STRATEGIC
MANAGEMENT
Prof. Dr. Elvir Haezendonck and drs. Lynn Faut
Pauline Delphine Verhelst
VUB | 2021-2022
,INHOUDSOPGAVE
INTRODUCTION: STRATEGY AND ECONOMICS ................................................................................. 4
0.1. THE CONCEPT OF STRATEGY .......................................................................................................... 4
0.2. STRATEGY SAFARI ...................................................................................................................... 9
0.2.1. DESIGN SCHOOL ........................................................................................................................... 10
0.2.2. PLANNING SCHOOL ....................................................................................................................... 11
0.2.3. POSITIONING SCHOOL ................................................................................................................... 11
0.2.4. ENTREPRENEURIAL SCHOOL ............................................................................................................ 11
0.2.5. COGNITIVE SCHOOL ...................................................................................................................... 11
0.2.6. LEARNING SCHOOL........................................................................................................................ 12
0.2.7. POWER SCHOOL ........................................................................................................................... 12
0.2.8. CULTURAL SCHOOL ....................................................................................................................... 12
0.2.9. ENVIRONMENTAL SCHOOL.............................................................................................................. 12
0.2.10. CONFIGURATION PROCESS ........................................................................................................... 12
PART 1: FIRM BOUNDARIES ........................................................................................................... 14
INTRODUCTION: THE ‘WHERE’ QUESTION ................................................................................................ 14
CHAPTER 2: THE HORIZONTAL BOUNDARIES OF THE FIRM........................................................................... 14
2.1. DETERMINANT 1: ECONOMIES OF SCALE.............................................................................................. 14
2.2. DETERMINANT 2: ECONOMIES OF SCOPE ............................................................................................. 15
2.3. DETERMINANT 3: LEARNING CURVE .................................................................................................... 18
CHAPTER 3: THE VERTICAL BOUNDARIES OF THE FIRM ............................................................................... 22
3.1. VERTICAL BOUNDARIES ..................................................................................................................... 22
3.2. TRANSACTION COST THEORY: ESSENTIALS............................................................................................. 22
3.3. THE TRADE-OFF IN VERTICAL INTEGRATION .......................................................................................... 23
CHAPTER 4: INTEGRATION AND ITS ALTERNATIVES .................................................................................... 24
4.1. TAPERED INTEGRATION (MAKING SOME AND BUYING THE REST) ............................................................... 24
4.2. JOINT VENTURES AND STRATEGIC ALLIANCES ......................................................................................... 24
4.3. LONG TERM COLLABORATIVE RELATIONSHIP ......................................................................................... 24
4.4. IMPLICIT CONTRACTS BETWEEN FIRMS ................................................................................................. 24
PART 2: MARKET AND COMPETITIVE ANALYSIS ............................................................................. 25
CHAPTER 6: ENTRY AND EXIT ............................................................................................................... 25
6.1. EVIDENCE ON ENTRY AND EXIT .......................................................................................................... 25
6.2. COST BENEFIT ANALYSIS FOR ENTRY .................................................................................................... 26
6.3. TYPOLOGY OF ENTRY CONDITIONS AND BARRIERS ................................................................................. 27
6.4. BARRIERS ....................................................................................................................................... 27
6.4.1. Barriers to entry ....................................................................................................................... 27
6.4.2. Types of structural Barriers...................................................................................................... 27
6.4.3. Barriers to Exit ......................................................................................................................... 28
