NOTES STRATEGIC MANAGEMENT
Book Summary
LECTURE WEEK 1
Strategy definition = a detailed plan for achieving success in situations such as war, politics,
industry, or support, or the skill of planning for such situations.
From Greek: strategos = the general’s view
Porter’s definition = creation of unique and valuable position, involving different set of activities.
(Activities are the key because they make you reach the strategy)
The book’s definition = is an integrated and coordinated set of commitments and actions designed
to exploit and develop core competencies and gain competitive advantage.
Why is operational effectiveness not a strategy?
• Operational effectiveness is necessary but not sufficient
• If a company focusses too much on operational effectiveness, the problem becomes
imitation. Everyone does it and so it’s not unique
So the company has to differentiate itself with a strategic positioning. This keeps you positioning
unique and not easily replicable.
There are 3 sources of doing a strategic positioning:
1. Product-focused = only one product but good (e.g. hand sanitizer)
2. Customer-need-focused = focus on a specific customer segment group (e.g. yoga products)
3. Access-focused = focus on a specific geographic area (e.g. Bol.com)
Companies aim with strategic positioning to either do different activities or do the same activities in
different ways.
Activities
The activities are what differentiates two similar companies (e.g. Amazon and Bol.com) because
they are not easily replicable. Strategic positioning alone is not enough, one of the companies would
be eaten by the other one.
Example: You want to be the fastest in the market? Anyone could say this but the difference relies in
the activities, hence if you are indeed the fastest. This would mean that your activities are aligned to
your mission.
,2 UNDELYING MODELS
They are used to analyze the external environment of an organization
I/O MODEL RESOURCE-BASED VIEW
A successful competitive advantage is highly Internal characteristics (e.g. resources, the
linked to the external environment (e.g. which team) are the primary determinants for a firm’s
market you are in, whether you should enter a success.
market or not, which market is more
profitable).
Assumptions: Assumptions:
o Resources are mobile o Heterogeneous firm resources
o Rational decision-making o Immobile resources
o Firm strategies are similar in nature o Rational decision-making
→ Porter’s five forces → VRIN Model
,The success of a firm is explained:
20% by the I/O Model
36% by the Resource-based Model
44% by luck (serendipity = discovery by luck combined with a prepared mind)
What is the external environment of a firm?
• The industry
• Other micro-level dynamics
It’s important to analyze this environment and we have some tools that help us do that:
1) General environment analysis
Aka Pastel analysis
Analyzing that environment that is (mostly) out of the control of the firm
It is composed by micro-factors
• Political/ legal (stability and taxation)
• Economic (growth rates, interest rates)
• Socio-cultural (workforce diversity)
• Technology (speed of change)
• Demographic (age, ethnic mix)
• Global (political events)
• Environmental (pollution, resource depletion)
One way of using the general environment analysis is by scenario planning. The goal is to be
prepared for the different scenarios
Industry = group of firms that are active at the same7 similar products on the same market.
When the products are similar, we need to draw boundaries (e.g. luxury cars vs family cars)
After we have identified the industry, we want to analyze its attractiveness with…
Porter’s five forces Model
, Threats of New Entrants
Low if:
– Time and cost of
entry (long)
– Economies of scale
– Technology
protection
– High switching costs
Power of Suppliers Rivalry among existing Power of Buyers
High if: competitors High if:
– Concentration High if: – Concentration
– Importance of input – Large number of – Low production
– High switching costs competitors differentiation
– Forward integration – Low switching costs – Low switching costs
– Slow industry – Backward integration
growth
– High exit barriers
Threats of Substitutes
Substitutes = any product
that can satisfy the same
demand as the products of
the focal industry
High if:
– Better price-quality
ratio
– Low switching costs
All low → the industry is attractive → stay in or enter the industry
All high → industry is not attractive → improve the position or leave the industry (unless there are
important synergies between business units)
BOOK CHAPTER 1
Strategic Management and Strategic Competitiveness
Strategic competitiveness = is achieved when a company successfully formulates and implements a
value-creating strategy.
Average returns = returns that the investors expect to earn from their investment
Above average return = the returns that exceed the expectations of the investor
When at least average returns are not earned, investors withdraw their investment and this leads to
the failure of the firm and its bankruptcy (sometimes liquidation of their operation)
, Strategic management process = is the full set of commitments, decisions and actions required for a
firm to achieve competitive advantage and earn above-average returns.
