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Complete Summary Strategy for premaster
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- Tilburg University (UVT)
Dit is een volledige samenvatting van alle lesstof voor het tentamen van Strategy voor Premaster.
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Voorbeeld 3 van de 30 pagina's
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Summary strategic management for premasterWeek 1
Economic value created is the difference between perceived benefits gained by a customer and the full economic
costs.
Competitive advantage – difference in a firm’s economic value created and the economic value created by its rivals
Measuring competitive advantage:
• Accounting measures (easy to calculate profit ratios, liquidity ratios, leverage ratios, activity ratios)
• Economic measures (not included in accounting measures: cost of debt, cost of equity, WACC if ROA >
WACC than you have a competitive advantage)
External analysis: (1) to discover opportunities and threats, (2) to analyze potential for profits, (3) to understand the
nature of the competition.
• Levels of analysis: (every level has their own tool of analysis)
o General environment
o Industry (part of task environment where the company is doing business)
o Strategic group (organizations that have similar strategic dimensions might be mobility barriers
between groups)
o Individual firm
General environment analysis (focus on trends in external environment): demographics, culture, economic climate,
legal and political conditions, specific international events (or ecological), technological change main focus should
be on trends, that it is part of the general environment, it should actually have an effect on the performance
outcome of the organizations in the future, argumentation!
Industry definition: a set of companies that fulfil a similar need with a similar production process important to set
the boundaries of the industry correct (too narrow = actual competitors are labelled as substitute or new entrant;
too broad = actual substitutes are labelled direct competitors) versus market: a collection of customers
• SCP model = structure conduct performance model originally developed to spot anti-competitive
conditions for anti-trust purposes, but now used as the basis for the five forces model to assess possibilities
for above normal profits for firms within an industry
• Industry analysis – five forces (is about industry profitability):
o Threat from existing competitors is high when: (1) large number of competitors, (2) slow or
declining industry growth, (3) low product differentiation, (4) industry capacity added in large
increments ask yourself: does the situation around my organization increase competition?
o Threat from new competition is high when: (1) high industry growth rate, (2) low barriers of entry
(economies of scale, product differentiation, government regulation of entry, retaliation of
incumbent, proprietary knowledge, managerial know-how, favorable access to raw materials,
learning curve cost advantages)
o Threat of substitute products is high when: (1) high potential of fulfilling the same need or (2) low
switching costs for customers (substitute products create a price platform)
o Threat of supplier leverage is high when: (1) small number of firms in supplier’s industry, (2) highly
differentiated product, (3) lack of close substitutes for supplier’s product, (4) focal firm is an
insignificant customer of supplier, (5) high switching costs for focal firm
o Threat from buyer’s influence is high when: (1) small number of buyers, (2) low level differentiation,
(3) low switching costs
o The main thing to ask yourself: does this force have a direct negative effect on the performance of
the industry in general?
o Complementors as a sixth force:
Customers value the focal firm’s products more when the customers also own the product
of the other firm
Complementors increase the size of the market
• Drawbacks five forces: (1) averages with big variance, (2) unclear weight of the separate forces, (3) highly
dependent on industry definition, (4) oversimplification/ not complete, (5) catch 22 (very hard for complex
industries but also the most important for complex industries)
,Week 2
Resources: (1) all tangible (factories, products, etc.) and intangible (reputation) assets of a firm, (2) used to conceive
of and implement strategies
Resource categories:
• Financial: cash, retained earnings things you can spend to buy other things
• Physical: plant, equipment, geographic location, (digital) data, patents etc.
• Human: skills and abilities of individuals who work in the organization
• Organizational: report structures, relationships this category is larger than the other three, since this is
something that is part of the whole organization
RBV critical resource assumptions:
• Resource heterogeneity different firms may have different resources
• Resource immobility gaining resources is not without cost
o It may be costly for firms without certain resources to acquire or develop them
o Some resources may not spread from firm to firm easily
The VRIO framework
• The question of value: does the resource enable the firm to exploit an external opportunity or neutralize an
external threat? (i.e. does the resource results in an increase in revenues, a decrease in costs or some
combination of the two? does it add value?)
