THEORIES OF STRATEGY
Study guide (2022-2023)
Prof. dr. ir. J.W. Stoelhorst
Inhoudsopgave
Introduction.................................................................................................................................................................................. 4
How you will be assessed............................................................................................................................................................... 5
Some notes on answering open-ended essay questions.................................................................................................................. 5
Meeting 1.1: Economic foundations of strategy.............................................................................................................................. 7
Key concepts...........................................................................................................................................................................................7
The positioning school of strategy (1.1).............................................................................................................................................7
The resource-based school of strategy (1.1)......................................................................................................................................8
Competitive advantage (1.2)..............................................................................................................................................................8
Neoclassical economics (1.3/1.4).......................................................................................................................................................8
Perfect competition............................................................................................................................................................................9
Accounting profit, Economic profit, Opportunity costs 1.3..............................................................................................................9
Rent....................................................................................................................................................................................................9
Bain-type industrial organization (1.4).............................................................................................................................................10
Schumpeterian industrial organization (1.4)...................................................................................................................................10
Chicago school industrial organization (1.4)....................................................................................................................................10
Study question 1 How can the neoclassical theory of perfect competition inform theories of competitive advantage?....................11
Meeting 1.2: Porter and the industrial organization view I (Porter’s early work)...........................................................................12
Key concepts.........................................................................................................................................................................................12
Monopoly.........................................................................................................................................................................................12
Oligopoly..........................................................................................................................................................................................12
Monopolistic competition................................................................................................................................................................12
The S-C-P model...............................................................................................................................................................................12
Porter’s five-forces (1.5) Industry structure....................................................................................................................................12
Porter’s generic strategies (1.5/1.6) Firm conduct.........................................................................................................................13
Strategic groups, entry barriers & mobility barriers (1.6) intra-industry structure ........................................................................13
Monopoly rent 2.4 peteraf..............................................................................................................................................................13
Monopolistic (differentiation) rent..................................................................................................................................................13
Study question 2 How does Porter’s early view on strategy (see Ghemawat, 1999; Porter, 1979; lecture materials) explain
differences in performance among firms?............................................................................................................................................15
Meeting 2.1: Porter and the industrial organization view II (Porter’s later work)...........................................................................17
Key concepts.........................................................................................................................................................................................17
Porter’s value chain..........................................................................................................................................................................17
Porter’s diamond..............................................................................................................................................................................17
The cross-sectional vs. the longitudinal problem (Porter 1991 towars a dynamic theory)............................................................18
Study question3 What are the similarities and differences between Porter’s early work and Porter’s later work and how does this
change the explanation of differences in performance among firms that he offers?..........................................................................19
Meeting 2.2: The resource-based view I (The High Church)........................................................................................................... 20
1
, Key concepts.........................................................................................................................................................................................20
Ricardian (efficiency) rent................................................................................................................................................................20
Barney’s VRIN/VRIO criteria.............................................................................................................................................................20
Peteraf’s four criteria.......................................................................................................................................................................21
Study question 4 What are the similarities and differences between the resource-based view and Porter’s early view of competitive
advantage?...........................................................................................................................................................................................22
Meeting 3.1: Cooperative game theory and the added value view I (Fundamentals).....................................................................23
Key concepts.........................................................................................................................................................................................23
Cooperative game theory.................................................................................................................................................................23
Value creation and value appropriation..........................................................................................................................................23
Willingness-to-pay............................................................................................................................................................................23
Opportunity costs/ economic cost...................................................................................................................................................23
Added value......................................................................................................................................................................................24
Zero-sum vs. win-win games............................................................................................................................................................24
Brandenburger & Nalebuff’s ‘value net’..........................................................................................................................................24
Brandenburger & Nalebuff’s PARTS model......................................................................................................................................24
Study question 5 How does the added value view of strategy (Brandenburger & Stuart, 1996 and Brandenburger, 2002) explain
differences in performance among firms?............................................................................................................................................26
Meeting 3.2: Cooperative game theory and the added value view II (Applications).......................................................................27
Key concepts.........................................................................................................................................................................................27
Feasibility principe............................................................................................................................................................................27
Stability principle..............................................................................................................................................................................27
Adding up principle..........................................................................................................................................................................27
Study question 6 What advice for managers that want to increase the performance of their firm can you derive from the added
value view?...........................................................................................................................................................................................28
Meeting 4.1: The Schumpeterian view I (Uncertainty and profit).................................................................................................. 29
Key concepts.........................................................................................................................................................................................29
Creative destruction.........................................................................................................................................................................29
