- Subject: Strategic Management. - Mandatory book for this week's assignment (file attached - please include in citations): Rothaermel, F. T. (2013). Strategic management: Concepts. New York: McGraw-

E ssay # 1: Wh en P ors ch e r e ve ale d it s 9 11 s p o rts c a r d esig n in 1 962, it c a u se d a

w orld w id e s e nsa tio n. E ve r s in ce , P ors ch e h as b een o ne o f th e w orld ’s fin est

p erfo rm ance c a r m anufa ctu re rs . T he P ors ch e 9 11 is a le gendary s p orts c a r ic o n.

A lt h ough fo cu sin g o n a n ic h e m ark e t w it h a s m all o utp ut e ve ry y e ar, P ors ch e w as

extr e m ely p ro fit a ble . E ve n to day, it s till e njo ys th e la rg est p ro fit m arg in s a m ong a ll

m ajo r a uto m anufa ctu re rs , th anks to th e h efty p re m iu m it c a n c o m mand fo r it s c a rs .

M ore th an 5 0 y e ars a fte r it s b ir th , th e 9 11 r e m ain s th e h eart a nd s o ul o f P ors ch e.

H ow eve r, it is n o lo nger th e c o m pany’s b est- s e llin g m od el. T he n um ber-o ne s p ot h as

been ta ke n b y th e C aye nne, a fiv e -s e a t s p o rts u tilit y v e h ic le ( S U V) la unch ed b y

P ors ch e in 2 002. P ors ch e v ie w s th e C aye n ne a s a w ay to r e duce th e c o m pany’s

d ependence o n th e tr a dit io nal s p orts m od els a nd to p ro vid e fo r fu tu re g ro w th in s a le s

and p ro fit s . T he C aye nne m ay b e th e m ost s u cce ssfu l m od el la unch o f P ors ch e s in ce

th e 9 11 : P ors ch e s o ld th e 2 00,0 0 0 th C aye nne u nit o nly s ix y e ars a ft e r it s d ebut a t th e

P aris M oto r S how . In 2 012, th e C aye n ne’s w orld w id e s a le s r e ach ed a r e co rd 7 7,8 22

unit s , a cco untin g fo r m ore th an h alf o f th e c o m pa ny’s o ve ra ll s a le s v o lu m e ( s e e F ig -1 7).

T he p opula rit y o f C aye nne is s e e n a cro ss r e gio ns, e sp e cia lly in th e U S a nd C hin a, th e

tw o la rg est m ark e ts o f P ors ch e o ve ra ll ( s e e F ig -1 8). In fa ct, C hin a h as b eco m e th e

la rg est m ark e t fo r C aye nne, a nd th e m od el w ill c o n tin ue to b e th e s tr a te gic s a le s fo cu s

of P ors ch e in th at c o untr y .

F ig ure 1 7 Fig ure 1 8

T he C aye nne h as m ade P ors ch e m ore a ppealin g to p eople w ho a re n ot s p orts -c a r

driv e rs b ut a re h appy to o w n th e s p o rtie st S U V o n th e m ark e t. W hile th e m odel

exp ansio n m ay u pse t th e p uris ts , P ors ch e d id n ot s to p th ere . In 2 005, P ors ch e

announce d it s p la n to b uild a n ew m od el lin e P anam era , a p re m iu m -c a te gory fo ur-s e at

sp orts s e dan, to e xte nd it s c u sto m er b ase . T he lin e w as la unch e d o n tim e in 2 009 a nd

lik e C aye nne, it o uts o ld th e 9 11 in th e s u b se q uent y e a rs . A s o f 2 012, C aye nne a nd

P anam era to geth er a cco unte d fo r 7 3 p erc e n t o f P ors ch e’s to ta l s a le s v o lu m es.

In th e y e ars le adin g u p to th e g lo bal fin ancia l c ris is in 2 008-2 009, P ors ch e w as

atte m ptin g a h ostile ta ke ove r o f th e m uch la rg er V olk sw agen ( V W ). P art o f th e

co m petit io n w as m otiv a te d b y a b it te r fa m ily fe ud r e su lt in g fr o m e str a nged m em bers o f

th e P ors ch e fa m ily h old in g le adin g e xe cu tiv e p osit io ns in b oth c o m panie s. A s th e g lo bal

fin ancia l c ris is to ok h old , P ors ch e c o lla pse d u nder a h eavy d ebt b urd en c a use d b y th e

hostile V W ta ke ove r a tte m pt. V W tu rn ed th e ta ble s a nd to ok o ve r P ors ch e in 2 012. N ow

P ors ch e is c le arly g unnin g fo r e co n om ie s o f s ca le a s it r a m ps u p u nit s a le s, a nd V W

ove ra ll is a im in g to o ve rta ke G M a nd T o yo ta a s th e w orld le ader in u nit s a le s.

