Week 1: What is strategic management?
Firms is a bundle of contracts and agreements of which things are done cheaply inside the firm, and
which things are done more cheaply outside the firm. A firm exist of transaction costs, which are the
things where firms put their effort they have to go to.
* Search and information costs: how do you find your employees, what are the efforts?
* Bargaining and decision costs: costs of negotiating with the employees for a contract
* Policing and enforcement costs: costs for monitoring the employees
From a transaction costs perspective it’s cheaper to hire an employee than to rent one
The goal in management is to minimize financial and non-financial costs. If this was the only thing for
the success of a business, all the firms would look and perform the same. The question why firms
perform differently is one of the fundamental questions in strategy.
There is some literature that explain why firms that are in the same industry, expose the same
information, with the same source information, and the same bargaining enforcement emblazing
costs perform different. You have to look at both to explain the firm performances
The strategic position: firms’ performance is explain in terms of industry attractiveness. The
forces model (Porter, 1980) pushing the firm to position itself within the industry; the firms
strategy relative to the optimum strategy of the industry; industry based view
The strategic capabilities: (Barney) The 5 forces are a limited number of ways in which the
firm can position itself, and there should be an optimum, but firms are not going to perform
better; firms have unique resources, assets, skills and capabilities bundled together which
create value for the firm and are the key to success; resource based view
Both literatures think successful firms are firms that develop sustainable competitive advantages,
which are the reasons that someone prefers your firms over your competitors. A competitive
advantage is sustainable when it persists despite the efforts of the competition to copy it or to
neutralize it.
o Reduce costs: you costs are cheaper than the costs of your competitors
o Increase the price that you charge: with a brand name you are able to be more profitable
Strategy: isn’t about investing in profitable projects, ROI, NPV, because this can lead firms to make
bad decisions or becoming increasingly diversifying without any clear focus, and so create a lot of
inefficiencies in the firm and destroy value.
o Diversification discount: when firms announce diversification on the stock market, the stock
market will reduce the value of the firm. This because they know the firm will encounter
difficulties, like delays and disruptions, which reduce the profitability and the firms’ value
Mintzberg: 5 P’s of strategy is a good point to start in strategy
o Planning: having a plan to embracing the trends, changes and demands from
consumers, extending upon these through adding proprietary elements, and
extinguish threats around you is a key to success; Embracing – extending –
extinguish
o Ploy’s: discouraging, diverting, or influencing competitors; tricking the
competitors
o Patterns: repeating a pattern of behaviour over time to build an image and reputation of
who you are as a firm
o Positions: identifying and occupying a position in the market from which the firm can gain a
competitive advantage; what do you do and what is your position
o Perspectives: the way in which the firm sees the world and behaves in a way that is consisted
with that (culture)
, Strategy: there are different definitions for strategy
* An integrated and coordinated set of commitments and actions, designed to exploit core
competencies (key skills), to gain a competitive advantage; to higher the price you are able to
charge to your customers or to minimize the costs that you encore in the process
* Matching a firms resources and capabilities to the opportunities and threats that arise in the
external environment to create value
* Strategy is a tool to help us understand what we are, what were good at, where we create
value, and to help us choose between pots to ensure that value is being maximized
* Ongoing process that evaluates the company, its competitors, and sets goals and strategies
to meet all existing and potential competitors; and then reassesses these to determine
whether it has succeeded or need replacement by a new strategy. Setting short-term, mid-
term and long-term goals based on the capabilities, and periodic and systemically evaluate
In strategic management there are two questions to see if the industry and market is attractive and
how a firm should position itself within this industry
1. Where should we compete?: what is an attractive market in terms of industry and country
a. which industries should we be in? our existing or should we move to another
b. which country should we be in?
2. How should we compete?
a. Should we focus on costs or differentiation?
b. Should we create scale and efficiencies?
c. Should we build on competitive advantages?
d. Should we focus on serving a small niche of the markets?
When should we ‘do’ strategy: in situation when the outcomes for each player depend not only on
what he or she does, but also what others do; when there is a variable that the firm can use to
change the performances.
