Strategy and Organisation Overview of all Theories
Strategy: Plan of actions about how to reach a goal (value creation)
There are 3 aspects of strategy (Stoelhorst, 2008)
• Content: what is a good strategy? → (Prescriptive schools)
• Process: how to strategies come into being in organizations? → (Descriptive and Prescriptive
schools)
• Context: how does the environment in uence an organization and determine whether a
strategy succeeds or fails? → (Descriptive schools)
Prescriptive school of thought: textbook approach to strategy → provide guidance on how
strategies should be formulated, o ering s a structured and planned approach to strategy,
emphasizing importance of careful analysis and formal planning (design & planning)
Descriptive school of thought: observes how strategy actually evolve and are implemented in
practice. Recognize that strategies evolve over time, need to adapt to the external environment
and leverage internal capabilities. (Process, environmental & resource-based)
Main topic
✓ Main theories and de nitions from lectures ✓ Main theories and takeaways from articles
per week
Competitive strategy: plan of action for a company or single business unit of a 1. Porter (1979): How competitive forces shape strategy (Positioning school)
diversi ed company with the goal to create value and competitive advantage, Strategy as an optimal t between company and its competitive environment; strategies as
usually in a speci c time horizon. generic positions in the market; focus on external opportunities and threats
Porter (2008): Choose a unique position in the market, nd an advantage to cope Assumptions: every industry has underlying competitive structure and the essence of strategy
with competition and sustain that advantage. formulation is coping with the competition.
Key concern: Why do some rms outperform others?
There are 2 dominant approaches in competitive strategy: Main takeaways: rms can create CA and be unique in an industry with (1) large pro t
1. Positioning school (Porter, 1979) potential depending on level of competition (5 Forces) if they are able to (2) position (through
2. Resource Based View (Barney, 1991) Generic Strategies) and (3) defend themselves (through barriers)
• 5 Forces: threat of new entrants, power of suppliers, power of buyers, threat of substitutes,
The standard model of strategy: how, when and why do some rms outperform rivalry among competitors
Week 1: others, do so consistently, can create value that leads to superior performance? → • Generic Strategies: Differentiation, Cost Leadership, Focus
(1) Set of objectives (mission, vision, intent) - (2) internal and external analysis in SCP-Paradigm: Porters theory is based on SCP-Paradigm, which states than industry
Content regards to objectives - (3) strategic options and choice - (4) strategic structure determines rms performance.
implementation Perfect competition: holds, when (1) more buyers than sellers, (2) demand is homogenous (3)
Competitive entry and exit is easy (4) buyers and sellers have complete information
strategy Standard model of strategic management (Stoelhorst, 2008): process to Criticism: there is more than industry and strategy to explain superior performance
coherence and structure in strategy-making. (1) strategic analysis (SWOT) - (2)
strategic choice (consider suitability, acceptability and feasibility) - (3) strategic 2. Barney (1991): Firm resources and sustained competitive advantage (Resource based
implementation (action plans, budgets, responsibilities) → 90’s, combination of view)
design school and planning school There is a link between rms resources and sustained competitive advantage.
Assumptions: rms differ from each other internally, these differences are relatively stable and
SCP Paradigm (basis for Porter, 1979): structure (pro t potential varies per lead to differences in performance. They are due to differences in resources (Heterogeneity).
industry) - conduct (actions taken to realize industry speci c pro t potential) – Assumes strategic resources are heterogeneously distributed across rms and that these
performance (Variance in S and differences are immobile (Immobility).
C → Variance of rms’ performances); organizational superiority stems from Key concern: why do some rms outperform others consistently?
optimally combining conduct and performance Main takeaways: (1) implement a value-creating strategy based on internal resources and
capabilities to gain sustained competitive advantage (Resources must be VRIO);
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, Critics Porter: rms play more important role in determining pro tability than (2) heterogeneity and uniqueness of resources prevent duplication; (3) sustained competitive a
industry; same positions can still have different pro tability advantage lead to and create superior performance. Sources of competitive advantage could
be (1) strategic planning (2) information processing systems (3) positive reputation
Competitive advantage (Barney, 1991): value creating strategy not Criticism: possessions of resources differ from implementation, causal ambiguity, not clear
simultaneously implemented by any other current or potential competitor what relevant resources are
Sustained competitive advantage (Barney, 1991): value creating strategy not 3. Baden-Fuller & Stopford (1992): The rm matters, not the industry (Firm-based view)
simultaneously implemented by any other current or potential competitor AND other It is the rm that matters, not the industry. Firms can pro t from industry misfortunes and must
rms being unable to duplicate the bene ts from the strategy. not be sunk by them (as in 5 Forces).