Disequilibrium..................................................................................................................................................................................29
Entrepreneurial discovery................................................................................................................................................................29
Bounded rationality..........................................................................................................................................................................30
(Knightian/radical) uncertainty........................................................................................................................................................30
Schumpeterian (pure/entrepreneurial) profits................................................................................................................................31
Study question 7 - Compare the Austrian view on strategy to the views of (1) Porter and (2) the resource-based view. What does
the Austrian view on strategy add to these more traditional views?..................................................................................................32
Meeting 4.2: The resource-based view II (The Low Church: KBV)................................................................................................... 34
Key concepts.........................................................................................................................................................................................34
-Resource stocks vs. flows................................................................................................................................................................34
-Tacit vs. explicit knowledge............................................................................................................................................................34
-Individual vs. organizational (collective) knowledge......................................................................................................................34
-Organizational routines...................................................................................................................................................................34
Organizational capabilities...............................................................................................................................................................35
Core competencies...........................................................................................................................................................................35
Study question 8 If you would translate what the Low Church of the RBV says about the sources of competitive advantage into
(general) advice for managers, how would that advice be different from the advice that you would get when you translate what
the High Church of the RBV says about the sources of competitive advantage?.................................................................................37
Meeting 5.1: The resource-based view III (The Low Church: DCV)................................................................................................. 39
2
, Key concepts.........................................................................................................................................................................................39
Dynamic capabilities.........................................................................................................................................................................39
Processes, positions, and paths.......................................................................................................................................................40
Positional vs. temporal competitive advantage...............................................................................................................................40
Variation-selection-retention...........................................................................................................................................................40
Adaptive fit.......................................................................................................................................................................................40
Stoelhorst & Bridoux’s 3Rs...............................................................................................................................................................40
Study question 9 What (if anything) does the dynamic capabilities view add to the explanations of differences in performance
among firms in the knowledge-based view..........................................................................................................................................42
Meeting 5.2: The Schumpeterian view II (Competitive dynamics and increasing returns)..............................................................43
Key concepts.........................................................................................................................................................................................43
Blue ocean strategy..........................................................................................................................................................................43
Business models...............................................................................................................................................................................43
First mover (dis)advantage...............................................................................................................................................................43
Complementary assets.....................................................................................................................................................................44
Increasing returns.............................................................................................................................................................................44
Bandwagon effects, Network externalities, Technological complementarities..............................................................................44
Two-sided markets...........................................................................................................................................................................45
Study question 10 What advice can you derive from the readings and class materials from this meeting for managers than want to
build a competitive advantage?...........................................................................................................................................................46
Meeting 6.1: The Schumpeterian view III (Strategy in technology-driven industries).....................................................................47
Key concepts.........................................................................................................................................................................................47
Discontinuous vs. incremental innovation (Foster, 1986)...............................................................................................................47
Product vs. process innovation (Abertnethy & Utterback)..............................................................................................................47
Dominant designs.............................................................................................................................................................................47
Competence-enhancing vs. competence-destroying innovation....................................................................................................47
Architectural innovation..................................................................................................................................................................47
Disruptive innovation (Christensen, 1995)......................................................................................................................................47
Pattern recognition and pattern management................................................................................................................................48
Study question 11 Industry incumbents often find it difficult to adapt to radical innovations. Based on the readings and class
materials of this week, what could you advise managers of incumbent firms to increase their chances of success in responding to
radical innovations in their industry?...................................................................................................................................................49
Meeting 6.2: The stakeholder view.............................................................................................................................................. 51
Key concepts.........................................................................................................................................................................................51
Shareholder vs. stakeholder views...................................................................................................................................................51
Unitary agent vs. nexus of contracts................................................................................................................................................51
Residual claimant.............................................................................................................................................................................51
Shareholder primacy........................................................................................................................................................................51
CSR (Corporate social responsibility)...............................................................................................................................................52
Coff’s four conditions for bargaining power....................................................................................................................................52
Stoelhorst’s six sources of payments...............................................................................................................................................52
Study question 12 How does a stakeholder view of the firm change how we should think about competitive advantage?..............53
3
, Introduction
The purpose of this document is to help you successfully complete the ‘Theories of Strategy’ course. In addition
to this introduction, it contains five things:
-An explanation of how you will be assessed
-Some notes on answering open-ended essay-type questions
-(For each meeting:)
-Lists of the key concepts
-Study questions that also play an important role in Assignment I and the exam
-An overview of the main principles and mechanisms that will be discussed in the course
Note that at the end of this course, you are expected to have developed an in depth understanding of the
literature (the readings and the materials discussed in the prerecorded powerpoints and in class), as well as the
ability to reflect upon this literature and apply it to real-world cases. This level of understanding requires a very
active approach to studying throughout the block. You will have to gradually build up your understanding of the
literature as the course progresses. Not keeping up with the study materials will make it difficult to pass the
course.
