This summary contains all the lecture and seminar notes and slides required for the exam. It also describes many of the articles per week discussed in class.
Part of Block 2 pre-master Business Administration 2018.
,WEEK 1
Lecture 1 - Competitive Strategy
What is strategy?
Definition of strategy shifts during this course.
Strategy
- Plan of action how a firm realizes its thoughts.
– Plan of action
o usually with a limited time horizon
– Plan helps firm reach their goals
Do we need strategy?
Strategy is also about communicating your strategy.
Competitors tell you what to do and what not to do (Porters 5 forces).
How do firms achieve their goals?
- Goal = value creation (we’ll be looking at how do firms create value?)
- From the firm perspective
- What do we need to create value?
o Individual-level: Talent rather than strategy
o Firm-level: Assets rather than strategy
- Mostest argument: Firm with the most (talent/assets) will create more value than its competitors
- Where does strategy come in here?
- Individual- level: Talent leads to value creation
Example chickens. (measured on performance: #eggs)
– Individual- level: Talent leads to value creation. as a group they did not perform well.
Conclusion: performance does not emerge naturally it requires some sort of coordination. Unexplained variance and
negative relationships at different levels implies that strategy really matters for firm performance.
How does this apply to business?
Separate between assets and what detracts the value
- Does an accumulation of assets result in performance?
o The relationship between acquisitions and firm performance is negative*
o The relationship between diversification and firm performance is mixed*
- Conclusion:
o Unexplained variance and negative relationships at different levels implies that strategy really matters
for firm performance.
What is the theory of strategy?
What is a theory?
- Explanation of a phenomenon (the why)
o Why does something happen?
o Explanation is independent from a phenomenon
Theories of strategy
- Why, how, when do some firms outperform/outcompete others?
- Why, how, when does a firm that outperforms/outcompetes others do so consistently?
– Theories of strategy describe when how and why a plan of action leads to value creation
– Firm that creates the most value outcompetes/outperforms other firms
Competitive strategy
- Strategy at the company levels
- Three dominant theoretical approaches
o Positioning view (Porter, 1979)
o Resource-based view (Barney, 1991)
3
, o Disruptive innovation view (Christensen et al., 2015)
- Vocabulary note
o View / school = theory
Porter and positioning theory
- Why do we always talk so much about Porter?
o Before Porter, the main focus was price competition (new way of how company positions itself)
o Porter’s main insight: there must be more to the competitive environment than prices! (Coca cola)
Positioning theory: Strategy
- Five competitive forces
- Threat of new entrants (restaurant industry) à barriers to enter/access a new market (hard to enter e.g. the oil
industry, people in these industries make more money, so for example, the restaurant industry is less hard to
access, these people also make less money, have you ever seen a restaurant owner driving a Bentley)
- Threat of substitute products à a product that fulfils the same needs
- Bargaining power of suppliers à the numbers of suppliers that is present within the industry, you have
negotiation power when there are a lot of suppliers. When there are a limited number of suppliers (diamond
shopping) it is expensive, bargaining power is low.
- Bargaining power of buyers à pretty normal to be expected to sell the same item for less of the price (e.g.
back cases of a phone)
- Industry rivalry: rivalry among existing firms, competition within the industry, rivalry among existing firms in the
industry. Highly competitive (not a lot of money) the structure of the industry matters.
Positioning theory: Conduct
How do you behave dependent on the industry that you are
in?
- Porters three generic strategies
o Cost leadership
§ If you have the cheapest prices on
the market. (albrt heijn)
o Differentiation leadership
§ If you sell at a high cost, good
quality is necessary. Innovative features. You should have something that has a
differentiation strategy. Spend money on distribution. Logistics, branding etc.
o Focused strategy
§ In a narrow/nieche market.
Positioning theory: SCP Paradigm
- Structure: Profit potential varies per industry
- Conduct: Actions taken to realize industry-specific profit potential
- Performance
o Variance in S&C= variance in firm performance (What is the structure of the industry and what is the
company doing)
Porters
We look at structured industry
Porter brings certain set of tools to the table and we look at it from his perspective.
Positioning theory Summary
- External focus on Opportunities and Threats
- Firms realize superior performance by assuming less vulnerable positions
- Strategy: to determine the firms fit to the environment
Positioning School Critique
(Baden-Fuller & Stopford, 1992)
Industry is the main determination of how you make money
- Firms play a more important role in determining profitability than the industry (Rumelt, 1991)
o Industry: 8.3%
o Strategy 46.4%
o Parents: 0.8%
o Not explained: 44.5% (McGahan & Porter, 1997)
- Outcome is an accounting profit in year t of corporate parent k in industry /
- Porter re-analysed data and found something different
o Year: 2.19%
o Industry: 18.68%
Resource Based Theory: Overview (Barney)
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