STRATEGIC MANAGEMENT – 2025
CHAPTER 1: THE CONCEPT OF STRATEGY
➔ Concepts and evolution of strategic schools of thought (what).
4 big issues
To successfully formulate and implement strategy, a firm must confront 4 big issues:
1. “What?”
2. “Where?”, define what the firm does. Horizontally, how much of the product market the
firm serves. Vertically, how much they depend on other parties. Corporate, the set of
distinct businesses the firm competes in.
3. “Who and how?”, define in what type of market the company is operating in (who). There
are different types of markets, with different types of competitors. Define the kind of
interaction there with rivals (how). A strategy can be price oriented or quality oriented.
4. “Why?”, how and on what basis the firm competes. Positioning, which competitive
advantage the firm has and if they have de necessary resources and capabilities.
Dynamics, how the firm accumulates recourses and capabilities, and how it adjusts over
time to changing circumstances.
What is strategy?
Strategy is the overall non-reversible design and philosophy to plan for deploying recourses to
establish a favourable position and reach success. It is about a long-term mission that you want
to accomplish, a vision that you want to achieve. How will you use people, assets, stocks, IT, … to
reach goals? Strategic decisions take time and involve a significant commitment of recourses.
Once you’ve communicated, your strategy cannot be turned back because of strong
commitments and your reputation that is on the line.
Strategy is not the same as a tactic. Tactics are reversible schemes for a specific manoeuvre and
are more for short-term purposes. Examples are price decisions for Black Friday next week.
Strategy has multiple roles:
➔ As decision support, it improves the quality of decision making and brings solutions.
➔ As a target, it improves performance by setting high aspirations.
➔ As coordination and communication, it creates consistency and unity. This is becoming
increasingly important, if after some time you don’t know the strategy of the place you
work at you should leave.
The strategic plan of an organization should be interlinked with
the action plan of that same organization. The top influences
the bottom the most. The other way around also knows some
influence, but not on a day-to-day basis. Strategy is not all
about the mission, these are two different things. The mission
of an organization, as well as the vision and other important
goals like KPI’s, all make part of the strategy of an organization.
,The role of analysis
Strategy analysis improves and supports decision processes, assists us to identify and
understand the main challenges of organizations and business, helps us to manage complexity,
and can enhance flexibility and innovation by supporting learning.
It doesn’t give answers. Analysis is a starting basis, but it won’t tell you what to do. This means
that you have to think twice, you need to have and use other frameworks to confront them with
each other and see if there is another strategy that may work better. You need to make decisions
as rational as possible.
What makes a successful strategy?
There are 3 big parts that need effective implementation in a successful strategy:
1. Long-term, simple and agreed objectives.
2. Profound understanding of the competitive environment: the situation outside of the
organization, who else there is in the market and what they are doing. What are the
opportunities and how does the market affect your organizations and the others?
3. Objective appraisal of resources: the situation inside of the organization, what you have
and how it excludes you from the others. This only affects you. Understanding yourself is
as important as understanding the environment you’re situated in.
An organization has to make use of the internal strengths and confront these with the
environment. The firm has its own goals, values, resources, capabilities, structure and systems.
The environment has its own competitors, customers and suppliers. All of these elements from
both sides melt down into one strategy.
Corporate strategy
Rate of profit above the competitive level, focusses on the overall scope and direction of the entire
organization. This includes decisions about which industries or markets to compete in. This is the
overall strategy by the CEO.
Business or competitive strategy
Focusses on how to compete successfully in a particular market or industry. Sort out how they
should compete and how they will be making money. This is the strategy by business-units.
Components of success
First of all, it is really important to set your goals and understand the environment you’re situated
in. Besides those two key factors, resource appraisal is also really important. This is the evaluation
of an organization’s internal recourses and capabilities to assess their potential for creating a
competitive advantage. Last but not least, implementation is a part of getting things done. There
are leaders that are capable of doing a very good strategic analysis, but they do not implement it
on the field. If you want your strategy to work, you have to communicate this in an understandable
language to your people in the organization.
,Strategy making: design or process?
When you look at strategy as a design, you first need a strategy to then build a company on that.
Without a strategy, there is no company. But when you look at strategy as a process, people in the
organization will determine what you are
good at and then you realize your strategy.
Mintzberg had a lot of critique on formal
strategic planning. Things change fast and
we don’t always see it coming, the future is
unknown (fallacy of prediction). He also
says that it is impossible to divorce
formulation from implementation (fallacy of detachment). A third thing is that according to him it
inhibits flexibility, spontaneity, intuition and learning (fallacy of formalization). There is also a big
difference between the GA (General Assembly) of a company and the company itself. The GA
consists of all the shareholders and the board of directors, who decide eventually. They want to
get paid for the risk they are taking. On the other hand, the company and its CEO and employees
want to grow the enterprise, but money that goes to dividends can’t be reinvested into growth
anymore. Very often, there is a lot of tension between the two sides of the table.
