FOUNDATIONS OF STRATEGY
STRATEGY
- What is strategy = making and implementing vital decisions using scarce resources in the face of
high uncertainty and complexity
- Classic strategic management process
o Formulate goals
§ Mission, vision, values
o External and internal analysis
o Confrontation
§ SO = strengths to exploit opportunities
§ ST = strengths to avoid threats
§ WO = exploit opportunities to overcome weaknesses
§ WT = minimize weaknesses and avoid threats
o Formulate strategy
§ CLS, IS, BLS, Functional strategy
o Implement strategy
§ Entry & Exit, Change, structure and controls
- Realistic view of strategy
o From intended to realized strategy, through deliberate. Can become unrealized or emergent
§ Intended = formulated beforehand
§ Realized = realized strategy
§ Deliberate = planned and working on
§ Emergent = new strategy through opportunities
§ Unrealized = not used strategy
EXTERNAL ANALYSIS
- Levels
o General environment = broad factors external to the firm that can have an impact on the
firms strategic decisions (DESTEP)
§ Demographic
§ Economic
§ Society and culture
§ Politics
§ Ecology
§ Technology
o Industry = collection of firms that compete
§ Similar products or services and similar tech (production process)
o Strategic groups = groups in industry that compete on strategic dimensions
o Competitor = one direct firm u compete with (model when 10 and not 10K)
- Porters five forces consists of:
o Potential entrants, suppliers, buyers, substitutes, industry competitors (rivalry among
existing firms)
, o Challenges when applying porters five forces:
§ Too broad = subs as com
§ Narrow = monopoly
§ Boundaries are broken down by tech
- Resources and capabilities
INTERNAL ANALYSIS
- Environment sets the stage, internal factors create CA
- RBV = firm as bundle of heterogenous and immobile resources and capabilities
o Resources = tangible and intangible assets that a firm controls and that it can use to
conceive and implement its strategies
o Capabilities = tangible and intangible assets that enable a firm to take full advantage of the
resources it controls
§ Financial, human, physical, organizational
- To asses resources & capabilities use VRIO
o Valuable, Rare, Imitable, Organizational
o No = competitive disadvantage
o Yes, No = competitive parity
o Yes, Yes, no = temporary competitive advantage
o Yes, Yes, Yes, Yes = sustained competitive advantage
o Challenges of the RBV:
§ Tautology = circular reasoning
§ Missed weaknesses
§ Overlapping external analysis (VRI)
§ Ambiguous role of O
BLS
- BLS = choice of competitive strategy in given industry
- Two fundamental options:
o Cost leadership or product differentiation
o Increase attractiveness of entire industry
o Increase own position in the industry
CLS
- CLS = choice of portfolio of business (where to compete)
o Horizontal expansion = expansion of activities in one industry
§ Advantage = economies of scale = lower per unit cost of production because of
higher production volume
o Vertical integration = moving up or down the value chain
§ Main advantage = economies of integration = lower production, distribution and
transaction costs
o Product diversification = expansion to different industry
, § Main advantage = economies of scope = C1 + C2 > C1,2 for related product
diversification
§ Main advantage = financial economies = internal capital market and risk reduction
(related and unrelated)
STRUCTURE AND CONTROLS
- Structure = grouping of tasks and responsibilities in separate organizational units
o Functional structure of the organization
§ Similar tasks are grouped in functional departments
§ Pro = specialization and thus
efficiency
§ Con = control problems and thus
lack of focus on strategy
o Product division structure of the organization
§ Activities aimed at specific products
are grouped in divisions
§ Pro = focus on products and less
overburdened top management
§ Con = loss of efficiency and synergies
o Area division structure of the organization
§ Activities aimed at specific geographic areas
are grouped in divisions, divisions have all
primary functions
§ Pro = focus on areas and less overburdened top management
§ Con= loss of efficiency and synergies
o Matrix structure of the organization
§ Activities are grouped simultaneously along several
dimensions
§ Pro = focus on performance in several dimensions
§ Con = loss of unity of command
- When to choose which structure
o BLS, HE, VI = functional structure
o Production diversification = product division structure
o Internationalization = area division structure
o Product diversification & internationalization = matrix structure
- Value of collaboration:
o Corporative for BLS, CLS, IS, HE, VI,
related diversification and integration
o Competitive for local responsiveness
and unrelated diversification
- Controls = make sure that unit management
pursues organizational goals
