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Strategy and organization - summary
The document is structured per lecture week and consists out of a summary of each article in the respecive week together with a summary of the slides used in that respective weerk
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Voorbeeld van de inhoud
Strategy and organization – exam prep,Week 1: competitive strategy
Lectures:
The overall theory of this course looks as follows:
- The content of strategy = what is a good strategy
- The process of strategy = how do strategies come into being in organizations?
- The context of strategy = does the content or process of strategy depend on the type of
organization, the industry, the international environment, etc.?
So, strategy is like an elephant in a dark room: everybody feels a different part of the elephant and
thus sees strategy in a different way. But what is strategy exactly? Strategy regards what unique
position will we be able to obtain? What kind of advantage will we have and how will we preserve it?
Strategy is a plan of actions, usually with a limited time horizon, what you will do to achieve a goal.
Do we need strategy?
The goal here is value creation: individual level = talent (rather than strategy), firm level = assets
(rather than strategy.
Mostest argument: the firm with the most talent and assets will create more value than its
competitors. → this does not necessarily hold in reality, accumulation of assets and expertise does
not always lead to performance. The relationship between acquisitions and firm performance is
negative. The relationship between diversification and firm performance is mixed.
Performance requires coordination = strategy, it reduces uncertainty.
Conclusion: unexplained variance and negative relationships at different
levels implies that strategy really matters for firm performance. Strategic
management is the integration and alignment to improve performance.
→ Right, you see the standard model of strategy.
,Competitive strategy: strategy at company level (business unit level). Key question: why some firms
outcompete other firms (and what are the sources of their competitive advantage? Two dominant
theoretical approaches: positioning school (Porter, 1979), recourse-based view (Barney, 1991).
Positioning school of Porter (1979)
before this one, the main focus was on price competition. Porter’s main insight: there must be more
to the environment than just prices. Positioning theory: why do some firms perform better than
others? Porter tells us that the competitive environment determines the profit potential per
industry, this is determined by 5 forces:
- Threat of new entrants
- Threat of substitute products
- Bargaining power of suppliers (raising prices or reducing the quality of purchased goods and
services)
- Bargaining power of buyers (demand higher quality of some service and play competitors off
against each other (at the expense of the industry’s profit)).
- Rivalry among existing firms (using tactics like price competition, product introduction and
advertising).
Positioning school: some firms outperform others because of selected favorable positions in
attractive industries, supported by generic (rather than unique) strategies. Assumption: every
industry has underlying competitive structure and the essence of strategy formulation is coping with
competition (Porter, 1979). Resources are homogenous and mobile (everybody has access to the
same).
Porter constructed three generic strategies that companies could adopt based on his views:
The SCP paradigm: Structure (profit potential varies per industry), Conduct (actions taken to realize
industry-specific profit potential), Performance (variance in S and C = variance in firm performance).
→ So, Porter focuses on the external environment (opportunities and threats) and then realizes
superior performance by assuming less vulnerable positions. He sees strategy as a fit: an optimal fit
between a firm and its environment, competitive positions in attractive industries. Strategies are
generic positions in the market: favorable positions gained via a limited number of generic strategies.
Essentially: 1) identify attractive industries, 2) use generic strategies that allow the firm to occupy
favorable positions, 3) protect favorable positions via barriers.
, → critiques on this view can be seen in Baden-Fuller and Stopford (1992), who say that firms play a
more important role in determining profitability than just the industry. Firms can have equivalent
positions in the industry and yet differ in profitability (firm-based view).
- Mature industries offer good prospects for success: profitable industries are profitable
because it includes imaginative and creative businesses. Because of this they attract
customers resulting in a growing-industries, making it attractive (mature industries do not
mean low profitability).
- Large market share is the reward not the cause of success, this way new entrants are
discouraged because of fear of sunk costs.
- Different strategic approaches are present, you can be both cost leadership and
differentiating.
Resource based view (Barney 1991)
First of all, some notable assumptions:
- Firms differ from each other
- These differences are relatively stable
- These differences lead to differences in performance.
- Recourses are heterogenous and imperfectly mobile
To answer the question “why do some firms outperform others?” the RBV says: implement unique
value creating strategy based on (heterogenous) recourses. To do so consistently, competitors must
not be able to duplicate your strategy.
According to Barney: a firm is said to have CA when it is implementing a value creating strategy that
is not also being implemented by any current or potential competitors AND when those other firms
are unable to duplicate the benefits of this strategy.
I other words: CA leads to superior performance, it is not equal to superior performance. So, Barney
focuses more on the internal (strengths and weaknesses). He talks about a unique, value-creating
strategy because of the use of recourses: CA resides within the firm.
Examples of those recourses are: physical capital (technology, equipment), human capital
(experience, training, insights of people), organizational capital (planning, relations to
stakeholders/suppliers, informal systems). In order to obtain a sustainable CA, the recourses the firm
uses should be:
- Valuable (CA)
- Rare (CA)
- Inimitable (unique)
(History dependent, causal ambiguity, socially complex)
- Non-substitutable (unique)
→ critique on this theory: possession differs from implementation. Causal ambiguity: it is difficult to
find a direct result on performance of a recourse. It is hard to know whether the proposed cause is
related to the effect.
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