STRATEGIC MANAGEMENT SUMMARY
CHAPTER 1: WHAT IS STRATEGY?
Definition strategy
= the determination of long-run goals and objectives of an enterprise and the adoption of
courses of action and the allocation of resources necessary for carrying out these goals
Successful strategy
1. Clear and consistent long-term goals
● key terms = purpose, vision, financial, grown, mission, value shareholders
● long term performance of companies, maximize value creation
● figure illustration
○ going from hardware to software (switching from products)
○ competition based on price
○ having a mission for achieving financial goals
● key points of how good your company is (of a company’s value creation)
○ capital turnover and resource utilization
■ how effective a company uses its assets/resources
○ sales margin
■ how much profit you make on one product
○ sales growth
● example = McDonald’s goals and strategy
○ focus on growing sales with same capacity = sales growth and capital
turnover
○ why no sales margin?
■ customers are sensitive to the price so if the price will rise, they will go
to other fast food restaurants like Burger King
■ there is only a little sale margin needed
2. Good understanding of the competitive environment
● key terms = how to change
● understanding the potentially important (positive/negative) determinants of industry
profitability
● use of framework to determine industry structure and profitability
○ pest = political, environmental, social, technological
○ the 5 sources of Porter = supplier power, buyer power, substitutes, threat of
entry, industry rivalry (to see how attractive an industry is, the more easier to
enter an industry, the less attractive it is)
● applied examples
○ Tobacco (why is this industry profitable?)
■ buyer power = low because if you are addicted, you will keep buying,
addicted customers are not price sensitive
■ substitutes = not good because a vape is not the same as a cigarette
, ■ threat of entry = low because there are not many companies and you
don’t see a new cigarette brand starting now and then
■ industry rivalry = there is not a lot of competition between cigarette
brands because the customers are very loyal to their used brand
○ Airlines (why is this industry not profitable?)
■ buyer power = high because customers are price sensitive
■ substitutes = good because you can also take the train
■ threat of entry = low because you don’t often see a new airline
company starting
■ industry rivalry = there is competition based on price
● industry analysis = exhaustive overview of factors affecting industry profitability
● ROE = return on equity = measure for profitability of a firm = net income divided by
shareholders equity
3. Building and using the resources and capabilities to achieve the goals, to develop a
competitive advantage
● key terms = fitting in
● WTP = willingness to pay
○ price higher than the WTP = customer is not paying
○ price lower than the WTP = customer is paying
● if the company creates more value than its competitors
○ the company has a competitive advantage
○ the difference between WTP and average cost is larger
■ the difference = value for customer VS value for making the product
■ the value created = the blue arrow on the figure
● competitive strategy and position is MORE IMPORTANT for performance THAN the
industry
○ to be in an industry in which you can obtain a competitive advantage, even if
the industry is not profitable for the average firm
○ very often entrepreneurs are attracted to profitable or fashionable industries
○ the competitive advantage (position) = makes a company do well or not
○ resources are important, but NOT based on average achievements and profit
to come in the industry
○ it's important to have the right resources and assets
○ example (airlines) = lower average costs = stronger position (like ryanair)
● competitive advantage = cost VS differentiation advantage
● relies on resources and capabilities, which are:
1. unique
2. relevant or valuable
3. durable
4. not transferable
, 5. not replicable (making a copy)
4. Effective implementation
● key terms = put in practise, reality check
● ultimate success of the firm depends on how the strategy is implemented, how the
firm is organized
● intended strategy -> emergent strategy -> realized strategy
● organization key pillars = structure, systems, culture
5. Strategic fit between goals, environment, resources and capabilities, and implementation
● coherent, consistent
● strategy is consistent with
○ internal environment = resources
and capabilities
○ external environment = for example
Nokia and the failure in smartphones
● strategy as interface
How to describe a strategy
Strategy as positioning
● where are we competing? (product market scope, geographical scope, vertical
integration)
● how are we competing? (what is our competitive advantage)
● conclusion = competing for the present
Strategy as direction
● what do we want to become and achieve? (vision statement, performance goals)
● how will we get there? (growth modes like organic growth or M&A or alliance)
● conclusion = preparing for the future
Strategic decisions
- key for long term success of a company
● every successful company had a good strategy
● where and how do we compete
- typically hard to reverse
● commitment and size of investments
- provoke reaction from competitors (game theory)
- coordinating decisions necessary for coherent and consistency
● all decisions and activities need to be aligned and coherent
● trying to hold the average cost as low as possible (example = ryanair)
Role of strategy in the firm
- decision support
● bounded rationality and complex decision-making
● act as an heuristic
- coordination and communication device
● how to coordinate decisions and actions of all employees?
