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Summary Strategy & Organization (incl. lecture notes/slides)
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1.1How competitive forces shape strategy
Michael E. Porter, 1979
The essence of strategy formulation is coping with competition
The state of competition in an industry depends on five basic forces
How to improve your
The five forces competitive position?
Reduce the threats by:
Low, if
1. Threat of entry barriers
Differentiation or cost leadership
Depends on barriers: are high strategy -> increases economies of
> Economies of scale scale for new entrants
> Product differentiation
> Capital requirements
> Cost advantages independent of size
> Access to distribution channels
> Government policy
2. Powerful suppliers Cost leadership strategy -> quality
Powerful if: of inputs is less important
> Only a few large suppliers What?
> High costs to switch supplier for industry firms Organisations view competitions too narrowly
(product is unique/differentiated)
and pessimistically. It is neither coincidence
> Supplier goods are critical to industry firms’
nor bad luck. Thereby. Other players are not
success
> Industry firms are not significant customer for not the only aspect in competition.
the supplier Strategists also have to take a look at the
> Suppliers pose a credible threat to integrate other forces.
forward
3. Powerful buyers Differentiation strategy -> e.g.
Powerful if: bonding / loyalty programs
> Concentrated/purchases in large volumes How?
> The products are standard or undifferentiated
> The products form a component of its product
Explanation about the model?
and represent a significant fraction of its cost
> Earns low profits, which create great incentive
to lower its purchasing costs
> The industry’s product is important to the
quality of the buyers’ products or services
> The industry’s product does not save the buyer
money
> The buyers pose a credible threat of integrating
backward to make the industry’s product
4. Substitute products Combined differentiation/cost leadership
High, if: strategy -> to improve price/ Why?
> Customers face few switching costs performance ratio Provides the groundwork for a strategic
> The price of the substitute product is lower agenda of action and proves to be of help
> The quality of the substitute product is higher in considering areas for diversification
5. Jockeying for position Differentiation or cost leadership
strategy -> competitors are not willing
Intensity if competitive rivalry is high, if:
to compete on price (reducing
> Numerous or usually balanced competitors
> Slow industry growth competitive rivalry)
> Lack of differentiation
> Low switching costs
> High fixed costs
> High exit barriers
Formulation of strategy
After assessing the forces, devise a plan of action:
1. Positioning the company
2. Influencing the balance
3. Exploiting industry change
, 1.2
Firm Resources and Sustained Competitive Advantage
Barney, 1991
Resource based model
Since the 1960s a single framework has been used. They use the strengths, Not all firm resources hold the potential of sustained competitive
weaknesses, opportunities and threats as illustrated below advantages. Four attributes:
1. Valuable resources
2. Rare Resources
3. Imperfectly Imitable Resources
a. Unique historical conditions
b. Causal ambiguity and imperfectly imitable resources
c. Social complexity
4. Sustainability
Research on sustained competitive advantage has focused on either one of
the two aspects or analysing how these are matched to choose strategies.
But most of the research has focused on the opportunities and threats, e.g.
Porter’s Five Forces
Not much research about the firm’s attributes. Because, two assumptions:
1. Assumed that firms within an industry are identical (in terms of resources &
strategies)
2. That heterogeneity will not survive since the resources that firms use to
implement their strategies are highly mobile.
What?
The impact of firm attributes on a firm’s competitive
These assumptions eliminate firm position and the assumptions that strategic resources are
heterogeneity and immobility as possible
heterogeneously distributed across firms and that these
sources of competitive advantage
differences are stable over time
The resource-based view has two alternate
assumptions:
1. Firms within an industry may be heterogeneous with
respect to the strategic resources
2. These resources may not be perfectly mobile across
firms, and thus heterogeneity can be long lasting How?
Introducing the resource-based view with alternate
Key concepts assumptions
Firm resources: all assets, capabilities, organizational processes,
firm attributed, information and knowledge controlled by a firm
A firm has competitive advantage when it is implementing a
value creating strategy not simultaneously being implemented
by any current or potential competitors
A firm has sustained competitive advantage when “” and when
these other firms are unable to duplicate the benefits of this Why?
strategy
Most research on sources of sustained competitive
advantage has focused on isolating a firm's
Criticism opportunities and threats
Possession of resources differs from implementation
Causal ambiguity
, 1.3
The Firm Matters, Not the Industry
Baden-Fuller & Stopford, 1992
Introduction Competitive Recipes
The school of thoughts believes that when business are in a No single approach works well in all industries.
profitable industry, then its profits will be greater than in an The real competitive battles are fought out between firms
unprofitable industry. with a diversity of approaches to the market.
The dynamics of competition in traditional industries:
Conclusion
According to these authors, there is a little difference in the
profitability of one industry versus another. Profitable
industries are more profitable because they are populated by
more imaginative and creative businesses.
Mature Industries Offer Good Prospects for Success
The growth rate of an industry is a reflection of the kinds
of businesses within the industry
What?
That only 10% of a firm’s profitability is explained by the
industry structure. Baden-Fuller is claiming that outperforming
firms are performing well because they have distinctive
strategies (creative strategies) and not because there are
Large Market Share is the Reward, not the Cause positioned in a certain industry (environment).
of Success
For organizations, the success was followed by growth,
which was then cemented into greater success
How?
Looking at the firms individually. Porter does not.
Why?
Market share and profitability: It is not only important to look at external factors but also
looking at the firm as an individual
For creative organizations we see an upward spiral and
for organizations that are not creative we see the
downward spiral.
Successful businesses often grow because
they have discovered an overwhelming source
of competitive advantage, such as quality at
low cost.
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