What should Key concern: Which internal factors determine pro tability?
a non- Resources (Barney, 1991): resources can be tangible and intangible (physical Main takeaways: There are 4 empirical factors that determine pro tability: (1) the role of the
diversi ed capital, human capital and organizational capital resources) and can lead to gaining industry (2) mature industries offer good prospects for success (3) large market share is the
rm or the a sustained competitive advantage, if: reward, not the cause of success (4) competing recipes/approaches to the market.
SBU of a VRIO Model: valuable & rare (gives CA) and inimitable & non-substitutable (gives
diversi ed uniqueness) 4. Stoelhorst (2008): Thinking about strategy (Historical view)
rm do? There is not just one way to tackle strategic management, it has evolved over time with new
Critics Barney: possessions differ from implementation, relationship between theories coming up since the 60s.
resource & performance not always clear (causal ambiguity) Assumption: strategic management generally comes in three aspects (content, process,
context), but has gone through a split in beliefs.
Porter & Barney: theories explain differences in pro tability of rms Key concern: how has strategic management developed since the 1960s?
Link: non-substitutability similar to threat of substitutes & inimitability similar to Main takeaways: (1) There are 3 aspects to strategic management (Content, Process,
threat of new entrants Context). (2) Standard model of strategy (see left), (3) Development of thought: Prescriptive
Porter: sees strategy as a t, external view, outside-in, by looking at environment School of Thought – Design School (1960s); Planning School (1970s); Positioning School
and industry, deterministic view (environment determines strategy) (1980s); Resource-Based School (1990s); Descriptive School of Thought – Process School
Barney: sees strategy as a stretch, internal view, inside-out, by looking at (1980s onwards)
resources of rm; voluntaristic view on strategy, rms can actively in uence Agreement across schools: (1) strategy concerns both rm and environment, (2) strategy is
environment through strategy complex (3) exists on different levels (4) involves content and process issues, (5) involves
thought processes, (6) are not purely deliberate
Week 2: Corporate strategy: overall plan of actions at company level, for a diversi ed 1. Hedley (1977): Strategy and the the business portfolio (matrix view)
company, concerned with two questions: (1) what businesses should the company Corporate strategy is an investment / business portfolio where all SBU’s have di erent
Content be in? And (2) how should HQ manage its portfolio of strategic business units strategies. It is a popular framework for selecting an optimum combination of individual
(SBUs)? businesses from possible alternatives.
Corporate Assumptions: Relative competition position and growth are key in determining strategy.
strategy Diversi cation: a corporate strategy to enter a new market or industry and SBU’s need strategic autonomy as they have individual roles in portfolio. HQ decides in which
o ering a new product or service for that market: way to achieve growth and business BU is & allocated resources among BUs.
spread economic risk. Key concern: how to rms approach corporate strategy?
(No open • Product market diversi cation: company enters a new product market Main takeawys: approach for developing the di erentiated strategic business objectives.
questions) • Geographic diversi cation: new region or area Portfolio Concept: growth and market share determine one in four competitive positions
(Dogs, Question Marks, Stars, Cash Cows) within the portfolio; competitive position
Diversi cation and Business Portfolio (Hedley, 1977): portfolio concept, mixture determines the use of the SBU and o ers two courses of actions for their future (Liquidate/
of di erent SBU strategies should be viewed as portfolio. Balanced portfolio of Divest, Invest)
gigs, stars, question marks and cash cows. Criticism: (1) narrow, 2-dimensional view: growth is not the only indicator for market
attractiveness and market share is not the only success factor; (2) arbitrary, unrealistic
Value-adding tests for corporate strategies (Porter, 1987): (1) Attractiveness assumptions: is investment always needed to grow a market share? (3) limited role of HQs
Test: can we generate acceptable returns in this industry over time
(ROI)? (2) Cost of Entry Test: can we accept the costs to acquire a company in Porter, M. (1987) From competitive advantage to corporate strategy (Value added view)
this industry or start up a new one? (3) Better Off Test: do we bring competitive Reaction to Hedley. Advances to value added view and says that portfolio management does
advantage to the unit and/or does the unit add to our advantage? not create value. It is the di erent BUs that compete with each other
Assumptions: most diversi ed companies have failed to think in terms of how to create value
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