The objective of this assignment is to write a case memo on an advanced strategic management topic related to the assigned case for the week. You are typically tasked with providing analysis and recommendation(s) regarding key strategic issues related to the case. The specific question(s) or issue(s) that you need to focus on varies from week to week, and the question for this week is provided below. The assigned case has all the information needed to complete this assignment; no external research is expected. Question for Module 2 Group Case Memo Assignment: Write a memo to Warren Buffet explaining how the health concerns and socio-cultural changes around the consumption of soft drinks will affect the profitability of the soft drinks industry. In your memo, explain to Buffet what strategic actions and investments he should recommend to Coca Cola management at their next board meeting. Your memo assignments will be evaluated by the course instructional team, using the following (subjective) scale: 6 = excellent memo: fully answered, well-written, insightful, uses course concepts and applies them appropriately, uses case facts well 5 = good memo: slightly incomplete, poorly written or organized in parts, uses course concepts but not well, use of case facts is weak 4 = sub-par memo: failed to answer a major part, illogical, misapplied key concepts, very limited use of case facts, poorly written 2 = unacceptable memo: missing a major part, overly short, very poorly written, doesn't use course concepts or case facts 0 = missed assignment; case memo not submitted, or not submitted on time Memos will lose one point for each of the following: they do not meet the word limit they are submitted as running text rather than a formatted file Goals and Objectives Upon successful completion of this module, you will be able to: Explain why external analysis matters Analyze a firm's macro-environment using the PESTEL framework Identify key elements of a firm's industry Explain the core structure-conduct-performance logic of industry analysis Analyze an industry using the 5-forces framework Evaluate how profitable or attractive an industry is (or will be) Avoid common errors in applying 5-forces industry analysis Revise external analysis in dynamic settings over time Design strategies to enhance the profitability of an industry Key Phrases/Concepts Keep your eyes open for the following key terms or phrases as you interact with the lectures and complete the activities. For definitions of the terms, please see the Glossary. Macro and industry environment PESTEL framework Five forces framework Structure-Conduct-Performance paradigm Entry barriers Rivalry and Substitutes Buyer and Supplier bargaining power Scale and scope economies Differentiation Price competition Industry concentration Overall industry profitability evaluation Industry evolution Pivotal force Complements and Complementors Glossary Here you will find the description of some words and phrases that pertain to the concepts in this course, and also words and phrases used in the videos and readings. If you want to add another word or expression that we missed, please suggest it in the forums. # 3-P Dynamic Capabilities Framework - A useful framework for developing a plan for strategic renewal. The three Ps refer to Processes, Positions and Paths. A Activities, Resources, and Capabilities - Three main elements to focus on for internal analysis of a business. In analysis of a business model (VARS framework), they represent one component that enables the delivery of a new value proposition. Activities and Value Chain - Activities are specific functions that a firm performs such as inspecting a product for quality. Value chain is an analytical framework that organizes a firm's activities as a \"set of Primary Activities that lie along the value adding flow of material\" and a secondary set of Support Activities. The value chain framework is typically used for manufacturing companies. B Broad and Narrow Scope - Broad or narrow scope are a description of the extent of the potential market targeted by the generic strategies. A broad scope implies targeting multiple customer segments and sales channels whereas a narrow scope means targeting one or few customer segments and sales channels. One example of broad focus (with a cost leadership strategy) is the discount retailer Wal-Mart, which aims to sell to many customer segments through many sales channels at a low cost. Business Model - A pragmatic theory (or design) that explains how an enterprise generates and realizes (superior) value. Simply put, a for-profit firm's business model explains how the firm intends to make money. Buyer Power- The pressure buyers of an industry's offerings can exert on the firms in that industry to provide higher quality products, better customer service, and lower prices. C Capabilities - Functions that the firm is very good at doing and are relevant to its performance. Causal Ambiguity: When it is difficult to ascertain the origin of a company's competitive advantage. Churn - Measure of the number of individuals or items moving out of a collective group over a specific period of time. Competitive Advantage - The condition under which a company is able to generate superior performance relative to its competitors in the same industry or the industry average. Typically, a company that enjoys a competitive advantage produces more economic value added (EVA) than its competitors. Cost leadership (Generic Strategy) - Strategy used by businesses to position themselves with the lowest cost of operation relative to competitors in the same industry. Customer Segment - A discrete customer group that shares similar characteristics and represents a subdivision of a broader market. D