nm1127: my name's namex and i'm responsible for the International Business 
Environment course for the next ten weeks with my colleague namex er namex 
isn't here this evening 'cause he's actually in Scotland but er as you'll see 
from the the pack of information i start the course namex comes on for three 
weeks of economics particularly macroeconomic theory then i continue then we 
sort of merge together in the end and take a couple of of joint sessions now 
the first thing i should perhaps say is why am i wearing a radio mike and why 
is there a camera around let me introduce namex to say why he's here 'cause i i 
don't normally have my own personal cameraman not [laughter] for these type of 
events namex 
om1191: er yeah er i hope you don't mind being filmed i'm actually involved in 
a project where i'm making a C-D-ROM and i'm filming lectures from all 
departments of namex University and er namex very kindly agreed to be filmed 
for the Business School so er i hope you will just bear 
with me 
sm1128: do we get paid for it 
om1191: er [laughter] nobody makes any money out of it 
nm1127: what a typical 
om1191: but the university er i think 
nm1127: yeah 
om1191: and not even me 
sm1129: i think the whole standard of [laughter] 
om1191: well maybe maybe yes i'll have to put those 
nm1127: i was the only one who was prepared to do it without being paid i did 
it for the reason purely that i see this as a way of enhancing the brand which 
of course you will all be intimately er interested in when you leave this place 
and so this is brand reinforcement cognitive dissonance and all that jazz 
sm1130: you're going to be a film star then 
nm1127: [laughter] okay let me just say basically i work in the the M-S-M group 
the Marketing and Strategic Management i'm on the strategic management side and 
my particular interests are in early stage high-tech businesses and 
specifically within that context i spend most of my life either researching 
those businesses 
working in those businesses or advising on government policy in those areas so 
i'm not actually interested particularly in large companies i'm very very 
interested in high technology start-ups i'm interested in large companies where 
er we have say corporate venturing activity i mean l-, er couple of months ago 
er i chaired a session where we looked at er Daimler-Benz er Douwe er Siemens 
and we looked at where we could actually use structures that would generate 
innovative young companies both coming out of Siemens using Siemens technology 
which is non-core but also going into Siemens from other areas of activity 
where we had er companies which had interesting technologies for Siemens and er 
a classic sort of structure now i talked to er a Dane er a guy called b-, er 
Bjørn Andersson who is in charge of their telecommunications processes er 
Bjørn is a Dane working based in Stuttgart but actually working out of San 
Cupertino so it's the it's the internationalization and 
the linkages i'm particularly interested in that area so at the moment i'm 
doing some work looking at the internationalization of high-tech companies in 
Germany and in the U-K now whenever i talk in this area people say yeah but if 
you if you could do it you'll do it so i should also say er i'm a er a recently 
retired er director of a high-tech start-up which went from nought to thirty-
million dollars er in three years and i was the first chairman of it it was a 
British company British ideas British brains British experience so the first 
thing we did of course was to become American er the second thing we did was to 
ignore the City of London as the most powerful financial er area in Europe and 
take money out of California and the third thing we did was to set up a small 
subsidiary er in London er our major base was in Boston and still is er the 
fourth thing was out of our control which was the I-R-A who actually blew our 
London subsidiary to smithereens 'cause we 
were in the South Quay in Docklands if you want to liquidate assets in 
nanoseconds er do that i mean it's it was luckily no one was killed techies 
work late at night but thank God they had actually left as it was a Friday 
night but it was er an interesting experience so i will look in terms of these 
set of lectures particularly at the environment and we'll talk about in detail 
later but i will tend to skew it to my area for two reasons one that interests 
me and if i am interested hopefully it will be more interesting to you and two 
if you're not interested in technology if you're not interested in in start-up 
companies if you're not interested in rapidly growing companies that are 
international at at conception then you bloody well should be so i will play to 
my strengths and to my prejudices you may challenge this at any time and i hope 
we will have a a debate on a whole range of areas and a whole range of sectors 
er i started off in the 
agribusiness sector so i have actually worked for large companies Unilever 
Imperial Group as well as working for small companies as well okay so that's my 
background and hopefully as we go through the course you will enjoy it more if 
you can actually contribute your unique experiences your skills your 
experiences i may not agree with you others may not agree with you but it will 
make the whole dialogue er much more interesting er because these type of 
lectures certainly by myself and my colleagues is not us talking to you it's 
much more er a debate er that we will engage in and hopefully for some of you 
you might be interested in say the the venture capital course er i run in the 
summer where we bring in the sort of great and good of the industry 
internationally for er a week just talking about the nature of innovation the 
nature of new businesses the nature of financing growing businesses and how the 
hell do you get a company like er Amazon which is now capitalized at 
twenty-five-billion dollars and hasn't yet made a profit so some b-, but last 
year what happened was a number of the the part-timers and indeed other 
programmes came onto the full-time course for er an intensive week er but talk 
to the guys who did it last last year er Phil i know is here er and he did that 
course okay let's just briefly go through some of the sort of er hygiene 
factors i suppose er what you will have from me is and from namex is a 
timetable with er a set of readings er with a set of lecture notes with a set 
of case studies with the allocation of of case studies to individual groups er 
can i check that you're all in agreement with that okay so you will you will 
have everything from us except answers to case studies or an interpretation of 
case studies which we will give you after the lectures i have from namex a set 
of economic models macroeconomic models er on a set of disks now namex has 
prepared two disks for each syndicate group he said he was not 
prepared to sit there and knock out about eighty or s-, er sixty-odd disks so 
basically each group will get two disks and it will be up to you to share and 
interchange those er with the other members of the group i've also got er a 
single sheet of of observations from namex on the model that's i-, contained in 
the disks now his comment to me was one apologize that he wasn't here today but 
also to suggest that you might look in addition to the primer which you've got 
you might look at the model prior to the week b-, week two because the model 
actually is an input-output analysis is based on a set of assumptions about 
relationships er and you may wish to look to test some of those assumptions by 
just playing with the model as a spreadsheet model and changing some of the 
variables to see what actually happens er and that will for particularly for 
those who have less experience or no experience in economics er that might be 
quite a good idea to to do with er reading 
er the primer okay any sort of questions or issues or uncertainties at this 
stage they will probably come thick and fast later right let me just mention er 
assessments now the assessment is based on a term paper that's eighty per cent 
of the assessment now i will talk in detail about that next week 'cause i don't 
want to spend the whole of this sort of introduction talking about just the the 
er the admin but essentially you have been given in groups er an industry 
sector er it maybe pharmaceuticals within that sector and within the group i 
have allocated individually a company to each one of you and what you are asked 
to do is to look at the nature of the past present and future environment you 
needn't write this down because it's all in the the the the document i've given 
you and look at how it has changed what are the key changes in that environment 
what are the key drivers and then to take a view on how well or badly the 
company has 
recognized adapted and responded to those environmental changes now what i have 
said is that as a group we would like you to analyse the nature of that 