• The question of rarity: is the resource controlled by only a small number of competing firms? a rare
resource can create important competition (note: the question is not whether it is hard to get, but do other
organizations already have it?)
• The question of imitability (is it hard to get?): Do firms that do not have the resource or capability face a
cost disadvantage in obtaining or developing it (compared to firms that already possess it)?
o Intangible resources are usually more costly to imitate than tangible resources
o Imitation generally occurs as; (1) direct duplication, (2) substitution
o Costs of imitation:
Unique historical conditions; (1) path dependence, (2) first mover advantage
Causal ambiguity; (1) taken for granted, (2) bundle of resources fog causal links
Social complexity; (1) interpersonal relationships, trust, culture
Patents (double edged sword)
• The question of organization: is the firm organized to exploit the full competitive potential of its resources
and capabilities?
o Alignment of structure and control; (1) formal and informal reporting structures, (2) management
controls, (3) compensation policies and relationships
The VRIO Framework (continued)
You always have to ask yourself if you have at least answered the question of value with yes whether the resource is
exploited by the organization since this will determine the maximum advantage you can get (parity instead of a
disadvantage for example)
VRIN versus VRIO originally ‘non-substitutability’ was the fourth letter, however this has a strong overlap with
imitation, and the organization represents that a chain is only as strong as its weakest link
, RBV critics
• Tautological – the model is going to explain why companies are going to be more profitable by showing you
that they have resources that are more profitable provides insight in what the company is actually good
at
• Limited prescriptive implications – if you analyze an organization and see that you do not have any resources
that will lead to a competitive advantage, you cannot just go and buy such a resource that will
• Main idea: you should see it as a signaling tool
o Limited focus on capabilities
o Limited empirical testing
Competitive dynamics: the strategic decisions and actions of firms in response to the strategic decisions and actions
of other firms
• No response; (1) could be that there is tacit collusion, (2) could be that the organization can simply not
respond (they do not have the resources), (3) could be that they have a competitive advantage of their own
• Change tactics: the specific actions a firm takes to implement its strategies more frequently changed than
strategies (examples; imitation and leapfrogging)
• Change strategy
Conclusions; (1) competitive advantage is relative, (2) internal analysis, in combination with external analysis, is the
basis for strategy making, (3) external environment has an influence on the optimal strategy, (4) other (groups of)
companies can affect focal firms profit, (5) CA potential is strongly influence by a firm’s resources, (6) tools are
useful, but use with care.
Week 3
The strategic management process; business level strategy = how to position a business in the market (how does a
business compete?) versus corporate level strategy = which businesses to enter (where are you present?)
• Two generic business level strategies
o Cost leadership: generate economic value by having lower costs that competitors
o Product differentiation: generate economic value by offering a product that customers prefer over
competitor’s product
The value of cutting costs the company that has the more economic value created has the competitive advantage
• Cost leadership: how can a firm gain a cost advantage?
o Policy choices – a decision of the firm that does not fit in any of the other five
o Learning curve – a learning curve means that if an organization produces more of a particular
product over time, you will become better at it and thus get more efficient
o Technological advantage independent of scale – one organization is smarter about something
compared to others which created cost advantages
o Economies of scale – costs decrease due to production volume
Firms can used specialized machines
Firms can increase employee specialization
Firms can spread overhead costs across more units (note: the average overhead goes down,
not the total overhead)
Firms can build larger plants
o Avoiding diseconomies of scale – costs increase due to production volume (if you can avoid these
diseconomies of scale, you can have a cost advantage over your competitors)
Physical limit to efficient size
Managerial diseconomies (when you become too large that managers start to miss
opportunities)
Worker de-motivation (as a result of specialization)
Distance to market and supplier
o Differential low-cost access to productive inputs – some organizations have cheaper inputs for
some reason
Historical reasons (being in the right place at the right time)
First mover advantages (first to lock up best resources)
Differences in natural endowment (country/ region differences)
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