Samenvatting: Strategic Management
1. What is strategy
Objectives
• Understand what strategy is
• Understand the importance of strategy for firm performance
• How to describe a strategy
• Understand the role of strategy
• Basic framework for strategy analysis
‒ External analysis of industry and competition
‒ Internal analysis of resources and capabilities
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
2. Good understanding of the competitive environment
3. Building and using the resources and capabilities to achieve the goals, to develop a
competitive advantage
4. Effective implementation
5. Strategic fit between goals, environment, resources and capabilities, and implementation
1. Clear and consistent long-term goals
Long term performance of companies = maximize value creation
All about the long term
Ex: maximizing profits
Good understanding of the industry how it works
Ex: if I would like to double my profits in one year, but you compete in an industry where the profit every year
become lower (example of strategic fit between goals)
1
,Example: McDonald’s goals and strategy
they concentrate on sale growth and capital turnover and not on sales
margin, because they are already very efficient, so they don’t have to improve
their sales margin
2. Good understanding of the competitive environment
• Good understanding of all the (potentially) important determinants of
industry profitability
• Positive as well as negative determinants
• Use of frameworks to determine industry structure and profitability
‒ PEST (macro environmental: political, environmental, social,
technological )
‒ Porter 5 forces
Why is the tobacco industry profitable?
Why is the airline industry not profitable?
Industry analysis = exhaustive overview of factors affecting industry profitability
ROE= return on equity, measure for profitability of a firm, net income / shareholders’ equity
2
,Uitleg bij dia:
Threat of entry: the threat that a new company would enter the market very hard for a
company to enter a new industry because it’s not possible to raise their prices because this
will be incentive for customers to go to the competitors.
Substitutes: products that are substitutes of your product
Companies are in competition with buyers, suppliers and other companies
3. Building and using the resources and capabilities to achieve objectives, to develop a competitive
advantage
A company has a competitive advantage if it creates
more value than its competitors, i.e. a larger difference
between the consumers’ willingness to pay and the costs
Uitleg:
Tobacco: no substitute for smoking, smokers are very loyal to their branches, so smokers are inelastic
so, company of cigarets can easily raise their prices.
Airline industry: there are many players, that are flying the same route. It’s difficult for companies to
differentiate because the service is mostly the same. There are a lot of players at the market. This is
why the companies are forced to low their prices. Also there are not much companies that constructs
airplanes, so those companies have a very strong position to negotiate.
Important to understand the schema
3
,Competitive strategy is key for performance!
Critical to be in an industry in which you can obtain a competitive advantage, even if the industry
is not profitable for the average firm
Example: Ryanair airline
(ROIC: return on investments capital)
• Competitive advantage
‒ Cost versus differentiation advantage
Relies on resources and capabilities which are
‒ Unique/scarce
‒ Relevant/valuable
‒ Durable
‒ Not transferable
‒ Not replicable
Reputation, brands, technology, expertise, …
4
,4. Effective implementation
• The ultimate success of the firm depends on how the strategy is implemented, i.e. how the
firm is organized
• Intended strategy > emergent strategy > realized strategy
• “Strategy is what you have in mind until you get the first blow” - Mike Tyson, heavy weight champion
• Organization has three key pillars:
‒ structure
‒ systems
‒ culture
emergent strategy: not every plan of the intended strategy is possible in the environment, there are a
lot of things that can change during a period
5. Strategic fit
The strategy is consistent with:
‒ Internal environment
Resources and capabilities
e.g. Corning in optical fiber vs. Kodak/ Agfa in digital imaging
‒ External environment
e.g. Nokia and the failure in smartphones
Kodak: they were very successful in the photography market, maar er komen betere technologien
ze zijn niet gevolg bankrupt
Nokia they failed to make a popular smartphone
Strategic fit: strategy as interface
5
,How to describe a strategy?
STRATEGY AS POSITIONING STRATEGY AS DIRECTION
Where are we competing? What do we want to become and achieve?
Product market scope Vision statement
Geographical scope (Why do we exist?)
Vertical integration Performance goals
How are we competing? How will we get there?
What is our competitive advantage? Growth modes: organic growth, M&A, alliances,
R&D?
…
COMPETING FOR THE PRESENT PREPARING FOR THE FUTURE
once you chose your strategy, it’s very hard to change course
Role of strategy in the firm
1. Decision support
Bounded rationality and complex decision-making
Act as an heuristic
2. Coordination and communication device
How to coordinate decisions and actions of all employees?
