The I/O model of above-average returns
analyses the external environment’s influence on the firm’s strategic actions.
This model says that the industry/segment the firm’s in has a strong influence on the performance
of the company. (stronger than the choices of the manager themselves)
The external environment influences the choice of strategy the firm proceeds.
(de 5 forces model of Porter is an I/O model it’s based on the external environment)
The firm's performance is believed to be determined primarily by a range of industrial properties,
including economies of scale, barriers to market entry, diversification, product differentiation and the
degree of concentration of firms in the industry.
The I/O model has 4 assumptions it makes:
1. Strategy via external environment – it imposes pressures and constraints where the strategies
are formed out of.
2. Most firms have the same resources and strategy in a specific industry/segment – because of
this, the firms can create the same strategies.
3. Resources are high mobile across firms – this model assumes that because of this, any
resource differences will be on short term.
4. Rational decision-making by the organizational decision-maker where these decisions are
made in the firm’s best interest -> max. profit
The I/O model challenges firms to find the most attractive industry in which to compete and shape
the structure of the industry to their advantage. And find out how to use their resources.
the I/O model says that if you study the external environment, you can find an attractive industry
for your company. Then you can implement your strategy based on that market.
It makes clear that the I/O model finds that analysing the external environment is more important
than using the firm’s unique internal resources and capabilities.
The I/O model is formed form 5 aspects:
1. External environment
2. Attractive industry
3. Strategy formulation superior returns
4. Assets & skills
5. Strategy implementation
The resource-based model of above average returns
The resource-based model is based on analysing the internal organization of a firm.
each firm is a collection of unique resources and capabilities where the uniqueness in this is the
important part why that firm would earn above-average returns. (from that it forms the strategy)
Resources: inputs into a firm’s production process, such as capital equipment, the skills of individual
employees, patents, finances and talented managers. snap ik nog niet 100% meer voorbeelden?
there are physical resources, human resources and organizational capital. (the 3 categories)
you can divide resources in tangible resources and intangible resources
,Capability: the capacity how a set of resources preform a task effectively
Core competencies: capabilities that serve as a source of a competitive advantage for a firm over its
rivals
The resource-based model of above average returns also makes a few assumptions:
1. Creating a strategy by possessing unique resources (and capabilities) – this rather than the
industry’s structural characteristics. (external)
2. Firms have different levels of performance – this because firms acquire different resources
and so develop unique capabilities. Because of this uniqueness the firms can achieve
competitive advantage
3. Resources are not highly mobile across firms – a capability must not be easily imitated but
also not too complex to understand and manage. The capability is unique and therefore it
isn’t available (that easy) for other firms.
According to the resource-based model, differences in performances across time occur primarily
because of firms' unique resources and capabilities rather than because of the industry's
characteristics.
Not every resources and capabilities have the potential to become core competencies and therefore
achieve a competitive advantage. The capability must comply to the VRIN model (chapter 3?)
The I/O and the RBM complement each other where the I/O model focuses on outside the firm while
the RBM focuses on inside the firm.
Vision and Mission
After analysing the external environment the firm forms its vision and mission.
Vision: what the firm wants to be and what it wants to achieve
Mission: who does the firm intents to serve and how it desires to serve those individuals and groups
The mission and vision together create the foundation of the strategy the firm proceeds to use.
Among other things, the firm hopes that the vision will capture the heart of the stakeholders
Stakeholders: the individuals and groups who can affect the firm's vision and mission, are affected by
the strategic outcomes the firm achieves through its operations, and who have enforceable claims on
the firm's performance
if firms maintain their relationships with their stakeholders, this can be a source of a competitive
advantage because the reputation of the firm among other stakeholders will be better.
these stakeholders are divided into 3 groups:
1. Capital market stakeholders (shareholders, major suppliers of a firm’s capital)
2. Product market stakeholders (primary customers, suppliers, etc.)
3. Organizational stakeholders (employees, managers, etc.)
To avoid conflicts, a firm wants to fully understand the stakeholders’ needs and interests. The firm
wants to satisfy those interests, but if it can’t satisfy them all they will prioritize.
Strategic leaders: people located in different parts of the firm using the strategic management
process to help the firm reach its vision and mission.
visionary leadership motivates employees and helps to increase firm performance.
these strategic leaders must understand how to manage strategic responsibilities to people in the
firm who influence the use of organizational resources.
, Organizational culture: the complex set of ideologies, symbols and core values that are shared
throughout the firm and that influence how the firm conducts business.
how the social energy is in a company (the culture at KLM is unique and valuable) influences the
market.
A profit pool entails the total profits earned in an industry at all point along the value chain.
Four steps to identify profit pools: define the pool's boundaries, estimate the pool's overall size,
estimate the size of the value-chain activity in the pool and reconcile the calculations.
Proper use of this tool can help the firm seeking strategic competitiveness and above-average returns
Chapter 2
The external environment affects the firm’s strategic actions to outperform competitors and achieve
above-average returns. It creates opportunities and threats, which affects the firm’s strategic actions.
The firm’s competitive actions are influenced by the external environment (it has 3 parts):
1. General environment – focused on environmental trends
is composed of dimensions in the society that influence an industry and the firms within it
Demographic, economic, political/legal, sociocultural, technological, physical, global
Firms study trends in these dimensions, predicts its effect of the firm and identify
strategies that keep the firm successful in these changing market conditions.
important is identifying opportunities and threats in the general environment these o&t
can help or hinder the road to strategic competitiveness.
2. Industry environment – focused on the factors and conditions influencing an industry’s
profitability potential
A set of factors that directly influences a firm – porters five forces
3. Competitor analysis – focused on predicting competitors’ actions, responses and intentions
how firms companies gather and interpret information about their competitors
External environmental analysis
Firms complete an external environmental analysis to increase understanding of the general
environment. To study this, identifying opportunities and threats is in important objective.
Opportunity: a condition in the general environment that, if exploited effectively, helps a company
achieve strategic competitiveness.
Threat: a condition in the general environment that may hinder a company's efforts to achieve
strategic competitiveness.
Firms use multiple sources to analyse the general environment through the next 4 things:
1. Scanning – entails the study of all segments in the general environment. Here they identify
early signals of potential changes in the general environment and detect changes that are
already on their way. (The internet is a good place for scanning)
2. Monitoring – analysts observe environmental changes to see if an important trend is
emerging from among those spotted through scanning. What important is that the firm is
able to detect meaning in environmental events and trends.
3. Forecasting - analysts develop feasible projections of what might happen, and how quickly, as
a result of the changes and trends detected through scanning and monitoring.
4. Assessing – determining the timing and significance of the effects of environmental changes
and trends that have been identified. The intent is to specify the ¿implications? of that
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