Differentiation - The state or act of providing products and services for sale that are unique and distinct from other offerings, so that they appeal to distinct set of customers. Brand loyalty is an illustration of differentiation. Differentiation Strategy - One of the two main generic strategies that focuses on generating superior firm performance through the production of unique and/or (perceived) better products or services that are more valued by customers and can therefore command a price premium. Dynamic Capability Framework - Capabilities that enable companies to change their resource or capability base. Dynamic Industry Analysis - Analyzing changes to an industry over time, typically by updating a static industry analysis using predictions about how the structural features of an industry are likely to evolve. Durability (of resources or capabilities) - A condition under which a firm's resources and capabilities retain their ability to produce functional performance, which may deliver a competitive advantage. E Economic Value - It is a measure of the benefit provided by a good or service to an economic agent. It is generally measured relative to units of currency. Economic Value Added (EVA) - A technical term that refers to the difference between the value or utility that consumers obtain from a product or service and the costs incurred to provide that same product or service. Entry Barriers - The forces that restrict new firms from entering an industry. F Five Forces Framework - A tool for industry analysis, which was first introduced by Professor Michael Porter. In this framework, industry attractiveness is defined by structural attributes of the five forces: the threat of new entrants, rivalry among industry firms, the threat of substitutes, and the bargaining power of buyers, and suppliers. Four-Firm Concentration Ratio - A formula to measure industry concentration which involves summing up the markets shares of the top four firms within the industry. \"Freemium Model\" - A value realization model (or revenue model) where the main product is sold for free to encourage adoption, but then premium add-ons are offered at a cost. G H Horizontal Scope - The collection of products or services offered by a company. In the context of business models, it accounts for whether the business is narrowly focused on a single product or service, or more broadly spread across multiple products and services. I Imitability and Imitation Barriers - Imitation and Replication are \"threats to the rarity of the firm's internal attributes.\" Imitation barriers are obstacles that prevent competitors from replicating a firm's activity systems, resources or capabilities that gives it a competitive advantage. An example of an imitation barrier is intellectual property rights. Industry - A set of similar firms associated with a single product market. Industry Environment - The layer of a firm's environment that is most proximate to the firm, consisting of competitors, buyers, suppliers, substitutes, and complements. Industry Evolution - The changes that occur in an industry over time. Frameworks, such as PESTEL, can help identify changes so that managers may take appropriate action. Integrated (Dual) Strategies - Strategies that seek to simultaneously pursue lower costs and greater differentiation than the firm's competitors. Dual strategies produce differentiated products or services at a lower cost that competition. Intellectual property (IP) - Legal property rights over knowledge, creative ideas, or expressions of human mind that have commercial value and are protected from imitation, infringement, and dilution. Examples include copyright, patent, service mark, trademark, or trade secrets. Internal Coherence - An important attribute of a good strategy, whereby all parts of the company work in a mutually consistent way and integrate with each other. Isolating Mechanisms - Barriers to the imitation and/or replication of a firm's competitive advantage - examples include: causal ambiguity, complexity, tacit knowledge, time compression diseconomies, and property rights. J K L Low Cost Strategy (Cost leadership strategy) - One of the two main generic strategies that focuses on generating superior firm performance through providing similar products or services as the firm's competitors but doing so at a lower cost. M Macro Environment - The outermost layer of the environment, consisting of societal institutions and trends in the broadest sense that businesses need to take into account. Mission - A brief statement about what the company's ultimate goals and objectives are. A mission statement makes transparent the company's purpose, creates a common understanding for future direction, and serves as an inspiration for employees and managers. N O P PESTEL Framework - A tool to analyze the macro-environment of an organization - consisting of: Political, Economic, Socio-cultural, Technological, Ecological, and Legal components. Pivotal Force - The weakest of the 5 forces, which produces the greatest competitive threat for the industry's profits. Managers should focus on strengthening this force to improve the firm's profitability. Price Competition - One of many ways that a product or service can compete in the marketplace. In price competition, firms selling substantially similar products vie for consumer sales on price point. Primary and Support Activities - Primary activities: are activities related to each step of the value chain from the inbound logistics to after-sales-service. Support Activities: are activities that do not lie along the value adding chain of the physical product but may nonetheless be important for company performance. Q R \"Razor-Blade Model\" - A value realization model (revenue model) where the main product, such as a razor, is sold at a low price to encourage adoption, and revenues are made up by selling the blades, a higher profit-margin complement to the razor. Relevance (of resources or capabilities) - A condition under which a firm's resources and capabilities continue to remain well-aligned with the environment, so that they retain their ability to produce economic value added. Resources - A broader aggregate concept than activities, resources are \"productive firm-specific assets of different kinds that one firm owns and another doesn't.