – 7-S Model – Core Competencies – GE Business Screen – Nine Cell Industry – Risk/Reward Diagram – Porter’s Five Forces – Industry Competition – Generic Strategies – Geobusiness Model – Porter’s Diamond – Matrix Design – PIMS – Leavitt’s Diamond – Belbin’s Team Roles – Theory X/Y – Maslow’s Hierarchy – Herzberg’s Theory – Cultural Web – Pareto Curve – CIM Concept – Value Drivers
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Markets and Structure of Flow
Resources Money

Resource markets

Resources Money

Taxes, goods Services, money Taxes, goods

Services, money

Manufacturer markets

Government markets

Taxes Services

Consumer markets

Services, money

Taxes, goods

Money Goods and services

Middlemen markets

Money Goods and services

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A Company‘s Macroenvironment

gi Le

MACROENVIRONMENT

s la

y

tio

og

Te c

IMMEDIATE INDUSTRY & COMPETITVE ENVIRONMENT Suppliers Substitute

n

ol

an

hn

d gu re tio la ns

COMPANY

The Economy at large

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Po pu

la tio

n

de

New Entrants

m og

ra ph ics

Rival Firms

Buyers

V al ci So al nd sa ue fe Li st y s le

Break-even Point
Value $
Sales

Profit

Break-even Point
Variable costs Total costs

Current sales level

Fixed costs

0 0
Units sold

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Break-even Chart
1200

Total revenue
1000 800 600 400

Target profit Total cost

) s dnas uoh n ( sr all o D t i

Fixed cost
200

0

10

20

30

40

50

Sales Volume in Units (in thousands)

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Break-even Volume
35 30 25

Total Revenue

$ Millions

Total Costs

20 15 10 5 0

Fixed Expenses*

50

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Profit Loss * Fixed Expenses = Marketing Expenses and Other Direct Expenses

100 Break-even Volume (90,000)

150

200 Units Sold (‘000)

Break-even Regions
Cash flow Returned capital break-even Cash flow breakeven $ EVA break-even Opportunity cost based on capital risk assumed Cumulative revenue

P&L break-even

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Financing Life Cycle
FFF & Angels Venture Capitalist Investment Banks & Banks

Seed Capital & Early Stage Enterprise Cash Flow

Early Growth

Later Growth Enterprise Financing

Mezzanine
3rd 2nd 1st

Public Market

Initial Public Offering

Valley of Death

Break-even point

Time

Emerging Growth

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Demand and Supply

S D F G

Price

E

A S

B

0

D

Quantity

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Economies of Scale

Average cost

LACs*

Output
*Long-run average costs (LACs) Increasing returns to scale, or economies of scale

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Elasticity
Price
e=e = 0 (total inelastic demand) e=(total elastic demand)

Price

8
e<-1 e=-1 e>-1

Quantity

Quantity

(-) P2

Price

P1

e=0

P1

Price

(+)

(-)
(+)

P2 0 Quantity

0

Quantity

Demand is elastic and expenditure increases when price falls from P1 to P2

Demand is inelastic and expenditure increases when price falls from P1 to P2

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8

Inelastic and Elastic Demand

P2

P’ 2 P’ 1

eci r P

P1

Q 2Q 1 Quantity Demanded per Period (a) Inelastic demand

Q’ 2

Q’ 1 (b) Elastic demand

Quantity Demanded per Period

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Sales and Profit Life Cycles

Sales

Sales and Profits ($)

Profit

Introduction

Growth

Maturity Time

Decline

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Market Potential, Market Volume, Market Share
Volume or value

Market potential Market volume

Market share

Time

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The Product Life Cycle I

Sales over profits

Sales

Profits Introduction Growth Maturiy Shake-out Decline

Stages over Time

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The Product Life Cycle II

Unit Sales Volume

Introduction

Growth
A B C

Maturity

Commodity or Decline

Time Note: A = Moderate Growth, B = Commodity, C = Decline

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The Life Cycle Portfolio Matrix
THE BUSINESS UNIT‘S COMPETITIVE POSITION Strong Average Weak Development A C Growth B D F E

THE INDUSTRY‘S STAGE IN THE EVOLUTIONARY LIFE CYCLE

Competitive shakeout Maturity Saturation

G Decline H

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Patterns of Strategic Change

Continuity

Incremental

Flux

Global

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The Whole Product Model

Potential Product Augmented Product Expected Product Generic Product

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The Product-Positioning Map
High quality

E

A

Low price

B

High price

C D

Low quality

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The Four P‘s of McCarthy I
Environment

Environment

Environment

Product Place

Price Promotion

Environment

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The Four P‘s of McCarthy II
High quality Marketing Mix
Product variety Quality Design Product Features Brand name Packaging Sizes Services Warranties Returns Channels Coverage Assortments Locations Inventory Transport