industry that sector i don't i think it's stupid for me particularly gi-, given 
that you have limited time and i i did a a three year part-time degree at 
London Business School so i know how difficult it is to sort of match the 
trinity of life you know and everything else er and also to sort of switch out 
of M-B-A mode when you go back and meet human beings so i have some 
considerable sympathy to that but that sympathy doesn't extend to the the the 
extent of saying well i don't expect them to exercise intelligence effort or 
creativity so i have some leeway but only just but in that case what i have 
said is that it is just stupid for a group each to go and use exactly the same 
resources so as a group you may wish to share the analysis of the industry 
someone el-, may get the keynote er reports someone else 
may look at data stream someone else may do a literature view you come together 
you share the data say we think this is material and work that way i survived 
an M-B-A a family and a job purely by by working with er a group of mates where 
we sorted out er the competences of each of us the time of each of us and sort 
of divvied up the work in terms of the presentation of the final paper that is 
an individual piece of work and must be handed in as such so and that you know 
you you can commit serial murder at Warwick but plagiarism is beyond limits so 
in terms of the final piece of work it's your own okay twenty per cent of the 
marks is allocated to group performance now i hate that because what the hell 
do you mean by group performance some of you will give stunning presentations 
completely content free other people will stutter through an inarticulate but 
well thought out analysis and most of you will be in the middle the only reason 
we allocate that twenty 
per cent is so that you don't take a game theory response and say if it isn't 
marked then we won't do it or we'll do it but we'll only do it sufficiently to 
say well you know we did look at the case study like three minutes in the car 
park before we came in now that's horrendously boring for me and no one else 
learns from that either so we give you twenty per cent of the marks so there is 
a weighting er on that but the major weighting is is the term paper okay er now 
if there are any queries on that i i'd rather deal with them next week 
particularly as er half of you have been to the library and half have still to 
go is that right is that yeah so i think it'd be better once you've actually 
all er been through the library system okay in terms of readings er namex has 
given you a reading Nellis and Parker he has also given you er er er a standard 
er economics book if you wish to delve into it but it's not er a core book er 
i've used er this document here Grant er Grant is 
certainly from the sort of economics tradition but i should stress that i don't 
lecture out of Grant that will become quite clear i suspect er in about twenty 
minutes but it it's no use saying what chapter are we on i mean i only will 
response will be how the hell should i know er so you know it is a useful book 
it is well written er and it's it's it's very timely and so it's the sort of 
it's the c-, it's a foundation of this course in one sense er it's also sort of 
you know if you want a worry object here's a worry object in another sense if 
you prefer a less economics text er Johnson and Scholes Exploring Corporate 
Strategy er is extremely good er but i wasn't going to suggest otherwise half 
of you feel you must rush out and buy it but it i-, it is more from an O-B 
organizational behaviour side er than this text but thi-, this is this is 
fairly or i think very accessible er as as a er for those that that aren't er 
economists okay er style assessment oh yeah f-, 
just just finally er if you want to contact me i invariably er check my e-mail 
about six or eight times a day er and will come back to you by e-mail or you 
can take pot luck and phone me er my e-mail er i don't think i've put it there 
so let me put that down okay namex-dot- namex- namex- A-C-U-K er i will do my 
best to come back if er i'm here and i'm here most o-, of this er term but 
please if you have a query ask me but but do read the notes first okay or do 
read the introductions first i will may be sort of more terse er if you ask me 
you know what er what subject's being studied in week three so ju-, just have a 
sort of look at the stuff first but if there's a er any queries or any genuine 
er well any misunderstandings 'cause obviously if you think it's a 
misunderstanding it's genuine so if there are any queries and i'm sure namex 
will extend the same sort of invitation to you er but i'll l-, and i'll remind 
him but 
er i'll leave him to do that next week okay right any other any sort of issues 
or anything at the moment fine okay let's start the lecture now i would hope to 
finish er can someone remind me at ten to eight so just wa-, just wave at me i 
forgot to set my alarm okay er let's sta-, well i should yes my wife's in 
teaching she comes from the sort of democratic end of er the spectrum er so let 
me ask you er normally i wouldn't have done but er she tends to know more on 
these things than i do if i do all the talking my voice goes more quickly and i 
don't learn anything if you do more talking i learn and you also gain more 
confidence now i can either sort of pause and let you come back to me with 
various questions or queries or observations or illustrations or i can actually 
say what do you think now if i pause i suspect what will happen is that a white 
Anglo-Saxon male will be the first one the second one the third one the fourth 
one to respond it tends to th-, there tend 
to be a small group in any class that do most of the responding sort of eighty-
twenty rule now that often gets very tedious for everyone else 'cause you can 
see that look of oh God why doesn't he shut up [laughter] you know so you can 
play it either way i can sort of leave you to respond or i can sort of try and 
introduce people to respond and er i should look immediately the the people in 
the top row get nervous 'cause i will be quite random but i do tend to sort of 
not go to the first row first so what would you prefer what would be equitable 
or reasonable or enjoyable 
sf1131: 
nm1127: sorry 
sf1131: 
sm1132: victimization 
nm1127: what victimization 
sm1132: [laughter] 
nm1127: [laugh] who said victimization 
sf1133: no 
nm1127: guess who's going to be first [laughter] okay well but it's 
victimization on one who er what else eh 
sf1134: combination of both 
nm1127: combination of both okay yeah right let's start okay now because we've 
actually got someone using a is it eight 
millimetre camcorder whatever it is er i will i i'll keep the lights on if 
that's that's clear f-, for you okay er i'll talk later about er er does any-, 
has anyone seen these i think it's called er they're produced by Diamond Corp 
these hot-wired walkmen where you can download er music off the the net on an 
hour's music er on integrated circuitry er and you it's there's no moving parts 
whatsoever and then you go back to a jukebox on your P-C take another lot down 
from the net and and then run with that anyone seen those well the the guy who 
was showing me was a guy from H-M-V who was a was a student here last year er 
and he was particularly interested in some of the the work i was doing on 
technology and new start-ups and H-M-V calculate that there are eighty- 
thousand pirate Internet sites at the moment you know playing their music er 
and that this stuff can be downloaded totally seamlessly and repeated ad 
nauseam so 
we we were having a very sort of interesting discussion about how technology 
will actually change his business and his job because the outcome of the thing 
of course is Amazon is going into er records in a much bigger way than it has 
in the past and C-D Now er is one of the biggest record stores in the world and 
is again is a virtual record store but it's it's one of the areas we'll be 
talking in i think in week four about the the disruptive nature of technology 
but it's nice to actually teach it to one group and then actually have one of 
your your past students coming back and then at the end with a sort of 
quivering lip say but what the hell do we do [laughter] anyway that's a 
complete aside er on to the real world i thought i would start the the session 
by a quote by by Charles Handy because what we're we're looking at here as 
Grant says we're looking at that link between the environment and the firm and 
that link in Grant's terms is 
what he calls strategy now there's hundreds of definitions but what Charles 
said was essentially what people don't look at is the nature of the prevailing 
environment the outside of the organization now i've seen this ce-, certainly 
talking to a number of organizations and you would ask them to explain what 
they're doing and you will get you will get the politics you will get the 