Strategy Safari
A framework formed by 10 schools-groupings that can be used to categorize the field of strategic
management. Once upon a time, there were six blind men who had heard about elephants but
had never encountered one. Each of them wanted to experience and understand what an
elephant was like, so they were led to an elephant and allowed to touch different parts of its body.
Because they touched the elephant at different places, they all had a different idea of what an
elephant looks like.
Like the blind men and the elephant, the different schools of strategy represent different facets of
strategic management. Individually, they provide insight into certain areas, but we can only
understand the full complexity of strategy by combining the multiple perspectives.
,CHAPTER 2: HORIZONTAL BOUNDARIES OF THE FIRM
➔ Corporate strategy (where).
Horizontal boundaries
How big of a market does a firm serve? In some industries a few large firms dominate the market,
but in others many more smaller firms are the norm. There are several industries where large firms
and small firms co-exist and we want to know how this all works.
Determinants of horizontal boundaries
Economies of scale
The company can go bigger by doing the same thing and the same procedure more. There is a
declining average cost with and increasing volume. The average cost
declines initially because the fixed costs are spread over larger volumes,
but the average cost eventually starts increasing as capacity constraints
kick in. This U-shape implies cost disadvantages for very small and very
large firms.
In reality the curve is L-shaped, and the average costs decline up to the
MES (Minimum Efficient Scale) of production. All firms operating at or
beyond MES have similar average costs.
Economies of scope
The company can go bigger by producing different things but more or less related to what it already
does. There are cost savings when different products or services are being produced under the
same roof. The fixed costs can be shared over the different products or services. Common
strategies that describe economies of scope are: leveraging core competences, competing on
capabilities, mobilizing invisible assets or diversification into related products.
Learning curve
Cost advantage from accumulated expertise and knowledge. More efficiency because, for
example you do something for a client, and you take the same structure to another client but for
the same price and less costs. This has some boundaries. A lot of clients want a clause in their
contract because they don’t want the information transferred to competitors. This is called
conflicting out.
Sources of economies of scale and scope
➔ Production related: fixed costs, inventories and the cube-square rule.
➔ Others: purchasing, advertising and R&D.
Fixed costs
Certain inputs must be used in a minimum size or quantity, even if you’re producing a small
amount you still need the inputs (=indivisibility). As production increases, the fixed cost of these
indivisible inputs is spread over more units, lowering the average cost per unit and creating
economies of scale.
, The most common source of economies of scale is the spreading
of fixed costs over a greater volume of output, in the short run. In
the long run, economies of scale are obtained through the choice
of technology. If output needs to be increased beyond a certain
point, labour intensive technology needs to be substituted by
capital intensive technology (trade-off). The “lower envelope” of
the two cost curves is the long run average cost curve.
Inventories
Firms carry inventory to avoid getting out of stock because these lead to lost sales and negative
effects on customer loyalty. Merging two firms reduces the probability of stock out. The combined
firm can maintain a lower level of inventory and have the same probability of stock out as before
because bigger firms can afford to keep smaller inventories compared to smaller firms because
of the risk of being stock out being lower.
Cube-square rule
If a firm grows in size, its volume, which affects output, increases faster than its surface area,
which affects costs. This means that larger production facilities due to an acquisition can produce
more output relative to their size and cost, making production more efficient. An important
condition is that you need to be able to sell everything in that volume.
➔ Examples of economies of scale due to cube-square rule: pipelines, warehousing,
aviation fuel, brewing tanks, …
Purchasing
Large buyers can get discounts because of:
1. Reduced transaction costs: it may be less costly to sell to a single buyer if each sale
requires some fixed cost in writing a contract, setting up a production run and delivering
the product.
2. More aggressive bargaining by large buyers: a bulk purchaser has more to gain from getting
the best price and therefore will be more price sensitive.
3. Assured flow of business of the supplier: the supplier may fear a costly disruption to
operations if it fails to do business with a large purchaser. The supplier may offer a
discount to the large purchaser so as to assure a steady flow of business.
Advertising
Larger firms may enjoy lower advertising costs per consumer either because they have lower
costs of sending messages per potential consumer or because they have higher advertising reach.
If ad preparation costs and the costs negotiating a single national and local advertising buy are
about the same, the national advertiser will have a lower cost per potential consumer because
these fixed costs get spread over a larger base of potential consumers.
If two brands both place advertisements on television and 10.000 people are watching. The cost
per effective message is much lower for company 1 than for company 2. The reason is that there
are much more locations of company 1 spread all over the place, so al 10.000 people will have
one nearby. Many interested people in company 2 just simply don’t have a location nearby.