Place
Target Market

Price

List price Discounts Allowances Low quality Payment period Credit terms

Promotion

Sales promotion Advertising Salesforce Public relations Direct marketing

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Push versus Pull Strategy
Marketing activities Push Strategy Manufacturer Demand Intermediaries

Demand

End users

Marketing activities Demand Pull Strategy Manufacturer Intermediaries Demand

End users

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The Expanded Marketing Mix

Product

Promotion

Price

Customer Service Place People

Processes

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The 6 – Step Marketing Plan
1
Situation (SWOT) firm market industry competition environment Action plan budget allocation product promotion price distribution

4

2

Objectives sales market share market expansion leadership satisfaction Strategy segment – target price / quality product positioning differentiation diversification

Marketing Plan

Forecasts quantify: costs sales profits market share Control

5

3

6

organization structure measurement tools check frequency => Corrective actions

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The PDCA Cycle

Plan

Performance

Act Check

Do

Path of continous improvement

Time

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Enterprise Management Process
Decision Process Enterprise Structure

Mission & Strategy

Customer Satisfaction

Value Improvement Benchmarking

Enterprise Learning

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SWOT Analysis Diagram
Numerous environmental opportunities

Cell 3: Supports a turnaroundoriented strategy Critical internal weaknesses Cell 4: Supports a defensive strategy

Cell 1: Supports an aggressive strategy Substantial internal strengths Cell 2: Supports an diversification strategy

Major environmental threats

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SWOT Analysis I

Strengths

Weaknesses

Opportunities

Threats

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SWOT Analysis II
STRENGTHS / /WEAKNESSES STRENGTHS WEAKNESSES Firm, Organization Firm, Organization
• Market share • Key account share • Growth rate • Supply diversity • Influence • On market • Purchasing / selling deadline • New products cycles • Negotiation power - firm suppliers - customers • Firm competitivity - Product, service - Profitability, H.R., … • Segments invested in • Firm’s integration level • High-tech vulnerability

OPPORTUNITIES / /THREATS OPPORTUNITIES THREATS Environment, Market, Industry Environment, Market, Industry

MARKET

• Market size • Key account size • Annual growth rate • Market diversity • Price sensitivity • Seasonality • Cycles • Negotiation power - suppliers - consumers

COMPETITION

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• Competitor types • Concentration level • Intrants / extrants • Market share evolution • Vertical / horizontal integration • Technology substitution

SWOT Analysis III
STRENGTHS / /WEAKNESSES STRENGTHS WEAKNESSES Firm, Organization Firm, Organization
• Firm margins • Economies of scale • Barriers • Production capacity level

OPPORTUNITIES / /THREATS OPPORTUNITIES THREATS Environment, Market, Industry Environment, Market, Industry

FINANCE / BUSINESS

• Global benefits • Economies of scale • Barriers • Production capacity level

• Adaptability to change • Expertise / Know-How • Patent ownership • Production technology

TECHNOLOGY

• Maturity / volatility • Complexity • Differentiation • Patents and copyrights • Production technology

• Reactivity / Flexibility level • Adaptability • Agressiveness • Working relationships

SOCIO - POLITICAL

• Attitudes / Social trends • Laws and regulations • Pressure groups • Trade union activities

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The Generic Value Chain I
Support activities Human resource management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service
gi n Mar

Firm infrastructure

Primary activities

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Mar gi

n

The Generic Value Chain II
FIRM INFRASTRUCTURE HUMAN RESOURCES MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT
MARGIN

INBOUND LOGISTICS

OPERATIONS

OUTBOUND LOGISTICS

MARKETING & SALES

SERVICE

Marketing Management

Advertising

Sales Force Administration

Sales Force Operations

Technical Literature

Promotion

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The Generic Value Chain III
Firm infrastructure Human resources management Technology development Procurement
Mar gin
Mar

Inbound logistics

Operations

Outbound logistics

Marketing and sales

Service

gin

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The Ansoff Matrix I

Current Products

New Products

Current Markets

Market penetration

Product development

New Markets

Market development

Diversification

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The Ansoff Matrix II

PRODUCTS AND/OR SERVICES Existing New

Existing

Market penetration

New product development

MARKETS

New

Market development

Diversification

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The Customer Growth Matrix
PRODUCTS AND/OR SERVICES Existing New

Existing

Customer loyalty

Customer extension

CUSTOMERS

New

Customer acquisition

Customer diversification

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Product-Market Diversification

Broad

Product Diversification

Moderate

Narrow Narrow Moderate Market Diversification Broad

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BCG’s Growth-Share Matrix I

RELATIVE MARKET SHARE High Low

High MARKET GROWTH RATE Low

Star

Question Mark

Cash Cow

Dog

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BCG’s Growth-Share Matrix II
RELATIVE MARKET SHARE High A High B MARKET GROWTH RATE Low C D Star Low Question Mark

