This is a summary of the course Strategic Management by Professor Peter Verhezen (English master).
All my notes during class, the powerpoint slides and the possible exam questions are integrated. The professor told us the exam questions.
SUMMARY STRATEGIC MANAGEMENT
“How do firms achieve competitive advantage in a sustainable manner?”
Exam: 3 open questions with additional sub questions
CRAFTING AND EXECUTING STRATEGY – the quest of competitive advantage
Theme 1: What is Strategy and why it is important? – Introduction strategy
The Concept of Strategy
What is the essence of strategic thinking & implementation?
Example case: NETFLIX
If you start working for Netflix, and you're in the strategic team: do you think that Netflix is an easy
go? Not much to change, no competition…?
→ we’re going to look at the stock price
Strategy needs to be translated into performance.
Traditional performance: you're aware of financial, or sustainability…
Here we see the stock price went up, but then down. Why?
➔ In 2021, new competitors like Disney+, Apple+, Prime… all doing similar things = competition.
If there is more competition, some customers move away.
Why is that causing the stock price to drop?
➔ The profitability of Netflix goes down.
But why is it going up again in 2022?
1) The competition flopped, but it didn’t cause too much trouble for Netflix ? → no
2) Real answer: Netflix changed the password sharing policy, which means additional income.
It’s not that the others were failing, but internationally, Netflix is growing in Asia.
1
,It is true that strategy is about competition—how you survive or increase the pie without bothering
about competition. But now the expected cash flow is higher. Investors were afraid that it would be
pushed down by competitors, but it was not. Netflix is still growing internationally.
The quest for competitive advantage
Competitive Advantage = Meeting customer needs more effectively, with products or services that
customers value more highly, or more efficiently, at lower cost.
Sustainable Competitive Advantage = Giving buyers “lasting” reasons to prefer a firm’s products or
services over those of its competitors.
Strategy is about competitive advantage, not the same as comparative advantage (later in the course)
EXAMQUESTION
If you go to shops, some of them are successful. What do you think will happen if a shop/restaurant is
successful?
➔ Expectations:
Someone sees it and copies that → more competition → you eye for the same citizens as the
city: if you go to one restaurant, the other will not have the customer. → if it proves to be
superior (unique), you still go to that shop. → competition = share the pie.
What is the purpose of business?
➔ Making value for the customers.
Happiness is the consequence of sharing things with others → if you make money for yourself
and ignore your customers and suppliers, you're not going to last long. → Maximizing
profitability is not everything. → Without employees, you're not going to remain.
That's why dividends are paid last (example: in accounting, they are paid after everything
else).
A team around you is able to provide support.
So yes, you should make a profit (revenue – cost), otherwise you cannot reinvest.
If you don’t create value and capture some of that value, you will not be able to sustain.
= Meaning of strategy: having an idea of how to prepare an organization, not only for competitive
advantage but also for value. EXAMQUESTION
Example Apple vs Samsung:
(You see that very few people use anything other than Apple.)
Apple and Samsung have a sustainable competitive advantage. Why sustainable? Stable for 5 years,
they have crafted a big pie, a share of the market over the years → shown over the lasting years to
choose them.
The evolving nature of an organizations strategy
Realized (current) strategy is a blend of:
- Proactive (deliberate) strategy elements that include both continued and new initiatives.
- Reactive (emergent) strategy elements that are required due to unanticipated competitive
developments and fresh market conditions.
Strategy is about the future and how we compare it to the future.
Proactive = how are you preparing the organization for the industry proactively? You don’t wait until
the competition is closing in.
Example NETFLIX:
Why is it so popular and profitable? What is their competitive advantage? Business, what is the
purpose of a business?
➔ To solve a problem, to address a challenge. Once you create something, it’s because you see
an opportunity, like Netflix did with streaming.
They started because they were pissed off at Blockbusters → upset → that was the trigger to
start streaming. In the 1990s, the internet wasn’t ready yet, so it took 20 years to become
profitable.
There are 3 stages of Netflix:
1) They started because they reacted out of frustration.
2) Logistics company, but did something more—they started with production (House of Cards).
3) Today, they are an entertainment company, not only logistics → content creation, and that is
changing their investments.
Why are they daring to do so? What makes Netflix willing to take a risk of $15 billion a year?
➔ Because of data → Netflix is seen as an AI algorithm that predicts which movies will be liked
by the majority of people → AI is helping the organization act proactively.
➔ Our behavior isn’t changing; we have certain preferences.
➔ Netflix (or any AI) is not the spark. (For example, they never suggest documentaries.)
→ Netflix’s competitive advantage: proactively investing in movies that are shown and paid
for by 20,000 people. Good enough to have ROI. That’s why the stock price is rising.
3
, Deliberateness vs. Emergence: Deliberate and Emergent Strategy example: Honda case in USA in the
50s
Examquestion: Explain the Honda case → Why an intended strategy is not always successful.
In the 1950s, Honda decided from a strategic perspective to compete with the big Harley-Davidsons
because they thought they had a better bike. Unfortunately, it didn’t work out as expected:
➔ The climate in Tokyo is different from California → the bikes were leaking and not selling as
expected → the intended strategy of exporting from Tokyo to the US did not materialize. It
didn’t reach the number of sales they had hoped for.
➔ Coincidence: The bikes were eventually sold at Sears (a competitor of Walmart). → The small
cc muppet combined with good advertising, allowed Honda to break into the American
market—not with the intended strategy, but with an emergent strategy.
You may have a plan, but the plan doesn’t guarantee that it will go as expected → coincidences and
adaptations play a role.
Business = Value creation
Business is about creating value.
➔ Profit is the consequence (like happiness is a consequence of something else).
➔ Pushing the pie up, creating a bigger pie.
➔ Strategy is not necessarily a zero-sum game.
➔ The success of one is not necessarily the loss of another.
Restaurants here will have their own niche, like students.
If that’s the case, there’s no reason to think strategy is a zero-sum game.
You create value, you make it bigger. You don’t kick out the competition; you make something new.
Creating value means increasing the pie.
Additional value created
- WTP: willingness to pay
- WTS: willingness to sell
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