Summary Strategic
Management
2020
Annie
(Including cases and exam 2020)
!Open book exam!
Black = Slides
Grey = extra from lecture / handbook
0
,Contents
1. Introduction of concepts & schools of thought ............................................................................... 8
1.1. Aim of this course.......................................................................................................................... 8
1.2. The Concept of Strategy: 4 BIG ISSUES ......................................................................................... 8
1.3. What is strategy?........................................................................................................................... 9
1.4. Characteristics of strategic decisions: ........................................................................................... 9
1.5. The role of analysis ........................................................................................................................ 9
1.6. Strategy Making Processes within the Company: multiple Roles of Strategy .............................. 9
1.7. Strategic Plan Hierarchy ................................................................................................................ 9
1.8. What makes a successful strategy?............................................................................................. 10
1.9. The basic framework Strategy: the link between the firm and its environment ........................ 10
1.10. Sources of Superior Profitability ............................................................................................. 10
1.11. Big issues 2, 3 and 4: Besanko et. Al........................................................................................ 10
1.12. Components of “Success” – example ...................................................................................... 11
1.13. The Evolution of Strategic Management ................................................................................ 12
1.14. Strategy Making: Design or Process? ...................................................................................... 12
1.15. Strategy Safari – Mintzberg, Ahlstrand, Lampel...................................................................... 13
1.16. Ten schools .............................................................................................................................. 13
1.16.1. Design school........................................................................................................................... 14
1.16.2. Planning school ....................................................................................................................... 15
1.16.3. Positioning school ................................................................................................................... 15
1.16.4. Entrepreneurial school ............................................................................................................ 16
1.16.5. Cognitive school ...................................................................................................................... 16
1.16.6. Learning school ....................................................................................................................... 16
1.16.7. Power school ........................................................................................................................... 17
1.16.8. Cultural school......................................................................................................................... 17
1.16.9. Environmental school.............................................................................................................. 17
1.16.10. Configuration school ........................................................................................................... 17
2. Chapter 2 – Horizontal Boundaries of the firm ............................................................................. 18
2.1. Intro ............................................................................................................................................. 18
2.2. Determinants horizontal boundaries .......................................................................................... 18
2.2.1. Economies of Scale two options ............................................................................................. 19
2.2.1.1. U-shaped cost curve ............................................................................................................ 19
2.2.1.2. L-shaped cost curve ............................................................................................................. 19
2.2.2. Economies of scope................................................................................................................. 20
2.2.2.1. Sources of economies of scale/scope ................................................................................. 20
1
,2.2.2.2. Fixed costs ........................................................................................................................... 21
2.2.2.3. Trade-offs among technologies........................................................................................... 21
2.2.2.4. Inventories........................................................................................................................... 21
2.2.2.5. Physical Properties of Production ....................................................................................... 22
2.2.2.6. Purchasing => Large buyers can get volume discounts ....................................................... 22
2.2.2.7. Advertising........................................................................................................................... 23
2.2.3. Innovation and size ................................................................................................................. 23
2.2.4. Diseconomies of scale ............................................................................................................. 23
Intermediate Summary ........................................................................................................................... 24
2.2.5. Learning curve ......................................................................................................................... 24
2.2.5.1. Learning curve and scale economies................................................................................... 26
2.3. Why diversify? ............................................................................................................................. 26
2.3.1. Example: Virgin (this is a presentation of 10 years ago, but it’s till a big UK company) ......... 27
2.3.2. Measuring “relatedness”......................................................................................................... 28
2.3.3. Classification by relatedness ................................................................................................... 28
2.3.4. Conglomerates after WWII ..................................................................................................... 28
2.3.5. Entropy Measure of diversification ......................................................................................... 29
2.3.6. Firms can diversify in different ways ....................................................................................... 29
2.3.7. Why do firms diversify? ........................................................................................................... 29
2.3.7.1. Efficiency based reasons that benefit the shareholders: .................................................... 29
2.3.7.2. Managerial reasons: ............................................................................................................ 30
2.3.8. Diversification: long term performance .................................................................................. 30
3. Chapter 3 & 4 – Organizing vertical boundaries ............................................................................ 31
3.1. Vertical boundaries ..................................................................................................................... 31
3.2. Transaction cost theory: essentials ............................................................................................. 31
3.3. Extra from textbook .................................................................................................................... 32
3.4. The trade-off in vertical integration ............................................................................................ 33
3.5. Alternatives to vertical integration ............................................................................................. 34
3.5.1. Tapered integration................................................................................................................. 34