E

Divest

F

G Cash Cows Dog
Present position in the corporate portfolio

Divest

Targeted future position in the corporate portfolio

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BCG’s Growth-Share Matrix III
RELATIVE MARKET SHARE 10x High 1.0x Low 0.1x

Low MARKET GROWTH RATE

Star businesses

Question marks

10%

High

Cash generating businesses

Dog businesses

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BCG‘s Growth-Share Matrix IV

22% 20% 18% 16% 14% 12% 10% 8%

Stars
4

Question Marks
1 3 2

5

Cash Cows
6 7

Dogs

et a R h w r G e kr a M t o t

6% 4% 2%

8
x 01 x1 x10 .

Relative Market Share

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The New BCG Matrix

Many NUMBER OF APPROACHES TO ACHIEVE ADVANTAGE Few

Fragmented

Specialization

Stalemate

Volume

Small SIZE OF ADVANTAGES

Large

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Underlying Relationship Between ROI and Market Share in the New BCG Matrix
SIZE OF THE ADVANTAGE Small Stalemate
ROI ROI

Large Volume

Few
Market share Market share

NUMBER OF WAYS TO ACHIEVE COMPETITVE ADVANTAGE
ROI

Fragmented
ROI

Specialization

Many
Market share Market share

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McKinsey‘s Seven ‚S‘s Framework

Structure

Strategy

Systems

Superordinate Goals

Skills

Style

Staff

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Disruption and the New 7-S’s
VISION PLANNING Vision for Disruption
Identifying and creating opportunities for temporary advantage through understanding • Stakeholder Satisfaction • Strategic Soothsaying directed at identifying new ways to serve existing customers better or new customers that no one else serves now.

Capability for Disruption
Sustaining for momentum by developing flexible capacities for • Speed • Surprise that can be applied across many actions to build a series of temporary advantages

Market Disruption

Tactics for Disruption
Seizing the initiative to gain advantage by • Shifting the Rules • Signaling • Simultaneous and Sequential Strategic Thrusts with actions that shape, mold, or influence the direction or nature of the competitors‘ responses.

RESOURCE PLANNING

PUNCH-COUNTERPUNCH PLANNING

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Core Competencies I

Banner Brand

Business Units

Core Products (Platforms)

Core Competencies

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Core Competencies II

Processes

Core Competencies Technologies Capabilities

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Core Competencies III
Low Company View High

High

Competency 1 Competency 5 Competency 4

Market View

Competency 6

Low

Competency 2 Competency 3

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The General Electric Business Screen
COMPETITIVE POSITION Strong Average Weak

Low

INDUSTRY ATTRACITVENESS

Medium

High

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Attractiveness/Competitive Position Strategies
COMPETITIVE POSITION Strong Average Weak • Specialize • Seek niches • Consider acquisitions • Evaluate potential for •Grow leadership via •Seek dominance Segmentation •Maximize • Identify investment weaknesses • Build strengths • Identify growth segments • Specialize • Invest selectively

High

INDUSTRY ATTRACTIVENESS

• Identify growth segments Medium • Invest strongly • Maintain position elsewhere • Maintain overall position • Seek cash flow • Invest at maintenance levels

• Specialize • Seek niches • Consider exit

Low

• Prune lines • Minimize investment • Position to divest

• Trust leader‘s statesmanship • Sic on competitor‘s cash generators • Time exit and divest

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Company Position/Industry Attractiveness Screen
Industry attractiveness

Low

Medium

High

HARVEST

HOLD

BUILD

HARVEST

HARVEST

HOLD

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Low

Medium

Business unit strengths

HOLD

BUILD

BUILD

High

A Representative Nine-Cell Industry Attractiveness-Competitive Strength Matrix
COMPETITIVE STRENGTHS/BUSINESS POSITION Strong Average Weak

High

Business F

Business A

LONG-TERM INDUSTRY ATTRACTIVENESS

Medium Business C Business B

Low Business E Business D

High priority for investment Medium priority for investment Low priority for investment

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GE / McKinsey Multifactor Portfolio Matrix
INDUSTRY ATTRACTIVENESS

Invest

Invest

Manage Selectively for Earnings

BUSINESS STRENGTH

Invest

Manage Selectively for Earnings

Harvest or Divest

Manage Selectively for Earnings

Harvest or Divest

Harvest or Divest

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Portfolio Positions and Defensive Strategic Market Plans
Very Attractive

