Question 1 (strategy game): You have managed your camera company in the virtual industry environment for seven “years” together with your co-managers. As an individual now, and with the benefit of hindsight, if you were to start again from Year 6, what would you do differently in your strategy and in your management, and why?

Note: the game is clearly a means to an end, and what I’ll be looking for in your answer is that you use your “toolkit”, which you have acquired from Strategy and from other courses in this GXMBA. Also, the question is about company strategy and its deployment, not about internal group organization.

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Article 1 - Home Depot Earnings Beat, Raises Outlook

Published: Tuesday, 13 Nov 2012 | 6:33 AM ET

By: CNBC.com With Reuters

Home Depot raised its full-year outlook on Tuesday as the retailer benefited from a recent uptick in the U.S. housing market and analysts expect a sales boost from super storm Sandy in the current quarter.

The nascent recovery in housing has encouraged professional contractors to buy more in recent months. Home Depot, the world's largest home improvement chain, has also gained from its own efforts to improve distribution, cut costs and localize marketing and merchandising.

Excluding a charge for closing seven stores in China, Home Depot said it had earned 74 cents per share. Analysts had been expecting 70 cents a share, according to Thomson Reuters I/B/E/S.

Third-quarter revenue also beat estimates coming in at $18.1 billion compared to estimates of $17.9 billion. Sales at stores open at least a year increased 4.2 percent worldwide, including a 4.3 percent rise in the U.S.

"Our third-quarter results were better than we expected and reflected, in part, what we believe is the start of the path toward the healing of the housing market," Frank Blake, chairman & CEO of the company said in a statement.

After the earnings announcement, the company's shares edged higher in trading

The retail chain also raised its full-year earnings forecast to $3.03 per share on an adjusted basis. Analysts had expected $2.97, according to a poll by Reuters I/B/E/S. Its prior forecast called for sales to rise 4.6 percent, with earnings of $2.95 per share.

The company said it will buy an additional $700 million of its shares in the fourth quarter.

Brian S. Sozzi, chief equities analyst at NBG Productions, said he was “encouraged by the stronger tone on the housing market by CEO Frank Blake,” even as the company tried to talk down future performance by saying Home Depot’s fortunes were tied to U.S. gross domestic product rather than improvements in the housing market.

Sozzi estimated that super storm Sandy positively impacting Home Depot’s fourth quarter bottom line by 4 cents a share.

—Reuters contributed to this article.

Question 2 (mature industries) “Mature” as in mature industries or mature markets, tends to have a negative connotation of sorts… however here we have a company in a mature industry (home improvement) whose positive results and outlook have recently determined none less than a rebound in the overall US Stock market! However, the question is not on US economy but on competitive strategies: a) how do you recognize that Home Depot’s industry is mature? b) what are the keys for competing successfully in Home Depot’s mature market?

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Article 2 - YouTube Pairs Android With Google TV

By Roberto Baldwin 11.13.12 9:00 AM

The battle for your TV’s HDMI ports rages on. Having access to Netflix, YouTube and videos stored on your home network is mandatory at this point. Now it’s time for the “killer features” that woo users to a company’s platform, and it looks like Google is taking a page out of Apple’s features booklet.

On Tuesday, Google announced a new YouTube feature for Android and Google TV. The feature pushes YouTube content from an Android phone to a Google TV. Now you can watch all your favorite YouTube videos on your HDTV — if you happen to own a Google TV set-top box. Initially, the feature works only with Android (2.2 and later) and Google TV (2.1.2) only, but Google hints that other platforms getting the feature in the future.

The feature seems similar to Apple’s AirPlay, which allows video and audio to be pushed to an Apple TV from an iOS device. Unlike Apple’s offering, though, the feature doesn’t push video. Instead, it acts as a remote for the Google TV telling the device which YouTube videos to play.

In addition to playing and controlling videos from your Android phone, your friends can get in on the action and push YouTube videos to the Google TV and create a playlist. Go ahead, have a YouTube party.

Question 3 (innovation, technological industries): is this latest innovation from Google going to be successful? What strategies and tactics will ensure and maximize its success?

Note: the answer should touch on entry strategies, on business models, on value appropriation, on competitive outlook, etc.

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Article 3 - Ayala profits up as of Sept.

