Leading Strategically - Strategic Management Foundations and Business Models

Session Overview: Leading Strategically

This session sets the foundation for strategic management, offering an introduction to the core ideas of the course, syllabus highlights, and the fundamental principles of strategic decision-making. The session is structured to move from introductions and logistics into the core content regarding strategy foundations and business models.

Instructor Bios and Background

Dr. Sandra Corredor

• Roles: Assistant Teaching Professor at GISS; Associate Department Head for Business Administration in the IMB program.
• Teaching Focus: Strategic Leadership Capstone, Innovation Capstone, and Health Care Innovation specialization. She also teaches "Crafting Your Purpose in Business" for residential students.
• Education: Earned her PhD from the University of Illinois (with Professor Deepak Somaya as her adviser). Holds a Master’s in Economics and a business degree from Colombia.
• Research Areas: Strategic decision-making for managers, corporate strategy, innovation, and international business.
• Recognition: Named a Poets & Quants Top 50 Undergraduate Business Professor in 2024.

Dr. Deepak Somaya

• Role: Professor in Business Administration; focuses on strategic management, entrepreneurship, and innovation.
• Endowed Position: Holds a position created by Diane and Stephen Miller.
• Special Appointments: Edward Scholar; Executive Director of the Faculty Entrepreneurial Leadership Program (FELP), which trains innovative faculty to have broader social and commercial impacts.
• Education: Bachelor of Technology ($BTech$) in Mechanical Engineering from IIT Bombay; MBA from an IIM in India; PhD from the Haas School of Business at Berkeley.
• History at UIUC: Joined in $2008$, approaching $20$ years on campus.
• Research Interests: Scaling (derived from business models) and knowledge assets (innovation, human capital, and relational capital).

Course Logistics and Syllabus Highlights

Requirements and Platforms

• Dual Platforms: The course uses both Coursera and Canvas. Completion of requirements on both is mandatory.
• Coursera Components: Students must pass two four-week Coursera courses. Videos should be watched before the live sessions.
• Canvas Components: Includes syllabus quizzes, exams, and "Real Strategy" assignments.

Assessments and Grading

• Exams: Two main exams: one midterm and one final quiz.     * The midterm study guide is in Module $4$.     * The final study guide is in Module $8$. The final is not cumulative.
• Case Analysis (Group): Two team-based reports using Harvard Business School cases: Starbucks and Disney.
• Real Strategy Assignments (Individual): Four assignments total. These serve as a "strategy lab" to apply frameworks. The lowest grade is dropped.
• Yellowdig: There are $8$ evaluation periods coinciding with the $8$ modules. Students can bank extra points for flexibility.
• Extra Credit: Possible through participation in the GISS Business Research Lab studies.
• Deadlines: Strict Canvas deadlines: Tuesdays at $11:59\,PM$.

Academic Integrity and Professionalism

• AI Policy: AI is prohibited for exams and quizzes. For original assignments, AI may be used for brainstorming or as a productivity tool but must be cited with a link to the specific conversation. AI cannot replace independent strategic thinking.
• Prohibited Sources: Students must avoid "course help" sites. Primary sources such as SEC filings, annual reports, and company websites are required.
• Appeals: A $48$-hour window exists after grades are posted to submit an appeal via iSupport.

Campus Visit: Woolers Hall

• Location: The College of Business is spread across three and a half buildings: David Kinley Hall (formerly the "Commerce" building), Surveying Building (now Urban Doctoral Study Hall), the Business Instructional Facility, and Weimer Hall.
• Historical Context: Woolers Hall was originally called "Commerce West" and opened in $1964$. It underwent a major renovation in the $1980s$, funded by the Woolers family, which added Greco-Roman columns and a rear addition.
• Pioneer in Accessibility: The building was uniquely constructed in the $1964$ with a disability access ramp, decades before such features became standard or legally required. This was due to the UIUC campus being a pioneer in disability services, led by figures like Tim Nugent. The campus remains a "Mecca" for athletes training for the Special Olympics.

The Foundations of Strategy

Defining Strategy

Strategy is characterized by four main principles:

1. Long-term Orientation: Focuses on where the organization is headed over time.
2. Top Management Decisions: Driven by the C-suite and leaders who define direction and priorities.
3. Choices and Trade-offs: Involves allocating limited resources and deciding what not to do.
4. Integrated Approach: Requires the coordination of different departments and functions to achieve alignment.

