BT2114 STRATEGIC MANAGEMENT (SM) 2021-2022
(literature notes)
compulsory literature:
‘Strategic Management’ by Rothaermel, F. T. (2019), O’Reilly & Binns (2019), and O’Reilly
& Tushman (2004)
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,PART I: ANALYSIS
Week I | 13.04.2022 - fundamentals of strategic management
Chapter 1 ‘What is Strategy?’
case study: tesla’s secret strategy
In 2017, Tesla inc. boasted a market capitalisation of over 60 billion dollars, an
appreciation of more than 1,400% over its initial public offering price in 2010. Its
success is due to the startup’s master strategy plan:
1. Build sports car
2. Use that money to build an affordable car
3. Use that money to build an even more affordable car
4. While doing above, also provide zero-emission electric power generation
options
5. Don’t tell anyone
STRATEGIC MANAGEMENT → the integrative management field that combines
analysis, formulation, and implementation in the quest for competitive advantage
● Mastery of strategic management enables you to view an organisation in its
entirety, as well as think like a general manager to help position your
organisation for superior performance
● Big questions that define strategic management:
○ If once-great firms can fail, why is any company successful?
○ What enables some firms to gain and then sustain their competitive
advantage over time?
○ How can managers influence firm performance?
1.1 what strategy is: gaining and sustaining competitive advantage
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,STRATEGY → a set of goal-directed actions a firm takes to gain and sustain
superior performance relative to competitors; the overall efforts to achieving
competitive advantage
To achieve superior performance, companies compete for resources:
● New ventures -> financial and human capital
● Existing companies -> profitable growth
● Charities -> donations
● Universities -> best students and professors
● Sports teams -> championships
● Celebrities -> media attention
In any competitive situation, to achieve superior performance, a firm needs a good
strategy:
1. A (clear and critical) diagnosis of the competitive challenge
→ analysis of the firm’s external and internal environment
2. A guiding policy to address the competitive challenge
→ through strategy formulation, resulting in the firm’s corporate, business and
functional strategies
→ need of consistency, often backed up with strategic commitments, e.g.
sizable investments or changes to an organisation’s incentive and reward
system
→ without consistency, employees becomes confused and ineffective in
day-to-day decisions; stakeholders, including investors, also become
frustrated
3. A set of coherent actions to implement the firm’s guiding policy
→ through strategic implementation
[case study] Tesla, Inc. and the three elements of a good strategy:
The competitive challenge
Tesla was founded with the vision to “accelerate the world’s transition to sustainable
transport”. Its competitive challenge is sizable: to succeed it must manufacture
zero-emission electric vehicles that are attractive and affordable, which will compete
with traditional cars running on gasoline. It also needs to install the required
infrastructure for electric vehicles, including a network of charging stations for
consumers.
A guiding policy
Tesla’s current guiding policy is to build cost-competitive mass-market vehicles. Its
formulated strategy is consistent with its mission and the competitive challenge
identified. It also requires strategic commitments, e.g. Tesla’s 5 billion dollar
investment in a new battery plant, the so-called Gigafactory.
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, Coherent actions
To accomplish building a cost-competitive mass-market vehicle, Tesla must benefit
from economies of scale, which are decreases in cost per vehicle as output
increases. To reap these critical cost reductions, Tesla must ramp up its production
volume. Tesla’s retooling of its manufacturing facility, relying more heavily on
cutting-edge robotics as well as its investment to secure an uninterrupted supply of
lithium-ion batteries are examples of actions coherent with its formulated strategy.
Tesla is also further expanding its network of charging stations globally - to fund this
initiative, it announced that using its global charging network won’t be free anymore
for new Tesla owners.
To accomplish the goal of making zero-emission electric motors the new standard in
automotive technology, Tesla decided to make its proprietary technology publicly
available. Musk’s hope is that the sharing will expand the overall market size for
electric vehicles.
COMPETITIVE ADVANTAGE → superior performance relative to other competitors
in the same industry or the industry average
● Always relative, not absolute
● Comparing a firm’s performance to a benchmark: performance of other firms
in the same industry or an industry average
● Sustainable competitive advantage → a firm that is able to outperform its
competitors or the industry average over a prolonged period of time
● Competitive disadvantage → a firm relatively underperforms its rivals in the
same industry or the industry average
● Competitive parity → if two or more firms perform at the same level
● To gain a competitive advantage, a firm needs to provide either goods or
services consumers value more highly than those of its competitors, or goods
or services similar to the competitors’ at a lower price.
Strategy is about creating superior value, while containing the cost to create it, or
by offering similar value at lower cost. These combinations of value and cost are
achieved through strategic positioning.
● They stake out a unique position within the industry and allowing the firm to
provide value to customers, while controlling costs
● This requires trade-offs;
○ E.g. Walmart is a low-cost retailer, while Nordstrom targets a higher
end, luxury market segment. These companies are in the same
industry, but their customer segments overlap very little, and not direct
competitors
○ These conscious trade-offs enable each company to strive for
competitive advantage with different strategies: cost leadership vs
differentiation
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