Posted on November 13, 2012 11:25:48 PM

Franz Jonathan G. de la Fuente

Net income attributable to Ayala Corp. in that period rose 19.34% to P8.7 billion from P7.3 billion in the same nine months last year, while core net income -- which excludes depreciation from Globe Telecom, Inc. and revaluation gains from Ayala Land, Inc. -- rose 31% to P9.3 billion.

Counting earnings that went to minority interests in Ayala and its units, net income rose 22% to P14.5 billion from P11.9 billion in the same comparative periods.

“This was driven by its property, banking, and water businesses which offset the decline in equity earnings from its telecom business,” Ayala said in its disclosure.

Third-quarter data were not immediately available, nor was comparative core net income last year.

“We are pleased with the earnings performance of each of our core businesses and the continued improvement in profitability of our international units. Their combined performance to-date keeps us on track with our year-end targets,” Jaime Augusto Zobel de Ayala, Ayala chairman and chief executive officer, said in a separate statement yesterday.

“The positive momentum in the domestic economy continues to present opportunities for us to build on the trajectory of our core businesses and aggressively expand in these sectors.”

Property developer Ayala Land boosted its net income by 26.58% to P6.62 billion from P5.23 billion last year, fueled by strong revenues from across its business units, which contributed to its double-digit overall revenue growth over last year.

Not to be outdone, Bank of the Philippine Islands (BPI) grew net income by 37% to P13.2 billion from year-ago levels, driven by an 18% growth in revenues from net interest income.

Manila Water Co., meanwhile, recorded a 26.69% growth in net income for the same nine months to P3.94 billion from P3.11 billion on improvements in billed volume, implementation of a tariff adjustment, and contribution of non-East Zone businesses.

The conglomerate also sustained the growth of its businesses abroad.

“Ayala’s international businesses continued to improve despite lingering uncertainties in the global economy,” the disclosure read.

Listed Integrated Microelectronics, Inc. (IMI) grew net income threefold to $5 million from $1.6 million on revenues from new subsidiaries in Europe and Mexico.

Ayala’s business process outsourcing unit, Liveit Investments Ltd., meanwhile, cut its net loss due to a 8% increase in revenues to $251 million. Details were not immediately available.

Telecommunication arm Globe Telecom saw net income decline 14.77% to P6.81 billion from P7.99 billion, as nine-month service revenues gained 6.33% to P61.32 billion from P57.67 billion.

Ayala was incorporated in 1968 and was listed in 1976. The conglomerate had earmarked P91 billion for capital expenditures this year to finance real estate development, telecommunication network improvement, water business investments, and other acquisitions.

Question 4 (conglomerates, corporate strategies): conglomerates have been declared dead, as a successful company organization, for too many times already, but as you can see they are still alive and kicking. Here we have a company ranging from banks to water, to property, to telecommunications… What are the keys for success in the Ayala conglomerate, according to you? Do you think that it trades at a “conglomerate premium” or at a “conglomerate discount” (explaining also what the two terms mean)? Through which strategies would the premium be maximized?

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Question 5: (internationalization strategies): There are two short sentences about Ayala’s international subsidiaries, one saying that the “conglomerate sustained” their growth, and the other saying that “international business continued to improve” despite difficult conditions abroad. Expanding on that, what types of internationalization strategies do you think Ayala adopted? How did Ayala make sure that such strategies succeeded?

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Answers

(please write each of your answers directly below the corresponding number)

1

During the progression of the GloBus simulation game the overall importance of defining and adhering to a long-term market strategy became more and more pronounced. If I had the game to play again, I would create a long-term strategy based on a value-proposition of high quality at a slight price premium. I would implement this through the use of setting and monitoring market share expectations in each region and resist chasing the competition on low-price. Additionally, I would not make operational decision based solely based on the expected results as reflected in the financial indicators. Through the use of significant investment in research and development to improve product quality and reduce production and warranty cost combined with the yearly decrease in direct costs, I would expect to show market share gains between years eight and nine. The benefit from a competitive advantage based on a value-chain quality proposition is that once you start to gain market share through differentiation, the competition will have a very difficult time attempting to imitate your success through incremental changes in their strategy and operations because the value of your strategy in integrated into all the aspects of you business.

