Strategy & Organisation
Practice Exam
1. Describe Barney’s (1991) and Baden-Fuller & Stopford’s (1992) main ideas on competitive
strategy and elaborate Barney’s interpretation of “sustained competitive advantage” as
completely as possible.
2. How do these ideas relate to those of Porter (1979)?
1. Both Barney’s as well as Baden-Fuller’s and Stropford’s deal with the content aspect of strategy and
aim to answer the question what a good stagey is and what a non-diversi ed rm or the SBU of a
diversi ed rm should do. They are both prescriptive school.
Barneys approach is also known as the Resource-based view, which describes that there is a link
between rms resources and sustained competitive advantage. Resources can be intangible and
tangible and include physical capital, human capital and organizational capital resources. A sustained
competitive advantage can be achieved if a value creating strategy is not simultaneously implemented
by any other current or potential competitor and if other rms are unable to duplicate the bene ts of
this strategy.
Thereby Barney bases his idea on two assumptions. He assumes that rms within in industry may be
heterogenous in respect to the strategic resources they control, meaning not all rms own the same
resources, which is the reason for di erences in performance of rms. Moreover, he assumes that
these resources are immobile in a rm, which refers to resources being di cult to obtain by
competitors because of high cost of developing or acquiring.
Consequently, he says for rms to achieve a sustained competitive advantage, they need to implement
a value creating strategy which they base on their resources, which need to ful ll 4 di erent criteria in
order to create sustained competitive advantage:
Firstly, need to be valuable and rare in order to give a rm a competitive advantage. And secondly,
they need to be inimitable and non-substitutable in order to give the rm uniqueness.
According to Barney, sources of competitive where these resources can be leveraged are strategic
planning, information processing systems or positive reputations among customers and suppliers.
Baden-Fuller & Stopfords, on the other hand, argue that the rm matters, and not the industry and
thereby represent a more rm-based view. They say, that it is not the external environment decides
about a rms pro tability, but more its internal factors. They base their argumentation of 4 empirical
factors, which determine pro tability according to their idea.
Firstly, they say that the role of the industry is important in determining pro tability. While the old view
argued that environmental factors in an industry determine whether a rm is pro table, Baden-Fuller &
Stopford say, that there is actually little di erence between pro tability across industries that that an
industry can never be mature, but only its rms.
Secondly, they say that also mature industries still o er good prospects for success, as only 8,3% of
a rms pro tability is explained by the choice of industry, while the rest can be explained by internal
factors such as strategy, parent company or by randomness.
Thirdly, they argue that the market share is the reward of an industry and not the cause for its
success. Thus. If a rm uses its internal factors well and is able to be e cient and e ective, they are
able to build a large market share, even when being a smaller rm among other leaders.
And lastly, they name competing recipes as their last factor to determine pro tability and say that
especially innovative rms that challenge the status quo can win the competition in an industry and
that it is not always the rms that follow traditional approaches that win the competition.
2. Porter is known for his positioning school, which describes how the external environment and 5
di erent competitive forces determine the environment. He says that a rms pro t potential depends
on the level of competition in the market, de ned by these 5 forces and if the rms are able to position
themselves as either Di erentiators, Cost leader or Focus strategist, and if it is able to create barriers
to defend itself.
When comparing the di erent ideas, we see that they all explain di erences in pro tability of rms and
how rms nd their position in the market. While both Barney and Baden-Fuller & Stopford see
strategy as a result of internal processes and resources, Porter evaluates strategy more as a t in
which the environment determines the pro tability of a rm to which they adapt. Thereby he takes a
deterministic outside-in view, while the others have more of a voluntaristic inside-out view on strategy
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, where the rm can actively in uence its environment through strategy. Moreover, you can see
similarities between the ideas of Porter and Barney, as non-substitutability can be compared to threat
of substitutes and inimitability can be compared to threat of new entrants. Similarly, all of Baden-Fuller
& Stopford factors of pro tability represent the rivalry among competitors in Porter 5 Forces approach.
A. Mintzberg (1994) criticizes strategic planning and highlights some fallacies. Please name and
describe each fallacy in details.
B. What is the role of planners in strategic planning according to Mintzburg (1994)? Explain your
answer in details.
C. Miles et al. (1978) discuss organizational adaptation and explain that strategies arise from how a
rm addresses problems. Name and explain the 3 problems based on this view.
A. Mintzberg say that strategists need to understand the di erence between strategic planning and
strategic thinking in order to back to what the strategy-making process is about. He describes the
Grand Fallacy as: Strategic planning is not equal to strategic thinking. Strategic planning includes the
analysis of both the internal and external environment, where managers has to capture everything he
learns from all sources. Just after that, the manager arrives at strategic thinking, where he synthesizes
the learnings into a vision of the direction that the business should pursue. Moreover, Mintzberg
identi es 3 more fallacies to strategic planning: (1) The fallacy of prediction describes that the world
and the environment is ever-changing, which is why managers should also continuously adapt the
strategy to these changes. (2) The fallacy of detachment includes that planners are detached from
the reality of the organization, its operations and that the system does the thinking. Mintzberg is critical
about the assumption of detachment and says that this disassociation of thinking from acting or of
thinkers from doers that lies close to the root of strategic planning’s problem. (3) The fallacy of
formalization assumes that strategy making can be formalized. However, while formal systems can
process more information, they could never internalize it, comprehend it or synthesize it and thus
substitute the creative part of human thinking.
B. Mintzberg does not want to get rid of planners, plans and planning however he proposes a di erent
role for them. He proposes Planners as stagey nders, to assist managers is ndings strategies that
can have an impact in the organizations activities or in those of competing organizations. Moreover, he
proposes paleness as analysts that study hard data and ensure the results are considered by
managers. Lastly, they should be catalysts and encourage others to think about future in a creative
way. Overall, their most e ective role is in unearthing edgling strategies in unexpected pockets of the
organization so that consideration can be given to (expanding) them.
C. Miles et. Al say that organizational adaption evolves through an adaptive cycle that deals with
alternative ways in which organizations de ne their strategy, structure and processes. They argue that
this cycle consists of solving 3 organizational problems. The rst problem is the entrepreneurial
problem, which includes specifying the product-market domain, meaning the company’s strategy and
de ning a target market for a speci c product or service. This can be done by commitment to the
organizational image which de nes both the organization’s market and its orientation toward it. The
second problem is the engineering problem, which is concerned with choosing the right technology
to counter the entrepreneurial problem. These should operationalize the managements solution to the
entrepreneurial problem by forming new information, communication and control linkages to ensure
proper operation of the technology. Lastly, the administrative problem deals with developing the
appropriate organizational structures and processes to solve the rst two problems that can direct and
monitor the rms current activities without allowing the system to jeopardize future innovation
activities. Thereby, the system should be viewed as both a lagging variable, as it must rationalize
strategic decision making in the adjustment process, and a leading variable, as it must facilitate the
organization’s future capacity to adapt by articulating and reinforcing the paths along which innovative
activity can proceed.
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