Pre-Master
Business Administration
2019-2020
Strategy & Organisation
Build-up of this document:
This summary is divided into the various weeks, starting with the most
important information from the slides, as well as similarities, differences and
comparisons between numerous articles of that specific week. The final part of
the week summary consists of article summaries that need to be studied for the
exam, accompanied by materials from the slides that regard that specific article.
This will give you an idea of the main message and the most important points per
given article.
,Strategy & Organization – Week 1 – Competitive Strategy
Lecture & Seminar 1
3 aspects to strategic management
à Content of the strategy à What is a good/profitable strategy?
à Process of strategy à How do strategies come into being in organizations?
à Context of strategy à Does the content or process of strategy depend on the
type of organization, the industry, the international environment, etc.?
à Strategy is about an elephant in a dark room, everybody sees and grabs a part,
but in order to know what it is, you should see all parts.
Strategy is not a goal, it’s the plan to reach a goal.
à Strategy is a plan of actions, usually with a limited time horizon; a plan about
HOW firms reach their goals (be unique and create value).
Firms do not reach their goals via plans. To achieve value creation, firms need:
à Individual-level; Talent (rather than strategy)
à Firm-level; Assets (rather than strategy)
The firm with most talents and assets will create more value than competitors.
However, performance does not emerge naturally; it requires coordination.
The standard model of strategy (joint product of design and planning school)
Analysis
à Phase 1: Formulate your objectives
• What are your short-term and long-term goals?
• What are the expectations of your stakeholders?
à Phase 2: Internal and External analysis
• Internal: Strength and Weaknesses
• External: Opportunities and Threats
à Outcome: Identify and formulate the strategic issues facing the firm
Choice
à Generate strategic options
à Judge strategic options
• Suitability
• Acceptability
• Feasibility
,What is competitive strategy? (for more background see Stoelhorst (2008)
à Strategy at company (business unit) level
à Key question of strategic management: why some firms outcompete other
firms (consistently) (and what are the sources of their competitive advantage)?
à Two dominant theoretical approaches
* Positioning School (Porter, 1979)
* Resource-based view (Barney, 1991)
Prescriptive vs. Descriptive
* Prescriptive à What strategy should be (Both positioning and resource-
based).
* Descriptive à What strategy is.
Positioning school vs. Resource-based school
The big similarity between the Barney and Porter is that they try to explain
differences in profitability of firms. However, their belief in how an organization
can be profitable or what determines performance are different.
Similarities
Both schools focus on the content of a strategy, aiming to create a profitable one.
Differences
The positioning school focuses on external analyses (like Porter’s five forces
which rates attractiveness of an industry), not so much on the internal
capabilities and resources or the competitive position of the firm itself.
The positioning school assumes that firms within an industry are identical in
terms of resources. Secondly it assumes that if heterogeneity would exist it
would only be very shortly, as resources are very mobile.
The resource-based view on the other hand, assumes that firms within an
industry are heterogeneous with respect to their strategic resources. Further, it
assumes these resources may not be mobile across firms, so heterogeneity can
be long lasting.
Paradoxes of competitive strategy:
1. Inside-out (Resource-based) versus outside-in (Positioning)
- Inside-out: strategy analyses should focus on the characteristics of the firm.
- Outside-in: strategy analysis should focus on the characteristics of the industry
2. Deterministic (Positioning) view versus voluntaristic (Resource-based)
view on strategy.
- Deterministic view says that the environment determined the optimal
strategy for a firm (stresses environment, industry matters).
- Voluntaristic view says that firms can actively influence the environment
through their strategy (stresses firm).
, 1.1 Porter, M. (1979), How competitive forces shape strategy
Conclusion
The nature and degree of competition in an industry depend on five forces;
the threat of new entrants, the bargaining power of customers, the bargaining
power of suppliers, the threat of suppliers, the threat of substitutes and the rivalry
among existing firms. A company must deal with these factors - as they are
built into the industry economics - via strategic shifts. Porter explained
strategy from the environmental point-of-view. First you assess the
industry’s environment and then the company formulates a strategy that fits
this environment (strategy as fit). Strategic plans of action may include;
positioning the company (defend against competitive forces), Influencing the
balance (The balance of the forces is partly external and partly controlled by the
company), and exploit industry change (respond to the environmental changes).
Perfectly competitive industries are easy to enter, but offer the worst prospect
for long-run profitability. Contrastingly, the weaker the forces are, the greater
the opportunity for superior performance. It is all about the positioning of the
company in an industry and finding the best position to deal with the
environment. The forces are therefore essential to strategy formulation.
Slides
According to the positioning school, some firms outperform others because of
selected favorable positions in attractive industries, supported by generic
(rather than unique) strategies.
Positioning theory can be explained by means of the
SCP paradigm:
• Structure: Profit potential varies per industry
• Conduct: Actions taken to realize industry-specific
profit potential
• Performance
• Variance in S & C = Variance in firm
performance
A summary of positioning theory according to the slides;
• External Focus on Opportunities and Threats.
• Strategy as fit: an optimal fit between a firm and its environment, competitive
positions in attractive industries.
• Firms realize superior performance by assuming less vulnerable positions.
• Strategies are generic positions in the market: favorable positions gained via a
limited number of generic strategies
Essentially (1) identify attractive industries, (2) use generic strategies that allow
the firm to occupy favorable positions, (3) protect favorable positions via
barriers.
- Positioning school of critique: “firms play a more important role in
determining profitability than the industry” (by Baden-Fuller & Stopford).