● identity and vision
, - target
● strategic intent
Basic framework for strategy analysis
- external analysis of industry and competition
- internal analysis of resources and capabilities
Competitive or corporate strategy
→ SBU = Strategic Business Unit = a unit of a company that is responsible for its strategy in
its markets and controls the resources and capabilities to implement such strategy
→ competition takes place in the industry level and not in the corporate level
→ corporate strategy (first level)
● Scope in terms of industries and markets
● Diversification, vertical integration, M&As, divestments, …
● How can corporate centers reinforce the competitive advantage of the SBU’s?
→ competitive strategy or business strategy (second level)
● How to compete in a particular industry or market?
● How and in what markets can the strategic business unit (SBU) gain and sustain a
competitive advantage?
→ functional strategy (third level)
Who is involved?
→ A board of directors = consists of elected or appointed members who oversee the
activities of a company + appoints the Chief Executive Officer of the corporation
When reviewing strategies
→ six situations
1. Results are disappointing and not attributable to slowdown of market
2. Important changes take place in the market, by competitors, changes in technology,..
a. example: competitive advantage is threatened if a new firm enters the market
3. Existing resources and capabilities and underutilized
CHAPTER 1: WHAT IS STRATEGY?
Definition strategy
= the determination of long-run goals and objectives of an enterprise and the adoption of
courses of action and the allocation of resources necessary for carrying out these goals
Successful strategy
1. Clear and consistent long-term goals
● key terms = purpose, vision, financial, grown, mission, value shareholders
● long term performance of companies, maximize value creation
● figure illustration
○ going from hardware to software (switching from products)
○ competition based on price
○ having a mission for achieving financial goals
● key points of how good your company is (of a company’s value creation)
○ capital turnover and resource utilization
■ how effective a company uses its assets/resources
○ sales margin
■ how much profit you make on one product
○ sales growth
● example = McDonald’s goals and strategy
○ focus on growing sales with same capacity = sales growth and capital
turnover
○ why no sales margin?
■ customers are sensitive to the price so if the price will rise, they will go
to other fast food restaurants like Burger King
■ there is only a little sale margin needed
2. Good understanding of the competitive environment
● key terms = how to change
● understanding the potentially important (positive/negative) determinants of industry
profitability
● use of framework to determine industry structure and profitability
○ pest = political, environmental, social, technological
○ the 5 sources of Porter = supplier power, buyer power, substitutes, threat of
entry, industry rivalry (to see how attractive an industry is, the more easier to
enter an industry, the less attractive it is)
● applied examples
○ Tobacco (why is this industry profitable?)
■ buyer power = low because if you are addicted, you will keep buying,
addicted customers are not price sensitive
■ substitutes = not good because a vape is not the same as a cigarette
, ■ threat of entry = low because there are not many companies and you
don’t see a new cigarette brand starting now and then
■ industry rivalry = there is not a lot of competition between cigarette
brands because the customers are very loyal to their used brand
○ Airlines (why is this industry not profitable?)