→ first step of this process: analyzing external environment and internal organization to determine
the resources, capabilities and core competencies. With this in mind, firms define their mission and
formulate a strategy.
Hyper-competition = term used to capture the realities of the competitive landscape.
Under conditions of hyper-competition, assumption of market stability is replaced by notions of
inherent instability and change.
▪ It results from the dynamics of strategic maneuvering among global and innovative
combatants.
▪ It is a condition of rapidly escalating competition based on price-quality positioning,
competition to create know-how and establish first-mover advantage and competition to
protect or invade established product or geographic markets.
▪ In a hyper-competitive market, firms often aggressively challenge their competitors in the
hopes of improving their collective position and ultimately their performance.
Global economy = is one in which goods, services, people, skills and ideas move freely across
geographic borders.
▪ It increases the number of global economies.
▪ It also leads to higher performance standards in many competitive dimensions, including
those of quality, cost, productivity, product introduction time and operational efficiency.
These standards also affect domestic-only companies because customers risk to choose he
global companies if their product is superior.
Liability of foreignness = risks of practicing outside a firm’s domestic country in the global
economy.
Risk 1 = the time consumed in learning how to compete in markets that are new to them
Risk 2 = a firm’s performance may suffer with substantial amounts of globalization → firms may
overdiversify internationally without being able to deal with these extended operations
→ to entry the international market, use the strategic management process
Perpetual innovation = describes how rapidly and consistently new information-intensive
technologies replace older ones.
Disruptive technologies = technologies that destroy the value of an existing technology and create a
new market.
Strategic flexibility = set of capabilities used to respond to various demands and opportunities
existing in a dynamic and uncertain competitive advantage
▪ Involves coping with uncertainty and its risks
▪ Firms should develop flexibility in all areas of their operations
▪ A focus on past core competencies reduces flexibility
I/O MODEL RESOURCE-BASED VIEW
A successful competitive advantage is highly Internal characteristics (e.g. resources, the
linked to the external environment (e.g. which team) are the primary determinants for a firm’s
market you are in, whether you should enter a success.
market or not, which market is more
profitable).
Book Summary
LECTURE WEEK 1
Strategy definition = a detailed plan for achieving success in situations such as war, politics,
industry, or support, or the skill of planning for such situations.
From Greek: strategos = the general’s view
Porter’s definition = creation of unique and valuable position, involving different set of activities.
(Activities are the key because they make you reach the strategy)
The book’s definition = is an integrated and coordinated set of commitments and actions designed
to exploit and develop core competencies and gain competitive advantage.
Why is operational effectiveness not a strategy?
• Operational effectiveness is necessary but not sufficient
• If a company focusses too much on operational effectiveness, the problem becomes
imitation. Everyone does it and so it’s not unique
So the company has to differentiate itself with a strategic positioning. This keeps you positioning
unique and not easily replicable.
There are 3 sources of doing a strategic positioning:
1. Product-focused = only one product but good (e.g. hand sanitizer)
2. Customer-need-focused = focus on a specific customer segment group (e.g. yoga products)
3. Access-focused = focus on a specific geographic area (e.g. Bol.com)
Companies aim with strategic positioning to either do different activities or do the same activities in
different ways.
Activities
The activities are what differentiates two similar companies (e.g. Amazon and Bol.com) because
they are not easily replicable. Strategic positioning alone is not enough, one of the companies would
be eaten by the other one.
Example: You want to be the fastest in the market? Anyone could say this but the difference relies in
the activities, hence if you are indeed the fastest. This would mean that your activities are aligned to
your mission.
,2 UNDELYING MODELS
They are used to analyze the external environment of an organization
I/O MODEL RESOURCE-BASED VIEW
A successful competitive advantage is highly Internal characteristics (e.g. resources, the
linked to the external environment (e.g. which team) are the primary determinants for a firm’s
market you are in, whether you should enter a success.
market or not, which market is more
profitable).
Assumptions: Assumptions:
o Resources are mobile o Heterogeneous firm resources
o Rational decision-making o Immobile resources
o Firm strategies are similar in nature o Rational decision-making
→ Porter’s five forces → VRIN Model
,The success of a firm is explained:
20% by the I/O Model
36% by the Resource-based Model
44% by luck (serendipity = discovery by luck combined with a prepared mind)
What is the external environment of a firm?
