An introduction to Business Administration and Management

Transcription

1 An introduction to Business Administration and Management, Management Department, Università Bocconi

2 The discipline of management Objective Explain the differences in profitability: Why are some firms more successful than others?

3 Would you have invested?

4 Would you have invested, even if you had not seen this?

5 The Quest for Growth: Microsoft, 2004 Some Facts: Microsoft s entrepreneurial venture open up a new market: One of the biggest value creators in the last two decades Wealth Added Index (Stern Stewart): June 1996 June 2001: $149.5bn Its success made its founders among the richest people in the world Microsoft considered as one of the best managed companies in the world Second position in World s most respected companies (Financial Times, January 2004) Bill Gates: First position World s most respected business leaders (Financial Times, January 2004)

6 The Quest for Growth: Microsoft, 2004 Microsoft in 2004: Making the Transition (Bill Gates) Earnings growth no longer positive / in the double-digits Microsoft tried to open up new market trajectories (gaming, phones & handheld, Internet, and Business Software), but came nowhere near to make up for slower growth in existing businesses (investing several billions, but less than $1 billion sales expected by new businesses) Microsoft becomes no-tech tech company (Financial Times) Microsoft experiences substantial change in ownership structure (from growth to value investors) Microsoft decides to pay out a dividend (first time ever)

7 The Quest for Growth: Nokia, 2004 Some Facts: Nokia s entrepreneurial venture open up a new market: One of the biggest value creators in the last two decades Wealth Added Index (Stern Stewart): June 1996 June 2001: $85bn Its success made not only the company, but also its country of origin (Finland) one of Europe biggest success stories of the last decade Nokia considered as one of the best managed companies Became world s fifth most valuable brand It s seen as one of the few companies left that could challenge Microsoft dominance (The Economist)

8 The Quest for Growth: Nokia, 2004 Nokia in 2004 Earnings growth prospects no longer in the double-digits (Nokia is lagging market growth and is experiencing 21% drop in the average selling price in 1Q 2004) Nokia s share prices falls in few weeks from (March 2004) to (August) Nokia tried to open up new market trajectories (e.g., handheld gaming, entertainment & media, business applications), but failed to challenge in any way existing market leaders (Nintendo for handheld gaming) Nokia experiences substantial change in top management composition

9 Nokia: Governing existing business while opening up new business Source: Rouvinen and Ylä-Anttila (2004) World Economic Forum Report

10 Nokia: Contribution to societal welfare Source: Rouvinen and Ylä-Anttila (2004) World Economic Forum Report

11 The discipline of management Objective Explain the differences in profitability: Why are some firms more successful than others? Context How much of the success can be explained by factors others than the management of the firm?

12 Profitability: Industry matters Average Economic Profits of U.S. Industry Groups, Value Line Industry Groups ROE-Ke Spread 20% 15% 10% 5% 0% (5%) (10%) (15%) Toiletries/Cosmetics Pharmaceuticals Soft Drink Tobacco Food Processing Household Products Electrical Equipment Financial Services Specialty Chemicals Newspaper Integrated Petroleum Electric Utility - East Bank Telecom Retail Store Tire & Rubber Electric Utility - Central Medical Services Machinery Auto & Truck Computer & Peripheral Paper & Forest Air Transport Average Invested Equity ($B) Steel ,000 1,100 1,200 1,300 Source: Ghemawat (1999)

13 Profitability: Company/Managerial Talent matters Average Economic Profits in the Steel Industry, ROE-Ke Spread 40% Great Northern Iron 30% 20% 10% 0% (10%) (20%) Armco Average Invested Equity ($B) WHX Bethlehem (30%) $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 $11 $12 $13 $14 $15 Source: Ghemawat (1999) Worthington Inds Nucor Steel Technologies Oregon Mills Commercial Metals Carpenter Birmingham British Steel PLC Cleveland-Cliffs Quanex Lukens ACME Metals Ampco USX-US Steel Inland Steel

14 Profitability: Company/Managerial Talent matters Average Economic Profits in the Pharmaceutical Industry, ROE-Ke Spread 60% SmithKline 40% Glaxo American Home Amgen Products Merck Schering Plough Watson Rhone-Poulenc Bristol Mylan Labs Myers Warner Lambert Eli Lilly Pfizer Perrigo 20% Pharmacia & Upjohn Forest Labs Alza 0% ICN Scherer Ivax (20%) Genetech Biogen Roberts (40%) Genzyme Dura Chiron Cephalon (60%) Gensia Cygnus Immunex Average Invested Equity ($B) (80%) $0 $5 $10 $15 $20 $25 $30 Source: Ghemawat (1999)

15 The discipline of management Objective Explain the differences in profitability: Why are some firms more successful than others? Context How much of the success can be explained by factors others than the management of the firm? Implications What does it take to outperform?

16 The discipline of management EXTERNAL CONTEXT Market, Sectors, Nations FIRM ECONOMICS LAW STRATEGY Objectives Resources Context MANAGEMENT of FUNCTIONS & PROCESSES MANAGEMENT

17 Strategy: The objectives Product innovation Cost leadership Diversification in new (related & unrelated) markets Brand value Restructuring

18 Strategy: Resources Physcial resources Human resources Intangible resources Collaborations

19 Strategy: Context COMPETITION Competition on price or differentiation, co-operation SUPPLIERS How many? Which ones? CUSTOMERS Segments, channels POTENTIAL COMPETITION Convergence, substitute OTHER PLAYERS Financial services providers, state

20 Management of functions and processes Marketing Organization and Human resources Technology and Operations Managerial Accounting, Corporate Finance Logistics Information systems

21 Contingency factors Financial system, governance Public management, public administration Institutions of arts & culture High-tech industries Global multinationals vs small & mediumsized companies (SMEs)

22 The discipline of management Objective Explain the differences in profitability: Why are some firms more successful than others? Context How much of the success can be explained by factors others than the management of the firm? Implications What does it take to outperform?

23 Innovation that changed the way we live and made their entrepreneurs rich Steamboat High-pressure steam engine Telegraph Airlines Cars: Henry Ford Photography: George Eastman: Kodak Blue jeans CNN Computers: IBM, PC software ebay, Google, Skype, MySpace, Facebook

24 Scopri tuo talento An introduction to Business Administration and Management Bocconi University Management Department June,