6.4.4. Entry Deterring strategies/ strategic barriers .......................................................................... 29
CHAPTER 7: DYNAMICS: COMPETING ACROSS TIME ................................................................................... 32
7.1. STRATEGIC COMMITMENT ................................................................................................................. 32
7.2. COMMITMENT VALUE OF ANNOUNCEMENTS ........................................................................................ 32
7.3. STRATEGIC COMMITMENT AND COMPETITION ...................................................................................... 34
7.4. FACTORS THAT INFLUENCE THE STRATEGIC EFFECT ................................................................................. 34
1
,7.5. COMMITMENT-FLEXIBILITY TRADEOFF ................................................................................................. 35
7.6. MARKET STRUCTURE, COOPERATIVE PRICING ........................................................................................ 36
7.7. BENEFITS FROM IMPROVED QUALITY ................................................................................................... 37
CHAPTER 8: INDUSTRY ANALYSIS: PORTER’S FIVE FORCES FRAMEWORK ........................................................ 38
8.1. THE FIVE FORCES ............................................................................................................................. 38
8.2. STRATEGIES TO COPE WITH THE FIVE FORCES ........................................................................................ 39
8.3. VALUE NET ..................................................................................................................................... 39
8.4. FIVE FORCES ANALYSIS EXAMPLE CHICAGO HOSPITALS............................................................................ 40
PART 3: STRATEGIC POSITION AND DYNAMICS .............................................................................. 42
CHAPTER 9: STRATEGIC POSITIONING FOR COMPETITIVE ADVANTAGE ............................................................ 42
9.1. COMPETITIVE ADVANTAGE ................................................................................................................ 42
9.2. VALUE CREATION ............................................................................................................................. 42
9.3. VALUE CHAIN ................................................................................................................................. 43
9.4. PORTER’S GENERIC STRATEGIES .......................................................................................................... 45
CHAPTER 11: SUSTAINING COMPETITIVE ADVANTAGE ................................................................................ 48
11.1. SUSTAINABILITY WITH MONOPOLISTIC COMPETITION ........................................................................... 48
11.2. DYNAMIC CAPABILITIES ................................................................................................................... 50
11.3. SOURCES FOR COMPETITIVE ADVANTAGE AND SUSTAINING CA FOR CLUSTERS AND THEIR FIRMS: THE
REGIONAL/NATIONAL ENVIRONMENT OR “DIAMOND” AND THE CONCEPT OF “SHARED VALUE” ............................... 51
11.3.1. Frameworks supporting competitiveness analysis ................................................................ 52
11.3.2. Determinants of Competitiveness “The Core Framework” ................................................... 52
11.3.1. Creating Shared Value ........................................................................................................... 58
PART 4: INTERNAL ORGANIZATION................................................................................................ 61
CHAPTER 13: STRATEGY AND STRUCTURE................................................................................................ 61
13.1. DESIGNING ORGANIZATIONAL STRUCTURE.......................................................................................... 61
13.2. DETERMINANTS OF STRUCTURE ........................................................................................................ 61
13.3. FUNDAMENTALS OF ORGANIZING ..................................................................................................... 62
13.4. TYPES OF ORGANIZATIONAL STRUCTURES ........................................................................................... 62
13.5. STRATEGY – STRUCTURE COHERENCE ................................................................................................ 65
CHAPTER 14: ENVIRONMENT, POWER, AND CULTURE ................................................................................ 66
14.1. SOCIAL CONTEXT OF FIRM BEHAVIOR ................................................................................................. 66
14.2. INTERNAL CONTEXT ........................................................................................................................ 66
