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Inge van LieshoutStrategy
Strategic Management
Summary of the book:
Strategic management
By F. T. Rothaermel
Inge van Lieshout
International Business
Academic year 2014-2015
Maastricht University
,Chapter 1. What Is Strategy and Why Is It Important?
WHAT IS STRATEGY: GAINING AND SUSTAINING COMPETITIVE ADVANTAGE
Strategic Management: The integrative management field that combines analysis, formulation, and
implementation in the quest for competitive advantage. Embodied by the AFI strategy framework.
Competitive advantage: Superior performance relative to other competitors in the same industry or the
industry average.
Sustainable competitive advantage: Outperforming competitors or the industry average over a
prolonged period of time.
Competitive disadvantage: Underperformance relative to other competitors in the same industry or the
industry average.
Competitive parity: Performance of two or more firms at the same level.
Strategy: The planned and realized set of actions a firm takes to achieve its goals.
“The goal-directed actions a firm intends to take in its quest to gain and sustain competitive advantage”
(its managers’ theory)
- Creating a superior value and containing the cost to create it. The greater the difference > the greater
economic contribution > the greater the likelihood for competitive advantage.
- Accomplished through strategic positioning, staking out a unique position in an industry that allows the
firm to provide value to customers, while controlling the costs.
Co-opetition: Cooperation by competitors to achieve a strategic objective.
Competitive conditions
- Relative value of the firm’s resources and capabilities, compared to collaborators and competitors.
- Predictions about the actions that competitors may initiate.
- Development of trends in the external environment.
A firm’s relative performance in the competitive marketplace provides managers with the necessary
feedback to assess how well their strategy works in their quest for competitive advantage.
“The strategic management process is a never-ending cycle of analysis, formulation, implementation,
and feedback.
Firm effects: The results of managers’ actions to influence firm performance. (30%-45%)
↓Tend to have more impact than↓
Industry effects: The results attributed to the choice of industry in which to compete. (20%)
Other effects (35%-50%)
These effects are interdependent and thus both relevant in determining firm performance.
,Strategy (wrap up)
Definition: Strategy is the quest to gain and sustain competitive advantage
- It is the managers’ theory about how to gain and sustain competitive advantage
- It is about being different from your rivals
- It is about creating value while containing costs
- It is about deciding what to do and what not to do
- It combines a set of activities to stake out a unique position
- It requires long-term commitments that are often not easily reversible.
FORMULATING STRATEGY ACROSS LEVELS: CORPORATE, BUSINESS, AND FUNCTIONAL MANAGERS
Strategy formulation: Concerns the choice of strategy in terms of where and how to compete.
Corporate strategy
Business Strategy
Functional Strategy
Corporate strategy
Involves decisions made at the highest level of the firm.
Corporate executives:
- Decide in where (industries, markets, and geographies) their company should compete
- Decide how they can create synergies across business units that may be quite different
- Are responsible for setting overarching strategic goals and allocating scarce resources, among different
business divisions
- Are responsible for monitoring performance
- Are responsible for making adjustments to the overall portfolio of businesses when needed
, - Determine the scope of the business, deciding whether to enter certain industries and markets and
whether to sell certain divisions.
The objective of corporate-level strategy is to increase overall corporate value.
Business strategy
Occurs within Strategic business units: (SBU) Standalone divisions of a larger conglomerate, with its own
profit-and-loss responsibility. (e.g hardware – software – technology services – financing)
General managers:
Must answer the strategic question of how to compete in order to achieve superior performance within
the business unit.
Functional strategy
Various business functions occur within each SBU. (e.g. Accounting, finance, HR, product development
etc.)
Functional manager:
Responsible for decisions and actions within a single functional area that aid in the implementation of
the business-level strategy.
BUSINESS MODELS: PUTTING STRATEGY INTO ACTION
The translation of strategy into action takes place in the firm’s:
Business Model: Organizational plan that details the firm’s competitive tactics and initiatives; in short,
how the firm intends to make money.
Step 1: Transforms its theory into a blueprint of actions and initiatives
Step 2: Implements the blueprint through structures, processes, culture, and procedures
Famous examples:
Razor-Razor-Blade Business Model = Give away or sell for a small fee the product and make money on
the replacement part needed. (Invented by Gilette)
Subscription-based Business Model = Requiring customers to sign up for lengthy service plans.
Multi-point competition: Competition between firms for market share in several different product
categories (can be through different business models).
STRATEGY IN THE 21ST CENTURY
Factors that explain rapid technological diffusion and adaption:
- Initial innovations (e.g. car/plain/phone) provide necessary infrastructure for newer innovations to
diffuse more rapidly.
- Emergence of new business models make innovations more accessible.
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