STRATEGY
- What is strategy = making and implementing vital decisions using scarce resources in the face of
high uncertainty and complexity
- Classic strategic management process
o Formulate goals
§ Mission, vision, values
o External and internal analysis
o Confrontation
§ SO = strengths to exploit opportunities
§ ST = strengths to avoid threats
§ WO = exploit opportunities to overcome weaknesses
§ WT = minimize weaknesses and avoid threats
o Formulate strategy
§ CLS, IS, BLS, Functional strategy
o Implement strategy
§ Entry & Exit, Change, structure and controls
- Realistic view of strategy
o From intended to realized strategy, through deliberate. Can become unrealized or emergent
§ Intended = formulated beforehand
§ Realized = realized strategy
§ Deliberate = planned and working on
§ Emergent = new strategy through opportunities
§ Unrealized = not used strategy
EXTERNAL ANALYSIS
- Levels
o General environment = broad factors external to the firm that can have an impact on the
firms strategic decisions (DESTEP)
§ Demographic
§ Economic
§ Society and culture
§ Politics
§ Ecology
§ Technology
o Industry = collection of firms that compete
§ Similar products or services and similar tech (production process)
o Strategic groups = groups in industry that compete on strategic dimensions
o Competitor = one direct firm u compete with (model when 10 and not 10K)
- Porters five forces consists of:
o Potential entrants, suppliers, buyers, substitutes, industry competitors (rivalry among
existing firms)
, o Challenges when applying porters five forces:
§ Too broad = subs as com
§ Narrow = monopoly
§ Boundaries are broken down by tech
- Resources and capabilities
INTERNAL ANALYSIS
- Environment sets the stage, internal factors create CA
- RBV = firm as bundle of heterogenous and immobile resources and capabilities
o Resources = tangible and intangible assets that a firm controls and that it can use to
conceive and implement its strategies
o Capabilities = tangible and intangible assets that enable a firm to take full advantage of the
resources it controls
§ Financial, human, physical, organizational
- To asses resources & capabilities use VRIO
o Valuable, Rare, Imitable, Organizational
o No = competitive disadvantage
o Yes, No = competitive parity
o Yes, Yes, no = temporary competitive advantage
o Yes, Yes, Yes, Yes = sustained competitive advantage
o Challenges of the RBV:
§ Tautology = circular reasoning
§ Missed weaknesses
§ Overlapping external analysis (VRI)
§ Ambiguous role of O
BLS
- BLS = choice of competitive strategy in given industry
- Two fundamental options:
o Cost leadership or product differentiation
o Increase attractiveness of entire industry
o Increase own position in the industry
CLS
- CLS = choice of portfolio of business (where to compete)
o Horizontal expansion = expansion of activities in one industry
§ Advantage = economies of scale = lower per unit cost of production because of
higher production volume
o Vertical integration = moving up or down the value chain
§ Main advantage = economies of integration = lower production, distribution and
transaction costs
o Product diversification = expansion to different industry
, § Main advantage = economies of scope = C1 + C2 > C1,2 for related product
diversification
§ Main advantage = financial economies = internal capital market and risk reduction
(related and unrelated)
STRUCTURE AND CONTROLS
- Structure = grouping of tasks and responsibilities in separate organizational units
o Functional structure of the organization
§ Similar tasks are grouped in functional departments
§ Pro = specialization and thus
efficiency
§ Con = control problems and thus
lack of focus on strategy
o Product division structure of the organization
§ Activities aimed at specific products
are grouped in divisions
§ Pro = focus on products and less
overburdened top management
§ Con = loss of efficiency and synergies
o Area division structure of the organization
§ Activities aimed at specific geographic areas
are grouped in divisions, divisions have all
primary functions
§ Pro = focus on areas and less overburdened top management
§ Con= loss of efficiency and synergies
o Matrix structure of the organization
§ Activities are grouped simultaneously along several
dimensions
§ Pro = focus on performance in several dimensions
§ Con = loss of unity of command
- When to choose which structure
o BLS, HE, VI = functional structure
o Production diversification = product division structure
o Internationalization = area division structure
o Product diversification & internationalization = matrix structure
- Value of collaboration:
o Corporative for BLS, CLS, IS, HE, VI,
related diversification and integration
o Competitive for local responsiveness
and unrelated diversification
- Controls = make sure that unit management
pursues organizational goals