You are therefore advised to:
-Read the assigned literature before the class sessions (first read the relevant text in the Reading Guide
and then read the articles themselves)
-Watch the prerecorded Powerpoint clips, preferably before the class session
-Prepare preliminary answers to the relevant study question(s) listed in the Study Guide before the class
sessions
-Read and think about the case that will be discussed before the class session
-Take active notes during the class sessions
-Revise and improve your answers to the study questions after the class sessions
One of the two group assignments is about the study questions listed below. Moreover, during the exam, one of
the exam questions will be selected from among these study questions. What this means is that you can already
prepare yourself for part of the exam as the course progresses. However, given the fact that the study questions
will be part of an assignment and of the exam, this also means that written answers to the study questions will
not be provided during the course. Rather, the idea is that by reading the articles and following the lectures you
develop your own answers to these questions. In other words, it is the express purpose of the study questions to
stimulate you to adopt an active learning mode. Try to develop your best possible answer to the study questions
as the course progresses, keeping in mind how you will be assessed (see below).
4
Study guide (2022-2023)
Prof. dr. ir. J.W. Stoelhorst
Inhoudsopgave
Introduction.................................................................................................................................................................................. 4
How you will be assessed............................................................................................................................................................... 5
Some notes on answering open-ended essay questions.................................................................................................................. 5
Meeting 1.1: Economic foundations of strategy.............................................................................................................................. 7
Key concepts...........................................................................................................................................................................................7
The positioning school of strategy (1.1).............................................................................................................................................7
The resource-based school of strategy (1.1)......................................................................................................................................8
Competitive advantage (1.2)..............................................................................................................................................................8
Neoclassical economics (1.3/1.4).......................................................................................................................................................8
Perfect competition............................................................................................................................................................................9
Accounting profit, Economic profit, Opportunity costs 1.3..............................................................................................................9
Rent....................................................................................................................................................................................................9
Bain-type industrial organization (1.4).............................................................................................................................................10
Schumpeterian industrial organization (1.4)...................................................................................................................................10
Chicago school industrial organization (1.4)....................................................................................................................................10
Study question 1 How can the neoclassical theory of perfect competition inform theories of competitive advantage?....................11
Meeting 1.2: Porter and the industrial organization view I (Porter’s early work)...........................................................................12
Key concepts.........................................................................................................................................................................................12
Monopoly.........................................................................................................................................................................................12
Oligopoly..........................................................................................................................................................................................12
Monopolistic competition................................................................................................................................................................12
The S-C-P model...............................................................................................................................................................................12
Porter’s five-forces (1.5) Industry structure....................................................................................................................................12
Porter’s generic strategies (1.5/1.6) Firm conduct.........................................................................................................................13
Strategic groups, entry barriers & mobility barriers (1.6) intra-industry structure ........................................................................13
Monopoly rent 2.4 peteraf..............................................................................................................................................................13
Monopolistic (differentiation) rent..................................................................................................................................................13
Study question 2 How does Porter’s early view on strategy (see Ghemawat, 1999; Porter, 1979; lecture materials) explain
differences in performance among firms?............................................................................................................................................15
Meeting 2.1: Porter and the industrial organization view II (Porter’s later work)...........................................................................17
Key concepts.........................................................................................................................................................................................17
Porter’s value chain..........................................................................................................................................................................17
Porter’s diamond..............................................................................................................................................................................17
The cross-sectional vs. the longitudinal problem (Porter 1991 towars a dynamic theory)............................................................18
Study question3 What are the similarities and differences between Porter’s early work and Porter’s later work and how does this
change the explanation of differences in performance among firms that he offers?..........................................................................19
Meeting 2.2: The resource-based view I (The High Church)........................................................................................................... 20
1
, Key concepts.........................................................................................................................................................................................20
Ricardian (efficiency) rent................................................................................................................................................................20
Barney’s VRIN/VRIO criteria.............................................................................................................................................................20
Peteraf’s four criteria.......................................................................................................................................................................21