P ors ch e d eve lo ped it s o w n g ro w th b lu eprin t, te rm ed “ S tr a te gy 2 018,” a s p art o f

V olk sw agen g ro up’s g ra nd v is io n : P ors ch e p la ns to in cre ase u nit s a le s to 2 00,0 00 p er

ye ar b y 2 018, u p fr o m 3 0,0 00 u n it s in 2 002. T o a ch ie ve th is g oal, P ors ch e n eeds to

in sp ir e m ore b uye rs . It c o ntin ues to p ush o ve rs e a s s a le s o f th e C aye nne a nd th e

P anam era m odels , s e ttin g u p m ore d eale rs h ip s w here g ro w th is th e s tr o ngest. T o

a ddre ss p ote ntia l c u sto m ers ’ c o n ce rn o ve r th e 9 11 ’s d riv a b ilit y a s a n e ve ry d ay v e hic le ,

P ors ch e la unch ed a n a dve rtis in g c a m pa ig n tit le d “ E ngin eere d fo r M agic . E ve ry d ay,” in

t h e U S, fe atu rin g a ctu al P ors ch e o w ners u sin g th eir s p o rts c a rs fo r d aily a ctiv it ie s, fr o m

co m mutin g to w ork , to p ic kin g u p th eir k id s a nd r u nnin g e rra nds. In 2 012, P ors ch e

re ve ale d th e n am e o f it s fif th m od el lin e, M aca n – a c o m pa ct S U V to b e la unch ed in

2 014. T he c o m pany is a ls o c o n sid erin g th e d eve lo pm en t o f a s m alle r v e rs io n o f th e

P anam era . The e sse nce o f a P ors ch e – a h ig h-p erfo rm an ce s p o rts c a r – s e em s n ow to ta ke a b ack

s e at. A lt h ough th e c o m pany h a s b uilt “ e xp e rie nce c e n te rs ” in C hin a a nd th e U S to

c u lt iv a te s p orts -c a r e nth usia sts , P ors ch e o nly s o ld 2 6,2 03 u nit s o f th e 9 11 in 2 012, o r

18 p erc e nt o f P ors ch e’s to ta l s a le s v o lu m es. P ors ch e’s e xp a nsio n s u cce ss s o fa r

la rg ely r e lie s o n it s r e puta tio n a s a n ic o n ic s p o rts -c a r m ake r. A t th e s a m e tim e, m any o f

to day’s C aye nne b uye rs , s u ch a s s o cce r p are nts in th e U S o r C hin ese b usin essp eople

t h at lik e a c h auff e ur, h ave n o id ea a bout P ors ch e’s tr u e id entit y a s a h ig h-p erfo rm ance

s p orts a nd r a ce c a r m anufa ctu re r.

Q uestio ns

1. F or m any d eca des, P ors ch e p urs u e d a fo cu se d d if f e re ntia tio n s tr a te gy. U sin g a

c le ar s tr a te gic p ro file a s a fo cu se d d if f e re ntia to r, P ors ch e w as v e ry s u cce ssfu l a nd

ve ry p ro fit a ble . M ore r e ce ntly , th e P ors ch e b ra nd is r e posit io nin g it s e lf fr o m

fo cu se d d if f e re ntia tio n to b ro ad d if f e re ntia tio n b y c h a ngin g it s c o m petit iv e s co pe.

Wh at a re th e r is ks in here nt in s u ch s tr a te gic p osit io nin g? W hat a re th e b enefit s ?

D o y o u th in k P ors ch e w ill b e s u cce ssfu l in c a rv in g o ut a n ew s tr a te gic p osit io n a s a

b ro ad d if f e re ntia to r? Wh y o r w hy n ot?

2. V olk sw agen r a nks w it h G M a nd T o yo ta a s o ne o f th e to p-th re e c a rm ake rs in th e

w orld to day in te rm s o f s a le s v o lu m e ( in u nit s ). It u se s it s V olk sw agen b ra nd, a s

w ell a s it s e ntir e p ortfo lio o f o th e r b ra nds, in clu din g th e lu xu ry m arq ues o f P ors ch e,

A udi, B entle y, B ugatti, a nd L am borg hin i, a nd a t th e lo w er e nd, th e S eat, S ko da,

and S ca nia . Wh at ty p e o f d iv e rs if ic a tio n is V olk sw agen p urs u in g? W hat a re th e

adva nta ges a nd d is a dva nta ges in V W ’s c o rp ora te s tr a te gy?

3. In th e r e ce nt p ast, b oth G M a nd T o yo ta r a n in to p ro ble m s a s th ey c h ase d th e g oal

of b eco m in g th e w orld ’s le ader in te rm s o f u nit s a le s. G M a ch ie ve d th is g oal b ut

lo st b illio ns in th e p ro ce ss a nd e n ded u p in b ankru ptc y ( in 2 008). T o yo ta th en

push ed o utp ut a nd b rie fly h eld th e n um be r-o ne s p o t in te rm s o f u nit s a le s, b ut

fo und th at th e e m phasis o n in cre asin g o utp ut m ea nt th at q ualit y is su es a ro se –

w hic h th en n egativ e ly a ff e cte d it s r e puta tio n. If y o u w ere a ske d to a dvis e V W , w hat

pit fa lls w ould y o u p oin t to th at m ay n eed to b e c o n sid ere d w hen a tte m ptin g to b e

th e w orld le ader in u nit o ut- p ut? H ow m ig ht V W a vo id th ose p it fa lls ?