3.5.1.1. Tapered integration in gasoline retailing ............................................................................ 34
3.5.2. Strategic alliances and joint ventures ..................................................................................... 35
3.5.3. Collaborative relationships...................................................................................................... 35
3.5.4. Implicit contracts ..................................................................................................................... 35
2
,4. Chapter 6 – Entry and exit .............................................................................................................. 37
4.1. Forms of entry ............................................................................................................................. 37
4.2. Forms of exit................................................................................................................................ 37
4.3. Evidence on entry and exit .......................................................................................................... 37
4.4. DRS (Dunne, Roberts and Samuelson) findings on entry and exit .............................................. 37
4.4.1. Implication of DRS findings for strategy .................................................................................. 37
4.5. Cost benefit analysis for entry .................................................................................................... 38
4.6. Typology of entry conditions – How incumbents respond to threat? (3) ................................... 38
4.7. Barriers to entry .......................................................................................................................... 39
4.8. Types of structural barriers ......................................................................................................... 39
4.9. Entry deterring strategies: strategic barriers to entry ................................................................ 40
4.9.1. Limit pricing ............................................................................................................................. 40
4.9.1.1. Situations when limit pricing works: ................................................................................... 40
4.9.2. Predatory pricing ..................................................................................................................... 41
4.9.2.1. Is predatory pricing rational? .............................................................................................. 41
4.9.2.2. Situations when predatory pricing works: .......................................................................... 41
4.9.3. Excess capacity and entry deterrence (e.g. Covid and airplane companies) .......................... 41
4.9.3.1. Excess capacity is not always strategic (like Covid & airplanes) ......................................... 41
4.9.3.2. Situations when excess capacity works to deter entry ....................................................... 41
4.10. Exceptions to any strategic barrier to entry............................................................................ 42
4.10.1. Contestable Markets and Entry Deterrence ........................................................................... 42
4.10.2. Entrant’s strategy: “Judo Economics” ..................................................................................... 42
4.10.3. War of attrition ....................................................................................................................... 42
4.11. Evidence on the use of entry deterring strategies .................................................................. 42
4.12. Barriers to exit ......................................................................................................................... 42
5. Chapter 7 – Dynamics: competing across time.............................................................................. 43
5.1. Strategic Commitment ................................................................................................................ 43
5.2. Commitment value of announcements ...................................................................................... 43
5.3. Strategical or tactical? Examples................................................................................................. 43
5.4. Reversible and irreversible moves .............................................................................................. 44
5.5. Strategic commitment and competition ..................................................................................... 44
5.6. Factors that influence the strategic effect .................................................................................. 45
5.7. Flexibilty and Option value.......................................................................................................... 45
5.7.1. Commitment-flexibility trade-off ............................................................................................ 45
5.8. Dynamic price competition ......................................................................................................... 45
5.9. Dynamic vs. Static Models........................................................................................................... 45
3
,5.10. Cournot and Bertrand Models ................................................................................................ 46
5.11. Dynamic model scenarios ....................................................................................................... 46
5.12. Cooperative pricing as a dynamic model ................................................................................ 46
5.13. Market structure, cooperative pricing .................................................................................... 47
5.14. Practices that facilitate cooperative pricing............................................................................ 47
5.15. Quality competition ................................................................................................................ 47
6. Chapter 8 – Industry analysis ......................................................................................................... 48
6.1. Industry analysis .......................................................................................................................... 48
6.2. Porter’s 5 Forces Framework ...................................................................................................... 48
6.2.1. Intern rivalry ............................................................................................................................ 48
6.2.1.1. Price competition ................................................................................................................ 48
6.2.2. Entry ........................................................................................................................................ 49
6.2.2.1. Factors that affect the threat of entry ................................................................................ 49
6.2.3. Substitutes and complements ................................................................................................. 49
6.2.4. Supplier power ........................................................................................................................ 49
6.2.4.1. Factors that determine supplier power .............................................................................. 49
6.3. Some strategies to cope with the Five Forces............................................................................. 49
6.4. “Five Forces” and “Value Net” .................................................................................................... 50
6.5. Examples of cooperative interactions among firms.................................................................... 50
6.6. Five Forces analysis of Chicago Hospitals.................................................................................... 50
6.6.1. Market definition .................................................................................................................... 50
6.6.2. Internal Rivalry ........................................................................................................................ 50
6.6.3. Entry ........................................................................................................................................ 50
6.6.4. Substitutes/ complements ...................................................................................................... 50
6.6.5. Supplier power ........................................................................................................................ 50
6.6.6. Buyer power ............................................................................................................................ 51
