Summary Strategy - pre master strategic management
Summary Strategy For Pre-Masters, book, lectures, tutorials and question examples
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Tilburg University (UVT)
Pre-Master Strategic Management
Strategy for Premasters
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Inhoudsopgave
1. Strategic management process .................................................................................................................... 3
1.1 Alternative models for strategic management process ......................................................................... 4
1.2 Measuring competitive advantage ........................................................................................................ 5
1.2.1 Accounting performance measures (assets vs return of industry)..................................................... 5
1.2.2 Economic performance measures (firm’s cost of capital vs firm’s return) – more indirect ................. 5
1.2.3 Weighted average cost of capital < Return on assets > Industry return on assets (wanted) .............. 5
1.3 Emerging versus intended strategies ..................................................................................................... 6
2. External environment................................................................................................................................... 7
Trends.......................................................................................................................................................... 7
The frequency of environmental changes rises .............................................................................................. 7
Catch 22....................................................................................................................................................... 7
Relevance of external analysis for strategy in several ways ........................................................................... 8
Levels of external environment ..................................................................................................................... 8
2.1 The general environment – macro analysis – DESTEP related................................................................ 8
2.2 The industry – meso analysis................................................................................................................. 9
2.2.1 Structure Conduct Performance model (SCP-Model) - industry......................................................... 9
2.2.2 Five Forces of Porter - firm’s loval environment ............................................................................. 10
2.2.3 Relationship between the Five Forces and the SCP Model .............................................................. 12
2.2.4 Industry structure and environmental opportunities ...................................................................... 13
2.3 Strategic groups .................................................................................................................................. 15
3.1 Resource-based view of the firm ......................................................................................................... 17
3.1.1 Critical assumption of the resource-based-view............................................................................. 18
3.2 the VRIO Framework ........................................................................................................................... 19
3.3 Imitation and competitive dynamics in an industry............................................................................. 21
3.4 Critics on the resource based view ...................................................................................................... 22
Pre-master Strategic Management I Midterm Strategy I Nijskens, M.W.G. 1
,Extra. Business level strategies according to Miles and Snow........................................................................ 23
4. Cost leadership – business strategy............................................................................................................ 25
4.1 VRIO: how can a firm gain from cost advantage............................................................................... 25
4.2 VRIO: link between cost leadership and porters 5 forces ................................................................... 27
4.3 VRIO: what is the link between cost leadership and sustained competitive advantage? .................... 28
4.4 VRIO: organizing to implement cost leadership ................................................................................ 29
5. Product differentiation – business strategy ................................................................................................ 30
5.1 VRIO. How can a firm gain from product differentiation ................................................................... 30
5.2 VRIO. Link between product differentiation and Porters 5 Forces...................................................... 31
5.3 VRIO. What is the link between product differentiation and industrial phases (opportunities) ........... 31
5.4 VRIO: What is the link between product differentiation and sustained competitive advantage?........ 32
5.5 VRIO: Organizing to implement product differentiation .................................................................... 33
5.6 Can firms implement product differentiation and cost leadership at the same time? ........................ 33
Extra – Practise Multiple choice questions (Presenters Wall) ......................................................................... 35
Extra – Multiple choice questions Midterm November 2017.......................................................................... 35
Without answers and references ........................................................................................................... 38
With answers and references ................................................................................................................ 42
Extra –Multiple choice questions Final December 2016 ................................................................................. 48
Without answers and explanations........................................................................................................ 48
With answers and explanations............................................................................................................. 52
Extra –Multiple choice questions Final December 2018 ................................................................................. 57
Without answers and explanations........................................................................................................ 57
With answers and explanations............................................................................................................. 62
Pre-master Strategic Management I Midterm Strategy I Nijskens, M.W.G. 2
,1. Strategic management process
How to compete?
Single market/ industry How to position?
Strategie Competitive
implementation Advantage
Economic value = total
preceived benefits – total costs
Multiple market/ industry
structure, management control systems,
employee compensation policies
Mission: the firm’s long term pupose (why we exist), definies what a company aspires to be in
the long term and what to avoid in the short term.
- Does a mission statement even create value. Example: hairdressers.