4. P ors ch e is e xp andin g r a pid ly th ro ugh b oth r e la te d a nd g eogra phic d iv e rs if ic a tio n.

D o y o u c o nsid er th is b usin ess s tr a te gy to b e s u cce ssfu l? W hy, o r w hy n ot? If y o u

co nsid er P ors ch e’s d iv e rs if ic a tio n to b e s u cce ssfu l, w hat is th e s o urc e o f P ors ch e’s

s u cce ss?

5. T he M in i C ase b egan w it h A eso p ’s fa ble o f “ T he G oose T hat L aid th e G old en

E ggs.” Wh at is th e ta ke -a w ay o f th is fa ble ? Is P ors ch e k illin g it s g old en g oose ?

E ssay # 2: It m ay s o und a sto nis h in g th at a fa st- fo od c h a in s e llin g fr ie d c h ic ke n c o uld

c o nquer a c o untr y w it h a d iv e rs e c u lin ary c u lt u re r o ote d in th ousa nds o f y e ars o f

tr a dit io n, b ut th e C hin ese d iv is io n o f Y um ! B ra nds d id ju st th at. Y um ! B ra nds w ere

c re ate d in 1 997 a s a r e su lt o f P epsiC o s p in nin g o ff it s fa st- fo od o pera tio ns w orld w id e, a

g ro up th at in clu ded K FC , P iz za H ut, a nd T a co B ell. N ot o nly d id Y um ! C hin a b eco m e

th e b ig gest r e sta ura nt c h ain in th e c o u ntr y , a cco untin g fo r 4 o ut o f 1 0 fa st- fo od re sta ura nts ; it a ls o n ow p ro vid e s h alf o f Y um !’ s to ta l r e ve n ue a nd 4 2 p erc e nt o f it s

p ro fit s ( F ig -1 9). N o w onder D avid N ova k, C EO o f Y um ! B ra nds, c o nsid ers C hin a to b e

“th e b est r e sta ura nt g ro w th o pportu nit y o f th e 2 1st c e n tu ry .” [1 ]

F ig ure 1 9

Wh en Y um ! B ra nds ( th en a s u bsid ia ry o f P epsiC o) o pened it s fir s t K FC r e sta ura nt in

B eijin g in 1 987, th ere w as n o o th er W este rn -s ty le fa st- fo od c h a in in C hin a. B ein g

gre ete d b y s m ilin g s ta ff a nd th en d in in g in a n a ir -c o n dit io ned, c le an, a nd b rig htly lit

e nvir o nm ent w as a n ove lt y to lo ca l C hin ese , a s w as a b it e o f K FC ’s c ris p y c h ic ke n.

C om pare d to o th er A m eric a n fa st fo ods, K FC a ls o h as a n atu ra l a dva nta ge: C hic ke n is

t h e s e co nd m ost c o m mon m eat s ta ple in C hin a, ju st a fte r p ork . B ase d o n a n

unders ta ndin g a nd a ppre cia tio n o f th e C hin ese ta ste fo r tr a dit io n a nd v a rie ty , K FC

in tr o duce d d is h es th at m im ic ke d lo ca l c u is in es, s u ch a s C hin ese p orrid ge a nd d ough

fr it te rs fo r b re akfa st. Its m enu in C hin a in clu ded m ore it e m s th an o n m enus in th e U S,

and w as u pdate d m ore fr e quen tly . In a ddit io n, th e le ve l o f s p ic in ess o f th e fo od w as

adju ste d a cco rd in g to r e gio nal p re fe re nce s w it h in C hin a. A s a r e su lt , a K FC r e sta ura nt

in C hin a h as a m uch b ig ger k it c h en a nd e m plo ys tw ic e a s m an y p eople a s it s U S

co unte rp art ( a lt h ough C hin ese la bor c o sts a re m uch lo w er, s e e F ig -2 0). G iv e n a ll it s

e ff o rts in p le asin g C hin ese d in ers , K FC n o lo nger p osit io ns it s e lf in C hin a a s a c h eap

pla ce fo r ta ke -o uts . In ste ad, it is s e e n a s a m ore u psca le q uic k-s e rv ic e r e sta ura nt fo r

gath erin gs o f fa m ily a nd fr ie nds.

K FC ’s s is te r c h ain , P iz za H ut, a ls o u nderw ent a s im ila r m ake o ve r in C hin a. U nlik e it s

im age in th e W est a s a c h eap, f a st- fo od o utle t, P iz za H ut in C hin a h as p re se nte d it s e lf

a s a tr e ndy c a su al d in in g r e sta u ra nt s in ce it s o penin g in 1 990. D in ers a t a P iz za H ut

re sta ura nt in C hin a a re w ait e d o n w hile s o o th in g b ack-g ro und m usic p la ys, a nd th e

m enu o ff e rs m any o th er W este rn -s ty le d is h e s th an ju st p iz za .