internal rivalries you'll get the the products sometimes you get customers you 
will rarely get an analysis of the constext of the competitive environment in 
which they operate and it seems to me in many cases that is the first thing 
that you actually talk about before you talk about the firm now it's 
interesting i mean this i-, this is Charles Handy talking about this this is a 
guy who is an O-B man you know he's he the the whole stuff of Charles' 
reputation is that he looks at the sort of the dynamics of firms how people 
relate within those 
firms the natures of tensions the nature of resolutions but what he's saying is 
that that may be my professional métier but what is really really important is 
how the outside how the the environment is changing now this i-, this is this 
is Charles on the road to Damascus i mean this guy i always think has a 
enormous advantage because if you listen to Thought for the Day he sounds like 
God and then when you meet him you know elderly white hair white Anglo-Saxon 
WASP he looks like God so at least in Michelangelo's sense so he's got a lot 
going for him you can see from the charge up rates what i'm going to be looking 
at in the simplest form is really the levels of the environment that we need to 
understand that we need to analyse because it's rather like like an onion you 
know you you sort of peel this thing through various layers in order to 
understand the macroenvironment er the why the the operating environment and in 
the internal 
environment so we'll talk about those in a in a wee while we'll look at 
competitive forces and i presume you've done this in the the marketing courses 
looked at things like er Porter's five forces is that right 
ss: mm 
nm1127: who did you do it with 
sm1135: with namex 
nm1127: namex right okay i might put a spin on that and see how we go 'cause as 
a strategist i tend to see it differently from from the marketing guys in some 
cases but if i don't then i won't waste your time or my my my time reiterating 
we'll look briefly at value chains and then finally er at what i call a sort of 
an anti-panic acronym er MACOCOTREES and MACOCOTREES was something that er my 
group er at London Business School developed in order to survive this damned 
thing we called an M-B-A so it was it was a heuristic to try and actually 
encapsulate some of the issues we needed to look at when we were looking at a 
case study so i'll i'll explore that and we we might well use that in some of 
the case studies i think one of the the the things i most enjoy when looking at 
companies is when things go wrong now it's not enjoyable for you if you're in 
the company but as a researcher it is much more interesting looking at failure 
than it is at success and there is also a rather pleasant schadenfreude at 
looking at the sort of pillars of industry when they fall flat on their faces 
and so i've put up er a number of areas where there have been concerns 
discontinuities cock-ups whatever you want to call them i mean in terms of 
health and safety issues the agrifood industry the the B-S-E crisis was 
abysmally handled as a crisis it was abysmally handled in terms of an 
understanding of the outcome and implications of er having basically an 
adulteration in the in the food chain i mean i i started my life as a food 
scientist so i'm quite interested in this area and it's not fair to say well we 
didn't know how important it was at that stage any understanding any 
stepping back and looking at the probabilities and the outcomes and the politi-,
the prow-, profound political costs of say an outlier that this thing could be 
er contaminate the food chain might have taken you to to take a very different 
view to that taken by er the Conservative government at that particular time an 
area which perhaps is is more near to home in in terms of ethical issues but 
also within the food industry is someone like monsan-, Monsanto now Monsanto is 
a company that's sort of from a er an American tradition there is not the 
hassle in America about genetically modified food but there is a profound 
concern within Europe and [laugh] unlike either Labour or the Conservative 
Party i do consider Britain to be part of Europe most of the time and you have 
a situation there where quite literally a major pharmaceutical company and the 
distributing food chain er through the multiples said we are putting er 
modified soya within food products and it is 
not possible to determine which products have it in so basically that's it lads 
that's you know it's there and you've got it now while that may have been 
accepted in America if you look at that and then become surprised that there 
was a campaign of almost sort of hate against Monsanto i mean i'm not at all 
surprised and i was all i found was at that time the stunning the absolutely 
stunning arrogance for someone to say we can adulterate your food er but no we 
can't tell you where or how and so don't be surprised when Monsanto has to 
publicly and very visibly retract from an untenable position now again the 
question is was that completely out of the blue could no one have actually 
envisaged anything like that outcome happening were they just jolly unlucky or 
was this some kind of hubris built i-, brought on because basically we're 
technologists technocrats and we know what's better for you guys you know the 
Americans enjoy it so why don't you er i mean i'm not 
trying to make sort of cheap political points but it's it's really very 
interesting that they got to that stage i mean we had er a friend of mine er is 
the the head of Greenpeace er and Peter Melchett has come here on two or three 
occasions to actually talk to to the students er that's it's quite an 
interesting reaction when you say he's a mate because i was in Iceland er 
advising er the government small but perfectly formed country and it's got some 
great glaciers er and i said you know i Peter's a friend of mine and and they 
didn't say anything they just we were in a restaurant and someone said 
something in Icelandic which is you know a language shared by two-hundred-and-
seventy-thousand people and the next thing i had er a plate of raw whale meat 
er in front of me [laughter] which i thought was a fairly loaded response to to 
that er beha-, to my comment er the li-, in this actual room two two Norwegians 
and said the wonderful classic phrase what is so wrong about 
killing minky whales and and to see the sort of head of Greenpeace virtually go 
through the ceiling before coming down and sort of killing all in his path er 
the interesting thing there is actually the Shell Brent Spar episode because 
again you've got a situation where it really went horribly wrong in terms of 
how people reacted in that environment vis-à-vis how people thought the system 
was going to be managed and there were actually errors on both sides and you 
may well say hang on but Greenpeace got it completely wrong on the technology 
and that is almost irrelevant in terms of the nature of the issues er at large 
in that particular case whether or not Brent Spar could have safely been er 
dumped was not the issue the issue was if Brent Spar was dumped then there was 
something of the order of two-hundred other installations that could be dumped 
because there was a precedent and that was the nature of the fight and that was 
not the nature of the 
battle that er that Shell thought it was fighting Shell actually thought it was 
fighting a technical set of issues a cost benefit and in that sense because 
they're techs-, i my my twin brother is chief hydrogra-, graphic [whistle] 
chief hydrographic surveyor in B-P i mean you know these guys talk in 
technology that's that's their métier it's a bit like if you go into a high-
tech company like a high-tech software company these guys converse you know in 
digits you know they speak binary most of the time and probably machine code 
when they're being intimate so you know their their culture their language 
their their metaphors are all centred round their business and what they've 
done is get really very far away from the nature of the environment that is 
actually pertaining so what i'm saying in all of these is that essentially one 
has to say in all of these cases be it Japanese banks er be it Peter Mandelson 
or whatever you know were they 
just jolly unlucky you know could it reasonably say that they couldn't have 
expect-, they couldn't have expected to see these coming out of the blue or 
conversely is there an argument to say the problem with organizations is that 
they become terribly incestuous that they become introvert by nature 
universities are no different departments M-S-M groups are no different and by 
being introvert they actually cease to see what's happening in their 
environment they cease to actually be cognisant of how that environment will 
change and the question i-, because if you don't believe if you think they've 