Firms is a bundle of contracts and agreements of which things are done cheaply inside the firm, and
which things are done more cheaply outside the firm. A firm exist of transaction costs, which are the
things where firms put their effort they have to go to.
* Search and information costs: how do you find your employees, what are the efforts?
* Bargaining and decision costs: costs of negotiating with the employees for a contract
* Policing and enforcement costs: costs for monitoring the employees
From a transaction costs perspective it’s cheaper to hire an employee than to rent one
The goal in management is to minimize financial and non-financial costs. If this was the only thing for
the success of a business, all the firms would look and perform the same. The question why firms
perform differently is one of the fundamental questions in strategy.
There is some literature that explain why firms that are in the same industry, expose the same
information, with the same source information, and the same bargaining enforcement emblazing
costs perform different. You have to look at both to explain the firm performances
The strategic position: firms’ performance is explain in terms of industry attractiveness. The
forces model (Porter, 1980) pushing the firm to position itself within the industry; the firms
strategy relative to the optimum strategy of the industry; industry based view
The strategic capabilities: (Barney) The 5 forces are a limited number of ways in which the
firm can position itself, and there should be an optimum, but firms are not going to perform
better; firms have unique resources, assets, skills and capabilities bundled together which
create value for the firm and are the key to success; resource based view
Both literatures think successful firms are firms that develop sustainable competitive advantages,
which are the reasons that someone prefers your firms over your competitors. A competitive
advantage is sustainable when it persists despite the efforts of the competition to copy it or to
neutralize it.
o Reduce costs: you costs are cheaper than the costs of your competitors
o Increase the price that you charge: with a brand name you are able to be more profitable
Strategy: isn’t about investing in profitable projects, ROI, NPV, because this can lead firms to make
bad decisions or becoming increasingly diversifying without any clear focus, and so create a lot of
inefficiencies in the firm and destroy value.
o Diversification discount: when firms announce diversification on the stock market, the stock
market will reduce the value of the firm. This because they know the firm will encounter
difficulties, like delays and disruptions, which reduce the profitability and the firms’ value
Mintzberg: 5 P’s of strategy is a good point to start in strategy
o Planning: having a plan to embracing the trends, changes and demands from
consumers, extending upon these through adding proprietary elements, and
extinguish threats around you is a key to success; Embracing – extending –
extinguish
o Ploy’s: discouraging, diverting, or influencing competitors; tricking the
competitors
o Patterns: repeating a pattern of behaviour over time to build an image and reputation of
who you are as a firm
o Positions: identifying and occupying a position in the market from which the firm can gain a
competitive advantage; what do you do and what is your position
o Perspectives: the way in which the firm sees the world and behaves in a way that is consisted
with that (culture)
, Strategy: there are different definitions for strategy
* An integrated and coordinated set of commitments and actions, designed to exploit core
competencies (key skills), to gain a competitive advantage; to higher the price you are able to
charge to your customers or to minimize the costs that you encore in the process
* Matching a firms resources and capabilities to the opportunities and threats that arise in the
external environment to create value
* Strategy is a tool to help us understand what we are, what were good at, where we create
value, and to help us choose between pots to ensure that value is being maximized
* Ongoing process that evaluates the company, its competitors, and sets goals and strategies
to meet all existing and potential competitors; and then reassesses these to determine
whether it has succeeded or need replacement by a new strategy. Setting short-term, mid-
term and long-term goals based on the capabilities, and periodic and systemically evaluate
In strategic management there are two questions to see if the industry and market is attractive and
how a firm should position itself within this industry
1. Where should we compete?: what is an attractive market in terms of industry and country
a. which industries should we be in? our existing or should we move to another
b. which country should we be in?
2. How should we compete?
a. Should we focus on costs or differentiation?
b. Should we create scale and efficiencies?
c. Should we build on competitive advantages?
d. Should we focus on serving a small niche of the markets?
When should we ‘do’ strategy: in situation when the outcomes for each player depend not only on
what he or she does, but also what others do; when there is a variable that the firm can use to
change the performances.