\" Revenue (Realization) model - How a company plans to convert its value proposition into revenues, and thus capture some of that value for itself. Examples include case for sale, subscription, leasing, and two-side market models. Rivalry - Competition for the same objective or for superiority in the same field. S Scope of Enterprise - The \"footprint\" of what the business does. It can be thought of along three dimensions: Customer segment, Horizontal scope, and Vertical scope. Social Complexity - When the individual actions or choices of a firm can combine in multiple and highly variable ways. With high social complexity, the precise combination of many choices made by the firm is important to reproduce its performance, and may in turn be difficult for others to figure out. Strategic Fit - The alignment of an organization's internal aspects - values, capabilities, resources - with the external environment. Strategic Intent - A special kind of stretch vision accompanied by a strategic plan. Strategic Positioning (Generic Strategies) - Firms can strategically position themselves by using generic business strategies that align the internal and external contexts of firms in specific ways. The two main generic business strategies are cost leadership and differentiation advantage. Strategic Renewal - A process through which firms that have lost their strategic fit re-align their internal context with their environment. In other words, it is the process firms go through to recreate good strategic fit. Structure-Conduct-Performance Paradigm - An overall principle, derived from industrial organization economics, which states that structural features of an industry - e.g., product differentiation, buyers, sellers, costs, demand, barriers - will drive the conduct of firms and other actors in specific ways - e.g., advertising, R & D, product development, pricing - and this conduct in turn will drive industry performance. Stuck in the Middle - When a company pursues a dual strategy without the proper business model and structure and fails. This occurs because the company ends up doing neither cost control nor differentiation particularly well. Supplier Power - The pressure suppliers can exert on an industry by raising prices, lowering quality, or reducing availability of their products. Sustainable Competitive Advantage - A competitive advantage that can be maintained over time. SWOT Framework - Strengths, Weaknesses, Opportunities, and Threats. A well-established framework used to derive strategy, which embodies the idea of strategic fit between an organization (strengths and weaknesses) and its external environment (opportunities and threats). T Tacit Knowledge - \"Knowledge that cannot be easily explained and transferred to another.\" Threat of Substitutes - The level of competition that an industry faces from substitutes to its own product or service. Time Compression Diseconomies - The fact that accumulating certain resources or capabilities can require significant amounts of time, which cannot be speeded up without increasing costs significantly. Timepass - An Indian-English colloquialism, which refers to the action or fact of passing the time, usually in an aimless or unproductive way. Saying \"I was doing timepass\" is similar to saying \"I was chilling\". It is also used as an adjective to describe something sufficiently entertaining - but not outstanding or thought provoking - that helps to pass the time. For example, you might ask: \"How was the movie, dude?\" And get the response: \"You can watch it, dude. Total timepass!\" (Section head for Business Strategy course) U V V-R-I Framework - An acronym for whether a resource or capability is Valuable, Rare and Inimitable. The VRI framework explains the link between attributes of a resource (or capability) and its ability to generate a sustained competitive advantage for a company. Values - A \"code of conduct\" for the company and its employees. Value Chain - The value chain is a systematic representation of the set of activities performed within a company in order to deliver a valuable product or service for the market. It is a good representation of activities in a manufacturing firm because it is organized around the flow of material - from raw material or components to finished product - through a series of value adding steps. Value Positioning - A colloquial name for a dual strategy. Value Networks - A framework that maps \"important sets of activities and their relationships with each other\" in a non-linear manner (unlike a value chain). It is generally appropriate for analyzing non-manufacturing industries. Value Proposition - How a new business model is creating greater Economic Value Added than an existing business model. V-A-R-S Model - A framework for analyzing business models that practicing managers can use. The model includes: Value proposition, Activities, Resources, and Capabilities, Revenue model, and Scope of enterprise. Vertical Scope - The extent to which a business model or company is integrated along its value chain versus outsourcing aspects of the value chain. Vision - An aspirational statement about the future direction and impact of a company. W X Y Z