just been unlucky well then we we can end the set of lectures now because it's 
you know er i worked in Africa for a time in Kiswahili mu-, Kiswahili Mungu 
kipenda you know it's the will of God er it's exogenous you know like the the 
er you know er lottery it could be you er and in these cases it cou-, it was 
them or you could actually take an alternative view and 
say that the environment can be monitored it can be appraised however 
imperfectly that there are signs there are straws in the wind and one of the 
situations is how do we structure our environment so that we are open to those 
stimuli that we are open to those signals er i was with er the board of Volvo a 
couple of years ago and we're talking about corporate venturing and how they 
actually utilized very interesting innovations that weren't core to the 
business couldn't be used in a car or a truck but still had been created by 
their research departments and we talked about the the nature of entrepreneurs 
where entrepreneurs come and they they said well how do we find our 
entrepreneurs and i said well it it's actually quite simple they're almost 
invariably the guys who are troublemakers within your organization and your 
organization will spend most of its life trying to get rid of them in one form 
of castrating them gagging them sending them off to you 
know Reykjavik er as their key respondent or whatever but ironically it is 
those guys that are most likely to be aware of fundamental changes within the 
organization because there's a whole literature on industry recipes er it comes 
out of Gerry Johnson or it's now called industry paradigms he's got more posh 
and what that says is that very often the nature of threat the nature of 
external environmental change is actually recognized within the organization 
the problem is that there are not systems that actually can incorporate that 
and work on it 'cause what you tend to have is say for example your your model 
has worked for several years and then starts not to work what do you do so what 
do you do 
sm1136: change the model 
nm1127: change the model is that what most of you would do 
sm1137: find out why the why the model's wrong 
nm1127: find out why the model's wrong or what you might do i mean both are 
right but probably the first reaction remember that 
most firms run on pretty profound orthodoxies you know most firms don't like 
change out of habit certainly not universities er you know we are the most 
conservative of all institutions i've ever worked in but normally when 
something goes wrong it's not the model that's challenged but the way that 
you've applied it it's worked for thirty years there's no reason why it should 
change we're not applying it properly we're not actually understanding the 
orthodoxy or what have you so what tends to happen if you take that view is 
what 
sm1138: denial 
nm1127: denial followed by 
sm1140: rejection 
sm1141: inaction 
nm1127: sorry 
sm1140: rejection 
nm1127: not re-, no no normally rejection takes in large organizations you'll 
see this at Marks and Sparks at the moment i mean that Marks and Sparks haven't 
sort of thrown out completely the whole logic of their existence their buying 
patterns er their merchandising their marketing strategy et cetera they're 
questioning it like hell 
at the moment but normally what happens is you apply it harder you know if 
we're wrong if we're not interpret it properly then you know the model's there 
let's really sort of you know s-, screw it down let's really apply the model 
rigorously so what you tend to get are recipes or industry recipes it may be 
you know it took a long time for Tesco's not to pile it high and sell it cheap 
even when the whole industry was moving towards enhanced value because the 
value was in our scarce time er so what happens generally and what the 
literature tends to show is that the model is applied more and more rigorously 
until it is patently obvious that it doesn't work any more and then what 
happens 
sm1142: panic 
nm1127: panic followed by 
sf1143: the theory isn't right 
nm1127: no it u-, usually 
sm1144: 
nm1127: that sorry 
sm1144: change 
sm1144: 
nm1127: yeah usually that i mean if i th-, i er anyone watched the the troj-, 
or watched listened to the Trojan wars on Radio 
Three over the over Christmas time g-, er if you want blood lust sort of i mean 
you know it's it's all there i mean you s-, you don't need to read Charles 
Handy but essentially there is bloodletting because if you change the model you 
actually need to change not just the model but but its champions you know you 
so what you e-, normally get is there is a clean sweep and you're you're seeing 
some of that actually happen even in the august chambers of Marks and Spencer's 
because the old guard cannot then be the new guard they cannot say well 
actually what we said for the last three years was a complete utter load of 
bollocks you know so but we've got a really good model now so it tends to be 
bloodletting er resignations you change your non-execs might change your 
auditors or various other things but there's usually very big signals that 
you're actually going to change and one of the issues is how well do people 
react to the unpleasant the unexpected 
the unavoidable and what pressures work within the i mean organizations are 
like sort of er you know have huge buffering power to actually stop any change 
just look at I-B-M for years perpetuating a model that most people in the 
organization knew couldn't continue in that particular form so the er one of 
the issues about the environment of being aware of the environment is actually 
how do you sort of signal necessary and legitimate change as i say what we're 
going to do is is really recognize three levels of environment because when i 
look at your reports you will tend usually to to analyse the the environment 
first i'm much more interested if you're going to look at say er a retail 
company knowing what the the what the position of say Britain is within a 
business cycle what the situation is in terms of whether er the rate of growth 
of G-D-P is increasing or declining are we in recession so initially i need to 
actually understand the wider economic and indeed often social and political 
environment before i actually look at the firm i mean if i'm looking at say 
high-tech firms it's really important that i understand how Europe understands 
those firms how America understands those firms and how the British government 
understands those firms if you're looking at new technology based firms without 
say understanding the new competitive White Paper which is a huge great 
document you really are not properly informed because there's a whole debate 
there about the financing of these firms there's a whole debate with the Bank 
of England and the Treasury about how we actually look at say options now 
options in the U-K is a dirty word it's what those bloody fat cats in public 
utilities have been privatized walk away with with doing damn all and taking 
your money and my money and so on in America options are a legitimate way 
particularly for young companies of rewarding key staff 
who they can't afford to pay their going rate you know i'm only going to pay 
you sixty-thousand dollars but you're going to have a hundred-thousand options 
and i've sat in board meetings where we have gone through every member of staff 
down to the receptionists er not down but you know every grade of staff er from 
the the founders downwards and allocated options according to the subjective 
value of them to the business or a value of them m-, not being in the business 
and that seems to be an entirely legit-, legitimate and valuable way of 
rewarding people who are taking risk and it's a way that has been completely 
adulterated within the U-K now there's quite a lot of er work being done by er 
the Treasury to actually retrench from that position so if you're actually 
understanding how say high-tech young firms are working that's actually quite 
important to know so what i'm saying is look at the general environment then 
the operate-, the general environment is 
the environment of basically the the wider economic er socio-economic 
environment the operating environment to me is looking at the industry and the 
sector and then the internal environment is the internal environment of the 
firm now what you would expect is to use a range of different instruments to 
analyse those particular areas er the Treasury model a macroeconomic model to 
understand the dynamics er of a business cycle to understand some of the issues 
of er you know the the harmonization of European currencies er the birth of eu-,
euro inci-, has anyone actually er negotiated or charged in euros anyone has 
anyone you you have in what area 
sm1145: buying engines from Germany 
nm1127: yeah yeah and i mean you know i i was surprised just how natural it was 
you know i mean you know s-, 'cause quite often people have used ECUs er rather 