Y um ! C hin a’s lo ca liz a tio n s tr a te gy w as m ad e p ossib le b eca u se P epsi w as b usy

c o m petin g w it h C oca -C ola in th e U nit e d S ta te s a nd to ok h ands-o ff a ppro ach to w ard managin g it s o ve rs e as r e sta ura nt b usin ess. W hen Y um ! B ra nds w ere s p un o ff fr o m it s

p are nt in 1 997, Y um ! C hin a h ad a lr e ady o pened 2 00 r e sta ura nts in m ajo r c it ie s. B ut

Y um ! C hin a’s g ro w th s tr a te gy is a bout m ore th an s im ply a ddin g r e sta ura nts . F ro m th e

ve ry b egin nin g, th e c o m pany h as fo cu se d o n “ b uild in g a p erfe ct s yste m w hic h g ove rn s

eve ry s te p o f th e w ay— fr o m p urc h a sin g, to m akin g, to d eliv e rin g th e fo od a nd to th e

quic k s e rv ic e .” [2 ] B eca use a r e lia ble n etw ork o f d is tr ib uto rs in C hin a w as n onexis te nt

at th e tim e, Y um ! C hin a s e t u p it s o w n d is tr ib utio n a rm w it h c o m pany-o w ned

w are house s a nd a fle et o f tr u cks to c o ve r e ve ry p ro vin ce in C hin a. T o m ake s u re e ach

n ew r e sta ura nt is p ro perly s ta ff e d a nd o ff e rs e xce l- le nt c u sto m er s e rv ic e , Y um ! C hin a

ru ns a n e xte nsiv e tr a in in g p ro gra m w here te am s o f n ew e m plo ye es w ork s id e b y s id e

w it h e xp erie nce d o nes in e sta blis h e d r e sta ura nts . O nce tr a in ed, th ese n ew e m plo ye es

ro ta te to n ew r e sta ura nts .

T he e m phasis in th e e arly y e ars o n b uild in g a n e ff ic ie nt o pera tio ns n etw ork n atio nw id e

la id a s o lid fo undatio n fo r Y um ! C hin a’s r a pid e xp a nsio n. F ro m 1 997 to 2 012, Y um !

Chin a o pened m ore th an 4 ,0 00 K FC a nd 8 00 P iz za H ut r e sta ura nts in 8 50 C hin ese

cit ie s. M ost o f th e tim e, Y um ! C hin a w as th e fir s t fa st- fo od c h a in ( le t a lo ne in te rn atio nal

ch ain ) to e sta blis h a p re se nce in a c it y . T his e nable d Y um ! to g ain a fir s t- m ove r

adva nta ge b y s e le ctin g th e b est lo ca tio ns w it h s tr o ng c u sto m er tr a ff ic , h ig h v is ib ilit y ,

a nd a n a ttr a ctiv e r e nta l r a te . S om etim es, b ein g th e fir s t a ls o g enera te d fr e e p ublic it y

f r o m lo ca l o ff ic ia ls s in ce th e o pen in g o f a w orld -fa m ou s fa st- fo od r e sta ura nt m eant th at

th eir c it y w as b eco m in g m ore c o sm opolit a n. A ls o , b enefit in g fr o m C hin a’s lo w er la bor

co sts , Y um ! C hin a h as b eco m e th e o nly d iv is io n w it h in Y um ! B ra nds to c o nsis te ntly

d eliv e r d ouble -d ig it s a le s g ro w th a nd th e h ig hest r e sta ura nt m arg in ( s e e F ig -1 9).

F ig ure 2 0

Wi th th ousa nds o f s to re s a nd a v a st d is tr ib utio n n etw ork in d ense ly p opula te d a re as,

Y um ! C hin a is v u ln era ble to m an y e xte rn al a nd in te rn al th re ats , s u ch a s o utb re aks o f

bir d flu ( a r e peat o ccu rre nce in C hin a) a nd fo od s a fe ty s ca ndals . In 2 003, th e a via n flu

o utb re ak c a use d a 4 0 p erc e nt d e clin e in Y um ! C hin a’s s a le s. T w o y e ars la te r, th e dis co ve ry o f a q uestio nable in gre die nt u se d in th e c h ic ke n fe eds b y o ne o f Y um !

Chin a’s s u pplie rs b ro ught s a le s g ro w th d ow n to “ o nly ” 1 1 p erc e n t. A lt h ough Y um ! C hin a

re co ve re d q uic kly fr o m th ese s e tb acks, la st D ece m be r Y um ! C hin a w as a gain a tta cke d

by C hin a’s n atio nal n ew s s e rv ic e fo r s o u rc in g fr o m s u p plie rs th at u se e xce ssiv e

a ntib io tic s in th eir c h ic ke n fe eds. W ors e y e t, ju st a s Y um ! C hin a w as r e build in g it s b ond

of tr u st w it h C hin ese c u sto m ers , a noth er p ote ntia l o utb re ak o f a via n flu s ca re d m ore

e ate rs a w ay. Y um ! C hin a’s s a m e-s to re s a le s d ro pped b y 2 0 p erc e nt fo r th e fir s t q uarte r

of 2 013, it s fir s t q uarte rly d eclin e in th re e y e a rs ( F ig -2 1). B ut w it h o nly tw o Y um !

re sta ura nts p er m illio n p eople in C hin a c u rre ntly ( c o m pa re d to 5 8 in th e U S), Y um !