Business Administration
2019-2020
Strategy & Organisation
Build-up of this document:
This summary is divided into the various weeks, starting with the most
important information from the slides, as well as similarities, differences and
comparisons between numerous articles of that specific week. The final part of
the week summary consists of article summaries that need to be studied for the
exam, accompanied by materials from the slides that regard that specific article.
This will give you an idea of the main message and the most important points per
given article.
,Strategy & Organization – Week 1 – Competitive Strategy
Lecture & Seminar 1
3 aspects to strategic management
à Content of the strategy à What is a good/profitable strategy?
à Process of strategy à How do strategies come into being in organizations?
à Context of strategy à Does the content or process of strategy depend on the
type of organization, the industry, the international environment, etc.?
à Strategy is about an elephant in a dark room, everybody sees and grabs a part,
but in order to know what it is, you should see all parts.
Strategy is not a goal, it’s the plan to reach a goal.
à Strategy is a plan of actions, usually with a limited time horizon; a plan about
HOW firms reach their goals (be unique and create value).
Firms do not reach their goals via plans. To achieve value creation, firms need:
à Individual-level; Talent (rather than strategy)
à Firm-level; Assets (rather than strategy)
The firm with most talents and assets will create more value than competitors.
However, performance does not emerge naturally; it requires coordination.
The standard model of strategy (joint product of design and planning school)
Analysis
à Phase 1: Formulate your objectives
• What are your short-term and long-term goals?
• What are the expectations of your stakeholders?
à Phase 2: Internal and External analysis
• Internal: Strength and Weaknesses
• External: Opportunities and Threats
à Outcome: Identify and formulate the strategic issues facing the firm
Choice
à Generate strategic options
à Judge strategic options
• Suitability
• Acceptability
• Feasibility
,What is competitive strategy? (for more background see Stoelhorst (2008)
à Strategy at company (business unit) level
à Key question of strategic management: why some firms outcompete other
firms (consistently) (and what are the sources of their competitive advantage)?
à Two dominant theoretical approaches
* Positioning School (Porter, 1979)
* Resource-based view (Barney, 1991)
Prescriptive vs. Descriptive
* Prescriptive à What strategy should be (Both positioning and resource-
based).
* Descriptive à What strategy is.
Positioning school vs. Resource-based school
The big similarity between the Barney and Porter is that they try to explain
differences in profitability of firms. However, their belief in how an organization
can be profitable or what determines performance are different.
Similarities
Both schools focus on the content of a strategy, aiming to create a profitable one.
Differences
The positioning school focuses on external analyses (like Porter’s five forces
which rates attractiveness of an industry), not so much on the internal
capabilities and resources or the competitive position of the firm itself.
The positioning school assumes that firms within an industry are identical in
terms of resources. Secondly it assumes that if heterogeneity would exist it
would only be very shortly, as resources are very mobile.
The resource-based view on the other hand, assumes that firms within an
industry are heterogeneous with respect to their strategic resources. Further, it
assumes these resources may not be mobile across firms, so heterogeneity can
be long lasting.
Paradoxes of competitive strategy:
1. Inside-out (Resource-based) versus outside-in (Positioning)
- Inside-out: strategy analyses should focus on the characteristics of the firm.
- Outside-in: strategy analysis should focus on the characteristics of the industry
2. Deterministic (Positioning) view versus voluntaristic (Resource-based)
view on strategy.
- Deterministic view says that the environment determined the optimal
strategy for a firm (stresses environment, industry matters).
- Voluntaristic view says that firms can actively influence the environment
through their strategy (stresses firm).
, 1.1 Porter, M. (1979), How competitive forces shape strategy
Conclusion
The nature and degree of competition in an industry depend on five forces;
the threat of new entrants, the bargaining power of customers, the bargaining
power of suppliers, the threat of suppliers, the threat of substitutes and the rivalry
among existing firms. A company must deal with these factors - as they are
built into the industry economics - via strategic shifts. Porter explained
strategy from the environmental point-of-view. First you assess the
industry’s environment and then the company formulates a strategy that fits
this environment (strategy as fit). Strategic plans of action may include;
positioning the company (defend against competitive forces), Influencing the
balance (The balance of the forces is partly external and partly controlled by the
company), and exploit industry change (respond to the environmental changes).
Perfectly competitive industries are easy to enter, but offer the worst prospect
for long-run profitability. Contrastingly, the weaker the forces are, the greater
the opportunity for superior performance. It is all about the positioning of the
company in an industry and finding the best position to deal with the
environment. The forces are therefore essential to strategy formulation.
Slides
According to the positioning school, some firms outperform others because of
selected favorable positions in attractive industries, supported by generic
(rather than unique) strategies.
Positioning theory can be explained by means of the
SCP paradigm:
• Structure: Profit potential varies per industry
• Conduct: Actions taken to realize industry-specific
profit potential
• Performance
• Variance in S & C = Variance in firm
performance
A summary of positioning theory according to the slides;
• External Focus on Opportunities and Threats.
• Strategy as fit: an optimal fit between a firm and its environment, competitive
positions in attractive industries.
• Firms realize superior performance by assuming less vulnerable positions.
• Strategies are generic positions in the market: favorable positions gained via a
limited number of generic strategies
Essentially (1) identify attractive industries, (2) use generic strategies that allow
the firm to occupy favorable positions, (3) protect favorable positions via
barriers.
- Positioning school of critique: “firms play a more important role in
determining profitability than the industry” (by Baden-Fuller & Stopford).