than deutschmarks er er anyone else p-, ha-, has it affect-, er anyone else ha-,
actually had it mentioned 
to them 
sm1146: 
nm1127: in wha-, 
sf1147: er 
nm1127: sor-, 
sf1147: 
nm1127: 
nm1127: yeah 
sf1147: 
nm1127: yeah 
sf1147: and it's a matter of routine with dealing in finance when you look at 
currency such as dollar or deutschmark euro whatever it's interchangeable with 
sterling 
nm1127: yep 
sf1147: 
nm1127: yep yep i mean one er when you're actually doing your assessments one 
of the the it's i mean people have done it quite well i think i mean in in the 
in the past you used to get interest rates are important being the sort of 
macroeconomic contribution which is a bit like saying eating babies is wrong er 
so it you don't get any brownie points for that but you know actually 
understanding say in an area like pharmaceuticals or in retail what is what is 
the the er the harmonization of currencies and our our er being outside it as 
you're going to do in terms of er profitability purchasing and so on o-, of 
major companies so you know the macroeconomic dimension 
which namex will be talking about in great detail over the next three er three 
weeks er is critically important in i said you might use something like the the 
er Treasury model er you could use things like scenario planning er beloved er 
again of Shell now the whole issue of scenario planning is not to get it right 
but part of scenario planning is to think the unthinkable or think outside the 
frame to actually say look we do this but let's actually conceive doing 
something different i mean i remember you know j-, j-, when Jobs i mean when er 
Jobs er can be a fairly sort of noxious character by all accounts but the idea 
that you would actually have a computer on a desk managed by a manager which is 
so obvious to you guys but is was so stunning when that happened i mean you 
know you'd w-, the way data was managed was how many of you work with central 
processing departments data processing departments yeah i mean you go in there 
and say this is an urgent job and they 
you know and some kid half your age is telling you that you can't get it for 
two months and all you want is a i don't know histogram of sales by region or 
something you know and some bloody great machine is chugging in the background 
there and the the i mean the the the liberation er of Jobs and particularly the 
the the Macintosh at the time was absolutely seminal but it that was completely 
thinking outside the box er now that's you know scenario planning in in a 
different sense is is what if what if Microsoft is actually broken up like like 
the into the Baby Bells from A-T-and-T what if it completely loses er that er 
session er sorry that er er case in their Delphi techniques er forecasting 
models simulation pest analysis each of these may be one way an appropriate way 
or not of looking at the situation the Delphi technique very much looking at 
industry leaders industry specialists the the government's er er s-, w-, 
exercise 
now what the hell's it called er not forecasting foresight exercise is actually 
based on the Delphi technique going along to a number of people in key sectors 
and saying how do you think it's going to change in the next five years and 
then reiterating that view to the other members of the panel and then coming 
back and the C-B-I is doing something similar on that in terms of corporate 
venturing where i'm involved Sue Byrne is involved the Bank of England's 
involved Treasury and they're just saying look we've got this data we've just 
generated these are what we think it means what do you think it means and then 
there's a debate and you you reiterate and so on er they're they're they're 
scientific in a sense but you're not talking about precision because it's not 
meaningful within the context in an operating environment you can use Porter 
value chain five forces strategic groups actually looking at the similarities 
and the differences between strategic 
sets of firms you know Unilever and Procter and Gamble will be in the same 
strategic group for fats and oils they will be in the same strategic group for 
many er consumer fast moving consumer goods er and finally portfolio analysis 
you know your Boston boxes G-E matrix and that kind of thing they may or may 
not be appropriate there there is no rigid you must use a G-E matrix there is 
no you know Porter is de rigueur it tends to be unfortunately you may or may 
not use it depending whether or not it gives enlightenment and internally SWOT 
and then human resource management systems analysis er type er analyses which 
is certainly not my area but horses for courses different types of techniques 
used in different types of of area now just looking at Porter i mean one of the 
the the important things about the Porter is Porter in some ways repackaged in 
a superb sense and it's not to to to 
diminish er his role but he repackaged a lot of the er industrial economics of 
the nineteen-sixties in a form which was manageable and understood by by by 
business people like you essentially because surprisingly you don't tend to 
read the Journal of Economics er and surprisingly economists don't tend to 
write for you guys anyway so you so the economists saw really the firm as a 
black box and what Porter did was was actually interpret in a way which was 
meaningful but also highly accessible now one of the things i've learned here i 
came to a business school late in er about about i changed career at forty-two 
er and became a youth in a business school which is er a seminal experience for 
me at least er starting off you know knowing nothing at forty-two like saying 
who's Porter and everyone sort of crosses themselves [laughter] and looks at 
you but there's an interesting thing to me is is just how powerful symbols are 
like that five forces i mean i i advised the Australian 
government a couple of years ago on a new technology policy thing called 
Industry Investment Fund and which was a it w-, w-, which was a spin out out of 
going there and and on a sabbatical and in order to get the government to sort 
of understand i drew a an hourglass and i put in the demand for I-T based 
services at the bottom in Australia and i put in the the the research 
expenditure in Australia which is about six-billion Australian dollars a year 
and in the middle the constraint i put the amount of money spent on 
commercialization of R and D by turning these really clever ideas in terms of 
say er energy er er solar energy into products services and businesses so six-
billion dollars got about twenty-million bucks to commercialize and the net 
result of that was there was some really and still is some really good 
technology in Australia and in terms of new businesses technically there is 
bugger all i mean you know they they just punch way below their 
weight er the beaches are just too nice and i put it in in terms of this 
hourglass and i actually had the sort of Minister of Industry saying you 
invented the hourglass you know and it i was i was amazed just how powerful 
cheap metaphors are be tha-, be they graphic metaphors or or or verbal 
metaphors but that's what Porter did he with that five forces model he made 
people understand and what he made them understand was essentially some 
questions that were pretty persistent and pretty damn important to you as 
managers like why do some industries consistently return better profits better 
returns under all the indices you can name than other industries you know put 
another way why is tanning always so bloody awful on any criteria leather 
leather goods just about hits the bottom of just about every index you know 
return on capital profitability et cetera et cetera et cetera why do some 
industries why why why is the structure of supermarkets 
like it is why have we only got four or five major supermarkets three or four 
major supermarkets but why have we got thousands and thousands of corner sh-, 
corner shops you know what are the what are the what are the causal factors 
that determine the structure and what effect does that structure have and how 
does it change why does it change and y-, you can see y-, i mean this is just 
as relevant now when we talk about Internet and its effect on businesses or 
pulling er stuff off the web what given this structure what does it do how does 
it influences the choices that we have as managers the choices in the 
allocation of scarce resource scarce resource capital labour but more than ever 
now knowledge sometimes articulated as competencies and finally what the hell 
do we mean when we talk about industry i mean as an example autos cars would 
you say cars was now a global market yes no who s-, you're very quiet who says 
yes stick 
your hands up no right who says no yeah two why do you say why why 
sm1148: i think it's getting there but not quite 
nm1127: dah it's [laughter] 
sm1148: i-, i-, i-, it's becoming a 
nm1127: on the one hand on the other 
sm1148: becoming a global market 