6.6.7. Summary ................................................................................................................................. 51
7. Chapter 9 – Strategic positioning for competitive advantage ...................................................... 52
7.1. Competitive advantage and profitability: evidence .................................................................... 52
7.2. Strategic positioning.................................................................................................................... 52
7.3. Competitive advantage and value creation ................................................................................ 52
7.4. Value creation and profitability .................................................................................................. 53
7.5. Components of consumer surplus .............................................................................................. 53
7.6. Price-quality trade-off ................................................................................................................. 53
7.7. Value map: an illustration ........................................................................................................... 54
7.8. Value created and economic profits ........................................................................................... 54
4
,7.9. Value created and competitive advantage ................................................................................. 54
7.10. Where to look for value? The Value Chain.............................................................................. 54
7.11. Michael Porter’s Value Chain .................................................................................................. 55
7.11.1. Using the value chain to identify differentiation potential on the supply side ...................... 55
7.11.2. Value chain and competitive advantage ................................................................................. 55
7.11.3. Evaluating the organization of the vertical chain.................................................................... 55
7.11.4. Value creation and resources and capabilities........................................................................ 56
7.12. The emergence of competitive advantage ............................................................................. 57
7.13. Sources of competitive advantage .......................................................................................... 57
7.14. Porter’s generic strategies ...................................................................................................... 57
7.15. Stuck in the middle? Porter’s three generic strategies ........................................................... 57
7.16. Features of cost leadership and differentiation strategies ..................................................... 58
7.17. Drivers of cost advantage ....................................................................................................... 58
7.18. Using the value chain analysis to explore cost-saving : Singapore Airlines ............................ 59
8. Chapter 11 – Sustaining competitive advantage ........................................................................... 60
8.1. Sustainability with monopolistic competition............................................................................. 60
8.2. Threats to sustainability regardless of market structure ............................................................ 60
8.3. Lifecycle of competitive advantage............................................................................................. 60
8.4. Sustaining competitive advantage .............................................................................................. 60
8.4 Sustaining competitive advantage (continued) ................................................................................ 61
8.4.1. Impediments to imitation ....................................................................................................... 62
8.4.2. Early-mover advantage ........................................................................................................... 62
8.5. Virtual network ........................................................................................................................... 63
8.6. Summary CA and sustainability ................................................................................................... 63
8.7. Dynamic capabilities.................................................................................................................... 63
8.7.1. Factors that limit dynamic capabilities.................................................................................... 63
8.7.2. Path dependence .................................................................................................................... 64
9.1. Porter’s Diamond framework .................................................................................................... 64
9.2. “What creates prosperity?” ........................................................................................................ 65
9.3. Frameworks supporting competitiveness analysis ..................................................................... 66
9.4. Determinants of competitiveness “The Core Framework” ......................................................... 66
9.4.1. Endowments............................................................................................................................ 66
9.4.2. Macroeconomic competitiveness ........................................................................................... 67
9.4.2.1. Sound monetary and fiscal policy ....................................................................................... 67
9.4.2.2. Human development and effective public institutions ....................................................... 67
9.4.3. Microeconomic competitiveness ........................................................................................... 68
5
,9.4.3.1. Sophistication of company operations and strategy .......................................................... 68
9.4.3.2. Quality of the Business Environment .................................................................................. 69
9.4.3.3. State of cluster development .............................................................................................. 71
9.5. Creating Shared Value (CSV) ....................................................................................................... 74
9.5.1. Corporate Social Responsibility (CSR) .................................................................................. 74
9.5.2. How to create shared value opportunities?............................................................................ 75
9.5.3. Examples of CSV ...................................................................................................................... 76
10. Chapter 13 – Strategy and Structure.......................................................................................... 77
10.1. Designing organizational structure ......................................................................................... 77
10.2. Determinants of structure....................................................................................................... 77
10.3. Fundamentals of Organizing ................................................................................................... 78
10.4. Complex hierarchy .................................................................................................................. 78
10.5. Types of organizational structures .......................................................................................... 79
10.5.1. Functional organization (U-form) ............................................................................................ 79
10.5.2. Multidivisional Organization (M-form) ................................................................................... 79
10.5.3. Divisional Organization............................................................................................................ 80
Customer and geographic divisions: ....................................................................................................... 80
10.5.4. Matrix organization ................................................................................................................. 80
10.5.5. Network organization.............................................................................................................. 81
10.6. Strategy – structure coherence ............................................................................................... 82
10.7. Exam question ......................................................................................................................... 82