Chin a h as n o in te ntio n o f m odif y in g it s g ro w th s tr a te gy o r lo sin g it s n um ber-o ne s p ot in

C hin a’s fa st- fo od in dustr y a ny tim e s o o n.

F ig ure 2 1

Q uestio ns

1. Y um ! B ra nds a re th e r e su lt o f a s p in -o ff b y P epsiC o, w here it s o ld it s fa st- fo od

ch ain s K FC , T a co B ell, a nd P iz za H ut. D o y o u c o n sid er th is s p in -o ff s u cce ssfu l?

Wh y o r w hy n ot? E xp la in .

2. Wh y is Y um ! B ra nds s o m uch m ore s u cce ssfu l in C hin a th an in th e U S, it s h om e

co untr y ?

3. Wh y w as Y um ! B ra nds K FC s o s u cce ssfu l in C hin a, w hile o th er U S fa st- fo od

co m panie s – s u ch a s P iz za H ut ( a ls o o w ned b y Y um !) , M cD onald ’s , a nd B urg er

K in g – w ere m uch le ss s u cce ss fu l? 4. Giv e n Y um ! B ra nds r e ce nt c h alle nges in C hin a, d o y o u c o n sid er th is to b e a

t e m pora ry p ro ble m o r a h arb in ge r o f lo sin g it s c o m pe tit iv e a dva n ta ge?

5. Wh at r e co m mendatio ns w ould y o u g iv e D avid N ova k, Y um ! B ra nds’ C EO , to

o ve rc o m e th e c o m pany’s c u rre n t c h a lle nges in C hin a?

E ssay # 3: In 2 012, S am su ng, w it h $ 248 b illio n in r e ve n ues, w as o ne o f th e la rg est

co nglo m era te s g lo bally a nd th e la rg est c h a ebol [3 ] in S outh K ore a. A r o ugh c o m paris o n

w ould b e th e U S c o nglo m era te G enera l E le ctr ic , w hic h h ad $ 147 b illio n in r e ve nues in

t h e s a m e y e ar. E sta blis h ed in 1 9 38 b y L ee B yu n g-c h u l a s a tr a din g c o m pany s e llin g

noodle s a nd d rie d s e afo od, S am su n g h as s in ce d iv e rs if ie d in to v a rio us in dustr ie s, s u ch

a s e le ctr o nic s, c h em ic a ls , s h ip bu ild in g, fin ancia l s e rv ic e s, a nd c o nstr u ctio n. In

p artic u la r, S am su ng is w id ely d iv e rs if ie d w it h 8 3 s ta ndalo ne s u b sid ia rie s. T he

co nglo m era te a cco unts fo r a fif t h o f a ll S outh K ore an e xp o rts . In 1 987, L ee K un-h ee,

th e y o ungest s o n o f th e fo unde r, to ok o ve r a s c h a ir m an o f th e c o nglo m era te a fte r th e

death o f L ee B yu ng-c h ul. B y th at tim e, S am su ng h ad b eco m e a n in dustr y le ader in

m any o f it s m ark e ts .

S am su ng E le ctr o nic s, th e fla gsh ip s u b sid ia ry o f S am su ng ( a nd b est k n ow n in th e U S

fo r it s G ala xy lin e o f s m artp hones a nd ta ble ts ), w as in it ia lly s e t u p in 1 969 to p ro duce

h om e a pplia nce s. In 1 988, L ee K un-h ee m erg ed S am su ng E le ctr o nic s w it h S am su ng

S em ic o nducto rs to in te gra te m an ufa ctu rin g. B y 1 992, it h ad b eco m e th e w orld w id e

m ark e t le ader in D RAM ( d yn am ic r a ndom a cce ss m em ory ). S am su ng E le ctr o nic s,

h ow eve r, a sp ir e d to b e m ore th an a le adin g s u p plie r a nd O EM ( o rig in al e quip m ent

m anufa ctu re r). Its s tr a te gic in te n t w as to b e th e le ader in b ra nded c o nsu m er

ele ctr o nic s.

S am su ng’s im age, h ow eve r, w as o ve rs h a dow ed b y S ony a nd M oto ro la , th e u ndis p ute d

w orld le aders in c o nsu m er e le ctr o nic s a nd m ob ile p hones d urin g th is tim e. In 1 988,

S am su ng E le ctr o nic s la unch ed it s fir s t m ob ile p hone in th e S outh K ore an m ark e t. It

f lo pped b eca use o f th e p hone’s p oor q ualit y . In th e e arly 1 990s, S am su ng E le ctr o nic s’

m ark e t s h are in m obile p hones in S outh K ore a w as a m ere 1 0 p erc e nt c o m pare d to

M oto ro la ’s 6 0 p erc e nt.