Identity and vision
3. Target
Strategic intent
Strategic decisions
• Key for long term success of a company (every successful company has a good strategy)
‒ Where and how do we compete
• Typically hard to reverse
‒ Commitment
‒ Size of investments, e.g. development Airbus 380
• Provoke reaction from competitors
• Coordinating decisions necessary for coherence and consistency
All decisions and activities need to be aligned and coherent
6
,Corporate strategy vs. competitive strategy
SBU= Strategic Business Unit, a unit of a company or a group that is responsible for its strategy in its
markets and controls the resources and capabilities to implement such strategy.
Example: Philips: three large divisions
Who is involved in strategic decisions?
A board of directors= consists of elected or appointed members who oversee the activities of a
company. The board of directors appoints the Chief Executive Officer of the corporation.
7
, When should a strategy be reviewed?
• Results are disappointing and not attributable to slowdown of market
• Important changes take place in the market, by competitors, changes in technology, …
‒ e.g. competitive advantage is threatened if a new firm enters the market
• Existing resources and capabilities and underutilized
‒ e.g. can we use our technology for different products? In different markets?
• Top management is replaced
• Shareholders want a different strategy
• New opportunities arise and substantial investments need to be made
History of strategy
• Military strategy
• Business strategy
‒ Corporate planning
‒ Long term development of the firm
‒ Macro-economic forecast
‒ Goals and objective for product and business areas
‒ Guiding diversification strategies in the 1960s
‒ Strategic management
‒ Increased competition, economic shocks
‒ Focus on competition, a company’s position in an environment, industry
analysis (Michael Porter)
‒ (sustainable) competitive advantage
Resource based view
Shift from industry analysis to sources of profits within the firm
Focus on internal resources and capabilities as sources of competitive
advantage
Key article: Wernerfelt, B. (1984), A resource-based view of the firm. Strategic Management Journal, 5:
171–180
‒ Dynamic capabilities
Continuous change, relentless innovation and competition
Shift from sustainable competitive advantage to ability to create successive
temporary advantages
Ability to reconfigure resources and capabilities to address changing
environment
Key article: Teece D., Pisano G. and Shuen A.(1997). Dynamic Capabilities and Strategic Management.
Strategic Management Journal 18: 509-533
8
1. What is strategy
Objectives
• Understand what strategy is
• Understand the importance of strategy for firm performance
• How to describe a strategy
• Understand the role of strategy
• Basic framework for strategy analysis
‒ External analysis of industry and competition
‒ Internal analysis of resources and capabilities
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
2. Good understanding of the competitive environment
3. Building and using the resources and capabilities to achieve the goals, to develop a
competitive advantage
4. Effective implementation
5. Strategic fit between goals, environment, resources and capabilities, and implementation
1. Clear and consistent long-term goals
Long term performance of companies = maximize value creation
All about the long term
Ex: maximizing profits
Good understanding of the industry how it works
Ex: if I would like to double my profits in one year, but you compete in an industry where the profit every year
become lower (example of strategic fit between goals)
1
,Example: McDonald’s goals and strategy
they concentrate on sale growth and capital turnover and not on sales
margin, because they are already very efficient, so they don’t have to improve
their sales margin
2. Good understanding of the competitive environment
• Good understanding of all the (potentially) important determinants of
industry profitability
• Positive as well as negative determinants
• Use of frameworks to determine industry structure and profitability
‒ PEST (macro environmental: political, environmental, social,
technological )
‒ Porter 5 forces
Why is the tobacco industry profitable?
Why is the airline industry not profitable?
Industry analysis = exhaustive overview of factors affecting industry profitability
ROE= return on equity, measure for profitability of a firm, net income / shareholders’ equity
2
,Uitleg bij dia:
Threat of entry: the threat that a new company would enter the market very hard for a
company to enter a new industry because it’s not possible to raise their prices because this
will be incentive for customers to go to the competitors.
Substitutes: products that are substitutes of your product
Companies are in competition with buyers, suppliers and other companies
3. Building and using the resources and capabilities to achieve objectives, to develop a competitive
advantage
A company has a competitive advantage if it creates
more value than its competitors, i.e. a larger difference
between the consumers’ willingness to pay and the costs
Uitleg:
Tobacco: no substitute for smoking, smokers are very loyal to their branches, so smokers are inelastic
so, company of cigarets can easily raise their prices.