14.3. POWER AND CULTURE .................................................................................................................... 66
14.4. EXTERNAL CONTEXTS ...................................................................................................................... 67
PART 5: EXAM PREPARATION ........................................................................................................ 68
PART 6: CASES ............................................................................................................................... 70
1. ASSIGNMENTS ........................................................................................................................... 70
1.1. CASE 1A: ZOOM’S ACQUISITION OF FIVE9 ........................................................................................... 70
1.2. CASE 1B: WILL INTEL OUTSOURCE ITS CHIP PRODUCTION? .................................................................... 72
1.3. CASE 2A: UBER CHINA ..................................................................................................................... 75
1.4. CASE 2B: MCDONALDS .................................................................................................................... 78
1.5. CASE 3A: LAB-GROWN DIAMONDS .................................................................................................... 81
2
,1.6. CASE 3B: TYRES INDIA...................................................................................................................... 83
2. CORRECTIONS ............................................................................................................................ 85
2.1. CASE 1A: ZOOM’S ACQUISITION OF FIVE9 ........................................................................................... 85
2.2. CASE 1B: WILL INTEL OUTSOURCE ITS CHIP PRODUCTION? .................................................................... 87
2.3. CASE 2A: UBER CHINA ..................................................................................................................... 89
2.4. CASE 2B: MCDONALDS .................................................................................................................... 90
2.5. CASE 3A: LAB-GROWN DIAMONDS .................................................................................................... 92
2.6. CASE 3B: TYRES INDIA...................................................................................................................... 96
3
,Introduction: strategy and economics
- Assignments (25%)
o Work with cases
o 3 deadlines
o Groups of 4/5 students
§ Email:
§ Before 4/10/2021
§ List of all names, student numbers, VUB program, e-mail, mobile
number
- Exam: open book (75%)
- Aim of the course
o Critically understanding concepts, schools of thought and current trends
o Knowing and applying strategy instruments/analyses/frameworks
o Understanding principles, but also their limitations in the context of
market/business reality
o Importance of links and assumptions
0.1. The concept of strategy
- 4 big issues in these classes
o Concepts and evolution of strategic “schools of thought” WHAT?
§ To be understood to understand strategic management as a science
o Boundaries of the firm: WHERE?
§ Main issue in corporate strategy - sea level
• What do we do and what not?
• Example: you’re a car maker and you sell cars. You decide to
sell insurances and financial products for cars. They will act as a
portal because they offer a favorable way. The question is
what will we do and what will we not? We need to look at the
boundaries of our services. Where do they begin and end?
o Fundamental question, sky is not the limit
o There should be good reasons why you would add
something to your services
§ Horizontal: size of the company (producing how much?)
• How many products?
o Ex: cars, insurances, financial products, …
§ Vertical: what will we produce? Ourselves (“make or buy”)?
• Ex: you do soft drink, distribution, and packaging
• Ex: you make diamantes but also own the mines
§ Corporate (company as a whole): on which market(s) do we want to
be?
§ Finally, we decide on our portfolio
§ Decisions based on rational (sometimes less rational) elements of
boundaries
o Competition: WHO and HOW?
§ Business unit level
• Once we know which market, we’re in
• Consider this market and who’s in that market
4
, • This is not as easy to identify (online, virtual markets)
§ Type of market business is operating in: WHO?
• Challenging to identify
• Online and offline could be different competitors
§ E.g., airplane industry versus consumer products (e.g., Boeing versus
Unilever)
§ Kind of interaction of rivals: HOW?
• What are the dynamics
• Once we know who is on the market, how do we react if the
competitor does something
• Possible price wars
• How can we explain actions?
o Positioning and dynamics: WHY?
§ Are we making good decisions based on the company, do we have
resources, location, good website? …
• What do we have as a company?
• What are we good at?
§ Where do we want to be? low cost, differentiation, ...
§ Which competitive advantage do we want to have? Do we have the
resources and capabilities for that?