T he p iv o ta l m om ent in r e defin in g S am su ng E le ctr o nic s’ s tr a te gic fo cu s c a m e in e arly

1 995. S am su ng’s c h air m an, M r. L ee, s e n t o ut m ob ile p hones a s N ew Y ear’s g if ts to

h undre ds o f k e y b usin ess p artn ers . A p ublic e m ba rra ssm en t o ccu rre d w hen M r. L ee

la te r le arn ed th at th e p hones h e h ad s e n t o ut a s p ers o n al g if ts d id n’t w ork p ro perly . M r.

L ee o rd ere d d ra stic c h anges. In fr o nt o f S am su ng’s G am i fa cto ry w it h 2 ,0 00 e m plo ye es

w atc h in g, M r. L ee s e t fir e to a p ile o f 1 50,0 00 m ob ile p hones to s h ow h is

d is a ppoin tm ent a nd d ete rm in atio n a lik e . M an y S am su ng e m plo ye es c re dit th is d ay a s

th e b egin nin g o f a s u cce ssfu l tu rn aro und.

S am su ng E le ctr o nic s in cre ase d s p e ndin g s ig nif ic a n tly o n R &D a s w ell a s o n m ark e tin g

and d esig n. M eanw hile , M r. L ee w as u nderta kin g a c o m ple te o ve rh aul o f th e

co nglo m era te ’s s tr u ctu re in o rd e r to c h a nge S am su ng’s c u lt u re . T o a c u lt u re th at d eeply

v a lu es s e nio rit y , M r. L ee in tr o duce d m erit - b ase d p ay a nd p ro m otio n. M r. L ee ( w ho h old s an M BA d egre e fr o m G eorg e W ash in gto n U niv e rs it y ) h ir e d W este rn m anagers a nd

desig ners in to le adin g p osit io ns a nd s e n t h om e-g ro w n ta le nt to le arn th e b est b usin ess

p ra ctic e s o f o th er fir m s a ro und th e g lo be. M r. L ee a ls o s e t u p th e G lo bal S tr a te gic

G ro up to a ssis t n on-K ore an M BA s a nd P hD s w it h a s m ooth tr a nsit io n in to th eir

p osit io ns in a la rg ely h om ogenou s c a d re o f e m plo ye e s.

M r. L ee a ppoin te d a n ew C EO fo r S am su ng E le ctr o nic s in 1 996, Y un J o ng-Y ong. M r.

Y un a ggre ssiv e ly tr im med c o sts a nd s o ld o ff u npro ductiv e a sse ts d urin g th e A sia n

F in ancia l C ris is in 1 997, m akin g th e c o m pa ny le aner a nd m ore a gile . S ubse quently ,

th ro ugh im pro ve d o pera tio nal e ff ic ie ncy a nd a n in te gra te d m an ufa ctu rin g p ro ce ss,

S am su ng E le ctr o nic s s h orte ned th e tim e n eeded to r e sp o nd q uic kly to c h anges in

m ark e t tr e nds. It c h ose to b e a fa st fo llo w er, in ve stin g o nly a fte r a n ew p ro duct c a te gory

h ad p ro ve n m ark e t tr a ctio n. O nce s u ch c a te gorie s w ere id entif ie d, h ow eve r, S am su ng

va stly o uts p ent c o m petit o rs in o rd er to d eve lo p le adin g e le ctr o nic s p ro ducts . F or

exa m ple , th e c o m pany s ta rte d m akin g b atte rie s fo r d ig it a l g adgets in 2 000. T e n y e ars

la te r, it b eca m e th e w orld ’s la rg e st p ro duce r o f th is c rit ic a l c o m ponent. In 2 001,

S am su ng s ta rte d to in ve st in fla t- p anel te le vis io ns. J u st fo ur y e a rs la te r, S am su ng w as

th e w orld ’s le ader in fla t- p anel T V s. In 2 002, S am su ng E le ctr o nic s b et o n fla sh m em ory ,

th e te ch nolo gy th at r u ns A pple ’s iP ads a nd iP hones. P ro vid in g n ot o nly b atte rie s b ut

als o fla sh m em ory , S am su ng is A pple ’s la rg est s u p plie r to day.

S am su ng E le ctr o nic s a pplie d th e s a m e “ fo llo w fir s t, in nova te s e co nd” r u le to

s m artp hones. B ein g a k e y c o m ponent v e n dor to o th er le adin g te ch nolo gy c o m panie s

in clu din g A pple , S am su ng w as a b le to s e e e asily w hat d ir e ctio ns o th er c o m panie s w ere

ta kin g. It m ade a r a nge o f s m artp hones ta ilo re d to c u sto m ers in d if f e re nt p ric e

c a te gorie s. Wi th in tw o s h ort y e a rs , it h ad o ve rta ke n M oto ro la , H TC , B la ckB erry , a nd

eve ntu ally e ve n A pple to b eco m e th e n um be r-o ne v e n dor o f s m artp hones in th e w orld

a nd th e la rg est te ch nolo gy c o m pany b y r e ve n ues g lo bally ( s e e F ig -2 2 a nd 2 3). Fig ure 2 2