11. Chapter 14 – Environment, power and culture ......................................................................... 83
11.1. Social context of firm behavior ............................................................................................... 83
11.2. Internal context ....................................................................................................................... 83
11.3. Power and culture ................................................................................................................... 84
11.4. Do we need power? ................................................................................................................ 84
11.5. Power and culture ................................................................................................................... 84
11.6. External contexts ..................................................................................................................... 84
12. Appendix ..................................................................................................................................... 85
12.1. Exam strategic management january 2019............................................................................. 85
Case 1 : MAERSK .............................................................................................................................. 85
Case 2 : STARBUCKS......................................................................................................................... 85
12.2. Solution of 3 assignments (year unknown) ............................................................................. 86
12.2.1. Case 1 – Shell ........................................................................................................................... 86
12.2.2. Case 2 – Tesla .......................................................................................................................... 87
6
,12.2.3. Case 3 – Ryanair ...................................................................................................................... 89
12.2.4. Case 4 – Yara International Africa Strategy ............................................................................. 94
12.3. ‘How To Do’ – Value Chain Analysis....................................................................................... 99
12.3.1. Value chain analysis for McDonald’s and its cost leadership strategy.................................. 100
12.3.2. Value chain for Starbucks ...................................................................................................... 101
12.3.3. Value chain for Dell ............................................................................................................... 102
12.4. ‘How To Do’ - SWOT ............................................................................................................. 104
12.4.1. SWOT Analysis for Netflix ...................................................................................................... 104
12.5. ‘How To Do’ - Porter’s Diamond model ............................................................................... 106
12.5.1. Germany’s Luxury Car Manufacturing Industry .................................................................... 106
12.5.2. Mobile telecommunication ................................................................................................... 107
12.6. ‘How To Do’ - Porter’s Five Forces ....................................................................................... 108
12.6.1. Netflix .................................................................................................................................... 108
12.6.2. Mc Donald’s........................................................................................................................... 109
12.7. ‘How To Do’ - Porter’s Generic Strategies ........................................................................... 110
12.8. ‘How To Do’ - BCG................................................................................................................. 112
12.9. Case discussions 2020-2021 .................................................................................................. 114
12.10. Case 1 : Porsche .................................................................................................................... 114
12.11. Case 2: Walmart.................................................................................................................... 116
12.12. Case 3: Wumart .................................................................................................................... 118
12.13. Case 4: Netflix ....................................................................................................................... 122
12.14. Case 5: Starbucks .................................................................................................................. 126
7
,1. Introduction of concepts & schools of thought
1.1. Aim of this course
• Critically understanding concepts, schools of thought and current trends
o How they look at strategy, from different angels, over a period of 50 years
o Young stream of science, starting with the military strategy in he 2nd WW and then from there
we see the first research appearing and exponentially booming from the 60’s on.
• Knowing and applying strategy instruments/analyses/frameworks
• Understanding principles, but also their limitations in the context of market/business reality
• Importance of links and assumptions
1.2. The Concept of Strategy: 4 BIG ISSUES
1. Concept and evolution of strategic “schools of thought” WHAT?
o How did SM develop as a science?
2. Boundaries of the firm: WHERE?
o Horizontal: size of the company, how much producing
o Vertical: what will we produce or buy?
o Corporate (company as a whole): on which markets do we want to be?
3. Competition: WHO and HOW?
o Type of market business is operating
o Kind of interaction of rivals
4. Positioning and dynamics: WHY?
o Where do we want to be? Low cost? Differentiation?...
o Which competitive advantage do we want to have? Do we have the resource
and capabilities for that?
The first issue in corporate strategy: “What are the boundaries of our firm, what do we do, and what do we
do not?”
o E.g.: You’re in IT: “Do we do only hardware or do we make also the software to that, do we add services?
To make the software individual for our customers?
o If you have a value chain from raw materials to end consumers, we can look at the boundaries in a
horizontal way, how many products or you can look in the vertical way: ‘I’m going to make a soft drink
but also the packaging for distribution and I’m even controlling the distribution channel myself or e.g. I
make diamonds but I also own the mines (upstream or downstream integration).
o Finally, in which markets do we want to be, which can be horizontally or vertically segmented, so finally
we decide on our portfolio = portfolio management = C-level.
o The CEO and his/her team, they wonder about this, over and over again, if the market’s changing,
competitors change, if they’re considering a merger or acquisition,… it’s with all that in their mind, ‘what
are the boundaries of our firm’. There are mainly efficiency related & managerial (e.g. be CEO of a bigger
firm) related reasons. Typically when there are no managerial reasons behind this, it doesn’t last long.
Who and how are we competing? – Business Unit Level
o Who else is in that market?
Once we know who’s there, how do we interact? If they do ‘this’, what should we do?
o E.g. they apply limit pricing / predatory pricing this is potentially starting a price war, what is the best
reaction to that and how do we explain this? And even though explicit price corporation is illegal, a lot
of companies do apply some kind price coordination…
o Our decision depend also on the basic resources we have
8
, 1.3. What is strategy?
Distinguishing strategy from tactics:
• Strategy = the overall design and philosophy to plan for deploying resources to establish a favorable
position/ reach success
o Usually LT
o Significant commitment of resources (not only money wise)
o Not easily reversible
• Tactic = a scheme for a specific maneuver
o Short term
1.4. Characteristics of strategic decisions:
• Important
• Involve a significant commitment of resources
• Not easily reversible
1.5. The role of analysis
• Strategy analysis improves/supports decision processes, but doesn’t give answers
• Strategy analysis assists us to identify and understand the main challenges of organizations/
businesses
• Strategy analysis helps us to manage complexity
• Strategy analysis can enhance flexibility and innovation by supporting learning
1.6. Strategy Making Processes within the Company: multiple Roles of Strategy
1.7. Strategic Plan Hierarchy
(KPI’s)
9
Management
2020
Annie
(Including cases and exam 2020)
!Open book exam!