Protect
Market Attractiveness

Protect

Protect or Harvest

Protect or Focus

Protect or Focus

Harvest or Divest
Very Unattractive Very Weak

Harvest or Divest

Protect or Harvest

Competitive Advantage

Very Strong

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Market Attractiveness – Portfolio Classification and Strategies
BUSINESS STRENGHT 5.00 Strong Medium Joints High Weak

Invest / grow Selectivity / earnings
3.67 Hydraulic Pumps Clutches Aerospace Fittings

Harvest / divest

TE KR A M SS E NE V T C ARTT A I

Medium 2.33 Flexible Diaphragms

Fuel Pumps

Low

Relief Valves

1.00 5.00 3.67 2.33 1.00

(a) Classification

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The Risk-Reward Diagrams
High

Low

RISK

High REWARD (NPV)

Low

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Contrasting Characteristics of Upstream and Downstream Companies
Supply stages in a manufaturing industry (supply chain) Raw materials Primary manufacturer Product producer Consumer marketer Fabricator Retail Consumer Supply flow UPSTREAM ORGANIZATIONS

Centre of gravity of a manufacturing industry

DOWNSTREAM ORGANIZATIONS

Contrasting characteristics of upstream and downstream companies Upstream Commodity Standardize Maximize end users Low-cost producers Sales push Line-driven organization Process innovation Capital budget Capital-intensive Technological know-how Supply and trading/manufacturing and engineering Downstream Proprietary Customize Target end users High margins Marketing pull Line/staff Product innovation R & D/advertising budget People-intensive Marketing skills Product development/marketing

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Porter‘s Five Forces I
Potential Entrants Potential Entrants

Threat new entrants

Bargaining power of suppliers Suppliers Suppliers

Industry Industry competitors competitors

Bargaining power of buyers

Buyers Buyers

Rivalry among Rivalry among existing firms existing firms

Threat of substitute products

Substitutes Substitutes

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Porter‘s Five Forces II
Firms in other industries offering Substitute Products

Suppliers of raw materials, parts, components or other resource inputs

RIVALRY AMONG COMPETING SELLERS

Buyers

Potential New Entrants

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Forces Driving Industry Competition
Potential Entrants

Threat of new entrants

Suppliers

Bargaining power of suppliers

Industry competitors

Bargaining power of buyers

Buyers

Rivalry among existing firms Threat of substitute products or services Substitutes

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Barriers and Profitability
EXIT BARRIERS Low High

Low

PROFITS=LOW RETURNS=STABLE

PROFITS=LOW RETURNS=RISKY

ENTRY BARRIERS PROFITS=HIGH RETURNS=STABLE PROFITS=HIGH RETURNS=RISKY

High

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Four Routes to Strategic Advantage
Business/Product Offered
Old/Existing Compete (wisely) Route 1 Intensify funtional Intensify funtional differentiation differentiation KFS KFS New/Creative Aggressive Aggressive initiatives initiatives Route 3

Ask „why-why‘s“ Ask „why-why‘s“

Avoid head-on competition Route 2

Relative superiority Relative superiority

Strategic degrees of Strategic degrees of Freedom Freedom

Route 4 Exploit competitor‘s Exploit competitor‘s weakness weakness

Maximize user Maximize user benefit benefit

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The Generic Strategies I

Differentiation

Cost Leadership

Focus

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The Generic Strategies II

COMPETITIVE ADVANTAGE Lower Cost Differentiation

Broad Target COMPETITIVE SCOPE Narrow Target

Cost Leadership

Differentiation

Cost Focus

Differentiation Focus

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Five Modified Competitive Strategies
TYPE OF COMPETITVE ADVANTAGE BEING PURSUED Lower Cost A Broad Cross-Section of Buyers Overall Low-Cost Leadership Strategy Best-Cost Provider Strategy Focused Differentiation Strategy Differentiation

Broad Differentiation Strategy

MARKET TARGET

A Narrow Buyer-Segment (or Market Niche)

Focused Low-Cost Strategy

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Sweeney‘s Generic Strategies
Strategic change involves enhancing The operation‘s structure Marketer Emphasizes • Quality • Dependability • Range Innovator Emphasizes • Quality • Product/service • Performance • Speed • New product/service • Development Innovator Emphasizes • Quality • Product/service • Performance • Flexibility • Speed Enhanced

Enhanced

Caretaker Emphasizes • Price/ cost • Dependability • Quality

Traditional

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Strategic change involves enhancing the operation‘s infrastructure

Customer service criteria

Basic

Geobusiness Model

CONTROL VARIABLES

MOTIVATION VARIABLES

CONDITIONING VARIABLES

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Porter‘s Diamond

FIRM STRATEGY, FIRM STRATEGY, STRUCTURE AND STRUCTURE AND RIVALRY RIVALRY

FACTOR FACTOR CONDITIONS CONDITIONS

DEMAND DEMAND CONDITIONS CONDITIONS

RELATED AND RELATED AND SUPPORTING SUPPORTING INDUSTRIES INDUSTRIES

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Resource Allocation at Corporate Level