nm1127: right why why do you disagree 
sm1149: er too many barriers between countries 
nm1127: yeah 
sm1149: so it's going to be to one country can't sell with equal er er er er on 
an equal basis with 
nm1127: yeah 
sm1149: somebody in in the 
nm1127: no one loves a smart-arse but you're absolutely right do you we it is a 
global industry virtually though i don't think you know Kathmandu doesn't have 
many much production facilities it's certainly a supranational industry and 
it's reasonably you can say global but that is industry industry is about the 
nature of production there are very few products that are g-, are in global 
markets there's quite a lot of commodities capital above all in global markets 
and even 
there there are er imperfections which allow traders to trade on a margin but 
global markets are the minority most markets are actually subnational and the 
car industry is actually a multi national marketplace you know a mar-, like 
several domestic marketplaces and even here the market throughout the U-K is 
not perfect that you will have a different price in Coventry as to Penzance 
because there are transaction costs er related to geography related to volume 
and er r-, various other things but you must not confuse the two and when we're 
talking about industries we're talking about supply so er you know as John John 
Kay has got a er a very useful paper in this if you're interested er which i 
pulled out just before i came here where he says you know basically the term 
global market is becoming a cliché and he's right identifying the strategic 
market the strategic market being the minimum scale of market in order to 
compete 
successfully now arguably i think within the car market you're talking about 
continental being i-, a region a supranational region being the minimal scale 
to compete successfully but we certainly haven't got anything like a natio-, er 
er a global market otherwise i would pay the same price for er a Ford saloon in 
er Ho Chi Minh City er as i would in Godalming er and i think that's unlikely 
Godalming is much more reactionary of course er right that's the John Kay's 
Business Strategy Review spring nineteen-ninety er if the i can't photocopy it 
for whole reasons of copyright so if you take that and and s-, in some cases er 
i'll try and er get some photocopied for the groups okay so these are a set of 
questions that Porter is really trying to to articulate now i've put down here 
not out of laziness i haven't taken more more current figures but i've taken 
figures on return on capital in Britain coming out of the recession and i've 
taken 
manufacturing sectors and i've taken service sectors and what's the first thing 
you see at that you know if you eyeball those figures what er what immediately 
sort of comes 
sm1150: larger diversity 
nm1127: yeah it's huge diversity there now why i i mean do you have name tags 
here 
sm1151: they've all 
nm1127: mm 
sm1151: disappeared 
nm1127: they've all disappeared i'll see if we can get some more because er i'm 
terrible at remembering names and and sort of saying you er thingy you know the 
guy with the fat nose piggy eyes and dah-dah-dah is er difficult so i'll see if 
we can get some 'cause it's easier but why do you think that you have that er 
diversity i'm not suggesting you've got fat nose and piggy eyes [laughter] it 
was just a illustration 
sm1150: er because s-, some some industries are invariably more attractive than 
others due to supply and demand 
nm1127: that that's that's a very elegant way of saying some er industries are 
attractive because they're 
attractive er what so 
sm1150: well there's different 
nm1127: yeah but but what what what is actually driving that difference 
sm1150: competition 
nm1127: com-, wha-, so are you saying that the the record industry has less 
competition than than Windows 
sm1150: it's not it's it's the whole range 
nm1127: well the the the gentleman behind you 
sm1154: technologically i would think yeah 
nm1127: yeah i i wouldn't disagree with you the k-, the question is why 
sm1155: multiple barriers 
sm1154: yeah 
nm1127: why 
sm1155: because 
nm1127: i'm not disagre-, but but this this is the the this is the whole thing 
that Porter's trying to get at why is records more attractive 
sm1156: there's a lot of added value 
nm1127: er listening to my son's record i might debate that but er what in what 
s-, yes there is but how and why 
sm1157: demand it's demand 
nm1127: it's not demand with there's more demand for Windows i expect than 
there are of records 
sm1157: 
nm1127: well that's 
sm1158: barriers barriers it must be 
because there's the amount of er of advertising strategies and marketing 
nm1127: it's er it's it's actually going it's back to my high-tech in some ways 
it's I-P-R it's Intellectual Property Rights you can't clone Cliff Richards 
thank God [laughter] is the my immediate response but what you've got there in 
one form or another is very strong branding or alternatives that are barriers 
to entry into that market er if you take the sort of the er pharmaceuticals it 
is pure you know active agent plus enormously focused and professional 
marketing branding promotion er control of distribution channels et cetera if 
you take the the sports equipment er what you have there is a classic branded 
industry er i mean y-, you know my son's my youngest son's twenty-three now i 
remember whe-, about thirteen years ago he said to me Dad it's impossible to 
buy a pair of trainers for under seventy pounds [laughter] i mean the immediate 
reaction is j-, just watch me son but you know 
within his ter-, i mean he's a perfect sort of material for you know these are 
and it must be hell for you people you know with with sort of younger children 
but enormous power in branding in Nike Adidas and so on so what you're seeing 
there is i-, elements it will be intellectual property rights it may be that 
the scientific basis er it may be legislation but the industries are not that 
they are not perfect markets and the products are differentiated by 
characteristics either psychic or real or what have you whereas as you go down 
whether it's er hotels some differentiation there but not much for a lot of 
hotels er leather goods er always seems to me j-, and these categorizations are 
are difficult these days and they're getting more difficult er footwear road 
hauliers there are lots and lots of substitutes there is lots of supply 
particularly in times of recession and the other thing with this is often when 
you take er return on capital it's a completely meaningless er 
calculation if you talk about say P-R consultants or advertising agencies 
'cause they don't really use capital human capital they're knowledge workers if 
i was incredibly generous but you know it's so the cr-, the the index you use 
has to be appropriate to the means but what this shows quite clearly is why 
Porter and the industrial economists are interested because those diversities 
continue for an incredible length of time and one of the things that Grant 
brings out is that industries and firms adapt very very slowly very very slowly 
and the bigger they are the slower they tend to be it's only in my neck of the 
woods where you you know you can be er a b-, half-billion dollar company in six 
weeks and then be a no billion dollar company in another six weeks and we're 
you know that the the er i look at areas where we're looki-, what we're th-, in 
the study we're doing in internationalization and looking at some of the logic 
of internationalization er one of the reasons 
that you know er i went to a meeting with Mandelson and his cohorts and and 
someone said there that you know small firms don't internationalize and i said 
well that's that's complete utter nonsense 
nm1127: this simple diagram is actually so powerful and in some ways so 
misleading the first thing i would say if you're going to use it then do 
something with it don't just describe various elements without following 
through to a conclusion because in most cases when i see this diagram what it 
tells me is that the student however eminent has mastered the basics of the 
drawing package on Word ninety-seven [laughter] er and often not er you know 
'cause he's just out you know but very often it's used purely as description 
but it can be an extremely powerful er techni-, or or or model if it's used 
properly but what you have to do is actually go on as as this case study today 
and say okay we have a lot 
of competitors ergo the following kind of outcomes or behaviours are likely or 
reasonable or plausible except when you're involving say I-P-R or w-, you know 
so you need to make a story and a a set of sort of logical constructs that lead 
on from what that structure means so let's have a actually have a look at that 
er initially i mean just as er an illustration i used this diagram i gave a a 
talk to the er the the venture capital industry in the U-K er in nineteen-