F ig ure 2 3

A lt h ough S am su ng h as g ain ed a te m po ra ry c o m pe tit iv e a dva n ta ge, s u sta in in g it w ill b e

eve n m ore d if f ic u lt fo r a n um ber o f r e aso n s. F ir s t, S am su ng’s c o m petit iv e a dva nta ge was b uilt in la rg e p art b y fo llo w in g it s “ fo llo w fir s t, in nova te s e co nd” r u le . T o k e ep it s

n um ber-o ne s p ot in th e w orld ’s te ch n olo gy in dustr y m ay b e a c h alle nge fo r a c o m pany

th at in te nds to b e a fo llo w er r a th e r th an a le ader. S eco n d, C hin ese te ch nolo gy

co m panie s s u ch a s L enovo a nd H uaw ei a re a ls o lo okin g to jo in th e b attle fie ld in

s m artp hones. T hir d , A pple a nd S am su ng h ave b een lo cke d in o ngoin g c o urt b attle s

about w ho in fr in ged th e c o pyrig h ts o f w hom a nd in w hat ty p e o f s m artp hone m odels .

S am su ng h as a lr e ady lo st a h ig h -p ro file c a se a gain st A pple in a C alif o rn ia c o urt, w here

d am ages w ere r e duce d la te r to s o m e $ 500 m illio n.

To p ro vid e n ew a ve nues fo r fu tu re r e ve n ue g ro w th , C hair m an L ee la id o ut fiv e n ew

busin ess a re as in w hic h S am su n g p la ns to in ve st s o m e $ 20 b illio n b y 2 020. T he fiv e

a re as in clu de ( in o rd er o f s iz e o f in ve stm en t) : L E D lig htin g, s o la r p anels , e -v e hic le

b atte rie s, b io te ch d ru gs, a nd m edic a l d evic e s. S ucce ssio n p la nnin g is a noth er

ch alle nge S am -s u ng is fa cin g. T he fa m ily o f th e la te fo under, L ee B yu ng-c h ul, s till

c o ntr o ls a m ajo rit y o f th e s h are s. A t 7 1, L ee K un-h ee h as lo ng-g ro om ed h is e ld est s o n

Ja y Y . L ee ( 4 3) to b e h is s u cce sso r a s c h a ir m an o f S am su ng. It r e m ain s to b e s e en

w heth er th e y o unger M r. L ee, a s g ra ndso n o f th e fo under, c a n m ain ta in S am su ng’s

m om entu m .

Questio ns

1. D escrib e S am su ng a s a c o nglo m era te . W hat ty p e o f d iv e rs if ic a tio n d oes S am su ng

purs u e? Id entif y p ossib le fa cto rs s u ch a s c o re c o m pe te ncie s, e co nom ie s o f s ca le ,

and e co nom ie s o f s co pe th at m ig ht u nderlie it s s u cce ss a s a d iv e rs if ie d

co nglo m era te ( c h aebol) . Wh ic h d o y o u c o n sid er it s k e y s u cce ss fa cto rs ?

2. H ow d id M r. L ee tu rn S am su ng E le ctr o nic s fr o m a s le epin g a nd b ure aucra tic

c o m pany in to a w orld le ader?

3. Wh at ty p e o f g lo bal s tr a te gy is S am su ng E le ctr o nic s p urs u in g?

4. Wh at c a n S am su ng E le ctr o nic s d o to s u sta in it s c o m pe tit iv e a dva nta ge in

s m artp hones? S hould S am su ng c h a nge it s “ fo llo w fir s t, in nova te s e co nd”

appro ach a s it s e eks to b uild a c o m pe tit iv e p osit io n in n ew p ro duct a re as o th er

th an s m artp hones?

E ssay # 4: U nder C EO R obert Ig er, D is n ey h as fo llo w ed a n a cq u is it io n-le d g ro w th

s tr a te gy. T his c o rp ora te s tr a te gy tu rn ed D is n e y in to a m ore d iv e rs if ie d c o m pany.

R eve nue s tr e am s fr o m it s v a rio us a ctiv it ie s ( b ox o ff ic e , h om e e nte rta in m ent, th em e

park s, c a ble T V, to ys, lic e nsin g, a nd s o o n) h ave b eco m e m ore s ta ble a nd p re dic ta ble .