Study question 4 What are the similarities and differences between the resource-based view and Porter’s early view of competitive
advantage?...........................................................................................................................................................................................22
Meeting 3.1: Cooperative game theory and the added value view I (Fundamentals).....................................................................23
Key concepts.........................................................................................................................................................................................23
Cooperative game theory.................................................................................................................................................................23
Value creation and value appropriation..........................................................................................................................................23
Willingness-to-pay............................................................................................................................................................................23
Opportunity costs/ economic cost...................................................................................................................................................23
Added value......................................................................................................................................................................................24
Zero-sum vs. win-win games............................................................................................................................................................24
Brandenburger & Nalebuff’s ‘value net’..........................................................................................................................................24
Brandenburger & Nalebuff’s PARTS model......................................................................................................................................24
Study question 5 How does the added value view of strategy (Brandenburger & Stuart, 1996 and Brandenburger, 2002) explain
differences in performance among firms?............................................................................................................................................26
Meeting 3.2: Cooperative game theory and the added value view II (Applications).......................................................................27
Key concepts.........................................................................................................................................................................................27
Feasibility principe............................................................................................................................................................................27
Stability principle..............................................................................................................................................................................27
Adding up principle..........................................................................................................................................................................27
Study question 6 What advice for managers that want to increase the performance of their firm can you derive from the added
value view?...........................................................................................................................................................................................28
Meeting 4.1: The Schumpeterian view I (Uncertainty and profit).................................................................................................. 29
Key concepts.........................................................................................................................................................................................29
Creative destruction.........................................................................................................................................................................29
Disequilibrium..................................................................................................................................................................................29
Entrepreneurial discovery................................................................................................................................................................29
Bounded rationality..........................................................................................................................................................................30
(Knightian/radical) uncertainty........................................................................................................................................................30
Schumpeterian (pure/entrepreneurial) profits................................................................................................................................31
Study question 7 - Compare the Austrian view on strategy to the views of (1) Porter and (2) the resource-based view. What does
the Austrian view on strategy add to these more traditional views?..................................................................................................32
Meeting 4.2: The resource-based view II (The Low Church: KBV)................................................................................................... 34
Key concepts.........................................................................................................................................................................................34
-Resource stocks vs. flows................................................................................................................................................................34
-Tacit vs. explicit knowledge............................................................................................................................................................34
-Individual vs. organizational (collective) knowledge......................................................................................................................34
-Organizational routines...................................................................................................................................................................34
Organizational capabilities...............................................................................................................................................................35
Core competencies...........................................................................................................................................................................35
Study question 8 If you would translate what the Low Church of the RBV says about the sources of competitive advantage into
(general) advice for managers, how would that advice be different from the advice that you would get when you translate what
the High Church of the RBV says about the sources of competitive advantage?.................................................................................37
Meeting 5.1: The resource-based view III (The Low Church: DCV)................................................................................................. 39
2
, Key concepts.........................................................................................................................................................................................39
Dynamic capabilities.........................................................................................................................................................................39
Processes, positions, and paths.......................................................................................................................................................40
Positional vs. temporal competitive advantage...............................................................................................................................40
Variation-selection-retention...........................................................................................................................................................40
Adaptive fit.......................................................................................................................................................................................40