ninety-one when i first started looking at this com-, this this area that was 
growing like Topsy and i just said you know sort of smart-arsed comment who are 
your customers and that debate lasted about two years 'cause there and we s-, 
there's still a debate i mean er i w-, w-, might might go on l-, but who are 
their customers this is a financial service industry providing money for young 
firms to grow rapidly or for large firms to do buy-outs buy-ins and restructure 
so who are the 
customers this is an industry that currently has er an overhang as of about 
Christmas er according to a guy who was here last year of fifteen-billion 
pounds unspent er and depending who you see see the customers in that diagram 
everything changes because if you see in this case and sor-, well i y-, you 
will be bored rigid or or love venture capital by the end o-, of my course but 
depending but it's a very exciting industry 'cause it's changing rapidly 
depending how you analyse this if you see the entrepreneurs as the customers 
okay then substitutes become substitutes to the entrepreneurs for for the 
entepreneurs and the substitutes might be Aunt Agatha's money it might mean 
bank money it might mean going and robbing a bank it you know alternative sets 
of finance from the perspective of the entrepreneur however if you say but only 
about one in twenty entrepreneurs are ever financed you name me an industry 
which refuses ninety-five per cent of its 
customers but accepts a hundred per cent of its suppliers and its suppliers are 
Guardian Royal Exchange er er Swiss Re they are financial institutions that 
wish to invest in a particular asset class called private equity now if you see 
the customer as some damn great financial institution on Wall Street then the 
substitute products are very very different they sure as hell aren't bank debt 
you know Swiss Re does not put you know two-billion dollars into Barclays sort 
of current account you know the alternatives are going to be possibly gilts 
equities certainly equities and a whole range of other instruments so depending 
who you see the customer in this analysis you profoundly alter the nature of 
the analysis and it's not often it's not always a trivial question okay so in 
this what we really need to do is actually look at elements and say well what 
what do they really mean i mean the the intensity of er rivalry that's a good 
one to start with yeah number 
of 'cause w-, what i mean to intenstu-, intensity of rivalry is about where 
you're at at the moment not what it's like in the past or the future but how it 
what's the dynamic of it at the moment 'cause one of the criticisms of Porter 
is its timin-, is timeliness i it is atemporal it's there sort of set in aspic 
but you don't need to use it that way you can actually i on one paper i i did 
three Porters nineteen-eighty-one to eighty-five eighty-five to nineteen-ninety 
ninety-five whatever it was and you then look at the different power and it's 
quite a good way of analysing the dynamics of change over time but if you're 
looking at say na-, you know the the elements of rivalry there's a whole set of 
things that i would wish to look at in order to understand and you can actually 
start using i mean er my la-, my last sort of reference to to venture capital 
and buy-outs and all this sort of bit but at the moment ba-, there 
is as i said fifteen-billion pounds unspent but invested by institutions in 
venture capitalists who have got to spend it profitably returning with a 
premium for risk illiquidity and so on back to these guys within ten years so 
they've got ten years to spend this fifteen-billion surplus and the most prof-, 
er this is for buy-outs only for buy-outs now there are six-hundreds buyouts a 
year in the U-K biggest buy-out market in the world after America and there's 
been six-hundred buy-outs last year the year before and the year before that so 
we have really a constant supply and we have this huge volume of money 
allocated to about thirty institutions in the U-K now what do you think that's 
going to do to competition 
sm1159: suppress it 
nm1127: suppress it 
sm1159: 
sm1160: you wouldn't you wouldn't think the number of buy-outs will increase if 
venture capitalists shoot up 
nm1127: yeah but the m-, th-, but but increasingly the the er the quest-, yeah 
they could increase because who provides the buy-outs the corporates from which 
they come you know they decide that this is non-core therefore we'll spin it 
off and this is one way of spinning it off now you say this will suppress 
competition why 
sm1159: maybe i misunderstood you i thought you said there's only thirty large 
organizations who can get this money and they're going to buy and sell 
nm1127: well they've got the money already 
sm1159: okay 
nm1127: they're they're it's been allocated to them 
sm1159: it's going to be less and less businesses in their industry sectors 
nm1127: yeah so that would suppress competition 
sm1159: i would have thought so 
nm1127: well you've just been given you're you're Schroders you've just got a 
new one-and-a-half-billion dollar fund and you're going to say well can't spend 
that so you're going to go back and say er well actually er Californian pension 
fund er sorry we shouldn't have asked we er we you know will you take a cheque 
you know you have you're 
you have just raised one-and-a-half-billion and you're going to spend that in 
ten years and there is a constant supply of valuable propositions you know the 
competition is going to k-, hit the ceiling 
sm1159: okay 
nm1127: becau-, becau-, no because you know they have got to spend the money it 
is in the market they won't need to spend all of it but they've got to spend 
most of it otherwise why the hell did you ask us for it i mean you know there 
there would be so much egg on so many faces and so many you know careers lost 
sm1161: can you not take a limited risk 
nm1127: yeah i mean the the risk goes up in no-, the people who are going to 
really win from this are large corporates that need to slough off er non-core 
divisions because if you have got er er an attractive division that you could 
do a buy-out or a buy-in or a buy-in buy-out with you know the world's going to 
beat at your door there'll be Schroders there'll be Morgan Grenfell er there'll 
be Nomura there'll be Lloyds 
there'll be Three-I everyone will be beating on your door and you will say well 
you start the bidding would you like to up that you know i mean it's it's it's 
going to be but you know what i'm saying is look at the nature because if we 
take this w-, things like okay nature entry and exit barriers well one of the 
you you quite rightly said or who s-, who said something like well perhaps the 
supply will increase i mean it may force the barriers down but it's not likely 
to happen in the short run now you need to see competition in short run and 
longer term measures and in the short run may be very different from the longer 
run now you can sort of surmise what's likely to to happen in that particular 
market is there really any diversity in the the competitors you know i 
mentioned Morgan Grenfell it could be er a whole range of British American 
European banks venture capitalists or 
sm1162: then an interest rate and repayment 
sf1163: i 
i'd say the diversity is on the severity of things like covenants so if i was 
looking for someone to finance my buy-out 
nm1127: yeah 
sf1163: i'd look for someone who'd give me the most goods 
nm1127: yep but but i-, but you're clearly from the financial covenants [laugh] 
and heavy words like that but in the final analysis they're usually overweight 
men with a bag of money i mean the differentiation is actually quite limited in 
this market what's that going to do to competition 
sm1164: 
nm1127: it it's going to drive up competition 'cause differentiation is one way 
you don't compete you know when i worked for Unilever we'd never i mean fats 
and oils we competed but we never competed on anything so vulgar as price if we 
could help it because it's a mug's game to compete on price you know one of the 
worst examples of competing on price was Sainsbury and Tesco's getting into a 
price war you know so Sainsbury's goes down threepence on er baked beans you 
bastard fourpence on ravioli you swine frozen peas down [laughter] and who the 
hell wins 
sm1165: we do 
sm1166: 
nm1127: you do well you what have you got to do with it you're not shareholders 
you know i mean it is completely shooting yourself in both feet and then trying 
to run a hundred yards and you know they learn i mean no one well actually 
Tesco's actually have got a marginal advantage in that they did actually buy 
share in the first price war but they they've avoided it studiously for another 
you know twen-, fifteen years since then now you have price wars when there is 
nothing else you can offer that's why the competition i-, in the car industry 
you are desperate to differentiate if you can because who the hell wants to 