2

The maturity of Home Depot is evidenced by the fact that the proliferation of the stores within a county has reached or is very near to reaching saturation. As the US economy began to retract, Home Depot reduced the rate of expansion based on the fact of operating within a mature market. Companies operating in a mature industry have their fortunes very closely tied to the national GDP and in this case specifically the housing sector.

The key component for Home Depot to successfully operate in a mature market is to constantly seek out new ways to reduce waste and improve efficiencies throughout every portion of the business. An effective way of implementing this goal is through the use of a performance-oriented management system where the central component of the strategy is based on performance goals. The performance goals are based on financial controls, human resources, and operating efficiencies and constitute the focus of the overall strategy. The key to successful implementation and cultural adoption of the overall strategy is the process of disaggregating the strategy into specific performance targets and goals for each department within the company and each individual within each department. The most prominent method of implementing the performance-oriented management system is through the use of the balanced score card.

3

Goggle is a company based on innovation. In fact, one of Google’s most pronounced innovations provided assistance in responding to this question. The Google TV adapts the ubiquitous search engine to a user-friendly version that operates via your television and is optimized to search all of your multimedia online content sources and control your third party content devices.

The market entry strategy for the release of Google TV should leverage the brand image of Google and target customers who access online and digitally recorded materials thought a number of different sources. Comparisons to other online content devices should be minimised, as the functionality of Google TV is much broader than that of Apple TV or Netflix.

The recent announcement of the pairing of YouTube and Goggle TV with a remote control function via your Android phone adds another feature set to the already diverse product. The new functionality should be positioned as a product differentiator allowing you to control aspects of the Google TV via your Android mobile phone. While the current Android integration is limited, aspirations should be highlighted to future functionality whereby complete control of all your online media content is as close as your Android mobile phone.

Will the Google TV be a success? As consumers of media via our television, we are very accustomed to pointing and clicking to view programs via a clearly structured and easy to use system. If Google can create a differentiated product built around a well organized, easy to use, structured interface with content provided via “enough” data sources then yes, I think Google has a successful product in its midst.

4

A conglomerate premium is where a conglomerate is traded at a value above the sum of its parts. This added value is based in added competitive advantage due to exposure to different markets and the ability to weather decreases in a particular market through an increase in another.

A conglomerate discount is where a conglomerate is traded at a value below the sum of its parts. Investing in a conglomerate can be likened to managing a diversified portfolio of stocks. If the portfolio manager is strategic in the allocation of assets then the portfolio with gain value in most market conditions. If the portfolio is mismanaged then it may well lose money in the best market atmosphere. In this way if the corporate strategy of a conglomerate is ill defined or mismanaged then investors will shy away and choose to invest in a group of individual companies to create a portfolio.

In order for Ayala to remain successful they must maintain the firms overall growth and stability, monitor and maintain competitive advantage in each of the sectors of completion and the corporate parent strategy must be able to coordinate capabilities and resources between the child strategies of the different divisions in an efficient and effective manner.

The corporate strategy that would lead to a maximization of premium would incorporate long term, stable growth, despite market conditions, maintaining competitive advantage in many of its individual divisions and efficiently leveraging cross-utilization between divisions where shared capabilities and resources are required.

In my opinion, based on the vast diversity, sizable earnings growth from the same comparative period from last year, and the unitization of capital to invest in and improved ailing sectors of the conglomerate, I would theorize Ayala trades at a premium

5

It looks as if Ayala adopted a coordinated federation style of organization. This organizational structure would allow the central conglomerate functions to maintain the overall corporate strategy while empowering the separate functional and/or regional divisions with enough autonomy to cater for localization while maintaining tight global integration.

In this model Ayala can leverage the different ideas, skills and capabilities of each division for the betterment of the conglomerate. Additionally, through tight global integration the conglomerate can leverage global economies of scale to improve each divisions competitive advantage within its given market segment.

For central management of the conglomerate to succeed in this strategy they are required to operate in a highly complex environment. Central management must create an organized relationship between itself and each division and from division to division. While this structure will be inherently formalized it must, at the same time, provide a level of flexibility and adaptability. The defined central corporate strategy must be consistent with the division level strategies and based on measurable and quantifiable goals. One of the primary keys for central management is to concentrate on creating a business environment context where in the different aspects of the conglomerate can coordinate, operate, and functions as individual components or as a unified global force as and when required.