Strategic Fit and Coherence

• Internal Coherence: The alignment of internal elements within the company.
• Strategic Fit: The alignment of internal elements with the external environment (market, industry, and competitors).

Levels of Strategy

1. Corporate Strategy: Decisions at the highest level (headquarters/parent company). Focuses on "what businesses should we be in?" and managing the portfolio (e.g., Amazon Corporate).
2. Business Strategy: Focuses on how a specific Strategic Business Unit (SBU) competes in its market (e.g., AWS vs. Whole Foods).
3. Functional Strategy: How individual functions (Marketing, HR, IT) support the specific business unit.

Strategic Planning vs. Strategic Management

• Mission, Vision, and Values: These define the "What," "Where," and "How" of an organization. Articulating these creates coherence, gives purpose to stakeholders, and clarifies critical senior management issues.
• Strategic Planning: Often tied to budgeting exercises. It typically covers a $1$ to $3$ year horizon (rarely up to $5$-$10$ years). It aligns goals across the organization (e.g., supply chain alignment with sales growth).
• The Distinction: You can have strategic planning without a strategy. Planning focuses on resource allocation and goal alignment, while strategy explains how the company will achieve a competitive advantage or create value.

The VRS Framework for Business Models

The VRS framework is used to design and analyze business models at the intersection of strategy and entrepreneurship.

1. V: Value Proposition

• What offering or service is provided to customers?
• How does it make their lives better (e.g., lower cost, more convenience, higher precision)?

2. A: Assets (Activities, Resources, Capabilities)

• What specific activities is the business performing?
• What resources or capabilities is it building on to deliver the value proposition?

3. R: Revenue Model

• How does the business convert value into revenue? Examples include:     * Direct Sale: Standard price per product.     * Advertising: The customer is the product (e.g., Facebook, Google).     * Subscription: Recurring fees.     * Freemium: Basic service for free, premium for a fee.     * Razor Blade Model: Selling a base product at a low margin or loss to drive sales of high-margin complements (e.g., printers and ink).

4. S: Scope

• Vertical Scope: What to do inside the company vs. what to outsource.
• Horizontal Scope: Range of products or services offered (often to capitalize on complementarities).
• Customer Scope: Identifying which customer segments to target (e.g., premium vs. budget).

Case Study and Application: Apparel Business Models

The Traditional Model

• Heavy reliance on design and purchasing months in advance ($9$ months lead time).
• International supply chains optimized for the lowest cost.
• Inefficiency: High inventory that often ends up in landfills or being heavily discounted.

The Subscription/Rental Model (Stitch Fix Example)

• Initial Model: Subscription-based "fast fashion" delivered to the home via AI algorithms and human stylists.
• The Pivot: Occurs when an original business model is unviable.
• Stitch Fix's Pivot Moves:     * Moved operations out of the expensive Bay Area to lower costs.     * Increased reliance on algorithms over human stylists to improve margins.     * Shifted from pure subscription to a hybrid model including direct purchase options.

Ethical Silk Business Model (Student Group Idea)

• Value Proposition: Ethical, traceable, luxury silk.
• Specific Resource: "Ahimsa" silk (India) where the silkworm lives rather than being killed.
• Strategy: Narrow customer scope with high willingness to pay for ethical sourcing and sustainability.

Questions & Discussion

Question (Instructor): What is a strategy?

• Student Responses: A plan with an objective; long-term goals; how to approach the future; deciding what to do and what not to do; sustainable competitive advantage; an overarching vision; execution; a framework.
• Instructor Synthesis: Strategy is long-term, leadership-oriented, about choices/trade-offs, and an integrative approach that pulls departments into a cohesive whole.

Question (Instructor): What did you learn today? (Key Takeaways)

• Student Responses: The complexity of the VRS model in practice; the difference between strategic planning and strategic management; the importance of both internal coherence and strategic fit.

Question (Instructor): Who is nominated for the Hat Prize?

• Nominees: Sydney was the popular choice for her contribution to the apparel rental business model discussion; Kedar was noted for the ethical silk business model idea.