compete against Far Eastern producers on price but when in the final analysis 
is a bag of money from you or you then when there is pressure when there is 
limited opportunity then you know it becomes bare knuckle fighting it becomes 
price it becomes 
very intense competition now you can you can surmise this without 
sm1167: 
nm1127: sorry 
sm1167: there's ways of combating that 
nm1127: sure 
sm1167: focusing on the issue but then there wasn't 
nm1127: absolutely 
sm1167: 
nm1127: yeah 
sm1167: 
nm1127: i agree entirely but they they won't be in that market anyway i'm just 
talking about buy-out funds but i mean what i'm saying here and and i i don't 
disagree with you at all is in the short run it's difficult to to avoid it in 
the longer run yes but you without knowing anything about venture capital 
private equity and i can't conceive of people not er you could actually you 
could actually give a plausible analysis of how you would see this industry 
developing over three or four years buy-outs you're just looking at these kind 
of things the diversity well there isn't i the product differentiation it's 
coming but product differentiation in in financial services it it ten-, in this 
area it who's 
it bought by i mean who actually makes the choice of which which provider to 
use which financial provider who what type of people make the choice 
sm1168: finance 
nm1127: yeah it's accountant shall talk unto accountant and it's a very 
instrumental negotiation and in the final analysis it comes down to informed 
people professionals negotiating broadly speaking on price in in oversupplied 
markets so you haven't you haven't got much opportunity to product er to 
differentiate the product in this particular case the nature of exit entry 
barriers slow real negative er all of these things are actually likely to 
profoundly influence how you can compete let's just look at er barriers to 
entry and barriers to exit because one of the things i want to get across is 
you should really look at barriers to entry i mean that's one of the first 
things i i would look at i mean just just quickly 'cause 
one thing i should say and i should have said at the start i always give you 
more notes than i will ever get through er so the notes are a sort of resource 
er and you can say later look i really wish that you would go through er slides 
twenty-one to twenty-four 'cause i don't understand them or what have you but 
invariably i will give you more notes than i will ever get through each each 
term so each lecture er which is indiscipline but er let me apologize after the 
fact but if we look at barriers to entry just give me some you know give me 
some examples 
sm1169: cost of capital 
sm1170: capital 
sm1171: capital 
nm1127: cost of capital who's that a barrier to 
sm1172: er new entrants 
nm1127: new entrants also small businesses small businesses will always pay and 
in some some cases it is er a major power for incumbents that actually have it 
economies of scale and scope where would you s-, find huge economies 
sm1173: 
nm1127: well no not larger it's it's not per se but but what where 
would you where the very nature of scale will keep you out unless you're you're 
very large yourself 
sm1174: er if you needed crucially the number of of customers to actually make 
nm1127: yeah 
sm1174: like in the 
nm1127: i 
sm1174: car industry 
nm1127: car industry yeah 
sm1175: and you've got high development of 
nm1127: absolutely fabrication plant now and integrated chip how much to to put 
one from scratch 
sf1176: 
nm1127: sorry 
sf1176: one-point-nine-billion 
nm1127: yeah yeah s-, just probably you'll get get it you'd even get the car 
park for two-billion so once you've got that scale you or the scale you need 
related to that is absolutely enormous so that dictates that okay if you're a 
Mitsubishi if you're an I-B-M er if you're an Oracle perhaps but if you're not 
of that scale then you're out you're not in that game any more er and some 
countries have even seen you know not being able to be in the game government 
policy and legislation where are you going to see that as a classical 
barrier to to er entry 
sm1177: state monopolies 
nm1127: state monopolies yeah where you're protecting your own increasingly 
difficult under W-T-O World Trade Organization where would it be legitimate 
sm1178: Royal Mail 
nm1127: Royal Mail er 
sm1179: 
nm1127: well well the government says it is so it must be legitimate by 
definition 
sm1180: well Sweden is 
nm1127: sorry 
sm1180: in Sweden competition 
nm1127: yeah Sweden is interesting because er one of the things that i've found 
there is that you find it very difficult to have a large differential in in er 
incomes er say compared to the U-K or America er and that that's quite 
difficult as labour markets become more international er but that's that's an 
er aside things like f-, er medicine the health industry you have huge 
regulatory barriers er the classic one of course is is food and drug 
administration in America er which can determine which has a profound effect on 
the viability of of of new drugs new systems 
and so on er so each of those you need to actually understand because what i 
also the barriers to exit the other side of this coin is okay you may be able 
to get in but can you get out and you really need to look at them in 
conjunction because that is the kind of thing which gives you some indication 
of how people might react now it would be very wrong of me to say people with 
in situations with low barriers to entry and low barriers to exit you will get 
low stable profits all the time yeah 
sm1181: it's ten to eight 
nm1127: sorry ten to eight oh right thanks er [laughter] right speed up er low 
barriers to entry low barriers to exit you're likely to get low stable profits 
now there will be exceptions to that but the reason why you probably would is 
that when the situation is too competitive people can leave and you want the 
ideal situation for a-, any of you or or me is really high barriers to entry 
you know they've really got 
to to to to squeeze all the resources to get into this industry but very low 
barriers to exit when the going gets tough you want people to be able to leave 
very easily very quickly because the alternative if the barriers to exit are 
high what do you do 
sm1152: 
nm1127: yeah you can't get out so what do you do if you stay in 
sm1153: 
nm1127: you've you either die or you fight like hell and no one wants a 
competitor whose only other choice to competing with you is dying you know 
kamikaze competitors are not very attractive in any sort of strategic 
environment so you know the the nature of the barriers to exit and entry and if 
i mean th-, one of the things about say er mature industries i mean people sort 
of equate maturity with low profits very often mature industries can be 
actually highly profitable why 
sf1182: 'cause everyone else has left 
nm1127: everyone else has left and no one's coming in so those that are there 
have usually come to some modus operandi you know we've been old friends for a 
long time 
you know there's there's plenty for both of us you know in our twilight years 
er secondly you're probably at the the bottom of the long run cost curve you 
know you you know it chapter and verse you know you know every wrinkle of the 
process and so in those circumstances it can actually no one's going to go into 
it but it's actually still profitable for those in there so look in your 
industries or your sectors and actually determine the nature of the barriers to 
entry and the nature of the barriers to exit but also think outside the frame 
not just existing competitors but also often new competitors because you may 
say the barriers to entry are high and then one turns around and says what to 
General Electric you know so it depends on the context and it depends on on the 
the market you're looking at er let's who's doing the the case study this 
evening 
sm1183: A and B 
sm1184: 
nm1127: A and B has A and B met 
sm1185: no 
sm1186: no 
nm1127: er right this is always a 
problem on the first one well tell you what and it's nine th-, let's let's have 
have A and B met 
sm1187: no 
nm1127: no 
sf1188: suggest we do it next week [laughter] 
sm1189: 
nm1127: what's who's read the case study thank God for the film that you all 
stuck your hands up [laughter] er 
sm1190: 
nm1127: sorry 
sm1190: it wasn't particularly clear that we had to read 
nm1127: right okay o-, on that er fulsome and well well thought out argument 
[laughter] may i suggest 
sm1190: desperate 
nm1127: [laughter] can i suggest that we actually do it as er a general case 
study er so it means i'll have to read it er so we're d-, we're doing it yeah 
so so we'll continue and then we'll bring in that er in a rather more shortened 
fashion 'cause there's a couple of other things i want to cover so let's break 
for say till a quarter past but can we be here at a quarter past