Samenvatting Readings Strategic Management (Prof. Dr. Cassiman) (19/20)
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Course
Strategic Management
Institution
Katholieke Universiteit Leuven (KU Leuven)
This course requires you to read 2 to 3 papers per lesson, as this is fairly 'time-consuming', I have compiled a summary of Prof. Dr. Cassiman's 'classic readings' throughout the year.
1. Porter, M.E. 1996. “What is Strategy?” Harvard Business Review (November-December
1996): 61-78
2. Ghemawat, P. 2009. “Strategy and the Business Landscape” Chapter 1, “The Origins of
Strategy”.
3. Collis, D. and M.G. Rukstad. 2008. “Can You Say What Your Strategy Is?” Harvard Business
Review (April 2008).
4. Koller, T., M. Goedhart and D. Wessels. 2005. “Valuation: Measuring and Managing the
Value of Companies.” Fourth Ed. John Wiley & Sons, Inc. Chapters 3, 5 & 6.
5. Porter, M.E. 2008. “The Five Competitive Forces that Shape Strategy” Harvard Business
Review (January 2008).
6. Collis D. and C. Montgomery. 2008. “Competing on Resources” Harvard Business Review
(July 2008).
7. Ghemawat, P. 2009. “Strategy and the Business Landscape” Chapter 3 “Creating
Competitive Advantage”
8. Bradley, C., Hirt, M. and S. Smit, “Have you tested your strategy lately” McKinsey Quarterly
(January 2011)
9. Collis. Why do so many strategies fail.
10. Collis. Creating Corporate Advantage.
11. Martin, J. and A. Sayrak. 2003. “Corporate diversification and shareholder value: A survey of
recent literature”,Journal of Corporate Finance, 9: 37-57.
12. Friedman, M. 1970. “The social responsibility of business is to increase its profits”, The New
York Times Magazine, September 13, 1970
13. Porter, M. 2011. “Creating Shared Value” Harvard Business Review January 2011.
14. R. Kaplan and D. Norton. 2008. “Mastering the Management System” Harvard Business
Review (January 2008).
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, Topic 1: What is Strategy? (Porter)
1. Operational Effectiveness is not strategy
The root of the problem is the failure to distinguish between operational effectiveness and strategy.
Operational effectiveness and strategy are both essential to superior performance, which, after all, is the primary goal
of any enterprise. But they work in very different ways. A company can outperform rivals only if it can establish a
difference that it can preserve.
Operational effectiveness (OE) means performing similar activities better than rivals perform them. Operational
effectiveness includes but is not limited to efficiency. It refers to any number of practices that allow a company to
better utilize its inputs by, for example, reducing defects in products or developing better products faster.
➔ About constant improvement
In contrast, strategic positioning means performing different activities from rivals’ or performing similar activities in
different ways.
Organizational effectiveness:
- About improvement of individual activities
- Improving organizational effectiveness moves the firm towards the productivity frontier
Productivity frontier: State of best practice.
Why is improved operational effectiveness insufficient?
1. OE competition shifts the productivity frontier outward, effectively raising the bar for everyone.
Although such competition produces absolute improvement in operational effectiveness, it leads
to relative improvement for no one.
2. Competitive convergence is more subtle and insidious.
Competition based on operational effectiveness alone is mutually destructive, leading to wars of attribution that can
be arrested only by limiting competition.
As companies move towards the productivity frontier, they can often improve on multiple dimensions of
performance at the same time (non-price buyer value delivered & relative costs position). However, when
operating at the frontier simultaneous improvements become very difficult and require trade-offs.
2. Strategy Rests on Unique Activities
Competitive strategy is about being different. It means deliberately choosing different set of activities to deliver
a unique mix of value.
Strategy positions emerge from three distinct sources:
1. Variety-based positioning: based on producing a subset of an industry’s products or services. Based
on product/services varieties rather than customer segments (focus).
2. Need-based positioning: serving most or all the needs of a particular group of customers.
3. Access-based positioning: segmenting customers who are accessible in different ways (e.g. Going
for rural instead of urban-based customers).
➢ Strategy: the creation of a unique and valuable position, involving a different set of
activities. (Having a clear strategy involves choosing to perform activities differently or
to perform different activities than rivals.)
If there were only one ideal position, there would be no need for strategy. If the same set of activities were best to
produce all varieties, meet all needs, and access all customers, companies could easily shift among them and
operational effectiveness would determine performance.
3. A Sustainable Strategic Position Requires Trade-offs
Straddling: type of imitation, the straddler seeks to match the benefits of a successful position while maintaining its
existing position. A strategic position is not sustainable unless there are trade-offs with other positions. Trade-offs
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, occur when activities are incompatible. → more of one thing necessitates less of another.
Tradeoffs create the needs for choice and protect against repositioners and straddlers.
Trade-offs arise for three reasons:
1. Inconsistencies in image or reputation.
2. Trade-offs arise from activities themselves.
3. Trade-offs arise from limits on internal coordination and control.
➢ Strategy is making trade-offs in competing. The essence of strategy is choosing what not to do.
Without trade-offs, there would be no need for choice and thus no need for strategy. Any
good idea could and would be quickly imitated. Again, performance would once again
depend wholly on operational effectiveness.
4. Fit Drives Both Competitive Advantage and Sustainability
Positioning choices determine not only which activities a company will perform and how it will configure
individual activities, but also how activities relate to one another. While operational effectiveness is about
achieving excellence in individual activities, or functions, strategy is about combining activities. Fit locks out
imitators by creating a chain that is as strong as its strongest link. Fit is important because discrete activities often
affect one another. → strategy is creating fit among the company’s activities
The implicit SM of the past decade Sustainable competitive advantages
One ideal competitive advantage in the industry Unique competitive positioning for the company
Benchmarking of the activities + Best practice Activities tailored to strategy
Outsourcing and partnering to gain efficiencies Clear trade-offs and choices vis-à-vis
competitors
Advantages rest on a few key success factors, Competitive advantage arises from fit across
critical resources, core competencies activities
Flexibility and rapid responses to all competitive Sustainability comes from the activity system,
and market changes not the parts
Operational effectiveness is given
Three types of fits:
1. Simple consistency: between each activity and the overall strategy. Consistency ensures that the
competitive advantages of activities accumulate and do not erode or cancel themselves out.
2. Activities are reinforcing: e.g. Hotel Marketing reinforces Neutrogena
3. Optimization of effort: coordination and information exchange across activities to eliminate
redundancy and minimize wasted effort.
Competitive advantage grows out of the entire system of activities. The fit among activities substantially
reduces cost or increases differentiation. Beyond that, the competitive value of individual activities – or the
associated skills, competencies, or resources – cannot be decoupled from the system or the strategy.
➢ Strategy: creating fit among a company’s activities.
➢ Strategic fit is fundamental to the sustainability of competitive advantage. It is harder for a
rival tomatch an array of interlocked activities than it is merely to imitate a single activity.
5. Rediscovering Strategy
- The Failure to choose
o Caught up in the race for OE, many managers simply do not understand the need to have
a strategy
- The Growth Trap
o Compromises and inconsistencies in the pursuit of growth will erode the competitive
advantage a company had with its original varieties or target customers.
- Profitable growth
o The prescription is to concentrate on deepening a strategic position rather than broadening
and compromising it.
o Companies seeking growth through broadening within their industry can best contain
the risk to strategy by creating stand-alone units, each with its own brand name and
tailored activities.
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