Airline industry: there are many players, that are flying the same route. It’s difficult for companies to
differentiate because the service is mostly the same. There are a lot of players at the market. This is
why the companies are forced to low their prices. Also there are not much companies that constructs
airplanes, so those companies have a very strong position to negotiate.
Important to understand the schema
3
,Competitive strategy is key for performance!
Critical to be in an industry in which you can obtain a competitive advantage, even if the industry
is not profitable for the average firm
Example: Ryanair airline
(ROIC: return on investments capital)
• Competitive advantage
‒ Cost versus differentiation advantage
Relies on resources and capabilities which are
‒ Unique/scarce
‒ Relevant/valuable
‒ Durable
‒ Not transferable
‒ Not replicable
Reputation, brands, technology, expertise, …
4
,4. Effective implementation
• The ultimate success of the firm depends on how the strategy is implemented, i.e. how the
firm is organized
• Intended strategy > emergent strategy > realized strategy
• “Strategy is what you have in mind until you get the first blow” - Mike Tyson, heavy weight champion
• Organization has three key pillars:
‒ structure
‒ systems
‒ culture
emergent strategy: not every plan of the intended strategy is possible in the environment, there are a
lot of things that can change during a period
5. Strategic fit
The strategy is consistent with:
‒ Internal environment
Resources and capabilities
e.g. Corning in optical fiber vs. Kodak/ Agfa in digital imaging
‒ External environment
e.g. Nokia and the failure in smartphones
Kodak: they were very successful in the photography market, maar er komen betere technologien
ze zijn niet gevolg bankrupt
Nokia they failed to make a popular smartphone
Strategic fit: strategy as interface
5
,How to describe a strategy?
STRATEGY AS POSITIONING STRATEGY AS DIRECTION
Where are we competing? What do we want to become and achieve?
Product market scope Vision statement
Geographical scope (Why do we exist?)
Vertical integration Performance goals
How are we competing? How will we get there?
What is our competitive advantage? Growth modes: organic growth, M&A, alliances,
R&D?
…
COMPETING FOR THE PRESENT PREPARING FOR THE FUTURE
once you chose your strategy, it’s very hard to change course
Role of strategy in the firm
1. Decision support
Bounded rationality and complex decision-making
Act as an heuristic
2. Coordination and communication device
How to coordinate decisions and actions of all employees?
Identity and vision
3. Target
Strategic intent
Strategic decisions
• Key for long term success of a company (every successful company has a good strategy)
‒ Where and how do we compete
• Typically hard to reverse
‒ Commitment
‒ Size of investments, e.g. development Airbus 380
• Provoke reaction from competitors
• Coordinating decisions necessary for coherence and consistency
All decisions and activities need to be aligned and coherent
6
,Corporate strategy vs. competitive strategy
SBU= Strategic Business Unit, a unit of a company or a group that is responsible for its strategy in its
markets and controls the resources and capabilities to implement such strategy.
Example: Philips: three large divisions
Who is involved in strategic decisions?
A board of directors= consists of elected or appointed members who oversee the activities of a
company. The board of directors appoints the Chief Executive Officer of the corporation.
7
, When should a strategy be reviewed?
• Results are disappointing and not attributable to slowdown of market
• Important changes take place in the market, by competitors, changes in technology, …
‒ e.g. competitive advantage is threatened if a new firm enters the market
• Existing resources and capabilities and underutilized
‒ e.g. can we use our technology for different products? In different markets?
• Top management is replaced
• Shareholders want a different strategy
• New opportunities arise and substantial investments need to be made
History of strategy
• Military strategy
• Business strategy
‒ Corporate planning
‒ Long term development of the firm
‒ Macro-economic forecast
‒ Goals and objective for product and business areas
‒ Guiding diversification strategies in the 1960s
‒ Strategic management
‒ Increased competition, economic shocks
‒ Focus on competition, a company’s position in an environment, industry
analysis (Michael Porter)
‒ (sustainable) competitive advantage
Resource based view
Shift from industry analysis to sources of profits within the firm
Focus on internal resources and capabilities as sources of competitive
advantage
Key article: Wernerfelt, B. (1984), A resource-based view of the firm. Strategic Management Journal, 5:
171–180
‒ Dynamic capabilities
Continuous change, relentless innovation and competition
Shift from sustainable competitive advantage to ability to create successive
temporary advantages
Ability to reconfigure resources and capabilities to address changing
environment
Key article: Teece D., Pisano G. and Shuen A.(1997). Dynamic Capabilities and Strategic Management.
Strategic Management Journal 18: 509-533
8