• The industry
• Other micro-level dynamics
It’s important to analyze this environment and we have some tools that help us do that:
1) General environment analysis
Aka Pastel analysis
Analyzing that environment that is (mostly) out of the control of the firm
It is composed by micro-factors
• Political/ legal (stability and taxation)
• Economic (growth rates, interest rates)
• Socio-cultural (workforce diversity)
• Technology (speed of change)
• Demographic (age, ethnic mix)
• Global (political events)
• Environmental (pollution, resource depletion)
One way of using the general environment analysis is by scenario planning. The goal is to be
prepared for the different scenarios
Industry = group of firms that are active at the same7 similar products on the same market.
When the products are similar, we need to draw boundaries (e.g. luxury cars vs family cars)
After we have identified the industry, we want to analyze its attractiveness with…
Porter’s five forces Model
, Threats of New Entrants
Low if:
– Time and cost of
entry (long)
– Economies of scale
– Technology
protection
– High switching costs
Power of Suppliers Rivalry among existing Power of Buyers
High if: competitors High if:
– Concentration High if: – Concentration
– Importance of input – Large number of – Low production
– High switching costs competitors differentiation
– Forward integration – Low switching costs – Low switching costs
– Slow industry – Backward integration
growth
– High exit barriers
Threats of Substitutes
Substitutes = any product
that can satisfy the same
demand as the products of
the focal industry
High if:
– Better price-quality
ratio
– Low switching costs
All low → the industry is attractive → stay in or enter the industry
All high → industry is not attractive → improve the position or leave the industry (unless there are
important synergies between business units)
BOOK CHAPTER 1
Strategic Management and Strategic Competitiveness
Strategic competitiveness = is achieved when a company successfully formulates and implements a
value-creating strategy.
Average returns = returns that the investors expect to earn from their investment
Above average return = the returns that exceed the expectations of the investor
When at least average returns are not earned, investors withdraw their investment and this leads to
the failure of the firm and its bankruptcy (sometimes liquidation of their operation)
, Strategic management process = is the full set of commitments, decisions and actions required for a
firm to achieve competitive advantage and earn above-average returns.
→ first step of this process: analyzing external environment and internal organization to determine
the resources, capabilities and core competencies. With this in mind, firms define their mission and
formulate a strategy.
Hyper-competition = term used to capture the realities of the competitive landscape.
Under conditions of hyper-competition, assumption of market stability is replaced by notions of
inherent instability and change.
▪ It results from the dynamics of strategic maneuvering among global and innovative
combatants.
▪ It is a condition of rapidly escalating competition based on price-quality positioning,
competition to create know-how and establish first-mover advantage and competition to
protect or invade established product or geographic markets.
▪ In a hyper-competitive market, firms often aggressively challenge their competitors in the
hopes of improving their collective position and ultimately their performance.
Global economy = is one in which goods, services, people, skills and ideas move freely across
geographic borders.
▪ It increases the number of global economies.
▪ It also leads to higher performance standards in many competitive dimensions, including
those of quality, cost, productivity, product introduction time and operational efficiency.
These standards also affect domestic-only companies because customers risk to choose he
global companies if their product is superior.
Liability of foreignness = risks of practicing outside a firm’s domestic country in the global
economy.
Risk 1 = the time consumed in learning how to compete in markets that are new to them
Risk 2 = a firm’s performance may suffer with substantial amounts of globalization → firms may
overdiversify internationally without being able to deal with these extended operations
→ to entry the international market, use the strategic management process
Perpetual innovation = describes how rapidly and consistently new information-intensive
technologies replace older ones.
Disruptive technologies = technologies that destroy the value of an existing technology and create a
new market.
Strategic flexibility = set of capabilities used to respond to various demands and opportunities
existing in a dynamic and uncertain competitive advantage
▪ Involves coping with uncertainty and its risks
▪ Firms should develop flexibility in all areas of their operations
▪ A focus on past core competencies reduces flexibility
I/O MODEL RESOURCE-BASED VIEW
A successful competitive advantage is highly Internal characteristics (e.g. resources, the
linked to the external environment (e.g. which team) are the primary determinants for a firm’s
market you are in, whether you should enter a success.
market or not, which market is more
profitable).