Black = Slides
Grey = extra from lecture / handbook
0
,Contents
1. Introduction of concepts & schools of thought ............................................................................... 8
1.1. Aim of this course.......................................................................................................................... 8
1.2. The Concept of Strategy: 4 BIG ISSUES ......................................................................................... 8
1.3. What is strategy?........................................................................................................................... 9
1.4. Characteristics of strategic decisions: ........................................................................................... 9
1.5. The role of analysis ........................................................................................................................ 9
1.6. Strategy Making Processes within the Company: multiple Roles of Strategy .............................. 9
1.7. Strategic Plan Hierarchy ................................................................................................................ 9
1.8. What makes a successful strategy?............................................................................................. 10
1.9. The basic framework Strategy: the link between the firm and its environment ........................ 10
1.10. Sources of Superior Profitability ............................................................................................. 10
1.11. Big issues 2, 3 and 4: Besanko et. Al........................................................................................ 10
1.12. Components of “Success” – example ...................................................................................... 11
1.13. The Evolution of Strategic Management ................................................................................ 12
1.14. Strategy Making: Design or Process? ...................................................................................... 12
1.15. Strategy Safari – Mintzberg, Ahlstrand, Lampel...................................................................... 13
1.16. Ten schools .............................................................................................................................. 13
1.16.1. Design school........................................................................................................................... 14
1.16.2. Planning school ....................................................................................................................... 15
1.16.3. Positioning school ................................................................................................................... 15
1.16.4. Entrepreneurial school ............................................................................................................ 16
1.16.5. Cognitive school ...................................................................................................................... 16
1.16.6. Learning school ....................................................................................................................... 16
1.16.7. Power school ........................................................................................................................... 17
1.16.8. Cultural school......................................................................................................................... 17
1.16.9. Environmental school.............................................................................................................. 17
1.16.10. Configuration school ........................................................................................................... 17
2. Chapter 2 – Horizontal Boundaries of the firm ............................................................................. 18
2.1. Intro ............................................................................................................................................. 18
2.2. Determinants horizontal boundaries .......................................................................................... 18
2.2.1. Economies of Scale two options ............................................................................................. 19
2.2.1.1. U-shaped cost curve ............................................................................................................ 19
2.2.1.2. L-shaped cost curve ............................................................................................................. 19
2.2.2. Economies of scope................................................................................................................. 20
2.2.2.1. Sources of economies of scale/scope ................................................................................. 20
1
,2.2.2.2. Fixed costs ........................................................................................................................... 21
2.2.2.3. Trade-offs among technologies........................................................................................... 21
2.2.2.4. Inventories........................................................................................................................... 21
2.2.2.5. Physical Properties of Production ....................................................................................... 22
2.2.2.6. Purchasing => Large buyers can get volume discounts ....................................................... 22
2.2.2.7. Advertising........................................................................................................................... 23
2.2.3. Innovation and size ................................................................................................................. 23
2.2.4. Diseconomies of scale ............................................................................................................. 23
Intermediate Summary ........................................................................................................................... 24
2.2.5. Learning curve ......................................................................................................................... 24
2.2.5.1. Learning curve and scale economies................................................................................... 26
2.3. Why diversify? ............................................................................................................................. 26
2.3.1. Example: Virgin (this is a presentation of 10 years ago, but it’s till a big UK company) ......... 27
2.3.2. Measuring “relatedness”......................................................................................................... 28
2.3.3. Classification by relatedness ................................................................................................... 28
2.3.4. Conglomerates after WWII ..................................................................................................... 28
2.3.5. Entropy Measure of diversification ......................................................................................... 29
2.3.6. Firms can diversify in different ways ....................................................................................... 29
2.3.7. Why do firms diversify? ........................................................................................................... 29
2.3.7.1. Efficiency based reasons that benefit the shareholders: .................................................... 29
2.3.7.2. Managerial reasons: ............................................................................................................ 30
2.3.8. Diversification: long term performance .................................................................................. 30
3. Chapter 3 & 4 – Organizing vertical boundaries ............................................................................ 31
3.1. Vertical boundaries ..................................................................................................................... 31
3.2. Transaction cost theory: essentials ............................................................................................. 31
3.3. Extra from textbook .................................................................................................................... 32
3.4. The trade-off in vertical integration ............................................................................................ 33
3.5. Alternatives to vertical integration ............................................................................................. 34
3.5.1. Tapered integration................................................................................................................. 34
3.5.1.1. Tapered integration in gasoline retailing ............................................................................ 34