§ Most crucial yet difficult
• Not over or underestimating the strengths and weaknesses of
the company
- What is strategy
o Distinguishing strategy from tactics:
§ Strategy is the overall design and philosophy to plan for deploying
resources to establish a favorable position / reach success
§ Tactic is a scheme for a specific maneuver
• It’s different from a strategy
• More short time
o Ex: cheating on an exam
o Ex: I’m going to be in class and fulfill the exams as asked
o Characteristics of strategic decisions:
§ Important
§ Involve a significant commitment of resources
• Hours of resources
• Capital
• Not only money, also time
§ Not easily reversible
• Example: you start studying something, when you decide to do
something else, there will be some classes you took who will
no longer be useful, but you did put time and effort into it
§ Long term
5
MANAGEMENT
Prof. Dr. Elvir Haezendonck and drs. Lynn Faut
Pauline Delphine Verhelst
VUB | 2021-2022
,INHOUDSOPGAVE
INTRODUCTION: STRATEGY AND ECONOMICS ................................................................................. 4
0.1. THE CONCEPT OF STRATEGY .......................................................................................................... 4
0.2. STRATEGY SAFARI ...................................................................................................................... 9
0.2.1. DESIGN SCHOOL ........................................................................................................................... 10
0.2.2. PLANNING SCHOOL ....................................................................................................................... 11
0.2.3. POSITIONING SCHOOL ................................................................................................................... 11
0.2.4. ENTREPRENEURIAL SCHOOL ............................................................................................................ 11
0.2.5. COGNITIVE SCHOOL ...................................................................................................................... 11
0.2.6. LEARNING SCHOOL........................................................................................................................ 12
0.2.7. POWER SCHOOL ........................................................................................................................... 12
0.2.8. CULTURAL SCHOOL ....................................................................................................................... 12
0.2.9. ENVIRONMENTAL SCHOOL.............................................................................................................. 12
0.2.10. CONFIGURATION PROCESS ........................................................................................................... 12
PART 1: FIRM BOUNDARIES ........................................................................................................... 14
INTRODUCTION: THE ‘WHERE’ QUESTION ................................................................................................ 14
CHAPTER 2: THE HORIZONTAL BOUNDARIES OF THE FIRM........................................................................... 14
2.1. DETERMINANT 1: ECONOMIES OF SCALE.............................................................................................. 14
2.2. DETERMINANT 2: ECONOMIES OF SCOPE ............................................................................................. 15
2.3. DETERMINANT 3: LEARNING CURVE .................................................................................................... 18
CHAPTER 3: THE VERTICAL BOUNDARIES OF THE FIRM ............................................................................... 22
3.1. VERTICAL BOUNDARIES ..................................................................................................................... 22
3.2. TRANSACTION COST THEORY: ESSENTIALS............................................................................................. 22
3.3. THE TRADE-OFF IN VERTICAL INTEGRATION .......................................................................................... 23
CHAPTER 4: INTEGRATION AND ITS ALTERNATIVES .................................................................................... 24
4.1. TAPERED INTEGRATION (MAKING SOME AND BUYING THE REST) ............................................................... 24
4.2. JOINT VENTURES AND STRATEGIC ALLIANCES ......................................................................................... 24
4.3. LONG TERM COLLABORATIVE RELATIONSHIP ......................................................................................... 24
4.4. IMPLICIT CONTRACTS BETWEEN FIRMS ................................................................................................. 24
PART 2: MARKET AND COMPETITIVE ANALYSIS ............................................................................. 25
CHAPTER 6: ENTRY AND EXIT ............................................................................................................... 25
6.1. EVIDENCE ON ENTRY AND EXIT .......................................................................................................... 25
6.2. COST BENEFIT ANALYSIS FOR ENTRY .................................................................................................... 26
6.3. TYPOLOGY OF ENTRY CONDITIONS AND BARRIERS ................................................................................. 27
6.4. BARRIERS ....................................................................................................................................... 27
6.4.1. Barriers to entry ....................................................................................................................... 27