PERCEIVED NEED FOR CHANGE Low High

Low EXTENT OF CENTRAL DIRECTION High

„Formula“

Imposed priorities

Free bargaining

Open competition

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PIMS Competitive Strategy Paradigm
Market structure •Market differentiation •Market growth rate •Entry conditions •Unionization •Capital intensity •Purchase amount Competitive position • Relative perceived quality • Relative market share • Relative capital intensity • Relative cost Strategy and tactics • Pricing • R & D spending • New product introduction • Change in relative quality and variety of products/services • Marketing expenses • Distribution channels • Relative vertical integration • Workforce productivity Performance • Profitability (ROS, ROI, etc.) • Growth • Cash flow • Value enhancement • Stock (share) price

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International Strategy Options

High

Joint venture

Foreign branch

Foreign subsidiary

PRODUCT DIVERSITY

Licensing/

Joint venture

Foreign branch

Export
Low

Licensing/

Joint venture

Low MARKET COMPLEXITY

High

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The Wheel of Competitive Strategy

Product Line

Target Market

Finance and Control

Marketing GOALS
Definition of how the business is going to compete Objectives for profitability, growth, market share, social responsiveness etc.

R&D

Sales

Purchasing Labor Manufacturing

Distribution

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Generic Competitive Strategies

Return on Investment

Market Share

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The Strategic Triangle I
Multiple market segments Target segments Customers

V al ue

Corporation

V al ue

Cost

Competitors

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The Strategic Triangle II

Customers Needs seeking benefits at acceptable prices

V al ue

V al u

e

Assets and utilization Company

Cost differentials

Assets and utilization Competitor

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Trilogy Strategy - Culture - Structure
nm ro vi En t en

En vi ro nm

Strategy

en t

Structure

Culture

En vi ro nm

en t

En

nm iro v

t en

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Optimum Degree of Formal Organization

Organizational effectiveness

Degree of formal organization

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The Flow of Formal Authority

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Functional, Divisional, Multidivisional Structures
CEO Controlling CEO R&D

Logistics

Manufacturing

Sales

Finance Cement Concrete Chemicals

CEO

CEO

Europe Europe Motor Marine Fire North America Motor Marine Fire Chemicals Asia Motor Marine Concrete Cement

North America

Asia

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A Matrix Design
FUNCTIONAL DEPARTMENTALIZATION Marketing Department Manager PROJECT DEPARTMENTALIZATION Alpha Project Project Leader Research and Development Department Manager Purchasing Department Manager Production Department Manager

E

E

E

E

Beta Project

Project Leader

E

E

E

E

Gamma Project

Project Leader

E

E

E

E

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Models of Virtuality

The Virtual Face

Star-alliance Model

Co-alliance Model

Value-alliance Model

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Leavitt‘s Diamond: The Interaction of Social Forces in an Organization

Task

Structure

People

Technology

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Action-centred Leadership

TASK NEEDS

INDIVIDUAL NEEDS

GROUP NEEDS

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Belbin‘s Team Roles
TEAM

Shaper Company Worker Chairman
ator Monitor-Evalu

t Plan

Finisher

Resource-Investigator

W Team

orker

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Group Development

Group effectiveness

Stage V Adjourning Stage IV Performing Stage III Norming Stage II Storming

Stage I Forming

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Theory X and Theory Y
Theory X
confirms following

Vicious circle of theory X
strong rules and control
leads to

no responsability, no Initiative
leads to

passive work attitude
strenghten

Theory Y
following

no responsability, no Initiative
leads to

strong rules and control
allow

Strenghten effect of Theory Y

passive work attitude

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Maslow‘s Hierarchy of Human Needs I

Self-Actualization Needs
(self-development and realization)

Esteem Needs
(self-esteem, recognition, status)

Social Needs
(sense of belonging, love)

Safety Needs
(security, protection)

Physiological Needs
(hunger, thirst)

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Maslow‘s Hierarchy of Human Needs II

GENERAL EXAMPLES Achievement
SelfActualization Needs

ORGANIZATIONAL EXAMPLES Challenging Job

Status

Esteem Needs

Job Title

Friendship

Belongingness Needs

Friends in Work Group

Stability

Security Needs

Pension Plan

Shelter

Physiological Needs

Base Salary

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Herzberg‘s Motivator-Hygiene Theory

HYGIENE FACTORS

MOTIVATORS

•SALARY •SALARY •ADMINISTRATION •ADMINISTRATION •SUPEVISION •SUPEVISION •COMPANY POLICY •COMPANY POLICY •STATUS •STATUS •WORKING •WORKING CONDITIONS CONDITIONS