3.5.2. Strategic alliances and joint ventures ..................................................................................... 35
3.5.3. Collaborative relationships...................................................................................................... 35
3.5.4. Implicit contracts ..................................................................................................................... 35
2
,4. Chapter 6 – Entry and exit .............................................................................................................. 37
4.1. Forms of entry ............................................................................................................................. 37
4.2. Forms of exit................................................................................................................................ 37
4.3. Evidence on entry and exit .......................................................................................................... 37
4.4. DRS (Dunne, Roberts and Samuelson) findings on entry and exit .............................................. 37
4.4.1. Implication of DRS findings for strategy .................................................................................. 37
4.5. Cost benefit analysis for entry .................................................................................................... 38
4.6. Typology of entry conditions – How incumbents respond to threat? (3) ................................... 38
4.7. Barriers to entry .......................................................................................................................... 39
4.8. Types of structural barriers ......................................................................................................... 39
4.9. Entry deterring strategies: strategic barriers to entry ................................................................ 40
4.9.1. Limit pricing ............................................................................................................................. 40
4.9.1.1. Situations when limit pricing works: ................................................................................... 40
4.9.2. Predatory pricing ..................................................................................................................... 41
4.9.2.1. Is predatory pricing rational? .............................................................................................. 41
4.9.2.2. Situations when predatory pricing works: .......................................................................... 41
4.9.3. Excess capacity and entry deterrence (e.g. Covid and airplane companies) .......................... 41
4.9.3.1. Excess capacity is not always strategic (like Covid & airplanes) ......................................... 41
4.9.3.2. Situations when excess capacity works to deter entry ....................................................... 41
4.10. Exceptions to any strategic barrier to entry............................................................................ 42
4.10.1. Contestable Markets and Entry Deterrence ........................................................................... 42
4.10.2. Entrant’s strategy: “Judo Economics” ..................................................................................... 42
4.10.3. War of attrition ....................................................................................................................... 42
4.11. Evidence on the use of entry deterring strategies .................................................................. 42
4.12. Barriers to exit ......................................................................................................................... 42
5. Chapter 7 – Dynamics: competing across time.............................................................................. 43
5.1. Strategic Commitment ................................................................................................................ 43
5.2. Commitment value of announcements ...................................................................................... 43
5.3. Strategical or tactical? Examples................................................................................................. 43
5.4. Reversible and irreversible moves .............................................................................................. 44
5.5. Strategic commitment and competition ..................................................................................... 44
5.6. Factors that influence the strategic effect .................................................................................. 45
5.7. Flexibilty and Option value.......................................................................................................... 45
5.7.1. Commitment-flexibility trade-off ............................................................................................ 45
5.8. Dynamic price competition ......................................................................................................... 45
5.9. Dynamic vs. Static Models........................................................................................................... 45
3
,5.10. Cournot and Bertrand Models ................................................................................................ 46
5.11. Dynamic model scenarios ....................................................................................................... 46
5.12. Cooperative pricing as a dynamic model ................................................................................ 46
5.13. Market structure, cooperative pricing .................................................................................... 47
5.14. Practices that facilitate cooperative pricing............................................................................ 47
5.15. Quality competition ................................................................................................................ 47
6. Chapter 8 – Industry analysis ......................................................................................................... 48
6.1. Industry analysis .......................................................................................................................... 48
6.2. Porter’s 5 Forces Framework ...................................................................................................... 48
6.2.1. Intern rivalry ............................................................................................................................ 48
6.2.1.1. Price competition ................................................................................................................ 48
6.2.2. Entry ........................................................................................................................................ 49
6.2.2.1. Factors that affect the threat of entry ................................................................................ 49
6.2.3. Substitutes and complements ................................................................................................. 49
6.2.4. Supplier power ........................................................................................................................ 49
6.2.4.1. Factors that determine supplier power .............................................................................. 49
6.3. Some strategies to cope with the Five Forces............................................................................. 49
6.4. “Five Forces” and “Value Net” .................................................................................................... 50
6.5. Examples of cooperative interactions among firms.................................................................... 50
6.6. Five Forces analysis of Chicago Hospitals.................................................................................... 50
6.6.1. Market definition .................................................................................................................... 50
6.6.2. Internal Rivalry ........................................................................................................................ 50
6.6.3. Entry ........................................................................................................................................ 50
6.6.4. Substitutes/ complements ...................................................................................................... 50
6.6.5. Supplier power ........................................................................................................................ 50
6.6.6. Buyer power ............................................................................................................................ 51
6.6.7. Summary ................................................................................................................................. 51