- Even if it states something unique, it may not influence the behavior
- Does not always effect the firm’s performance
Improve: visionary firms – set of values and beliefs that influence the day to
day decision making process. Often other companies let go of this by gain short-
term advantages, however firms who stick tot heir set of values and beliefs are
more succesfull in the long term (IBM and Disney).
Hurt: example – a firm whose mission only focuses in reference to personal
values or without economic realities facing the firm.
No effect: example – it often contains so many common elements that it does not
influence behavior throughout an organisation.
Vision: what we want to be.
Values: what we believe in and how we behave).
Objectives: specific measurable targets a firm can use to evaluate the realisation of it’s mission.
High quality objectives:
- Thightly connected to the firm’s mission
- Easy to measure and track over time
Low quality objectives:
- Not connected tot he firm’s mission
- Not quantative
- Difficult to measure and track over time
Low-quality objectives cannot be used by management and often indicate that the firm is not
serious about realizing its mission statement.
Pre-master Strategic Management I Midterm Strategy I Nijskens, M.W.G. 3
,1.1 Alternative models for strategic management process
Points of departure - sequel on classic process:
- Structure
- External analysis
- Internal analysis
Building pyramids - strategy based on arguments:
You recommend a specific strategy and built a pyramid to make a more detailed explanation. So
first of all, you tell something about the attractive environment (it fits with demographic trends and
competition in the industry is not fierce), and afterwards you tell something about the resources
and capabilities (it employs the firms technology and it uses the firm’s brand name).
Business model canvas – Osterwalder and Pigneur:
- Value propositions: How it will attempt to create value for its customers? For example:
why do you buy an Iphone? It is not because of the quality as other
competitors have a good quality too. You buy an Iphone because
of the brand. Ben & Jerries: being greed. AH to go: accesability.
- Key activities: What key activiteit fo our value propositions require?
- Key resources: What key resources do our value propositions require? Only
mention the key resources. For McDonalds the building is a key
resource as it is located at time square, for others it may not be a
key resource.
- Key partners: Name the key suppliers. Which key resources are acquired? Only
mention the key suppliers. If you are a very small webshop,
PostNL is not a key partner as you are a price taker. For bol.com
PostNL could be a key supplier as they have a deal.
- Customer relationships: What kind of relation do we have? Information flows
- Channels: How can customers get your product?
- Customer segments: For who are we creating value
- Cost structure: What are the most important costs
- Revenu stream: for what value are customers paying? How do we get paid?
Starbucks: value proposition did not match anymore; third place. Their key resoure was namely
selling coffee as fast as possible. So their value proposition did not match with the key resource.
Pre-master Strategic Management I Midterm Strategy I Nijskens, M.W.G. 4
,1.2 Measuring competitive advantage
A firm has competitive advantage if it is creating more economic value than its rivals. A
competitive advantage is often only temporarely since competitors imitate the advantage or
improve it. Competitive parity: firm’s create the same amount of economic value.
Measuring a competitive advantage can be done in two ways, by examining its account performance
or by examining its economic value relative to other firms.
1.2.1 Accounting performance measures (assets vs return of industry)
Using information from the firm’s profit and loss and balance sheet statements. Accounting ratios:
- Profit ratios: how profitable it the organisation (= profit / ….
- Liquidity ratios: the ability of a firm to meet its short-term financial obligations (= assets /…
- Leverage ratios: the level of a firm’s financial flexibility ability to obtain more debt (= debt /… Can
you easily get more money? For example a loan.
- Activity ratios: the level of activity in a firm’s business (= sales / … Example: how quickly is your
stock turnover?
Above average accounting performance: competitive advantage.
Average accounting performance: competitive parity
Below average accounting performance: competitive disadvantage.
1.2.2 Economic performance measures (firm’s cost of capital vs firm’s return) – more indirect
Cost of capital: amount of money you need to pay investors. It is difficult to calculate when the
information is private held.
Return above normal economic performance: the firm is exceeding expectations
Return normal: the firm is in parity and meeting the expectations of the industry
Return below normal economic performance: firm is failing to meet the expectations. E.g. 8% interest
and they only can pay 4%.
1.2.3 Weighted average cost of capital < Return on assets > Industry return on assets (wanted)
Often above normal economic performance also has above normal accounting performance, see ^.
