Bargaining power between Lufthansa and Amadeus - who has the upper hand?

Industry supply chains connect different industries through the flow of goods and services. An industry's profitability is partly determined by the bargaining power between the the focal industry and the supplying industries. The scheduled air passenger transportation supply chain is a great example of theory in action.

Sony still has silo divisions

Probably the most common reason for mergers and acquisitions is synergies. Here is a good example of how difficult it is to reap synergies. Sony owns Sony Pictures. Sony Pictures is producing the new James Bond movie. Sony Electronics wants a product placement for the new Xperia mobile phone. With joint ownership of the two divisions this should be a low hanging synergy.

Instead the executives spend countless hours arguing with each other. Sony Electronics is willing to pay $23M but Sony Pictures want more. Whether they pay $1 or $100M does not make any economic difference for Sony group, The key number is the benefit for Sony Electronics of the product placement. How many extra phones are being sold by the product placement? The CEO should step in and find the answer. Then he should set down the foot.

Maybe the benefit is even less than Samsung's offer of $55M. In that case, give the contract to Samsung and accept that the synergies are non-existent. 

No more vision in Sweden

This is a posting about politics. In the future I will migrate such postings to statsvetenskap.blogspot.sg. The current blog that you are reading will be devoted to business strategy.

Left-wing philosophy has invaded the brains of most politicians in Sweden. All the seven established parties, representing 84% of the electorate, have adopted a very dangerous left-wing idea, which is going to have very negative consequences in the coming twenty years. The dangerous idea is that there can be no more grand visions for the future of society.

Swedish election 2014 and a long term forecast

Back in January, I made a long term forecast of the election result in the next four elections until 2026. This is an update.

Accuracy of previous forecast

Compared to my forecast, the left did poorly. I had expected 50% and they received 47%. (I have included V, FI, S, MP in the calculation.) The right (KD, C, FP, M) performed as expected. The nationalists (SD) received 13% compared to an expected 10%. (All data rebased on the share of the top eight parties. All parties are described as left-wing or right-wing. Swedish politics is organised into three camps; the left-wing (socialists), the right-wing (non-socialists), and the nationalists.)

More generic strategies

The objective of the strategy possibility frontier is to graphically show two generic sources of competitive advantage, non-price uniqueness and low cost. By placing all companies in an industry in the chart it is possible to spot weak and strong low cost strategies. However, the model has a problem differentiating between good and bad non-price uniqueness strategies. There are several ways to be unique, but not all unique positions are valued by the customers.

Elliott Jaques's strata theory and politicians

The objective of this post is to introduce an interesting theory about organisations and apply it to political systems. Elliott Jaques was an academic that studied organisational behaviour. Most of his research was done outside mainstream academia, which means that there is not a great deal of high quality published, empirical work validating his ideas. I do not know much about his background, but I am aware that many academics consider his ideas unacceptable on political grounds. That is enough to scare a lot of potential researchers away. His sin was probably to imply genetic differences between individuals and to praise hierarchy. I have always found the theory fascinating for its potential implications.

Postings on industry analysis

Strategy students: This positing contains a summary of my earlier postings on industry structure.

Rant on Swedish politics

The modern world gives proof at every point that it is far easier to destroy institutions than to create them

Roger Scruton

Some people can see fifty years into the future. The founding father of Singapore, Lee Kuan Yew, is such a person. I do not have this ability. However, I have lived long enough to realise that I can see 10-15 years into the future. Nobody can predict the future, but most people can only see a couple of years ahead. The Swedish politicians fit the description. When such people are in charge, the short-term always crowds out the long-term.

The Swedish political establishment's willingness to experiment is mind-boggling. Since 2000, around 90% of the Swedish population increase has come from non-ethnic-Swedes. I am not sure this is a problem, but I am worried that it might be. Will the Swedish institutions survive? Will Sweden continue to have a largely secular, egalitarian, high trust culture in which men and women have equal rights? Human societies are fragile. That is the message from many historians as well as conservative thinkers like Roger Scruton. I wish Swedish politicians would be humble enough to realise that they might be wrong. If they are wrong, the consequences will be dire. Unfortunately, being conservative is an insult in Swedish.

Postings on generic strategies

Strategy students: This positing contains a summary of my earlier postings on generic strategies.