7. Chapter 9 – Strategic positioning for competitive advantage ...................................................... 52
7.1. Competitive advantage and profitability: evidence .................................................................... 52
7.2. Strategic positioning.................................................................................................................... 52
7.3. Competitive advantage and value creation ................................................................................ 52
7.4. Value creation and profitability .................................................................................................. 53
7.5. Components of consumer surplus .............................................................................................. 53
7.6. Price-quality trade-off ................................................................................................................. 53
7.7. Value map: an illustration ........................................................................................................... 54
7.8. Value created and economic profits ........................................................................................... 54
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,7.9. Value created and competitive advantage ................................................................................. 54
7.10. Where to look for value? The Value Chain.............................................................................. 54
7.11. Michael Porter’s Value Chain .................................................................................................. 55
7.11.1. Using the value chain to identify differentiation potential on the supply side ...................... 55
7.11.2. Value chain and competitive advantage ................................................................................. 55
7.11.3. Evaluating the organization of the vertical chain.................................................................... 55
7.11.4. Value creation and resources and capabilities........................................................................ 56
7.12. The emergence of competitive advantage ............................................................................. 57
7.13. Sources of competitive advantage .......................................................................................... 57
7.14. Porter’s generic strategies ...................................................................................................... 57
7.15. Stuck in the middle? Porter’s three generic strategies ........................................................... 57
7.16. Features of cost leadership and differentiation strategies ..................................................... 58
7.17. Drivers of cost advantage ....................................................................................................... 58
7.18. Using the value chain analysis to explore cost-saving : Singapore Airlines ............................ 59
8. Chapter 11 – Sustaining competitive advantage ........................................................................... 60
8.1. Sustainability with monopolistic competition............................................................................. 60
8.2. Threats to sustainability regardless of market structure ............................................................ 60
8.3. Lifecycle of competitive advantage............................................................................................. 60
8.4. Sustaining competitive advantage .............................................................................................. 60
8.4 Sustaining competitive advantage (continued) ................................................................................ 61
8.4.1. Impediments to imitation ....................................................................................................... 62
8.4.2. Early-mover advantage ........................................................................................................... 62
8.5. Virtual network ........................................................................................................................... 63
8.6. Summary CA and sustainability ................................................................................................... 63
8.7. Dynamic capabilities.................................................................................................................... 63
8.7.1. Factors that limit dynamic capabilities.................................................................................... 63
8.7.2. Path dependence .................................................................................................................... 64
9.1. Porter’s Diamond framework .................................................................................................... 64
9.2. “What creates prosperity?” ........................................................................................................ 65
9.3. Frameworks supporting competitiveness analysis ..................................................................... 66
9.4. Determinants of competitiveness “The Core Framework” ......................................................... 66
9.4.1. Endowments............................................................................................................................ 66
9.4.2. Macroeconomic competitiveness ........................................................................................... 67
9.4.2.1. Sound monetary and fiscal policy ....................................................................................... 67
9.4.2.2. Human development and effective public institutions ....................................................... 67
9.4.3. Microeconomic competitiveness ........................................................................................... 68
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,9.4.3.1. Sophistication of company operations and strategy .......................................................... 68
9.4.3.2. Quality of the Business Environment .................................................................................. 69
9.4.3.3. State of cluster development .............................................................................................. 71
9.5. Creating Shared Value (CSV) ....................................................................................................... 74
9.5.1. Corporate Social Responsibility (CSR) .................................................................................. 74
9.5.2. How to create shared value opportunities?............................................................................ 75
9.5.3. Examples of CSV ...................................................................................................................... 76
10. Chapter 13 – Strategy and Structure.......................................................................................... 77
10.1. Designing organizational structure ......................................................................................... 77
10.2. Determinants of structure....................................................................................................... 77
10.3. Fundamentals of Organizing ................................................................................................... 78
10.4. Complex hierarchy .................................................................................................................. 78
10.5. Types of organizational structures .......................................................................................... 79
10.5.1. Functional organization (U-form) ............................................................................................ 79
10.5.2. Multidivisional Organization (M-form) ................................................................................... 79
10.5.3. Divisional Organization............................................................................................................ 80
Customer and geographic divisions: ....................................................................................................... 80
10.5.4. Matrix organization ................................................................................................................. 80
10.5.5. Network organization.............................................................................................................. 81
10.6. Strategy – structure coherence ............................................................................................... 82
10.7. Exam question ......................................................................................................................... 82
11. Chapter 14 – Environment, power and culture ......................................................................... 83