Stoelhorst & Bridoux’s 3Rs...............................................................................................................................................................40
Study question 9 What (if anything) does the dynamic capabilities view add to the explanations of differences in performance
among firms in the knowledge-based view..........................................................................................................................................42
Meeting 5.2: The Schumpeterian view II (Competitive dynamics and increasing returns)..............................................................43
Key concepts.........................................................................................................................................................................................43
Blue ocean strategy..........................................................................................................................................................................43
Business models...............................................................................................................................................................................43
First mover (dis)advantage...............................................................................................................................................................43
Complementary assets.....................................................................................................................................................................44
Increasing returns.............................................................................................................................................................................44
Bandwagon effects, Network externalities, Technological complementarities..............................................................................44
Two-sided markets...........................................................................................................................................................................45
Study question 10 What advice can you derive from the readings and class materials from this meeting for managers than want to
build a competitive advantage?...........................................................................................................................................................46
Meeting 6.1: The Schumpeterian view III (Strategy in technology-driven industries).....................................................................47
Key concepts.........................................................................................................................................................................................47
Discontinuous vs. incremental innovation (Foster, 1986)...............................................................................................................47
Product vs. process innovation (Abertnethy & Utterback)..............................................................................................................47
Dominant designs.............................................................................................................................................................................47
Competence-enhancing vs. competence-destroying innovation....................................................................................................47
Architectural innovation..................................................................................................................................................................47
Disruptive innovation (Christensen, 1995)......................................................................................................................................47
Pattern recognition and pattern management................................................................................................................................48
Study question 11 Industry incumbents often find it difficult to adapt to radical innovations. Based on the readings and class
materials of this week, what could you advise managers of incumbent firms to increase their chances of success in responding to
radical innovations in their industry?...................................................................................................................................................49
Meeting 6.2: The stakeholder view.............................................................................................................................................. 51
Key concepts.........................................................................................................................................................................................51
Shareholder vs. stakeholder views...................................................................................................................................................51
Unitary agent vs. nexus of contracts................................................................................................................................................51
Residual claimant.............................................................................................................................................................................51
Shareholder primacy........................................................................................................................................................................51
CSR (Corporate social responsibility)...............................................................................................................................................52
Coff’s four conditions for bargaining power....................................................................................................................................52
Stoelhorst’s six sources of payments...............................................................................................................................................52
Study question 12 How does a stakeholder view of the firm change how we should think about competitive advantage?..............53
3
, Introduction
The purpose of this document is to help you successfully complete the ‘Theories of Strategy’ course. In addition
to this introduction, it contains five things:
-An explanation of how you will be assessed
-Some notes on answering open-ended essay-type questions
-(For each meeting:)
-Lists of the key concepts
-Study questions that also play an important role in Assignment I and the exam
-An overview of the main principles and mechanisms that will be discussed in the course
Note that at the end of this course, you are expected to have developed an in depth understanding of the
literature (the readings and the materials discussed in the prerecorded powerpoints and in class), as well as the
ability to reflect upon this literature and apply it to real-world cases. This level of understanding requires a very
active approach to studying throughout the block. You will have to gradually build up your understanding of the
literature as the course progresses. Not keeping up with the study materials will make it difficult to pass the
course.
You are therefore advised to:
-Read the assigned literature before the class sessions (first read the relevant text in the Reading Guide
and then read the articles themselves)
-Watch the prerecorded Powerpoint clips, preferably before the class session
-Prepare preliminary answers to the relevant study question(s) listed in the Study Guide before the class
sessions
-Read and think about the case that will be discussed before the class session
-Take active notes during the class sessions
-Revise and improve your answers to the study questions after the class sessions
One of the two group assignments is about the study questions listed below. Moreover, during the exam, one of
the exam questions will be selected from among these study questions. What this means is that you can already
prepare yourself for part of the exam as the course progresses. However, given the fact that the study questions
will be part of an assignment and of the exam, this also means that written answers to the study questions will
not be provided during the course. Rather, the idea is that by reading the articles and following the lectures you
develop your own answers to these questions. In other words, it is the express purpose of the study questions to
stimulate you to adopt an active learning mode. Try to develop your best possible answer to the study questions
as the course progresses, keeping in mind how you will be assessed (see below).
4
