Strategy and Organisation
Week 1 & 2 = content
Week 3, 4 & 6 = process
Week 5 = context
Lecture 1 – Competitive strategy
What is strategy about?
How to develop new products? How to outperform competitors? Which markets to
enter? How to realize organizational change? How to create synergies? Who to cooperate
with? How to deal with environmental changes?
Listen to Porter:
- What we need to position to achieve what we want
- How are we going to be unique, how are we going to have advantages, and how do
we do this over time
- Do not focus on steps, but on the whole plan
What is strategy?
Plan of actions
Usually with a limited time horizon
A plan about how firms reach their goals (be unique and create value)
Do we need strategy?
How do firms achieve their goals?
o Goal = value creation
What do we need to create value?
o Individual-level: talent (rather than strategy).
o Firm-level: assets (rather than strategy)
Mostest argument:
o Firm with the most (talent/assets) will create more value than its competitors
Individual level: talent leads to value creation
Firm-level: accumulation of assets = performance?
The relationship between acquisitions and firm performance is negative
The relationship between diversification and firm performance is mixed
Conclusion: performance does not emerge naturally! It requires some sort of
coordination
o Unexplained variance and negative relationships at different levels implies
that strategy really matters for firm performance
, o (Reduce) uncertainty, time limitation, cognitive limitation, irrational behavior,
asymmetric information, structure & organization (planning), how to reach
the goal?
Why learning about strategy is important?
All functional areas of management are important, but…
Integration and alignment to improve performance
“The Standard Model of Strategy”
Objectives: mission, vision, intent
Strategic analysis
o External (O and T)
o Internal (S and W)
Strategic choice
Strategic implementation: what should the firm do, to carry
out the plan?
What is a theory?
Explanation of a phenomenon
Why does something happen?
Theories of strategy (big questions)
Why, how, and when do some firms outperform/outcompete others?
Why, how, and when does a firm that outperforms/outcompetes others do so
consistently?
Theories of strategy describe when, how, and why a plan of action leads to value
creation
Firm that creates the most value outcompetes/outperforms other firms
Example of Gilette:
- Their advertisement is about the high quality and a high price for the products
- Has a high market share, for a lot of years
- The last years, Gilette has a lot of competitors innovation
- 2015: Piano demo of new flexball technology:
o Internal focus on product innovation
o Expensive marketing campaigns starring famous athletes and artists, focused
on product quality
o But for how long could customers buy into it?
What is competitive strategy?
Strategy at company (business unit) level
Key question: why some firms outcompete other firms (and what are the sources of
their competitive advantage)?
Two dominant theoretical approaches
o Positioning School (Porter, 1979)
o Resource-based view (Barney, 1991)
,Porter and positioning school
A famous one
Before Porter, the main focus was price competition
Porter’s main insight: there must be more to the environment than prices!
Positioning Theory/School
Why do some firms perform better than others?
Some fields are more attractive (example with the cows and grass), they have more
potential
o Because of selected favorable positions in attractive industries, supported by
generic (rather than unique) strategies
o Assumption: every industry has an underlying competitive structure and the
essence of strategy formulation is coping with competition
Structure
Profit potential varies per industry
Degree of competitiveness is decided by…
Five Competitive Forces
o Threat of new entrants
o Threat of substitute products
o Bargaining power of suppliers
o Bargaining power of buyers
o Rivalry among existing firms
Conduct
Actions to be taken!
Three Generic Strategies
Positioning theory: SCP Paradigm
Structure: profit potential varies per industry
, Conduct: actions taken to realize industry-specific profit potential
Performance
o Variance in S & C = variance in firm performance
Summary
- External focus on opportunities and threats
- Strategy as fit: an optimal fit between a firm and its environment, competitive
positions in attractive industries
- Firms realize superior performance by assuming less vulnerable positions
- Strategies are generic positions in the market: favorable positions gained via a limited
number of generic strategies
Essentially (1) identify attractive industries, (2) use generic strategies that allow
the firm to occupy favorable positions, (3) protect favorable positions via barriers
Positioning school critique
- Baden-Fuller & Stopford (1992)
o Firms play a more important role in determining profitability than the
industry.
o Equivalent position in industry & yet different profitability (industry: 8.3%,
strategy: 46.4%, parent: 0.8%, not explained: 44.5%)
Resource Based View (Barney, 1991)
Notable assumptions:
Firms differ from each other
These differences are relatively stable
These differences lead to differences in performance
How does these assumptions contrast with those from the positioning view?
Overview
Why do some firms outperform others?
o Implement a unique value creating strategy
o Because of: Resources!!
How do some firms outperform other consistently?
o Competitors cannot duplicate strategy because of firm heterogeneity with
respect to resources
Internal focus on strengths and weaknesses
Competitive advantage resides within the firm and arises from firm-specific
resources
A (rare) definition of (sustained) competitive advantage
“A firm is said to have a competitive advantage when it is implementing a value creating
strategy not simultaneously being implemented by any current or potential competitors. A
firm is said to have sustained competitive advantage when it is implementing a value
creating strategy not simultaneously being implemented by any current or potential
competitors and when these other firms are unable to duplicate the benefits of this strategy.
These two definitions require some discussion.”