But above normal economic performance and below average accouting performance is possible too:
6789:;7< =>7?@97 ABC; BD A@E8;@F < T7;U?V BV @CC7;C < 8V<UC;?W ?7;U?V BV @CC7;C
WACC is lower than your ROA which is good bevause the costs of your money are cheaper than what
you make for it. ROA is lower than industry average ROA is bad because you get less money for it
than your rivals above normal economic performance, below average accounting performance.
Pre-master Strategic Management I Midterm Strategy I Nijskens, M.W.G. 5
,1.3 Emerging versus intended strategies
As shown on the figure below, often a company starts with an internded strategy. For example: Marriot
– restaurant nearby the airport – people buying meals before they fly – lunch packages to airlines.
Deliberate strategy: strategy that is designed ex ante and subsequently executed
Emergent strategy: not designed beforehand, but pattern that can be identified ex post in a series of
decisions that have really been made.
Pre-master Strategic Management I Midterm Strategy I Nijskens, M.W.G. 6
, 2. External environment
Identify threats and opportunities in the firm’s environment. It also focussess on how the
competition is changing and what this does tot he firm.
Trends
- Demands stakeholders: from serving the interest of various stakeholders (vroeger) > via
maximizing shareholder value (aantal jaren geleden) > to people-planet-profit (nu).
For example: McDonalds and their sold chicken. They have to keep into account what their
customer wants. WakkerDier made a special advertisement against the chicken they used, so
McDonalds had to change their chicken.
- Globalization:
- Firms focus on core competences
- Oursource activities internationally. For example: headquarter in one coutry, while offices are
established in other countries.
- Increases vulnerability: adapt the strategy of a firm to be less dependent/ to become more
independent. For example Volkswagen, a Bosnian supplier stopped producing more
suppliers where it got so dependent and it had to stop its own delivery. When you have more
suppliers you became more independent: if one quits you can rely on the others.
- Social and political blacklash: mensen die hun baan kwijt zijn door het uitbesteden van
productie naar andere landen, terwijl Trump beloofd dat iedereen aan het werk komt en in het
eigen land blijft. Deze mensen stemmen daarom voor Trump.
- Changing government regulation: countries can offer benefits to companies to start their
companies there. For example: the Netherlands can be very beneficial for taxes to let companies
come to here. But it is not fair to other countries that cannot offer this benefits, they will never be
attractive for big firms and they will not settle there.
- Increasing technology (most important trend): data analysis. Example technology is Google:
they invented a driverless car. Why is this a threat for car companies? In the future they will have
new direct competitiors and htey will have to change their target market. Because of technology
our current generation will not buy a car anymore, this is also a threat. In the future we will be able
to make one call by phone and a car will show up in front of the house. Why? Because we don’t
need a car 24/7. Als revenue will be threatened. On the other hand there will be new business for
companies that will rent cars to customers.
The frequency of environmental changes rises
- From stability: industry in which there are e.g. 8 competitiors trying to sell their products to you.
- Via punctuated equillibrium: but than in a very short period you get a lot of mergers and
acquisitions (M&A). They are bidding wars etc. Some of them will withdrawl from the market, after
a while you will only be with for exmaple 2 larger players left, the market will be stable.
- But in some situations you get to hypercompetition with no sustainable competitive advantage:
at the point of hypercompetition, competitors will copy everything a firm does. Companies have to
be very flexible and be able to adapt and switch very quickly.
Denk bijvoorbeeld aan hotel – AirBNb en taxi - Uber
Catch 22
- Frequency and impact of environmental changes on the rise: the importance of external analysis
increases, but at the same time, the feasability of external analysis decreases.
- We can only predict the future in a lineair way (through extrapolation)
- ‘you are dammed if you do, you are dammed if you do not’. For companies: feasibility external
analysis decreases: importance external analysis increases. The importance of investigating the
market is big, for examples the hotels and AirBNB. If they do not investigate their market, threats
and opportunities, they will be bankrupt next year. *the importance of external analysis increases
but the feasibility decreases.
Pre-master Strategic Management I Midterm Strategy I Nijskens, M.W.G. 7
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