Lecture 7 - Strategy (Intro to Bus. Econ)
Strategy= plan to help solve a problem.
Richard Remold!s de nition of strategy: the essence of strategy is the adoption of
coherent, coördinated action by an organization, based on a good diagnosis of its
situation and environment and a guiding policy for its further development.
So in Remolds de nition of corporate strategy, there are 3 key issues that you need
to look into:
1. Analysis of the environment of the organization.
2. Analysis of the organization itself (what it is good in and whatnot)
3. Guiding policy, coherent and consistent plan across all the levels of the
organization.
There are also 3 levels of strategy:
- Corporate strategy: what businesses do we want to be active in, which markets
do we want to further develop, and do we want to grow by buying other rms.
- Business strategy: how you position a particular product in its market. So it
focuses on rms that only sell 1 product.
- Functional strategy:
• like marketing strategies; how are you going to bring your product to the market.
• Or logistics strategies; how are you going to bring your products to the rm
Structure Conduct Performance (SCP) model of strategy: if you study the
characteristics of the structure from a market, then from that the strategies of the
organization would result.
5 forces analysis (5 di erent factors that in uence the strategy of an industry):
1. Competitors: how many competitors are there, how deep are their pockets, what
kind of strategy do they have?
2. Suppliers: the bargaining power of suppliers, do you (as a rm) have a lot of
in uence on the prices of the components of the products?
3. Consumers: what is their bargaining power, are they sensitive to changes in price
or not, do they appreciate variance?
1
,4. Entrants: how easy is it for newcomers (entrants) to gain a position in the market?
5. Substitutes: products that serve the same needs as the product that you sell, but
they are di erent products (think of train tickets and bus tickets)?
What a rm is good at, depends on the resources it has at its disposal.
If a rm has something that competitors don!t have then this rm is able to have a
sustainable competitive advantage over its competitors.
According to the resource-based view, the conditions for this thing that gives you
the advantage are that your resources are:
- Valuable
- Rare
- Inimitable
- Non-substitutable
If you get resources from your stakeholder that are both valuable and rare, it is more
likely that you are able to build a competitive advantage on that resource.
If your resources are then also inimitable and non-substitutable then you will also
prolong the e ect of your advantage.
If your design (or other resources) are easily copied, then you will have a short life
span of success. The same accounts for the competitors ability to substitute your
resources.
In the ideal pro table organization there is a t between what the market needs and
what the organization is able to o er.
If you look at the pro t-function of the organization then it is immediately clear that
there are 2 variables that are able to maximize the pro t of the rm:
1. You can ensure that the per-unit costs are low (achieving cost leadership)
2. 2. You can try to get the price of your product up
Cost leadership can be achieved through improving the value chain:
● Economies of scale: large scale means lower costs (low-cost provider strategy),
you
can get the cost of a product down by using the production process more intensely
● Learning curve: experience means e ciency and thus lower costs
● Cost of input: try to economize (bezuinigen op) resources and sta
2
,● Vertical integration / outsourcing: cheaper and more e cient to give certain tasks
to di erent companies from your own, or to take up some tasks that were
outsourced before (vertical integration)
● First mover advantage: if you are the rst one to make use of an asset you will
make most pro t out of it. This is related to the learning curve
● E cient use of ( xed) assets: make better use of your machines or other assets
You cannot deliver variety in products AND give low prices. Product di erentiation
costs money. It di ers what a company can do depending on the market that is
aimed at (niche or entire):
1. Manufacturers who o er large varieties in cars for large amounts of people
2. Low budget cars for everyone who wants to buy low budget cars
3. Electric vehicles for the wealthy in which variety is o ered
4. Designing cheap cars with which you can go o road
Lecture 8 - Making Sense of People (Soc. Sci)
Attribution theory
- Social judgments: What causes this behavior?
- Nature or nurture?
- We think a person is e.g badass/nice because the behavior we see from them is
badass/nice => This behavior is being attributed as a personality trait
Two Sorts of Attribution:
Internal Attribution: Causes lie within the person (e.g. I am stupid)
External Attribution: Causes lie within the situation (e.g. I couldn’t focus bc it was
too cold in the room)
- People attribute in a way that is comfortable for themselves
- (Nice event = Internal attribution)
- (Bad event = External attribution)
- We di erently attribute things to others than we do to ourselves => Fundamental
attribution error
- Self + negative event > Situation
3
, - Other + negative event > Personality
Car kills dog = Self: Slippery road, Others: Be more careful
- Self + positive event > Personality
- Other + positive event > Situation
Job o er = Self: Best candidate, Others: the only candidate
Consensus, consistency, and distinctiveness
Consensus: Whether others would react in the same manner in the given same
situation
=> You and your friend are at a comedy show
- If your friend is the only one who laughs => Low consensus
- If everyone laughs => High consensus
Consistency: whether an individual acts the same way on other occasions of the
same situation
- If your friend laughs at this comedian now => Consistency is low
- If Tom laughs at the comedian every time => Consistency is high
Distinctiveness: Whether someone reacts the same way in other, unrelated
situations
- If your friend laughs at everything => Distinctiveness is low
- If your friend laughs only at this comedian => Distinctiveness is high
Internal attribution: Change how people think about themselves, changes attitude
and behavior
- Reward and Punishment have an e ect
• Low consensus
• Low Consistency
• Low Distinctiveness
External attributions: People don’t change, because they “blame” the situation
- Reward and Punishment have no e ect
• High consensus
• High consistency
4
Strategy= plan to help solve a problem.
