Theories of Strategy — Meeting 1.1:
Economic Foundations of Strategy
Study summary — MSc Business Administration (Strategy), UvA
Sources used: Lecture 1 slides; the pre-recorded clips "The problem of competitive
advantage", "Perfect competition" and "Schools of thought in economics"; Stoelhorst (2008)
Thinking about Strategy; Rumelt (2003); Besanko et al. (2000, pp. 20–22 and 30–36); the
Reading Guide; Notes on lectures; the Study Guide; and the Anti-trust case (The Economist,
2020). Conner (1991) is not in the project files, so its content comes from the Conner table
on the slides and from the Reading Guide. Terms from later meetings (Ricardian rent, RBV,
Porter) draw on the meeting 1.2 and 2.1 slides.
1. The big picture: why this session matters
The course's main question (Lecture 1 slides) is: How can we explain differences in
performance among firms? The practical version is: what can managers do to improve their
firm's relative performance?
The usual answer in strategy is competitive advantage (CA). The chain looks like this:
Sources of advantage → Competitive advantage → Performance
The "economic turn" (Reading Guide): since the 1980s, theories of competitive strategy
have been built on economic theory. Stoelhorst calls it a "love-and-hate" relationship:
Love: economics makes strategy research rigorous.
Hate: economics relies on unrealistic assumptions, which makes the theories less
relevant to managers.
This is the rigor vs. relevance tension, and it runs through the whole course.
The key insight of 1.1: theories of competitive advantage are best read as deviations
from the model of perfect competition. Perfect competition describes a world with no
room for competitive advantage. So CA can only exist where reality departs from that model.
2. The strategy field and its five schools (Stoelhorst, 2008)
Three aspects of strategy:
Process: how strategies are made.
Content: what good strategies are and which ones produce CA. This course is mainly
about content.
Context: how the organisation and its environment affect process and content.
Two levels of strategy (slides):
, Corporate strategy Competitive strategy
Question Where to compete? How to compete?
Level Parent / multi-business firm Strategic business unit (SBU)
Focus Portfolio decisions Competitive advantage
The "standard model" of strategy: analysis (SWOT) → choice (suitability, acceptability,
feasibility) → implementation. It grew out of the design and planning schools.
The five schools:
School Era View of strategy Key ideas / people
Design 1960s Conceptual process: fit between Andrews, SWOT; CEO as strategist;
distinctive competence and formulation separate from
environment implementation
Planning 1970s Formal process Ansoff; checklists, planning staff.
Criticised as rigid and detached
(Consultants) 1970s "Powerful oversimplifications" BCG matrix, experience curve,
portfolio thinking
Positioning 1980s Strategy as fit Porter, grounded in IO economics;
outside-in
Resource- 1990s Strategy as stretch Barney, Peteraf, Prahalad & Hamel;
based inside-out
Process 1980s Collective learning (descriptive) Quinn (logical incrementalism),
onward Mintzberg (emergent strategy)
The first four schools are prescriptive (they say what managers should do). The process
school is descriptive (it describes what managers actually do). The course focuses on the
positioning school and the resource-based school.
The positioning school in four points (Stoelhorst, 2008):
1. Strategy is fit between the firm and its environment.
2. Barriers to competition protect profit.
3. Strategies are generic positions (cost leadership, differentiation, focus).
4. The essence of strategy is analysis of the external environment.
Weakness: it treats the firm as a black box and gives a fairly deterministic view.
The resource-based school in three points:
1. Strategy as stretch: the environment can be shaped ("be a rule maker, not a rule
taker").
2. Resources are the ultimate source of CA.
3. Strategy means a clear vision (strategic intent) plus unique resource combinations.
Weaknesses: it is often unclear what counts as a relevant resource, and it can be overly
voluntaristic (it overstates how much managers can shape their environment).
Economic Foundations of Strategy
Study summary — MSc Business Administration (Strategy), UvA
Sources used: Lecture 1 slides; the pre-recorded clips "The problem of competitive
advantage", "Perfect competition" and "Schools of thought in economics"; Stoelhorst (2008)
Thinking about Strategy; Rumelt (2003); Besanko et al. (2000, pp. 20–22 and 30–36); the
Reading Guide; Notes on lectures; the Study Guide; and the Anti-trust case (The Economist,
2020). Conner (1991) is not in the project files, so its content comes from the Conner table
on the slides and from the Reading Guide. Terms from later meetings (Ricardian rent, RBV,
Porter) draw on the meeting 1.2 and 2.1 slides.
1. The big picture: why this session matters
The course's main question (Lecture 1 slides) is: How can we explain differences in
performance among firms? The practical version is: what can managers do to improve their
firm's relative performance?
The usual answer in strategy is competitive advantage (CA). The chain looks like this:
Sources of advantage → Competitive advantage → Performance
The "economic turn" (Reading Guide): since the 1980s, theories of competitive strategy
have been built on economic theory. Stoelhorst calls it a "love-and-hate" relationship:
Love: economics makes strategy research rigorous.
Hate: economics relies on unrealistic assumptions, which makes the theories less
relevant to managers.
This is the rigor vs. relevance tension, and it runs through the whole course.
The key insight of 1.1: theories of competitive advantage are best read as deviations
from the model of perfect competition. Perfect competition describes a world with no
room for competitive advantage. So CA can only exist where reality departs from that model.
2. The strategy field and its five schools (Stoelhorst, 2008)
Three aspects of strategy:
Process: how strategies are made.
Content: what good strategies are and which ones produce CA. This course is mainly
about content.
Context: how the organisation and its environment affect process and content.
Two levels of strategy (slides):
, Corporate strategy Competitive strategy
Question Where to compete? How to compete?
Level Parent / multi-business firm Strategic business unit (SBU)
Focus Portfolio decisions Competitive advantage
The "standard model" of strategy: analysis (SWOT) → choice (suitability, acceptability,
feasibility) → implementation. It grew out of the design and planning schools.
The five schools:
School Era View of strategy Key ideas / people
Design 1960s Conceptual process: fit between Andrews, SWOT; CEO as strategist;
distinctive competence and formulation separate from
environment implementation
Planning 1970s Formal process Ansoff; checklists, planning staff.
Criticised as rigid and detached
(Consultants) 1970s "Powerful oversimplifications" BCG matrix, experience curve,
portfolio thinking
Positioning 1980s Strategy as fit Porter, grounded in IO economics;
outside-in
Resource- 1990s Strategy as stretch Barney, Peteraf, Prahalad & Hamel;
based inside-out
Process 1980s Collective learning (descriptive) Quinn (logical incrementalism),
onward Mintzberg (emergent strategy)
The first four schools are prescriptive (they say what managers should do). The process
school is descriptive (it describes what managers actually do). The course focuses on the
positioning school and the resource-based school.
The positioning school in four points (Stoelhorst, 2008):
1. Strategy is fit between the firm and its environment.
2. Barriers to competition protect profit.
3. Strategies are generic positions (cost leadership, differentiation, focus).
4. The essence of strategy is analysis of the external environment.
Weakness: it treats the firm as a black box and gives a fairly deterministic view.
The resource-based school in three points:
1. Strategy as stretch: the environment can be shaped ("be a rule maker, not a rule
taker").
2. Resources are the ultimate source of CA.
3. Strategy means a clear vision (strategic intent) plus unique resource combinations.
Weaknesses: it is often unclear what counts as a relevant resource, and it can be overly
voluntaristic (it overstates how much managers can shape their environment).