B ein g m ore d iv e rs if ie d a ls o a llo w ed D is n e y to c o m pe nsa te m ore e asily fo r lo sse s fr o m

flo ps s u ch a s th e s ci- fi m ovie J o h n C arte r. D is n e y h as a ls o s h o w n s u perio r p ost- m erg er

in te gra tio n c a pabilit ie s a fte r a cq uir in g P ix a r, M arv e l, a nd L uca s-film . D is n ey m anaged

it s n ew s u bsid ia rie s m ore lik e a llia nce s r a th er th an a tte m ptin g fu ll in te gra tio n ( w hic h

c o uld h ave d estr o ye d th e u niq ue v a lu e o f th e a cq u is it io ns). In P ix a r’s c a se , D is n ey k e pt

th e e ntir e c re ativ e te am in p la ce a nd a llo w ed th em to c o n tin ue to w ork in P ix a r’s

h eadquarte rs n ear S an F ra ncis co w it h m in im um in te rfe re nce . T he h ands-o ff a ppro ach

p aid h uge d iv id ends: A lt h ough D is n e y p aid a s te ep $ 7.4 b illio n fo r P ix a r, it m ade s o m e

$10 b illio n o n P ix a r’s T o y S to ry 3 fr a nch is e r e ve n ues a lo ne. A s a c o nse quence , D is n ey has g ain ed a c o m petit iv e a dva n ta ge o ve r it s r iv a ls s u ch a s S ony, a nd h as a ls o

o utp erfo rm ed th e D ow J o nes In du str ia l A ve ra ge o ve r th e la st fe w y e ars b y a w id e

m arg in .

T here a re c lo uds o n th e h oriz o n, h ow eve r. T he m ed ia in dustr y is b ein g d is ru pte d:

P eople s p end m uch le ss tim e a n d m on ey w atc h in g m ovie s o n th e la rg e s cre en, a nd

sp end m ore tim e c o nsu m in g c o nte nt o nlin e v ia Y ou -T ube, N etflix , H ulu , a nd o th er

str e am in g s e rv ic e s. T he o nly la rg e-s cre en m ovie s th at h ave d one w ell r e ce ntly a re

s e quels in e xis tin g fr a nch is e s s u ch a s S ony’s S kyfa ll, th e 2 3rd in sta llm ent in th e J a m es

B ond s a ga, W arn er B ro s.’ B atm an s e q uel T he D ark K nig ht R is e s, a nd D is n ey’s o w n

se quels in th e P ix a r a nd M arv e l b ra nds. S oon D is n e y w ill b e a ddin g th e n ext in sta llm ent

in th e S ta r W ars tr ilo gy.

Q uestio ns

1. Wh y d o y o u th in k D is n ey w as s o s u cce ssfu l w it h th e P ix a r a nd M arv e l a cq uis it io ns,

w hile o th er m edia in te ra ctio ns s u ch a s S ony’s a cq u is it io n o f C olu m bia P ic tu re s o r

N ew s C orp .’ s a cq uis it io n o f M yS pace w ere m uch le ss s u cce ssfu l?

2. G iv e n th e “ b uild -b orro w -o r-b uy” fr a m ew ork d is cu sse d in th e m od ule , d o y o u th in k

D is n ey s h ould p urs u e a lt e rn ativ e s to a cq u is it io ns? W hy o r w hy n ot?

3. D o y o u th in k D is n ey’s a cq uis it io n -le d g ro w th s tr a te gy is s u sta in able ? A re th ere

s u ff ic ie nt “ M in i D is n eys” th at D is n ey c a n a cq u ir e ?

4. Wh at e ff e cts d o y o u e xp ect fr o m th e c o n tin ued d is ru ptio n o f th e m edia in dustr y o n

D is n ey? H ow s h ould D is n ey r e sp ond?

5. A llia nce s a nd a cq uis it io ns c a n s o m etim es le ad to le ss a cce ss o r h ig her p ric e s fo r

co nsu m ers . C om -c a st b ought N BC U niv e rs a l ( fr o m G E). W hen o ne c o nte nt

pro vid er a nd th e In te rn et a cce ss p ro vid er a re th e s a m e, w ill th is le ad to s o m e

co nte nt b ein g fa vo re d o ve r o th ers o n th e In te rn et? F or e xa m ple , w ill C om ca st w ant

to s e nd U niv e rs a l m ovie s ( w hic h it o w ns) w it h fa ste r d ow nlo ad c a pabilit ie s th an it

s e nds, s a y, a H arry P otte r m ovie fr o m W arn er B ro th ers ( w hic h it d oesn ’t o w n)? If

y o u w ere a C om ca st e xe cu tiv e , w ould y o u w ant to fa vo r th e s p e ed o f y o ur o w n

co nte nt d eliv e ry v e rs u s o th er c o nte nt p ro vid ers , in clu din g N etflix ? [4 ]

[1 ] Y um ! B ra nds 2 012 A nnual R eport.

[ 2 ] “ C om petit io n g earin g u p in C hin a’s fa st fo od in dustr y ,” C hin a D aily , J u ne 3 0, 2 008.

[3 ] A c h aebol d enote s a S outh K ore an m ult in atio nal b usin ess c o nglo m era te .

[4 ] If s o , th is w ould v io la te a “ n e t- n eutr a lit y ” p olic y th at h as g enera lly b een h onore d—

th at a ll in fo rm atio n o n th e In te rn e t is tr e ate d e qually a s fa r a s s p eed a nd c o st p er s iz e o f

co nte nt. D ata s o urc e d fr o m “ T he F C C’s c ru sa d e to k e e p th e In te rn et fr e e,” B lo om berg

B usin essw eek, A ugust 1 6, 2 010.