■ buyer power = high because customers are price sensitive
■ substitutes = good because you can also take the train
■ threat of entry = low because you don’t often see a new airline
company starting
■ industry rivalry = there is competition based on price
● industry analysis = exhaustive overview of factors affecting industry profitability
● ROE = return on equity = measure for profitability of a firm = net income divided by
shareholders equity
3. Building and using the resources and capabilities to achieve the goals, to develop a
competitive advantage
● key terms = fitting in
● WTP = willingness to pay
○ price higher than the WTP = customer is not paying
○ price lower than the WTP = customer is paying
● if the company creates more value than its competitors
○ the company has a competitive advantage
○ the difference between WTP and average cost is larger
■ the difference = value for customer VS value for making the product
■ the value created = the blue arrow on the figure
● competitive strategy and position is MORE IMPORTANT for performance THAN the
industry
○ to be in an industry in which you can obtain a competitive advantage, even if
the industry is not profitable for the average firm
○ very often entrepreneurs are attracted to profitable or fashionable industries
○ the competitive advantage (position) = makes a company do well or not
○ resources are important, but NOT based on average achievements and profit
to come in the industry
○ it's important to have the right resources and assets
○ example (airlines) = lower average costs = stronger position (like ryanair)
● competitive advantage = cost VS differentiation advantage
● relies on resources and capabilities, which are:
1. unique
2. relevant or valuable
3. durable
4. not transferable
, 5. not replicable (making a copy)
4. Effective implementation
● key terms = put in practise, reality check
● ultimate success of the firm depends on how the strategy is implemented, how the
firm is organized
● intended strategy -> emergent strategy -> realized strategy
● organization key pillars = structure, systems, culture
5. Strategic fit between goals, environment, resources and capabilities, and implementation
● coherent, consistent
● strategy is consistent with
○ internal environment = resources
and capabilities
○ external environment = for example
Nokia and the failure in smartphones
● strategy as interface
How to describe a strategy
Strategy as positioning
● where are we competing? (product market scope, geographical scope, vertical
integration)
● how are we competing? (what is our competitive advantage)
● conclusion = competing for the present
Strategy as direction
● what do we want to become and achieve? (vision statement, performance goals)
● how will we get there? (growth modes like organic growth or M&A or alliance)
● conclusion = preparing for the future
Strategic decisions
- key for long term success of a company
● every successful company had a good strategy
● where and how do we compete
- typically hard to reverse
● commitment and size of investments
- provoke reaction from competitors (game theory)
- coordinating decisions necessary for coherent and consistency
● all decisions and activities need to be aligned and coherent
● trying to hold the average cost as low as possible (example = ryanair)
Role of strategy in the firm
- decision support
● bounded rationality and complex decision-making
● act as an heuristic
- coordination and communication device
● how to coordinate decisions and actions of all employees?
● identity and vision
, - target
● strategic intent
Basic framework for strategy analysis
- external analysis of industry and competition
- internal analysis of resources and capabilities
Competitive or corporate strategy
→ SBU = Strategic Business Unit = a unit of a company that is responsible for its strategy in
its markets and controls the resources and capabilities to implement such strategy
→ competition takes place in the industry level and not in the corporate level
→ corporate strategy (first level)
● Scope in terms of industries and markets
● Diversification, vertical integration, M&As, divestments, …
● How can corporate centers reinforce the competitive advantage of the SBU’s?
→ competitive strategy or business strategy (second level)
● How to compete in a particular industry or market?
● How and in what markets can the strategic business unit (SBU) gain and sustain a
competitive advantage?
→ functional strategy (third level)
Who is involved?
→ A board of directors = consists of elected or appointed members who oversee the
activities of a company + appoints the Chief Executive Officer of the corporation
When reviewing strategies
→ six situations
1. Results are disappointing and not attributable to slowdown of market
2. Important changes take place in the market, by competitors, changes in technology,..
a. example: competitive advantage is threatened if a new firm enters the market
3. Existing resources and capabilities and underutilized
