Summary of the Strategy and Technology course, taught at Leiden University.
Contains at least the following topics:
strategy
porters five forces
economies of scale/scope
network economies
value chain/system analysis
competitive advantage
disruptive innovations
RPV framework
ARC framework...
Lecture 1
Strategy is about:
- What should be the capabilities that distinguish the company?
- What should be the company’s comparative advantage in adding value to its individual
businesses?
- What businesses should the company be in?
- Who should be the customers that define our target market?
- What should be the value proposition that differentiates our products and services with
those customers?
- What should be the capabilities that make our business better than any other in delivering
that value proposition?
→ Strategy is about what actions a company should take to create and maintain a sustainable
advantage in a competitive marketplace.
SWOT analysis: technique to assess your idea/business.
- Strengths: characteristics of the business or project that give it an advantage over others
- Weaknesses: characteristics that place the business or project at a disadvantage relative to
others
- Opportunities: elements that the business or project could exploit to its advantage
- Threats: elements in the environment that could cause trouble for the business or project.
Competitive advantage: the relative wedge a firm is able to drive between Willingness to Pay (WTP
→ how much the customers will pay for your product or service,) and the costs associated with the
products/service.
Economies of scale: the more units you produce, the lower the per-unit cost.
Economies of scope: the more you produce of related products, the lower the per-unit cost
Porter’s Five Forces: framework that assesses and
evaluates the competitive strength and position of an
organisation.
Case study Apple
Industry analysis PCs via Porter’s Five forces:
- Powerful buyers
- Very tough rivalry
- Barriers to entry are very low → very few
industries have lower entry barriers
- Lots of substitutes (tablets, game consoles
etc)
- Suppliers appropriate most of the industry’s residual profits
→ PC industry is terrible business. Apple turned it around by switching from own CPU to Intel. This
did not solve everything, but with differentiation in the product design and the rise of iPhones, many
more people started buying Macs.
Industry analysis smartphones via Porter’s Five forces:
, - Consumers don’t have lots of power: WTP is higher for design etc.
- Fierce
- Barriers to entry are low
- Lots of substitutes (tablets, game consoles etc)
- No suppliers that have a monopoly
Conclusion:
- Big difference between having product advantage and having a competitive advantage.
- Companies must have a deep understanding of the driving forces within their industry.
Lecture 2
Firm profitability is driven by the competitive dynamics of a specific industry and by variations in the
organisation of activities. Competitive advantage in an industry is tied to firm’s ability to command a
higher relative price or to operate at lower relative costs.
Different types of industry/position analysis:
- SWOT analysis
- Porter’s Five Forces
- Value Chain analysis: untangles cost and price differences between rivals by focusing on
differences in activities firms perform.
Difference between Porter’s Five Forces and Value Chain/Activity systems:
Industry Structure Relative position
Frameworks Porter’s Five Forces Value Chain/Activity
systems
Conceptual focus Drivers of industry Differences in activities
profitability
What does analysis Industry price and cost Relative price and
explain? costs
Firm value chain versus industry value system:
Firm value chain: sequence of activities a firm performs to design,
produce, sell, deliver, and support its products and/or services Firm Value
Industry value system: larger set of activities involved in creating chain
value for the end user, regardless of who performs those activities. Industry value system
Firm value chain is part of the industry value system:
How competitive advantage can arise from the different activities in a company’s value chain:
- Activities:
• Perform the same activities as your rivals but execute them better
• Perform different activities from your rivals
- Value created:
• Meet the same customer needs at a lower cost
• Meet different needs at lower costs
- Advantage:
• Ensure a cost advantage (hard to maintain)
• Have sustainably higher prices and/or lower costs
, - Competition:
• Be the best → compete on execution
• Be unique → compete on strategy
Mapping activity systems that characterise a company’s value chain
1. Identify critical strategic themes that define a firms’ competitive
advantage
2. Collate the activities and processes that support firms’ efforts within these themes
3. Draw the relationships that interlink these critical strategic themes, activities, and processes
in a map of the firm’s activity system
The more complex the activity system, the harder it is to copy the model. If competitors copy your
model, they are undermining their own business.
Being stuck in the middle: you can’t really change your activity model without the two market
leaders from both sides taking over e.g., Ikea and modern furniture stores.
Case Study eHarmony
1. Why do people want to meet others online instead of finding them in the real-world?
a. Three scenarios to meet people that might not be enough/provide the right people
i. Common activities
ii. Friends/family (meeting through brokers)
iii. Going out/parties
b. Dating platforms tackle the shortcomings of each of these three ways.
2. How structurally attractive is the market for online dating?
a. Use the Porter’s Five Forces; lots of rivalry, quite some substitutes, buyers and
suppliers are the same and powerful. Conclusion: difficult market.
3. Does eHarmony have a competitive advantage?
a. Focused on marriage-minded love seekers
b. Acts as broker and fixes the failures brokers face
c. Follows differentiation strategy: increase costs to increase WTP of customer more
d. Activity choices are unlikely to be copied by competitors
4. How serious is the competitive threat to eHarmony?
a. There is another dating ap p Chemistry that is similar to eHarmony and has a focus
on interpersonal chemistry, shorter questionnaire and they don’t reject customers
→ highly competitive threat.
Conclusions:
- Via a differentiator strategy, firms increase costs and increase WTP by much more
- A well-designed activity system constitutes a durable source of competitive advantage
- It is difficult for competitors to copy such activity systems as this undermines their own
market position
Lecture 3
Incumbents: ‘old’ company in an industry, often a leader
in the market. Good at developing sustaining innovations
that offer incremental benefits to existing customers.
Disruptor: companies that create a product, service, or
way of doing things which displaces the existing market
leaders and eventually replaces them at the helm of the
sector. Successful disruptors tend to enter markets serving
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