Share price for strategy analysis

It is often be useful to study the historical share price of a company. The historical development can tell us what strategic actions and initiative that are liked and disliked by the investors. We should not assume the investors are always right, in fact they are often wrong, but it is nevertheless important to understand the investor perspective. We can also learn about the mindset of the key executives by looking whether their experience is one of growth or decline. 

For an analysis to be meaningful, the share price cannot be analysed directly. In particular it is important to remove the effect of the general stock market. In finance, the resulting time series is called the company's abnormal return. This post will outline how to describe a company's abnormal returns and what kind of question you can ask yourself when analysing the abnormal returns.

Western companies failing in China

Companies entering foreign markets can make large mistakes by not adjusting sufficiently to the local environment. This is especially the case with Western companies entering China, because the cultural gap is large. This note will focus on failures relating to strategy.

CEO and strategy fit

The chief executive officer is an important person. Can anything important be learnt by watching a video of the CEO?

Cultivate your network

Once you have created a social network, it has to be maintained. In this note I describe three strategies to help you maintain your network. This is part two of three.

Create a network at university

Business schools are ideal places to create and extend your social network. In this note I describe five useful strategies. This is part one of three.

Is the growth-share matrix (aka BCG matrix) useful?

The growth-share matrix was created by BCG, the consultancy, in the late 1960s based on work with a paper mill. Paper manufacturing is dependent on economies of scale and economies of learning, so market share went on the x-axis. Companies want to grow, so growth went on the y-axis. This model turned out to be immensely successful for BCG and it was implemented by many companies in the 1970s. 

Should the international community allow ethnicity to determine country borders as a principle?

The Ukrainian region Crimea is predominantly ethnically Russian (or at least Russian speaking). If the citizens living in this region want to secede and join Russia or form their own nation state, should they be allowed? According to the Ukrainian constitution, secession is not allowed by a plebiscite unless all Ukrainian are allowed to vote. I find this question quite fascinating and we are likely to face many such questions in the future. 

Morphing political parties in Sweden

Sweden has two elections this year, one for the European Parliament and one for the Swedish Parliament. I am going to write a bit about Swedish politics from time to time on this blog. I came across the site Political Compass, which uses a modified version of what is normally called the Nolan chart; consider it the standard map to describe political parties. 

Setting the stage for disappointment in online advertising

This note is about the difficulties of forecasting. The investment analysts are generally very optimistic about the future. When coupled with a focus on individual companies, they can end up forecasting that all companies will increase their market share. I will illustrate with the online advertising industry. The chart below highlights nine important companies in the industry. Google is the leader with more than 50% of the market. Facebook, Baidu and Twitter are the promising up-and-coming companies. Microsoft, AOL, and Yahoo are yesterday's companies.

Synergies

Synergy is a catch-all term used to describe the financial consequences of two business-units belonging to the same corporate parent as opposed to being two independent companies.

Business unit 1  +  Business unit 2  +  Synergy   =  Combined value

What can the resource-based view of the firm teach managers?

A lot of academic writing in management has dealt with the resource-based view of the firm and dynamic capabilities. This short note argues that these two ideas are not very useful to understand strategic management. Instead I argue that the value chain and core competencies are much more useful ideas for managers.

Facebook's acquisition of Whatsapp

This note looks at Facebook's acquisition of Whatsapp. Before writing the note, I was inclined to believe Damodaran's conclusion that the acquisition price was astronomical. However, after running some models I have concluded that the acquisition is okay given Facebook's high current valuation. The key issue for Facebook is to justify its current valuation, not justifying the acquisition of Whatsapp.

The Swedish establishment's schizophrenia

I have lived ten years in multi-cultural Singapore and I thought I should put down my reflections on the current immigration debate in Sweden. This note is written for people that already have some understanding of Sweden.

Disruptive basics

This note will summarise the idea of disruptive technology.

Forecast of the upcoming Swedish election

I have always been interested in politics, so let me provide a forecast of the future Swedish election results. I conclude that the left-wing is likely to win the upcoming election as well as the subsequent three elections.

Mobile handset manufacturing

The mobile handset market can be characterised by a lot of failing companies and a few winners. The following diagram plots the development of the industry from 2003 to 2012 using the strategy possibility frontier model. All companies with a worldwide market share above 1% have been included in the diagrams. All companies with a market share above 5% are furthermore highlighted in bold.