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Topic Highlights

1. Review different views on the purpose of a business. 2. The role of strategy in business. 3. The steps in the strategic management process. 4. The difference between “intended”, and “emergent” strategies, and when it is appropriate to use each one. 5. Experience curve benefits.

What is strategy and why does it matter?

“Leg Godt” or play well in Danish. Ole Kirk Kristainsen founded the Lego company in 1932. with high quality products that encouraged creative play. In 1947, Kristiansen purchased his first injection-molding machine and later introduced the iconic Lego plastic building block (earlier products were made out of wood) - patented in 1958. Through the mid-1990s, the company experienced steady and significant growth in sales and profits as it expanded geographically, and became a global firm. In the mid-1990s, Lego saw sales fall and profits flip to losses with a loss of 300mm kroner in 1998.

Prior to the mid-late 1990s, Lego emphasized open ended, creative play and geographic expansion. In response to the company’s crisis in the late 1990s, management expanded aggressively into non-play categories like amusement parks, fashionable clothing, video games and movies. Lego also introduced play sets and modern weapons into its product line. The play sets were controversial as the marked a major departure from open-ended play to sets with complicated instructions and a “right way to play”. Some Lego designers felt “the brick was passé” and it was only a matter of time until Lego went virtual. Sets based upon licensed characters and themes (Star Wars and Harry Potter) along with a decline in the value of the US dollar, pushed Lego’s growth to explosive levels from 2000-2003.

Lego – The Rest of the Story

The results were stunning – for a few years. Everything collapsed in 2004 and Lego discovered that the licensed character business was directly tied to the release of popular movies. The company also learned that children were not playing with traditional toys as long, the retail trade had consolidated shifting power to Walmart and Carrefour, and its costs were too high. A new CEO came in in late 2004 and took Lego “back to basics” – the brick, cut costs, reduced the number of products it made, and sold off underperforming businesses. In 2007, the company’s revenues were about 8.5B Danish kroner with operating profits of about 1.4B. In 2011, the company’s revenues were 18.5B kroner and profits were 5.5B.

Strategy’s Role in Business

Example of How Strategy Matters

Strategic Management Process

Key Concept: Strategy is management’s theory on how it will create competitive advantage. Competitive advantage is creating more economic value than competitors. We will use return on assets as a way to measure economic value. We will cover financial analysis as a separate topic within this segment of the course.

Concept: Strategic management is a process. All elements of the process are linked together. The course will cover each element throughout the term.

The process contains of each of the following elements:

o Mission o Objectives o External Analysis o Internal Analysis o Strategy Choice o Strategy Implementation o Competitive Advantage

1. Mission: The firm’s mission is its reason for being. The mission is tied to every other element in the firm and influences each of the other elements in the process. Some missions can help a firm’s performance and some can hurt it, and some may not do anything to it.

What does the Starbucks mission statement suggest about the company? o Customer service focus o Individual attention –