Richard Remold!s de nition of strategy: the essence of strategy is the adoption of
coherent, coördinated action by an organization, based on a good diagnosis of its
situation and environment and a guiding policy for its further development.
So in Remolds de nition of corporate strategy, there are 3 key issues that you need
to look into:
1. Analysis of the environment of the organization.
2. Analysis of the organization itself (what it is good in and whatnot)
3. Guiding policy, coherent and consistent plan across all the levels of the
organization.
There are also 3 levels of strategy:
- Corporate strategy: what businesses do we want to be active in, which markets
do we want to further develop, and do we want to grow by buying other rms.
- Business strategy: how you position a particular product in its market. So it
focuses on rms that only sell 1 product.
- Functional strategy:
• like marketing strategies; how are you going to bring your product to the market.
• Or logistics strategies; how are you going to bring your products to the rm
Structure Conduct Performance (SCP) model of strategy: if you study the
characteristics of the structure from a market, then from that the strategies of the
organization would result.
5 forces analysis (5 di erent factors that in uence the strategy of an industry):
1. Competitors: how many competitors are there, how deep are their pockets, what
kind of strategy do they have?
2. Suppliers: the bargaining power of suppliers, do you (as a rm) have a lot of
in uence on the prices of the components of the products?
3. Consumers: what is their bargaining power, are they sensitive to changes in price
or not, do they appreciate variance?
1
,4. Entrants: how easy is it for newcomers (entrants) to gain a position in the market?
5. Substitutes: products that serve the same needs as the product that you sell, but
they are di erent products (think of train tickets and bus tickets)?
What a rm is good at, depends on the resources it has at its disposal.
If a rm has something that competitors don!t have then this rm is able to have a
sustainable competitive advantage over its competitors.
According to the resource-based view, the conditions for this thing that gives you
the advantage are that your resources are:
- Valuable
- Rare
- Inimitable
- Non-substitutable
If you get resources from your stakeholder that are both valuable and rare, it is more
likely that you are able to build a competitive advantage on that resource.
If your resources are then also inimitable and non-substitutable then you will also
prolong the e ect of your advantage.
If your design (or other resources) are easily copied, then you will have a short life
span of success. The same accounts for the competitors ability to substitute your
resources.
In the ideal pro table organization there is a t between what the market needs and
what the organization is able to o er.
If you look at the pro t-function of the organization then it is immediately clear that
there are 2 variables that are able to maximize the pro t of the rm:
1. You can ensure that the per-unit costs are low (achieving cost leadership)
2. 2. You can try to get the price of your product up
Cost leadership can be achieved through improving the value chain:
● Economies of scale: large scale means lower costs (low-cost provider strategy),
you
can get the cost of a product down by using the production process more intensely
● Learning curve: experience means e ciency and thus lower costs
● Cost of input: try to economize (bezuinigen op) resources and sta
2
,● Vertical integration / outsourcing: cheaper and more e cient to give certain tasks
to di erent companies from your own, or to take up some tasks that were
outsourced before (vertical integration)
● First mover advantage: if you are the rst one to make use of an asset you will
make most pro t out of it. This is related to the learning curve
● E cient use of ( xed) assets: make better use of your machines or other assets
You cannot deliver variety in products AND give low prices. Product di erentiation
costs money. It di ers what a company can do depending on the market that is
aimed at (niche or entire):
1. Manufacturers who o er large varieties in cars for large amounts of people
2. Low budget cars for everyone who wants to buy low budget cars
3. Electric vehicles for the wealthy in which variety is o ered
4. Designing cheap cars with which you can go o road
Lecture 8 - Making Sense of People (Soc. Sci)
Attribution theory
- Social judgments: What causes this behavior?
- Nature or nurture?
- We think a person is e.g badass/nice because the behavior we see from them is
badass/nice => This behavior is being attributed as a personality trait
Two Sorts of Attribution:
Internal Attribution: Causes lie within the person (e.g. I am stupid)
External Attribution: Causes lie within the situation (e.g. I couldn’t focus bc it was
too cold in the room)
- People attribute in a way that is comfortable for themselves
- (Nice event = Internal attribution)
- (Bad event = External attribution)
- We di erently attribute things to others than we do to ourselves => Fundamental
attribution error
- Self + negative event > Situation
3
, - Other + negative event > Personality
Car kills dog = Self: Slippery road, Others: Be more careful
- Self + positive event > Personality
- Other + positive event > Situation
Job o er = Self: Best candidate, Others: the only candidate
Consensus, consistency, and distinctiveness
Consensus: Whether others would react in the same manner in the given same
situation
=> You and your friend are at a comedy show
- If your friend is the only one who laughs => Low consensus
- If everyone laughs => High consensus
Consistency: whether an individual acts the same way on other occasions of the
same situation
- If your friend laughs at this comedian now => Consistency is low
- If Tom laughs at the comedian every time => Consistency is high
Distinctiveness: Whether someone reacts the same way in other, unrelated
situations
- If your friend laughs at everything => Distinctiveness is low
- If your friend laughs only at this comedian => Distinctiveness is high
Internal attribution: Change how people think about themselves, changes attitude
and behavior
- Reward and Punishment have an e ect
• Low consensus
• Low Consistency
• Low Distinctiveness
External attributions: People don’t change, because they “blame” the situation
- Reward and Punishment have no e ect
• High consensus
• High consistency
4