CHAPTER 1: THE CONCEPT OF STRATEGY
➔ Concepts and evolution of strategic schools of thought (what).
4 big issues
To successfully formulate and implement strategy, a firm must confront 4 big issues:
1. “What?”
2. “Where?”, define what the firm does. Horizontally, how much of the product market the
firm serves. Vertically, how much they depend on other parties. Corporate, the set of
distinct businesses the firm competes in.
3. “Who and how?”, define in what type of market the company is operating in (who). There
are different types of markets, with different types of competitors. Define the kind of
interaction there with rivals (how). A strategy can be price oriented or quality oriented.
4. “Why?”, how and on what basis the firm competes. Positioning, which competitive
advantage the firm has and if they have de necessary resources and capabilities.
Dynamics, how the firm accumulates recourses and capabilities, and how it adjusts over
time to changing circumstances.
What is strategy?
Strategy is the overall non-reversible design and philosophy to plan for deploying recourses to
establish a favourable position and reach success. It is about a long-term mission that you want
to accomplish, a vision that you want to achieve. How will you use people, assets, stocks, IT, … to
reach goals? Strategic decisions take time and involve a significant commitment of recourses.
Once you’ve communicated, your strategy cannot be turned back because of strong
commitments and your reputation that is on the line.
Strategy is not the same as a tactic. Tactics are reversible schemes for a specific manoeuvre and
are more for short-term purposes. Examples are price decisions for Black Friday next week.
Strategy has multiple roles:
➔ As decision support, it improves the quality of decision making and brings solutions.
➔ As a target, it improves performance by setting high aspirations.
➔ As coordination and communication, it creates consistency and unity. This is becoming
increasingly important, if after some time you don’t know the strategy of the place you
work at you should leave.
The strategic plan of an organization should be interlinked with
the action plan of that same organization. The top influences
the bottom the most. The other way around also knows some
influence, but not on a day-to-day basis. Strategy is not all
about the mission, these are two different things. The mission
of an organization, as well as the vision and other important
goals like KPI’s, all make part of the strategy of an organization.
,The role of analysis
Strategy analysis improves and supports decision processes, assists us to identify and
understand the main challenges of organizations and business, helps us to manage complexity,
and can enhance flexibility and innovation by supporting learning.
It doesn’t give answers. Analysis is a starting basis, but it won’t tell you what to do. This means
that you have to think twice, you need to have and use other frameworks to confront them with
each other and see if there is another strategy that may work better. You need to make decisions
as rational as possible.
What makes a successful strategy?
There are 3 big parts that need effective implementation in a successful strategy:
1. Long-term, simple and agreed objectives.
2. Profound understanding of the competitive environment: the situation outside of the
organization, who else there is in the market and what they are doing. What are the
opportunities and how does the market affect your organizations and the others?
3. Objective appraisal of resources: the situation inside of the organization, what you have
and how it excludes you from the others. This only affects you. Understanding yourself is
as important as understanding the environment you’re situated in.
An organization has to make use of the internal strengths and confront these with the
environment. The firm has its own goals, values, resources, capabilities, structure and systems.
The environment has its own competitors, customers and suppliers. All of these elements from
both sides melt down into one strategy.
Corporate strategy
Rate of profit above the competitive level, focusses on the overall scope and direction of the entire
organization. This includes decisions about which industries or markets to compete in. This is the
overall strategy by the CEO.
Business or competitive strategy
Focusses on how to compete successfully in a particular market or industry. Sort out how they
should compete and how they will be making money. This is the strategy by business-units.
Components of success
First of all, it is really important to set your goals and understand the environment you’re situated
in. Besides those two key factors, resource appraisal is also really important. This is the evaluation
of an organization’s internal recourses and capabilities to assess their potential for creating a
competitive advantage. Last but not least, implementation is a part of getting things done. There
are leaders that are capable of doing a very good strategic analysis, but they do not implement it
on the field. If you want your strategy to work, you have to communicate this in an understandable
language to your people in the organization.
,Strategy making: design or process?
When you look at strategy as a design, you first need a strategy to then build a company on that.
Without a strategy, there is no company. But when you look at strategy as a process, people in the
organization will determine what you are
good at and then you realize your strategy.
Mintzberg had a lot of critique on formal
strategic planning. Things change fast and
we don’t always see it coming, the future is
unknown (fallacy of prediction). He also
says that it is impossible to divorce
formulation from implementation (fallacy of detachment). A third thing is that according to him it
inhibits flexibility, spontaneity, intuition and learning (fallacy of formalization). There is also a big
difference between the GA (General Assembly) of a company and the company itself. The GA
consists of all the shareholders and the board of directors, who decide eventually. They want to
get paid for the risk they are taking. On the other hand, the company and its CEO and employees
want to grow the enterprise, but money that goes to dividends can’t be reinvested into growth
anymore. Very often, there is a lot of tension between the two sides of the table.
