strategic management
Ch 1: What is strategy?
strategy: setting long-term goals and deciding how to reach them
→ choosing actions and distributing resources (money, time, people)
goal = make the company succeed over time
each company has the same underlying fundamental drivers of performance
Successful strategy
1. Clear and consistent long-term goals
: long term performance of companies = maximize value creation
→ capital turnover/ resource utilization, sales margin, sales growth
3 components of a company’s value creation
I. sales growth (selling more products/services)
II. sales margin (profit per dollar of sales ⇒ how much profit you keep from each dollar
of revenue)
III. capital turnover (how efficiently a company uses its capital (=money investor) to
generate sales) ⇒ sales / invested capital
⇒ how well a company grows and competes
costs: what you used to make a product
capital: what you need to build your company
resources utilities (2 ways to grow)
1) invest in new capital
2) increase sales with the same resources
2. Good understanding of the competitive environment
: know all factors that affect profitability (+/-)
PEST: political, environmental, social, technological (macro factors)
Porter’s 5 forces: ⇒ how attractive is my industry (not about the company)
➔ buyer power: how strong is the negotiating power of the customers?
➔ supplier power: good understanding of who has the most power of your suppliers
➔ threat of entry: new competitors could lower prices
➔ industry rivalry: existing companies will compete with each other (same products)
➔ substitutes: other product solving the same need
ex. cigarettes
buyer power: low
substitutes: low (maybe vapes but not a great substitute)
supplier power: : low (lot of suppliers)
,industry rivalry: low (almost monopoly)
threat of entry: high (marketing is highly restricted)
3. Building and using the resources and capabilities to achieve the goals, to
develop a competitive advantage
: how do we create a competitive advantage in this industry? → resources
- willingness to pay: value of the customers willingness to pay
- average costs: total cost / total amount sold
willingness to pay - average cost = value created
→ value captured by company = part of value that becomes profit
→ value captured by consumer = part of value the consumer benefits from
cost advantage: lower costs, bigger margins, lower prices, WTP lower
differentiation advantage: higher costs, better product, higher WTP
resources competitive advantage
- unique/scarce (=schaars): not everyone can get them
- valuable/relevant: important for strategy
- durable: last over time
- non-transferable: can’t be easily sold or copied
- non-replicable: competitors can’t imitate
4. Effective implementation
: plan of the company on paper → reality may be different (implementation necessary)
1) intended strategy: the original plan
2) emergent strategy: due to unexpected events (reality) adjustments to original plan
3) realized strategy: what actually happened in practice
organisation has 3 key pillars
I. structure (organisation)
II. systeme (procedures, routine)
III. culture (norms)
, 5. Strategic fit
: must be aligned with each other: strategy, resources, internal/external environment
→ internal environment: resources and capabilities
→ external environment: industry, competitors, customers, substitutes, treat of entry
firm-strategy interface: alignment between firm’s capabilities and chosen strategy
environmental-strategy interface: alignment between strategy and industry conditions
How to describe a strategy?
- strategy as positioning: where (product , market,..)/ how are we competing?
(competitive advantage)
- strategy as direction: vision, performance goal, long term goals
role of strategy in the firm
1) decision support: bounded rationality and complex decision-making
2) coordination and communication device: communicate purpose company to
employees
3) target: strategy gives a long-term ambition/goal
strategic decisions = key for long term success of company
⇒ typically hard to reverse: commitment, size of investment
⇒ provoke reaction from competitors
(game theory: outcome each participant depends on choices made by all participants)
⇒ coordinating decisions → coherence and consistency
levels of strategy
I. corporate strategy
scope = industries and markets
→ diversification, vertical integration, merger & acquisitions (=fusies en overnames),
divestments (=desinvestering)
goal: support competitive advantage of business units
II. competitive/business strategy
focused on how to compete in specific markets
→ SBU: strategic business unit ⇒ unit that manages its own strategy
goal: how to gain a competitive advantage?
Who is involved in strategic decisions?
