1. Growth Strategy Overview

Why Grow ? To Create Value! Growth is not always imperative. Growth can be risky.

Pressure to grow (media, analysts, etc)
Growth = more profits ? (not guaranteed)
Growth = EOS(economies of scale)/efficiency = profits ? (not guaranteed)
Growth = more market share = profits ? (not guaranteed)

2. Growth through Scaling

Scaling is a way for a business to grow by doing more of what they're already doing, which increases revenue without increasing costs.

Identify a “high growth potential” market segment.
- Competitor, environment, industry, life-circle, competitive position.
Formulate a plan that is robust to different scenarios.
- Capabilities, Stakeholder, Internationalization, Diversification.

Scenario Planning. Scenario planning encourages strategists to step outside their assumptions about the future and question them. Businesses can better prepare for uncertainties and make more informed strategic decisions.

Identifies future factors as trends and uncertainties.
Then employ uncertainties to generate multiple scenarios of the future.
Contingency planning for multiple possible futures.
Structures our analytical thinking about these uncertain futures.
“Stress test” for our strategy.

(1) Identify key strategic issue - important strategic decision with large potential impact.

(2) Identify key trends and uncertainties.

(3) Construct scenarios. select two most important uncertainty then plot.

	Uncertainty YZ Outcome Y	Uncertainty YZ Outcome Z
Uncertainty XW Outcome X	Scenario A	Scenario B
Uncertainty XW Outcome W	Scenario C	Scenario D

(4) Write your scenarios. visualize and vividly describe the scenarios, with details.

(5) Reflect on current strategy. Examine robustness of strategy across the different scenarios.

3. Entry and Rivalry

(Five Forces analysis; Competitor analysis; Game-theoretic analysis.)

Game Theory - “the formal analysis of conflict and cooperation among intelligent and rational decision makers.” Look forward and reason backwards!

The Prisoner’s Dilemma - Cheap talk and costly action - Signaling, Commitment.
Identifying Potential Rivals : “outside” firms with economic motivations. Firms that share a value chain with you or are in the same vertical industry chain.

(1) Pre-entry strategies:

Deterrence strategies.
- Increase the cost and risk of entry: structural barriers reducing the quality of information on costs and demand, or hiding underlying capabilities.
- Retaliation strategies. Reduce the incentive to enter: raise factor costs (要素成本), limit pricing.
Accommodation strategies. accommodate entry if deterrence is too costly.
- commit to position, that could soften competition after entry.
- Make commitments limiting your ability or incentives to compete aggressively.
- Organize to facilitate future coordination.

(2) Post-entry strategies.

Fighting strategies. tactics that could destroy value can be beneficial when they raise market share rather than dissipate rents.
- price cutting.
- Intensive advertising.
Cooperative strategies.
- Structure the game such that firms have shared incentives.
- Impose costs on rivals for non-cooperative actions.
Restructuring strategies. manage or initiate changes in competitive requirements.

Payoff Matrices to identify dominant strategies (in the term of game theory) in single-period simultaneous-move games. (1) map out alternatives and payoffs; (2) eliminate dominated strategies; (3) look for ways to shift dominant strategy - jump out of “The Prisoner’s Dilemma”.

4. Growth through Acquisition

Most Acquisition Failed! Proceed with Caution! Integration is as complicated as starting a new business and requires massive amounts of planning.

Advantages:
- Overcome otherwise insurmountable entry barriers.
- Increase entry speed.
- Acquire intangible assets.
- Avoid uncertainty and risk of internal development.
Disadvantages:
- Synergies (协同效应) do not really exist.
- Difficult to integrate companies.
- Become highly leveraged.
- Overpaying for acquired firm.

Pitfalls of Growth Through Acquisition (Why fail ?) : (1) Wrong target; (2) Difficulties in implementation; (3) Over payment.

Why Firms Overpay for Acquisitions ? (1) Moral hazard (fees for M&A services); (2) Agency problem; (3) The winner’s curse (auction leads to over-price).
Alternative to acquisition: (1) Scaling ; (2) Internal development (innovation); (3) Alliance formation - less resource intensive than mergers and acquisitions.

Acquisition Analysis : does the value creation potential exceed the acquisition costs ?

Strategic Benefit (Value of the Target) = Independent Value + Value Added.
Purchase Price. avoid Overpay.
Opportunity Cost. Any other alternative benefits.
Strategic Benefit - Purchase Price > Opportunity Cost.

5. Growing through Innovation

Because strategic positions are unsustainable, companies must innovate to continue to win consumers.

Innovator (first-mover) strategy. Capture a valuable market position.
Follower (second-mover) strategy. Avoid costs and risks of innovation.

Planning :

Innovation as Rational Plan - Ideal Development Path : Concepts -> Investigate -> Develop -> Product.
Actual Development Path (more chaotic, more uncertain).
Driving innovative capability :
- Create climate to generate and pursue novel ideas.
- Design an effective development process.

Keys : (1) Provide motivation; (2) Build absorptive capacity (Taking part in joint ventures or forming alliances ).

Organizing for Innovation : no single best way to organize.

Chaotic (Unidivisional) : generate idea then act (skunk works), fits startups.
Sequential (Functional) : project passed from one function to the next.
Concurrent (Project) : completely overlap (cross-functional teams), all functions work together for the entire project.
Overlapping (Matrix) : allow easier interface between functions by overlapping. create cross-functional “design house” from marketing & engineering.

Appropriating Value from Innovations

Intellectual Property Protection - ability to protect intellectual property.
- Make imitation by competitors difficult.
- Make diffuse among customers fast.
Complementary Assets - control of important complementary assets.
- Assets - Innovation dependence.

Innovation Strategy:

	Complementary Assets widely available	Complementary Assets tightly hold
IP Protection Weak	* Diffcult to make money * No Good Options	* Holders of CA * Integrate
IP Protection Strong	* Innovator * Use Market	* Party with Bargaining Power * License or Integrate

Real Options Analysis : there is value in having optionality.