Summary Strategic Management (1st master TEW, prof B. Cassiman) - 16/20 first session
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Course
Strategisch Management
Institution
Katholieke Universiteit Leuven (KU Leuven)
This is a summary for the course strategic management in the master Business Economics (TEW), given by prof. B. Cassiman. This is a complete summary of own notes and the slides from the course. The cases from the course are not included.
STRATEGISCH MANAGEMENT
LES 1: WHAT IS STRATEGY? ..................................................................................................................................... 1
WHAT IS STRATEGY? ........................................................................................................................................... 1
1. Long-term performance of companies ........................................................................................... 1
2. Positioning within your industry ..................................................................................................... 2
3. Choosing your target market .......................................................................................................... 2
4. Your resources and capabilities....................................................................................................... 2
5. Competition and market entry ........................................................................................................ 3
15. Leadership, communication and alignment .................................................................................... 5
ROLE OF STRATEGY ............................................................................................................................................. 6
Strategy as decision support and as a coordinating device............................................................................ 6
What is a strategic decision? ..................................................................................................................... 6
Which decisions are strategic? .................................................................................................................. 6
Strategy as a target ........................................................................................................................................ 8
Link between strategy and vision: mission, purpose ..................................................................................... 8
What is strategy – choice of a future ............................................................................................................. 9
What is strategy – trade-offs ........................................................................................................................ 10
What is strategy – Coherence-consistency .................................................................................................. 10
A lot of bad strategy ..................................................................................................................................... 11
I
, Strategy used and abused ........................................................................................................................ 11
Do you have a strategy? ........................................................................................................................... 11
When should a strategy be reviewed or changed?.................................................................................. 12
LES 2: VALUE CREATION AND VALUE CAPTURE .................................................................................................... 13
IS VALUE CREATED BY THE BUSINESS? ............................................................................................................. 13
Drivers of value creation .............................................................................................................................. 14
How to determine WTP? how to calculate WTP? ........................................................................................ 14
IS VALUE CAPTURED BY THE BUSINESS? ........................................................................................................... 15
How to capture value at a moment in time? ............................................................................................... 16
Identify the fundamental metrics for measuring and evaluation the performance of the business ....... 16
What is invested capital? ......................................................................................................................... 17
Cost of invested capital ............................................................................................................................ 18
HOW IS VALUE CAPTURED SUSTAINED OVER TIME? ........................................................................................ 19
Enterprise value with perpetuity formula .................................................................................................... 20
WHEN DOES A STRATEGY CREATE VALUE? ...................................................................................................... 20
The keys to capturing value.......................................................................................................................... 21
Performance differences between companies are difficult to explain ........................................................ 21
VOORBEREIDING: UNDERSTANDING YOUR ENVIRONMENT ................................................................................ 23
STRATEGY AND THE DRIVERS OF ENTERPRISE VALUE ...................................................................................... 23
Influence of industry over strategy .............................................................................................................. 23
INDUSTRY ATTRACTIVENNES ............................................................................................................................ 23
Industry change........................................................................................................................................ 25
Assessing industry attractiveness ............................................................................................................ 25
A less attractive industry can nevertheless be important for a company ............................................... 26
Difference between objective and subjective attractiveness of an industry ........................................ 27
6 reasons why companies need to analyze their industry ....................................................................... 27
STEP 2: DEFINITION OF AN INDUSTRY .......................................................................................................... 27
II
, Industry is a product-technology combination ........................................................................................ 27
Industries are different from markets ..................................................................................................... 28
Should industry be defined as local, global or multi-domestic? .............................................................. 28
Strategic implications of different geographic types of industries .......................................................... 28
Step 3: Drivers of attractiveness of industry ................................................................................................ 29
A simple framework for value creation and value capture ...................................................................... 29
Five Forces model – Porter ...................................................................................................................... 29
Wht makes rivalry intense? ................................................................................................................... 29
What makes entry easy? ....................................................................................................................... 31
Threat of sustitutes ............................................................................................................................... 32
What makes buyers powerful? ............................................................................................................. 32
What makes suppliers powerful? .......................................................................................................... 33
Conclusion: factors to consider ............................................................................................................. 33
Attractiveness of industry depends also on interactions and cooperation with other industries: value
net ......................................................................................................................................................... 33
An augmented framework .................................................................................................................... 34
The industry value system ............................................................................................................................ 34
Strategic implication of the value system ................................................................................................ 35
STRATEGY AND DRIVERS OF ENTERPRISE VALUE ............................................................................................. 36
LES 3-4-5: COMPETITIVE STRATEGY – THE BUILDING BLOCKS .............................................................................. 37
DEFINING A COMPETITIVE ADVANTAGE........................................................................................................... 40
