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Strategy SummaryLecture 1. Strategy Process
· How can firms achieve a sustainable competitive advantage (SCA)?
- Tactics is the theory of the use of military forces in combat; strategy is the theory of
the use of combats for the object of war
· A firm has a competitive advantage when it is able to create more economic value than
its rivals. Economic value is simply the difference between perceived benefits gained by
a customer that purchases a firms products and the full economic costs of the product
· The strategic management process is a sequential set of analyses and choices that can
increase the likelihood that a firm will choose a good strategy; that is, a strategy that
generates competitive advantages.
· Traditional Economical view on decision-making: Perfect rationality, perfect
information, Quantitative models, firms as black boxes, profit maximization
· Views on strategy
· The “Carnegie school” Organizational Decision making according to Carnegie. Mellon
university researchers: Uncertainty and imperfect information, bounded rationality,
options come one at a time, firms consist of coalitions of individuals, markets are not
perfect, satisficing rather than maximizing
· The traditional strategy process:
- Henry Mintzberg’s view on strategy: When I see the word planning, at least in the
same brearth as strategy, it becomes a red flag and I become a bull. Actually, I do
agree that good ideas can come out of
-
, - planning process- they can get out of a round of gold too
-
-
- Ikea: Incremental Approach
- Small packages and self-assembly, self-collect from warehouse, cheap, own design
- The Start: mail-order company: furniture appeared to be most successful
productIkea stores: Bade image of mail-order industry led to the creation of a show
room Store concept: Warehouse could not handle demand so consumers were
stimulated to pick up their purchasesRestaurant: Coffee promise to customers upon
opening of first store in 1953Self-assembly: Damaged furniture during
2
, transportation, Gillis LundgrenGlobal sourcing: Retailer-manufacturer boycott,
initial decision to source from Poland in 1962, Manufacturing costs 50% lower
Own design: Manufacturers-retailers boycott, own style and supports self assembly
- Strategy Lessons from IKEA: IKEA’s strategy evolved over time, by responding to
events, within a culture of experimentation, cost consciousness, informality, and
people’s orientation, driven by a visionary leader and core business idea: to offer a
wide range of well-designed, functional home furnishing products at prices so low
that as many people as possible will be able to afford them
-
- Towards a common Language of strategy:
- It’s a dirty little secret: Most executives cannot articulate the strategy of their
business in a simple statement
Measuring competitive advantage:
- Accounting performance
o Measure based on a firms published statements and accounting ratios
- Economic performance (cost of debt, cost of equity)
o Accounting measures ignore the cost of the capital a firm employs to produce.
o Cost of capital is the rate of return that a firm promises to pay its suppliers of
capital to convince them of further investment in the future
Emergent vs intended strategies
- emergent strategies are theories on competitive advantage that emerge over time, or
have been reshaped from the originally implemented strategy. EG new products
developed due to market conditions
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