6.4.2. Types of structural Barriers...................................................................................................... 27
6.4.3. Barriers to Exit ......................................................................................................................... 28
6.4.4. Entry Deterring strategies/ strategic barriers .......................................................................... 29
CHAPTER 7: DYNAMICS: COMPETING ACROSS TIME ................................................................................... 32
7.1. STRATEGIC COMMITMENT ................................................................................................................. 32
7.2. COMMITMENT VALUE OF ANNOUNCEMENTS ........................................................................................ 32
7.3. STRATEGIC COMMITMENT AND COMPETITION ...................................................................................... 34
7.4. FACTORS THAT INFLUENCE THE STRATEGIC EFFECT ................................................................................. 34
1
,7.5. COMMITMENT-FLEXIBILITY TRADEOFF ................................................................................................. 35
7.6. MARKET STRUCTURE, COOPERATIVE PRICING ........................................................................................ 36
7.7. BENEFITS FROM IMPROVED QUALITY ................................................................................................... 37
CHAPTER 8: INDUSTRY ANALYSIS: PORTER’S FIVE FORCES FRAMEWORK ........................................................ 38
8.1. THE FIVE FORCES ............................................................................................................................. 38
8.2. STRATEGIES TO COPE WITH THE FIVE FORCES ........................................................................................ 39
8.3. VALUE NET ..................................................................................................................................... 39
8.4. FIVE FORCES ANALYSIS EXAMPLE CHICAGO HOSPITALS............................................................................ 40
PART 3: STRATEGIC POSITION AND DYNAMICS .............................................................................. 42
CHAPTER 9: STRATEGIC POSITIONING FOR COMPETITIVE ADVANTAGE ............................................................ 42
9.1. COMPETITIVE ADVANTAGE ................................................................................................................ 42
9.2. VALUE CREATION ............................................................................................................................. 42
9.3. VALUE CHAIN ................................................................................................................................. 43
9.4. PORTER’S GENERIC STRATEGIES .......................................................................................................... 45
CHAPTER 11: SUSTAINING COMPETITIVE ADVANTAGE ................................................................................ 48
11.1. SUSTAINABILITY WITH MONOPOLISTIC COMPETITION ........................................................................... 48
11.2. DYNAMIC CAPABILITIES ................................................................................................................... 50
11.3. SOURCES FOR COMPETITIVE ADVANTAGE AND SUSTAINING CA FOR CLUSTERS AND THEIR FIRMS: THE
REGIONAL/NATIONAL ENVIRONMENT OR “DIAMOND” AND THE CONCEPT OF “SHARED VALUE” ............................... 51
11.3.1. Frameworks supporting competitiveness analysis ................................................................ 52
11.3.2. Determinants of Competitiveness “The Core Framework” ................................................... 52
11.3.1. Creating Shared Value ........................................................................................................... 58
PART 4: INTERNAL ORGANIZATION................................................................................................ 61
CHAPTER 13: STRATEGY AND STRUCTURE................................................................................................ 61
13.1. DESIGNING ORGANIZATIONAL STRUCTURE.......................................................................................... 61
13.2. DETERMINANTS OF STRUCTURE ........................................................................................................ 61
13.3. FUNDAMENTALS OF ORGANIZING ..................................................................................................... 62
13.4. TYPES OF ORGANIZATIONAL STRUCTURES ........................................................................................... 62
13.5. STRATEGY – STRUCTURE COHERENCE ................................................................................................ 65
CHAPTER 14: ENVIRONMENT, POWER, AND CULTURE ................................................................................ 66
14.1. SOCIAL CONTEXT OF FIRM BEHAVIOR ................................................................................................. 66
14.2. INTERNAL CONTEXT ........................................................................................................................ 66
14.3. POWER AND CULTURE .................................................................................................................... 66
14.4. EXTERNAL CONTEXTS ...................................................................................................................... 67
