Chapter 1
Strategy ≠ tactics
Strategy - an integrated and coordinated set of commitments and actions designed to develop and
exploit core competencies and gain a competitive advantage, to eventually achieve above-average
returns.
Firms achieve strategic competitiveness by formulating and implementing a value creating strategy.
1. Firms have a competitive advantage when they implement a strategy that competitors
are unable to imitate.
2. Core competencies are capabilities that serve as a source of a firm's competitive
advantage, it's a unique skill of the firm.
3. Above average returns = profits/returns in addition to what an investor expects to earn
from another investment with a similar amount of risk. So it's not about profits in
absolute terms but profits in relative terms.
Average returns - returns equal to those an investor expects to earn from other investments
possessing a similar amount of risk.
Strategic management process = the full set of commitments, decisions and actions firms take to
achieve strategic competitiveness and earn above-average returns.
Conventional sources such as economies of scale and large advertising budgets are not as effective as
they once were in terms of helping firms earn above average returns. In addition to this, managers
must adopt a new mind-set that values flexibility, speed, innovation, integration, and the challenges
flowing from constantly changing conditions.
When there is hypercompetition it is difficult for firms to maintain a competitive advantage.
There are 2 models to select and implement strategy:
1. I/O model (industrial organization model), the external environment is the primary
determinant of the firm's strategic action.
The model suggests 2 things;
● Firms can earn above-average returns by producing either standardized products at costs
below those of competitors → cost leadership strategy.
● Firms can earn above average returns by producing differentiated products for which
customers are willing to pay a premium price → differentiation strategy.
Assumptions: - Strategic determination by external environment.
- Similarity of most firms’ resources and strategies within a given industry.
- Resources are highly mobile across firms. They spread out fast in the
industry.
- Rational decision-making for profit maximization.
1
Strategy ≠ tactics
Strategy - an integrated and coordinated set of commitments and actions designed to develop and
exploit core competencies and gain a competitive advantage, to eventually achieve above-average
returns.
Firms achieve strategic competitiveness by formulating and implementing a value creating strategy.
1. Firms have a competitive advantage when they implement a strategy that competitors
are unable to imitate.
2. Core competencies are capabilities that serve as a source of a firm's competitive
advantage, it's a unique skill of the firm.
3. Above average returns = profits/returns in addition to what an investor expects to earn
from another investment with a similar amount of risk. So it's not about profits in
absolute terms but profits in relative terms.
Average returns - returns equal to those an investor expects to earn from other investments
possessing a similar amount of risk.
Strategic management process = the full set of commitments, decisions and actions firms take to
achieve strategic competitiveness and earn above-average returns.
Conventional sources such as economies of scale and large advertising budgets are not as effective as
they once were in terms of helping firms earn above average returns. In addition to this, managers
must adopt a new mind-set that values flexibility, speed, innovation, integration, and the challenges
flowing from constantly changing conditions.
When there is hypercompetition it is difficult for firms to maintain a competitive advantage.
There are 2 models to select and implement strategy:
1. I/O model (industrial organization model), the external environment is the primary
determinant of the firm's strategic action.
The model suggests 2 things;
● Firms can earn above-average returns by producing either standardized products at costs
below those of competitors → cost leadership strategy.
● Firms can earn above average returns by producing differentiated products for which
customers are willing to pay a premium price → differentiation strategy.
Assumptions: - Strategic determination by external environment.
- Similarity of most firms’ resources and strategies within a given industry.
- Resources are highly mobile across firms. They spread out fast in the
industry.
- Rational decision-making for profit maximization.
1