•ACHIEVEMENT •ACHIEVEMENT •RECOGNITION •RECOGNITION •RESPONSIBILITY •RESPONSIBILITY •ADVANCEMENT •ADVANCEMENT •NATURE OF WORK •NATURE OF WORK

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Parallels Among Need Theories of Motivation
Herzberg‘s Two-Factor Theory Achievement Work Itself Responsibility Advancement and Growth Recognition Maslow‘s Hierarchy of Needs Self-Actualization Needs Self-Esteem Esteem Needs Respect of Others Relatedness Needs Alderfer‘s ERG Theory Other Key Needs Need for Achievement Need for Power

Motivation Factors

Growth Needs

Supervision Interpersonal Relations

Belongingness Needs

Need for Affiliation

Hygiene Factors

Security Company Policies

Interpersonal Security Security Needs Physical Security Physiological Needs Existence Needs

Pay Working Conditions

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Concern for people

Managerial Grid
9
Country Club Management (1,9) Production is incidental to lack of conflict and „good fellowship“ Dampened Pendulum (5,5) Team management (9,9) Production is from integration of task and human requirements

6

7

8

(Middle of the road.) Push for production but don‘t go „all out“. Give some but not all all: „be fair but firm“ Impoverished Management (1,1) Effective production is unobtainable becaus people are lazy, apathetic and indifferent. Sound and mature relationships are difficult to achieve because, (human nature being what it is) conflict is inevitable Task Management (9,1) Men are a commodity just as machines. A manager‘s responsibility is to plan, direct and control the work of those subordinate to him

1

2

3

4

5

1

2

3

4

5

6

7

8

9

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Concern for production

Situational Leadership
LEADER BEHAVIOUR Share ideas and facilitate in decisionmaking Explain decisions and provide opportunity for clarification S2
G IN LL TE

(Supportive Behaviour) RELATIONSHIP BEHAVIOUR

I IC RT PA

TI PA

NG

G IN LL SE

S3
GA TI NG DE LE

(LOW)

Provide specific Turn over instructions responsibility for and closely decisions and supervise S4 implementation performance TASK BEHAVIOUR (Guidance)

S1 (HIGH)

HIGH R4 Able and Willing or Confident

FOLLOWER READINESS MODERATE R3 R2 Able but Unwilling Unable but Willing or Insecure or Confident

LOW R1 Unable and Unwilling or Insecure

FOLLOWER DIRECTED

LEADER DIRECTED

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Cultural Web

Stories Rituals and routines

Symbols

THE PARADIGM Control systems Power structures Organizational structures

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Dynamics of Paradigm Change
The paradigm The paradigm Development of Development of strategy strategy Implementation Implementation Corporate Corporate Performance Performance

if unsatisfactory Step 11 Step Tighter Tighter controls controls

Step 22 Step Reconstruct or Reconstruct or develop new develop new strategy strategy

Step 33 Step Abandon paradigm Abandon paradigm and adopt new one and adopt new one

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Four Organizational Cultures
Power Culture Role Culture

Task Culture

Person Culture

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Integrated Model of Strategic Management
Vision, values, Vision, values, and expectations and expectations Strategy Strategy formulation formulation •• Alternatives Alternatives •• Evaluation Evaluation and choice and choice

Mission Mission

Goals, Goals, objectives objectives Situation analysis Situation analysis •• Enviromental Enviromental opportunities/ opportunities/ threats threats •• Organizational Organizational resources and resources and competences competences

Policies and Policies and procedures procedures

Strategy Strategy implementation implementation and planning and planning

Strategic control Why? What? How? Guidelines

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M-O-S-T

Mission Mission WHAT an organization isis seeking to do WHAT an organization seeking to do Objectives Objectives Strategy Strategy HOW HOW Tactics Tactics an organization will achieve itit an organization will achieve

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Network Analysis, PERT, CPA
5 2 6 A 0 1 0 B 4 4 3 4 5 KEY: Activity Critical path Event Earliest event time Event number Latest event time 5 9 F 9 5 D 1 E 5 H 3 2 C 4 8 G 4 6 12 12 7

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The Five Phases of Growth

Large

collaboration coordination "?" delegation

SIZE OF ORGANIZATION

red tape direction creativity leadership
Young AGE OF ORGANIZATION

control

autonomy

evolution: stages of growth revolution: stages of crisis

Small

Mature

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The Chasm

The Early Market The Chasm
Te c En hnol thu o g sia y sts Vi sio n

The Mainstream Market

ari

Pra g es

ma

tist

Co n s

se r vat ive s

Sk ep

tic

s

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Inventory Profile
Steady and predictable demand (D)