PART 5: EXAM PREPARATION ........................................................................................................ 68
PART 6: CASES ............................................................................................................................... 70
1. ASSIGNMENTS ........................................................................................................................... 70
1.1. CASE 1A: ZOOM’S ACQUISITION OF FIVE9 ........................................................................................... 70
1.2. CASE 1B: WILL INTEL OUTSOURCE ITS CHIP PRODUCTION? .................................................................... 72
1.3. CASE 2A: UBER CHINA ..................................................................................................................... 75
1.4. CASE 2B: MCDONALDS .................................................................................................................... 78
1.5. CASE 3A: LAB-GROWN DIAMONDS .................................................................................................... 81
2
,1.6. CASE 3B: TYRES INDIA...................................................................................................................... 83
2. CORRECTIONS ............................................................................................................................ 85
2.1. CASE 1A: ZOOM’S ACQUISITION OF FIVE9 ........................................................................................... 85
2.2. CASE 1B: WILL INTEL OUTSOURCE ITS CHIP PRODUCTION? .................................................................... 87
2.3. CASE 2A: UBER CHINA ..................................................................................................................... 89
2.4. CASE 2B: MCDONALDS .................................................................................................................... 90
2.5. CASE 3A: LAB-GROWN DIAMONDS .................................................................................................... 92
2.6. CASE 3B: TYRES INDIA...................................................................................................................... 96
3
,Introduction: strategy and economics
- Assignments (25%)
o Work with cases
o 3 deadlines
o Groups of 4/5 students
§ Email:
§ Before 4/10/2021
§ List of all names, student numbers, VUB program, e-mail, mobile
number
- Exam: open book (75%)
- Aim of the course
o Critically understanding concepts, schools of thought and current trends
o Knowing and applying strategy instruments/analyses/frameworks
o Understanding principles, but also their limitations in the context of
market/business reality
o Importance of links and assumptions
0.1. The concept of strategy
- 4 big issues in these classes
o Concepts and evolution of strategic “schools of thought” WHAT?
§ To be understood to understand strategic management as a science
o Boundaries of the firm: WHERE?
§ Main issue in corporate strategy - sea level
• What do we do and what not?
• Example: you’re a car maker and you sell cars. You decide to
sell insurances and financial products for cars. They will act as a
portal because they offer a favorable way. The question is
what will we do and what will we not? We need to look at the
boundaries of our services. Where do they begin and end?
o Fundamental question, sky is not the limit
o There should be good reasons why you would add
something to your services
§ Horizontal: size of the company (producing how much?)
• How many products?
o Ex: cars, insurances, financial products, …
§ Vertical: what will we produce? Ourselves (“make or buy”)?
• Ex: you do soft drink, distribution, and packaging
• Ex: you make diamantes but also own the mines
§ Corporate (company as a whole): on which market(s) do we want to
be?
§ Finally, we decide on our portfolio
§ Decisions based on rational (sometimes less rational) elements of
boundaries
o Competition: WHO and HOW?
§ Business unit level
• Once we know which market, we’re in
• Consider this market and who’s in that market
4
, • This is not as easy to identify (online, virtual markets)
§ Type of market business is operating in: WHO?
• Challenging to identify
• Online and offline could be different competitors
§ E.g., airplane industry versus consumer products (e.g., Boeing versus
Unilever)
§ Kind of interaction of rivals: HOW?
• What are the dynamics
• Once we know who is on the market, how do we react if the
competitor does something
• Possible price wars
• How can we explain actions?
o Positioning and dynamics: WHY?
§ Are we making good decisions based on the company, do we have
resources, location, good website? …
• What do we have as a company?
• What are we good at?
§ Where do we want to be? low cost, differentiation, ...
§ Which competitive advantage do we want to have? Do we have the
resources and capabilities for that?
§ Most crucial yet difficult
• Not over or underestimating the strengths and weaknesses of
the company
- What is strategy
o Distinguishing strategy from tactics:
§ Strategy is the overall design and philosophy to plan for deploying
resources to establish a favorable position / reach success
§ Tactic is a scheme for a specific maneuver
• It’s different from a strategy
• More short time
o Ex: cheating on an exam
o Ex: I’m going to be in class and fulfill the exams as asked
o Characteristics of strategic decisions:
§ Important
§ Involve a significant commitment of resources
• Hours of resources
• Capital
• Not only money, also time
§ Not easily reversible
• Example: you start studying something, when you decide to do
something else, there will be some classes you took who will
no longer be useful, but you did put time and effort into it
§ Long term
5