Week 1 & 2 = content
Week 3, 4 & 6 = process
Week 5 = context
Lecture 1 – Competitive strategy
What is strategy about?
How to develop new products? How to outperform competitors? Which markets to
enter? How to realize organizational change? How to create synergies? Who to cooperate
with? How to deal with environmental changes?
Listen to Porter:
- What we need to position to achieve what we want
- How are we going to be unique, how are we going to have advantages, and how do
we do this over time
- Do not focus on steps, but on the whole plan
What is strategy?
Plan of actions
Usually with a limited time horizon
A plan about how firms reach their goals (be unique and create value)
Do we need strategy?
How do firms achieve their goals?
o Goal = value creation
What do we need to create value?
o Individual-level: talent (rather than strategy).
o Firm-level: assets (rather than strategy)
Mostest argument:
o Firm with the most (talent/assets) will create more value than its competitors
Individual level: talent leads to value creation
Firm-level: accumulation of assets = performance?
The relationship between acquisitions and firm performance is negative
The relationship between diversification and firm performance is mixed
Conclusion: performance does not emerge naturally! It requires some sort of
coordination
o Unexplained variance and negative relationships at different levels implies
that strategy really matters for firm performance
, o (Reduce) uncertainty, time limitation, cognitive limitation, irrational behavior,
asymmetric information, structure & organization (planning), how to reach
the goal?
Why learning about strategy is important?
All functional areas of management are important, but…
Integration and alignment to improve performance
“The Standard Model of Strategy”
Objectives: mission, vision, intent
Strategic analysis
o External (O and T)
o Internal (S and W)
Strategic choice
Strategic implementation: what should the firm do, to carry
out the plan?
What is a theory?
Explanation of a phenomenon
Why does something happen?
Theories of strategy (big questions)
Why, how, and when do some firms outperform/outcompete others?
Why, how, and when does a firm that outperforms/outcompetes others do so
consistently?
Theories of strategy describe when, how, and why a plan of action leads to value
creation
Firm that creates the most value outcompetes/outperforms other firms
Example of Gilette:
- Their advertisement is about the high quality and a high price for the products
- Has a high market share, for a lot of years
- The last years, Gilette has a lot of competitors innovation
- 2015: Piano demo of new flexball technology:
o Internal focus on product innovation
o Expensive marketing campaigns starring famous athletes and artists, focused
on product quality
o But for how long could customers buy into it?
What is competitive strategy?
Strategy at company (business unit) level
Key question: why some firms outcompete other firms (and what are the sources of
their competitive advantage)?
Two dominant theoretical approaches
o Positioning School (Porter, 1979)
o Resource-based view (Barney, 1991)
,Porter and positioning school
A famous one
Before Porter, the main focus was price competition
Porter’s main insight: there must be more to the environment than prices!
Positioning Theory/School
Why do some firms perform better than others?
Some fields are more attractive (example with the cows and grass), they have more
potential
o Because of selected favorable positions in attractive industries, supported by
generic (rather than unique) strategies
o Assumption: every industry has an underlying competitive structure and the
essence of strategy formulation is coping with competition
Structure
Profit potential varies per industry
Degree of competitiveness is decided by…
Five Competitive Forces
o Threat of new entrants
o Threat of substitute products
o Bargaining power of suppliers
o Bargaining power of buyers
o Rivalry among existing firms
Conduct
Actions to be taken!
Three Generic Strategies
Positioning theory: SCP Paradigm
Structure: profit potential varies per industry
, Conduct: actions taken to realize industry-specific profit potential
Performance
o Variance in S & C = variance in firm performance
Summary
- External focus on opportunities and threats
- Strategy as fit: an optimal fit between a firm and its environment, competitive
positions in attractive industries
- Firms realize superior performance by assuming less vulnerable positions
- Strategies are generic positions in the market: favorable positions gained via a limited
number of generic strategies
Essentially (1) identify attractive industries, (2) use generic strategies that allow
the firm to occupy favorable positions, (3) protect favorable positions via barriers
Positioning school critique
- Baden-Fuller & Stopford (1992)
o Firms play a more important role in determining profitability than the
industry.
o Equivalent position in industry & yet different profitability (industry: 8.3%,
strategy: 46.4%, parent: 0.8%, not explained: 44.5%)
Resource Based View (Barney, 1991)
Notable assumptions:
Firms differ from each other
These differences are relatively stable
These differences lead to differences in performance
How does these assumptions contrast with those from the positioning view?
Overview
Why do some firms outperform others?
o Implement a unique value creating strategy
o Because of: Resources!!
How do some firms outperform other consistently?
o Competitors cannot duplicate strategy because of firm heterogeneity with
respect to resources
Internal focus on strengths and weaknesses
Competitive advantage resides within the firm and arises from firm-specific
resources
A (rare) definition of (sustained) competitive advantage
“A firm is said to have a competitive advantage when it is implementing a value creating
strategy not simultaneously being implemented by any current or potential competitors. A
firm is said to have sustained competitive advantage when it is implementing a value
creating strategy not simultaneously being implemented by any current or potential
competitors and when these other firms are unable to duplicate the benefits of this strategy.
These two definitions require some discussion.”