Order quantity Q

Slope = demand rate

Average inventory = Q / 2

Inventory level

Q/D Instantaneous deliveries at rate of D / Q per period

Time

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Economic Order Quantity

Total costs
Costs

Holding costs

Economic order quantity (EOQ)

Order costs

Order quantity

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Pareto Curve for ABC-Products

Cumulative % of total value

Class A items

Class B items
% of total number of items

Class C items

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CIM-Concept
CIM
CAD/CAM CAD C PPS
Production Programm Planning

Quantity Planning

CAP

A

Time and Capacity Planning

Place Order

CAM

D

Control Order

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The Business Process Re-engineering Approach
Micro operations Function 1 Function 2 Function 3 Function 4

s dee n r e mt s u C o

s ess ec or p ss e n s u B i ec or p ss e n s u B i

Activity 1

Activity 2

Activity 3

Activity 4

no t ar e po or ci M i

s dee n r e mt s u C o

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e n r e mt s u C o

delli fl uf s dee n r e mt s u C o

Total Quality Management

• • • • • • • • •

Whole operation involved Quality srategy Teamwork Staff empowerment Involves customers and suppliers Quality systems Quality costing Problem solving Quality planning

Inspection

Quality control • Statistical methods • Process performance • Quality standards • Error detection • Rectification Quality assurance Total quality management

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Supply Chain Management
Second-tier suppliers First-tier suppliers First-tier customers Second-tier customers

The Operation

Supply side
Purchasing and supply management

Demand side
Physical distribution management Logistics Materials management Supply chain management

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Internal Rate of Return (IRR)

Main methods of capital expenditure appraisal

Return on Investment ROI

Pay Back

Discounted Cash Flow (DCF)

Net Present Value (NPV)

Internal Rate of Return (IRR)

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Net Present Value (NPV)

Main methods of capital expenditure appraisal

Return on Investment (ROI)

Pay Back

Discounted Cash Flow (DCF)

Internal Rate of Return (IRR)

Net Present Value (NPV)

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Variance Analysis
Profit Variance

Total Cost Variance

Total Sales Variance

Materials Price Variance

Labour Variance

Variable Overhead Variance

Fixed Overhead Variance

Sales Volume Variance

Sales Price Variance

Materials Price Variance

Materials Usage Variance

Wage Rate Variance

Labour Efficiency Variance

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The Link Between the Balance Sheets and the Income Statement
Balance Sheet December 31, 2001 Liabilities $100 Owner‘s equity $70 Revenues $480 Income Statement Year 2002 Balance Sheet December 31, 2002

Assets $170

Assets $190 Expenses $469.8

Liabilities $113 Owner‘s equity $77

Net Profit $10.2
Retained earnings $7 Dividends $3.2

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Working Capital

Simple cycle of operations Cash

Receivables

Raw materials inventory

Finished goods inventory

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Financial Strategy Framework
Due dilligence process Investor Investment strategy Alternative Investments

Time to close deal

Risk/Reward Space

Financial Strategy

Opportunity Debt

Entrepreneurial concerns Time to out of cash Future alternatives Burn Rate Operating Requirements Working Capital

Sources and Deal Structure

Equity Other

Financial Requirements

Business Strategy

Market Strategy Asset Requirement

Technological Strategy

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Investor Perceived Risk-Return Space
Angels High FFF VCs Entrepreneur PERCEIVED RETURN Moderate Realistic Investors

Low

Banks

Low

Moderate PERCEIVED RISK

High

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Du Pont Scheme
Return on equity
Earnings after tax ROE = Owner‘s equity

Return on invested capital
ROIC = Earnings before interest and tax Invested capital

Financial leverage multiplier

Tax effects

Operating profit margin Earnings before interest and tax Sales

Capital turnover Sales Invested capital

Financial structure ratio Invested capital Owner‘s equity

Financial cost ratio

Tax effect ratio

Earnings before tax Earnings after tax Earnings before interest and tax Earnings before tax

Sales Operating costs

Invested capital
Cash Working Capital requirement Fixed assets

Owner‘s equity

Cost of debt

Tax rate

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The Drivers of Value Creation
EBIT Operating margin = Sales Sales Capital turnover = Invested capital Tax effect = (1 – Taxe rate) Aftertax cost of debt Estimated cost of equity Percent of debt financing EBIT Invested capital (pretax ROIC) Expected after tax ROIC Return spread (ROIC – WACC) Weighted average cost of capital WACC

Market Value Added (MVA) If the present value of the future stream of expected return spreads is positive, MVA is positive and the higher the growth, the more value created. If the present value of the future stream of expected return spreads is negative, MVA is negative and the higher the growth, the more value destroyed.

Percent of equity financing

Economic, political, and social environments Market structure Competitive advantages and core competencies Sustainability of growth

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Business Design Process
Economics Economics Changing Changing Customer Customer Priorities Priorities Technology Technology

What are What are the key the key assumptions assumptions About About customers customers and and economics? economics?