11.1. Social context of firm behavior ............................................................................................... 83
11.2. Internal context ....................................................................................................................... 83
11.3. Power and culture ................................................................................................................... 84
11.4. Do we need power? ................................................................................................................ 84
11.5. Power and culture ................................................................................................................... 84
11.6. External contexts ..................................................................................................................... 84
12. Appendix ..................................................................................................................................... 85
12.1. Exam strategic management january 2019............................................................................. 85
Case 1 : MAERSK .............................................................................................................................. 85
Case 2 : STARBUCKS......................................................................................................................... 85
12.2. Solution of 3 assignments (year unknown) ............................................................................. 86
12.2.1. Case 1 – Shell ........................................................................................................................... 86
12.2.2. Case 2 – Tesla .......................................................................................................................... 87
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,12.2.3. Case 3 – Ryanair ...................................................................................................................... 89
12.2.4. Case 4 – Yara International Africa Strategy ............................................................................. 94
12.3. ‘How To Do’ – Value Chain Analysis....................................................................................... 99
12.3.1. Value chain analysis for McDonald’s and its cost leadership strategy.................................. 100
12.3.2. Value chain for Starbucks ...................................................................................................... 101
12.3.3. Value chain for Dell ............................................................................................................... 102
12.4. ‘How To Do’ - SWOT ............................................................................................................. 104
12.4.1. SWOT Analysis for Netflix ...................................................................................................... 104
12.5. ‘How To Do’ - Porter’s Diamond model ............................................................................... 106
12.5.1. Germany’s Luxury Car Manufacturing Industry .................................................................... 106
12.5.2. Mobile telecommunication ................................................................................................... 107
12.6. ‘How To Do’ - Porter’s Five Forces ....................................................................................... 108
12.6.1. Netflix .................................................................................................................................... 108
12.6.2. Mc Donald’s........................................................................................................................... 109
12.7. ‘How To Do’ - Porter’s Generic Strategies ........................................................................... 110
12.8. ‘How To Do’ - BCG................................................................................................................. 112
12.9. Case discussions 2020-2021 .................................................................................................. 114
12.10. Case 1 : Porsche .................................................................................................................... 114
12.11. Case 2: Walmart.................................................................................................................... 116
12.12. Case 3: Wumart .................................................................................................................... 118
12.13. Case 4: Netflix ....................................................................................................................... 122
12.14. Case 5: Starbucks .................................................................................................................. 126
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,1. Introduction of concepts & schools of thought
1.1. Aim of this course
• Critically understanding concepts, schools of thought and current trends
o How they look at strategy, from different angels, over a period of 50 years
o Young stream of science, starting with the military strategy in he 2nd WW and then from there
we see the first research appearing and exponentially booming from the 60’s on.
• Knowing and applying strategy instruments/analyses/frameworks
• Understanding principles, but also their limitations in the context of market/business reality
• Importance of links and assumptions
1.2. The Concept of Strategy: 4 BIG ISSUES
1. Concept and evolution of strategic “schools of thought” WHAT?
o How did SM develop as a science?
2. Boundaries of the firm: WHERE?
o Horizontal: size of the company, how much producing
o Vertical: what will we produce or buy?
o Corporate (company as a whole): on which markets do we want to be?
3. Competition: WHO and HOW?
o Type of market business is operating
o Kind of interaction of rivals
4. Positioning and dynamics: WHY?
o Where do we want to be? Low cost? Differentiation?...
o Which competitive advantage do we want to have? Do we have the resource
and capabilities for that?
The first issue in corporate strategy: “What are the boundaries of our firm, what do we do, and what do we
do not?”
o E.g.: You’re in IT: “Do we do only hardware or do we make also the software to that, do we add services?
To make the software individual for our customers?
o If you have a value chain from raw materials to end consumers, we can look at the boundaries in a
horizontal way, how many products or you can look in the vertical way: ‘I’m going to make a soft drink
but also the packaging for distribution and I’m even controlling the distribution channel myself or e.g. I
make diamonds but I also own the mines (upstream or downstream integration).
o Finally, in which markets do we want to be, which can be horizontally or vertically segmented, so finally
we decide on our portfolio = portfolio management = C-level.
o The CEO and his/her team, they wonder about this, over and over again, if the market’s changing,
competitors change, if they’re considering a merger or acquisition,… it’s with all that in their mind, ‘what
are the boundaries of our firm’. There are mainly efficiency related & managerial (e.g. be CEO of a bigger
firm) related reasons. Typically when there are no managerial reasons behind this, it doesn’t last long.
Who and how are we competing? – Business Unit Level
o Who else is in that market?
Once we know who’s there, how do we interact? If they do ‘this’, what should we do?
o E.g. they apply limit pricing / predatory pricing this is potentially starting a price war, what is the best
reaction to that and how do we explain this? And even though explicit price corporation is illegal, a lot
of companies do apply some kind price coordination…
o Our decision depend also on the basic resources we have
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, 1.3. What is strategy?
Distinguishing strategy from tactics:
• Strategy = the overall design and philosophy to plan for deploying resources to establish a favorable
position/ reach success
o Usually LT
o Significant commitment of resources (not only money wise)
o Not easily reversible
• Tactic = a scheme for a specific maneuver
o Short term
1.4. Characteristics of strategic decisions:
• Important
• Involve a significant commitment of resources
• Not easily reversible
1.5. The role of analysis
• Strategy analysis improves/supports decision processes, but doesn’t give answers
• Strategy analysis assists us to identify and understand the main challenges of organizations/
businesses
• Strategy analysis helps us to manage complexity
• Strategy analysis can enhance flexibility and innovation by supporting learning
1.6. Strategy Making Processes within the Company: multiple Roles of Strategy
1.7. Strategic Plan Hierarchy
(KPI’s)
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