Strategy Safari
A framework formed by 10 schools-groupings that can be used to categorize the field of strategic
management. Once upon a time, there were six blind men who had heard about elephants but
had never encountered one. Each of them wanted to experience and understand what an
elephant was like, so they were led to an elephant and allowed to touch different parts of its body.
Because they touched the elephant at different places, they all had a different idea of what an
elephant looks like.
Like the blind men and the elephant, the different schools of strategy represent different facets of
strategic management. Individually, they provide insight into certain areas, but we can only
understand the full complexity of strategy by combining the multiple perspectives.
,CHAPTER 2: HORIZONTAL BOUNDARIES OF THE FIRM
➔ Corporate strategy (where).
Horizontal boundaries
How big of a market does a firm serve? In some industries a few large firms dominate the market,
but in others many more smaller firms are the norm. There are several industries where large firms
and small firms co-exist and we want to know how this all works.
Determinants of horizontal boundaries
Economies of scale
The company can go bigger by doing the same thing and the same procedure more. There is a
declining average cost with and increasing volume. The average cost
declines initially because the fixed costs are spread over larger volumes,
but the average cost eventually starts increasing as capacity constraints
kick in. This U-shape implies cost disadvantages for very small and very
large firms.
In reality the curve is L-shaped, and the average costs decline up to the
MES (Minimum Efficient Scale) of production. All firms operating at or
beyond MES have similar average costs.
Economies of scope
The company can go bigger by producing different things but more or less related to what it already
does. There are cost savings when different products or services are being produced under the
same roof. The fixed costs can be shared over the different products or services. Common
strategies that describe economies of scope are: leveraging core competences, competing on
capabilities, mobilizing invisible assets or diversification into related products.
Learning curve
Cost advantage from accumulated expertise and knowledge. More efficiency because, for
example you do something for a client, and you take the same structure to another client but for
the same price and less costs. This has some boundaries. A lot of clients want a clause in their
contract because they don’t want the information transferred to competitors. This is called
conflicting out.
Sources of economies of scale and scope
➔ Production related: fixed costs, inventories and the cube-square rule.
➔ Others: purchasing, advertising and R&D.
Fixed costs
Certain inputs must be used in a minimum size or quantity, even if you’re producing a small
amount you still need the inputs (=indivisibility). As production increases, the fixed cost of these
indivisible inputs is spread over more units, lowering the average cost per unit and creating
economies of scale.
, The most common source of economies of scale is the spreading
of fixed costs over a greater volume of output, in the short run. In
the long run, economies of scale are obtained through the choice
of technology. If output needs to be increased beyond a certain
point, labour intensive technology needs to be substituted by
capital intensive technology (trade-off). The “lower envelope” of
the two cost curves is the long run average cost curve.
Inventories
Firms carry inventory to avoid getting out of stock because these lead to lost sales and negative
effects on customer loyalty. Merging two firms reduces the probability of stock out. The combined
firm can maintain a lower level of inventory and have the same probability of stock out as before
because bigger firms can afford to keep smaller inventories compared to smaller firms because
of the risk of being stock out being lower.
Cube-square rule
If a firm grows in size, its volume, which affects output, increases faster than its surface area,
which affects costs. This means that larger production facilities due to an acquisition can produce
more output relative to their size and cost, making production more efficient. An important
condition is that you need to be able to sell everything in that volume.
➔ Examples of economies of scale due to cube-square rule: pipelines, warehousing,
aviation fuel, brewing tanks, …
Purchasing
Large buyers can get discounts because of:
1. Reduced transaction costs: it may be less costly to sell to a single buyer if each sale
requires some fixed cost in writing a contract, setting up a production run and delivering
the product.
2. More aggressive bargaining by large buyers: a bulk purchaser has more to gain from getting
the best price and therefore will be more price sensitive.
3. Assured flow of business of the supplier: the supplier may fear a costly disruption to
operations if it fails to do business with a large purchaser. The supplier may offer a
discount to the large purchaser so as to assure a steady flow of business.
Advertising
Larger firms may enjoy lower advertising costs per consumer either because they have lower
costs of sending messages per potential consumer or because they have higher advertising reach.
If ad preparation costs and the costs negotiating a single national and local advertising buy are
about the same, the national advertiser will have a lower cost per potential consumer because
these fixed costs get spread over a larger base of potential consumers.
If two brands both place advertisements on television and 10.000 people are watching. The cost
per effective message is much lower for company 1 than for company 2. The reason is that there
are much more locations of company 1 spread all over the place, so al 10.000 people will have
one nearby. Many interested people in company 2 just simply don’t have a location nearby.