: elected/appointed members who oversee activities
of a company + chooses the CEO
: responsible for implementing the strategy
: provide advice and specialized knowledge
Ch 1: What is strategy?
strategy: setting long-term goals and deciding how to reach them
→ choosing actions and distributing resources (money, time, people)
goal = make the company succeed over time
each company has the same underlying fundamental drivers of performance
Successful strategy
1. Clear and consistent long-term goals
: long term performance of companies = maximize value creation
→ capital turnover/ resource utilization, sales margin, sales growth
3 components of a company’s value creation
I. sales growth (selling more products/services)
II. sales margin (profit per dollar of sales ⇒ how much profit you keep from each dollar
of revenue)
III. capital turnover (how efficiently a company uses its capital (=money investor) to
generate sales) ⇒ sales / invested capital
⇒ how well a company grows and competes
costs: what you used to make a product
capital: what you need to build your company
resources utilities (2 ways to grow)
1) invest in new capital
2) increase sales with the same resources
2. Good understanding of the competitive environment
: know all factors that affect profitability (+/-)
PEST: political, environmental, social, technological (macro factors)
Porter’s 5 forces: ⇒ how attractive is my industry (not about the company)
➔ buyer power: how strong is the negotiating power of the customers?
➔ supplier power: good understanding of who has the most power of your suppliers
➔ threat of entry: new competitors could lower prices
➔ industry rivalry: existing companies will compete with each other (same products)
➔ substitutes: other product solving the same need
ex. cigarettes
buyer power: low
substitutes: low (maybe vapes but not a great substitute)
supplier power: : low (lot of suppliers)
,industry rivalry: low (almost monopoly)
threat of entry: high (marketing is highly restricted)
3. Building and using the resources and capabilities to achieve the goals, to
develop a competitive advantage
: how do we create a competitive advantage in this industry? → resources
- willingness to pay: value of the customers willingness to pay
- average costs: total cost / total amount sold
willingness to pay - average cost = value created
→ value captured by company = part of value that becomes profit
→ value captured by consumer = part of value the consumer benefits from
cost advantage: lower costs, bigger margins, lower prices, WTP lower
differentiation advantage: higher costs, better product, higher WTP
resources competitive advantage
- unique/scarce (=schaars): not everyone can get them
- valuable/relevant: important for strategy
- durable: last over time
- non-transferable: can’t be easily sold or copied
- non-replicable: competitors can’t imitate
4. Effective implementation
: plan of the company on paper → reality may be different (implementation necessary)
1) intended strategy: the original plan
2) emergent strategy: due to unexpected events (reality) adjustments to original plan
3) realized strategy: what actually happened in practice
organisation has 3 key pillars
I. structure (organisation)
II. systeme (procedures, routine)
III. culture (norms)
, 5. Strategic fit
: must be aligned with each other: strategy, resources, internal/external environment
→ internal environment: resources and capabilities
→ external environment: industry, competitors, customers, substitutes, treat of entry
firm-strategy interface: alignment between firm’s capabilities and chosen strategy
environmental-strategy interface: alignment between strategy and industry conditions
How to describe a strategy?
- strategy as positioning: where (product , market,..)/ how are we competing?
(competitive advantage)
- strategy as direction: vision, performance goal, long term goals
role of strategy in the firm
1) decision support: bounded rationality and complex decision-making
2) coordination and communication device: communicate purpose company to
employees
3) target: strategy gives a long-term ambition/goal
strategic decisions = key for long term success of company
⇒ typically hard to reverse: commitment, size of investment
⇒ provoke reaction from competitors
(game theory: outcome each participant depends on choices made by all participants)
⇒ coordinating decisions → coherence and consistency
levels of strategy
I. corporate strategy
scope = industries and markets
→ diversification, vertical integration, merger & acquisitions (=fusies en overnames),
divestments (=desinvestering)
goal: support competitive advantage of business units
II. competitive/business strategy
focused on how to compete in specific markets
→ SBU: strategic business unit ⇒ unit that manages its own strategy
goal: how to gain a competitive advantage?
Who is involved in strategic decisions?
: elected/appointed members who oversee activities
of a company + chooses the CEO
: responsible for implementing the strategy
: provide advice and specialized knowledge