Define Added Value ...................................................................................................................................... 40
COMPETITIVE POSTIONING – DO YOU HAVE A COMPETITIVE ADVANTAGE OVER YOUR COMPETITORS?...... 41
Types of competitive advantage .................................................................................................................. 41
Key questions for strategy ............................................................................................................................ 41
Choice between strategic positions ......................................................................................................... 41
DEVELOPING A SUSTAINABLE COMPETITIVE ADVANTAGE .............................................................................. 42
III
,Step 1: defining the scope of a business ...................................................................................................... 43
Step 2: analyzing the activities ..................................................................................................................... 45
1. Catalog the firm’s activities ........................................................................................................... 45
The porter value chain .......................................................................................................................... 45
The value chain is changing ................................................................................................................... 47
Value chains (Pipelines vs. platforms) ................................................................................................... 49
2. Examine the costs associated with each activity, and use differences in costs to understand how
and why costs differ from those of the competitors ............................................................................... 50
STEP 4: DETERMINE THE BUSINESS MODEL ................................................................................................. 59
STEP 5: SUSTAINABILITY OF COMPETITIVE ADVANTAGE ............................................................................. 61
Threats to sustainability ........................................................................................................................... 61
IV
, Evaluating the sustainability of a competitive advantage at capacity level ............................................. 62
Imitation – not being different .............................................................................................................. 62
Industry Attractiveness/Competitive Advantage (McKinsey) ............................................................... 69
Problems with Growth/Share Matrix (BCG) or Industry Attractiveness/ Competitive Advantage
(McKinsey) ............................................................................................................................................. 69
Institutions and strategy .............................................................................................................................. 81
MArtin and Sayrak (2003) What is the puzzle? ............................................................................................ 81
LES 12: CORPORATE SOCIAL responsibility (CSR) .................................................................................................. 83
VALUE FOR WHOW? ......................................................................................................................................... 83
Shareholder value perspective ......................................................................................................................... 83
The stakeholders’ perspective...................................................................................................................... 83
CORPORATE SOCIAL RESPONIBILITY – DEFINITION .......................................................................................... 84
Types of competitive advantage .................................................................................................................. 85
THE ROLE OF THE FIRM: ECONOMIC AND SOCIAL PERFORMANCE .................................................................. 86
LES 13: STRATEGY PROCESS .................................................................................................................................. 87
WHO DOES WHAT FOR STRATEGIC DECISION-MAKING ................................................................................... 87
FORMULATION AND EXECUTION ...................................................................................................................... 87
Getting things done ................................................................................................................................. 88
The management system ............................................................................................................................. 88
Top management team: leaders matter ...................................................................................................... 90
TOP MANAGEMENT TEAM & STRATEGY ...................................................................................................... 90
CHALLENGES IN DEALING WITH EXECUTIONS .................................................................................................. 90
BIASES IN DECISION MAKING ........................................................................................................................... 90
Overconfidence and overoptimism .............................................................................................................. 90
How to counter? ................................................................................................................................... 91
Confirmation bias and Groupthink .......................................................................................................... 91
How to counter? ................................................................................................................................... 91
VI
, Loss Aversion (prospect theory) .............................................................................................................. 91
How to counter? ................................................................................................................................... 91
STatus quo bias and preference for even allocations .............................................................................. 92
How to counter? ................................................................................................................................... 92
Sunk-cost fallacy “trhowing good money after bad” ............................................................................... 93
How to counter? ................................................................................................................................... 93
Think about your network ............................................................................................................................ 93
LES 14: CONCLUSION ............................................................................................................................................ 96
1. Long-term performance of companies
2. Positioning within your industry
3. Choosing your target market
4. Your resources and capabilities
5. Competition and Market Entry
6. Globalization
7. Technology Convergence
8. Irreversibility of Decisions
9. Sustainability
10. Non-market strategies
11. Communities
12. Corporate Social Responsibility
13. Not only profitability
14. Corporate strategy
15. Leadership Communication Alignment
First part of course: how do you compete with your business in your industry. How to think about strategy.
Second part of course: How do you grow in other industries?
1. LONG-TERM PERFORMANCE OF COMPANIES
Example Ryanair:
Why has Ryanair become so successful, and other low fare airlines not: Spainair, Airberlin? Why is Ryanair the
most profitable one?
What are the most profitable resources of an airline? The planes. When do planes pay off in the long run? If they
are in the air. Planes that are on the ground do not pay off. For this reason, Ryanair’s business model was focused
on staying in the air for as much time as possible.
They started off at Charleroi Airport, an airport that the bigger airlines did not use. At this airport, there were
less planes, which meant that the planes could be up in the air faster. First, they did not assign any seats which
led to people running to the aircraft -> people went into the plane faster and the plane could be up in the air
faster. They did not make any connections, not wait on passengers.
Now: the company has grown enormously, they have seat assignment and they are present in the bigger airports,
where there is more competition. This causes pressure on their system, which causes them to force some things
(such as not allowing things that drive up the costs). They are still doing well but now you see problems like the
strikes of their personnel (they don’t allow unions to cut costs). These problems come because of their business
model → opgelet: hoever kan je gaan om je personeel productiever te maken?
Example Kodak and Fujifilm:
Both Fujifilm and Kodak were companies that used to sell film cameras. Although Kodak developed the first
digital camera, they did not continue with digital cameras because 90% of their revenue came from film cameras.
When the phones came out with the digital cameras, nobody used film anymore and they went bankrupt. How
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