What‘s What‘s important to important to customers? customers?

How can How can profit be profit be made? made?

What What dimensions dimensions matter the matter the most? most?

What are my What are my choices choices now? In the now? In the future? future?

Which Which ones ones are best? are best?

Are the best Are the best choices choices internally internally consistens consistens integratable? integratable?

What‘s my What‘s my best best business business design? design?

How long How long will this will this design be design be valid? valid?

How can I I How can prepare prepare for for ongoing ongoing redesign? redesign?

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The Company Center of Gravity

The Entrepreneurial Phase

The Growth Phase

The Success Phase The Center of Gravity

The Center of Gravity The center of gravity

The Company

The Customers

The Company

The Customers

The Company

The Customers

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The Traditional Value Chain
The Traditional Value Chain Start with Assets, Core Competencies

Assets/ Core Competencies

Inputs, Raw Material

Product/ Service Offering

Channels

The Customer

The Modern Value Chain Start with the Customer

The Customer

Channels

Offering

Inputs, Raw Material

Assets/ Core Competencies

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The Modern Value Chain
Truly Understanding the Customer

Purchase Criteria Customer Anger Preferences Power Decision-Making Process Purchase Occasion Buyer Behavior Functional Needs Systems Economics Customer Priorities Channels Offering Inputs, Raw Material Assets/ Core Competencies

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Customer Solutions Profit

Profit

0

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Product Pyramid Profit

Price

Volume

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Multicomponent Profit

Base Business

Other Components

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Switchboard Profit

Buyers

Sellers

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Time Profit

$/Unit

Cost Price Time

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Blockbuster Profit

$/Project

Revenue

Cost Project Type

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Profit Multiplier Model
Other Forms

Key Asset

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Entrepreneurial Profit

Base Business Spin-Outs

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Specialization Profit

Return on Sales

Generalist

Specialist

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Installed Base Profit

Profit Margin

Hardware/Base Product

Consumables/ Follow-on Product

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De Facto Standard Profit

Profit Margin

Market Share

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Brand Profit

Price/Unit

Market Price

Brand Price

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Specialty Product Profit
100 %

S

Revenue

S

C

C

Five Years Ago

Today

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Local Leadership Profit

Profitability by Region

0

Local Market Share

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Transaction Scale Profit

$/Unit

Revenue

Cost

Size of Transaction

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Value Chain Position Profit

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Cycle Profit

Price

$/Unit

Cost

Utilization

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After-Sale Profit

Base Product

Follow-on Products/Services

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New Product Profit

Time

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Relative Market Share Profit

Return on Sales

Relative Market Share

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Experience Curve Profit

Cost/Unit

Cumulative Experience

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Low-Cost Business Design Profit

$/Unit

Conventional Business Design

Low Cost Business Design

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GE's Business Design: „Sell the Solution, Not Just the Box“
Sell the Box, or ...

Product

... Sell the Whole Solution

The Profit Zone

Product

Options

Accessories

Financing

Services

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The SMH Product Pyramid
The Profit Zone

Blancpain Omega, Longines, Rado

Tissot, Certina, Mido, Pierre Balmain, Hamilton, Calvin Klein

Swatch, Flik Flak Endura Lanco

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Coca-Cola's Business Design: Manage the Value Chain
Distribution Consumer Grocery Fountain Vending 1996 Logistics Bottling Syrup Coca-Cola Mega Brand Coca-Cola, diet CocaCola, Caff. Free, diet Caff. Free, Cherry, Diet Cherry Logistics Bottling 1980 Syrup Coca-Cola Brand

Distribution Consumer Grocery Fountain Vending The Profit Zone

Coca-Cola‘s participation, influence no participation

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The Charles Schwab "Switchboard"
Investors Mutual Fund Companies

Investors

Mutual Fund Companies

The Profit Zone Schwab One Source

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Intel's Business Design: „Two Steps Ahead“

The Profit Zone Intel

$/Unit

AMD

Cost Price Q2 Q4 Q6 Q8 Q10

Quarters Post-Launch

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Disney‘s Business Design Reinvention
The Profit Zone The Value Capture

Cruises

Publishing

Videocassette

Hotels

Television

Retail

Merchandise

Theme Parks

Music

Animated and Live-Action Films

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The Thermo-Electron "Spin-Out“ Business Design
The Profit Zone Thermo Instrument Systems Thermo Spectra Thermo Optek

Thermo-Electron

Thermedics

Thermo Voltek Thermo Sentron

Thermolase Thermo Trex Trex Medical

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Microsoft's Business Design: Create-the-Standard
OEMs

The Profit Zone Microsoft Applications

Windows

Customers

Applications Developers

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