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MRM2 Summary
Complete summary of MRM2 exam relevant content.
[Meer zien]Voorbeeld 4 van de 84 pagina's
Voorbeeld 4 van de 84 pagina's
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Voorbeeld van de inhoud
Strategy & OrganizationContent: What is the best strategy?
Process: How to put the strategy together?
Context: How to put strategy into practice?
Competitive Strategy ! Content
What is strategy?
!Used and abused
!Vague
- Plan of action Standard model of strategy:
!Plan helps firm to reach their goal 1. Analysis
- Alignment of goals 2. Choice
- Usually with a limited time horizon 3. Implementation
- Useful to communicate ideas
How do firms achieve their goals?
- Goal=Value creation
- What do we need to create value?
! Individual-level: talent rather than strategy (talent leads to value creation)
Performance does not emerge naturally; it requires coordination (chicken example)
! Firm-level: assets rather than strategy
Accumulation of assets = performance?
The relationship between acquisitions and firm performance is negative
The relationship between diversification and firm performance is mixed
- Conclusion: Unexplained variance and negative relationships at different levels implies that
strategy really matters for firm performance
Do we need strategy?
Mostest argument: firm with the most (talent/assets) will create more value than its competitors
What is the theory of strategy?
- Explanation of a phenomenon
!Why does something happen?
!Explanation is independent from phenomenon
- Big question 1 a: Why, how, and when do some firms outperform/outcompete others?
- Big question 1 b: Why, how, and 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 level
- Three dominant theoretical approaches Different schools
!Positioning View (Porter, 1979) View/Schools=Theory
o External
o Structure
o Competitive environment
!Resource-Based View (Barney, 1991)
o Internal
o Emphasizes firm
!Disruptive Innovation View (Christensen et al., 2015)
o Combination of both environment and firm
o Resources that you have and positioning that you take
,Positioning and Resource-based:
!How a firm sustains competitive advantage
!Positioning: Firm adjusts to industry conditions
!Resource-based: Firm changes industry
Porter and Positioning Theory
!Essence of strategy: coping with competition
- Essential tool
- Before Porter all strategies price based
- Main insight: there must be more to competition than price
Five Competitive Forces: Structure
- Threat of new entrants (less money in easy entry industry,
more money in harder entry industry)
- Threat of substitute products (product with same needs, monetary value
where no substitute)
- Bargaining power of supplies
- Bargaining power of buyers
- Rivalry among existing firms
!Firms will realize superior performance if they enter industries with a large profit potential
!Firms will realize superior performance if they position themselves well in an industry (post-entry)
Positioning Theory: Conduct
- Cost Leadership: USP is the cheapest price, customers will go for cheapest
- Differentiation: quality, features, etc.
- Focused Strategy:
! Stuck in the middle: no money
- External Focus on Opportunities and Threats
- Firms realize superior performance by assuming less
vulnerable positions
- Strategy: Determine firm’s fit to environment
!Costs determine firm’s relative position
SCP (Structure-Conduct-Performance)
- Structure: Profit potential varies per industry
- Conduct: Actions taken to realize industry-specific profit potential
- Performance
! Variance in S&C = Variance in firm performance
Positioning school focuses on industry structure
Firms play a more important role to determining profitability than the industry
(Porter disagrees)
Resource Based Theory (Barney)
(Internal aspects)
Why do some firms outperform others?
! Implement a unique value creating strategy
- Why do some firms have a value-creating strategy?
!Resources
- Why are some value-creating strategies unique?
!Firm heterogeneity with respect to resources
!Resources are imperfectly mobile
How do some firms outperform others consistently?
! Competitors cannot duplicate strategy
Resources
- Assets (cash, patents, brands etc.)
- Capabilities such as supply chain management
- Competencies such as specialized technical knowledge
- Culture or a sense of shared purpose
! Valuable Competitive advantage
! Rare
,! Imperfectly inimitable (cannot copy it perfectly) Unique
! Non-substitutable
Internal focus on strengths and weaknesses
Competitive advantage (outperformance) arises from firm-specific resources
Competitive advantage resides within the firm
Critique:
- Tautological (self-verifying)
! Resources are valuable, thus they are able to create value
- Possession differs from implementation
- Causal ambiguity
!Relationship between resources & performance: we don’t know which one leads to which
!Anything visible can be imitated. So make it invisible!
!If a resource is invisible, how do we know that it is contributing to performance?
Disruption Theory
- Combines resource and position theory
- It is about the resources you have and the position you take
What are disruptions?
- Process whereby a smaller company with fewer resources is able to successfully challenge
establishes incumbent business
- Why? Incumbents tend to focus on their most demanding and profitable customers
- Position: If you have one you can’t have another
! So incumbents may overlook some segments
! Firms (entrants) move into these overlooked segments
Prices (of novel entrants) are often lower
Novel entrants then move upmarket
When mainstream customers start adopting entrants’ offering in volume, disruption has occurred
Low-end foothold: Position of incumbents; provide ‘good enough’ product
New-market foothold: Innovation (resources); create a market where none existed before
(turn non-consumers into consumers)
Corporate Strategy ! Content
!The overall plan for a diversified company
!Organizational coordination is key
Diversification means that a firm is engaging in multiple activities simultaneously
! Positively correlates with growth…but growth can stall out
- Product-market diversification: When a company enters a new product market
- Geographic diversification: When a company enters a new region or area
!Costly
!What business to be in?
!How to manage portfolio?
Performance
!Tobin’s q/ q ratio: ratio of market value of a company's assets (as measured by the market value of
its outstanding stock and debt) divided by the replacement cost of the company's assets (book value)
- Lang & Stultz, 1994 – found a negative relationship between diversification and Tobin’s q
through the 1980s
- Arikan & Stultz, 2015 – positive relationship between diversification and Tobin’s q
Corporate Strategy Competitive Strategy
Where to compete How to compete
Parent level SBU level
Portfolio decisions Competitive advantage
, Strategy as:
- Investment portfolio (Hedley)
Reinvesting cash flows from/to SBUs
!Each SBU should have a different strategy and the mixture of different should be viewed as a type
of portfolio
! HQ organizes work across all SBUs in a way that contributes to long run competitive advantage
(core competencies)
!Combination of environment and company
!Strategic Centre managing relationships with partners
Critique:
!Narrow view (two dimensions)
- Market share is not the only success factor
- Market growth is not the only indicator for market attractiveness
!Arbitrary or unrealistic assumptions
- Business development (Porter)
Transferring, sharing between SBUs
!Investors handle the portfolio; company adds something to the organization
!Many corporate strategies do not succeed
!Need to better understand what is (good) corporate strategy
!Competition occurs at the business unit level
!Diversification adds costs and constraints to business units
!Shareholders can diversify themselves
!How can corporate strategy create shareholder value?
- Attractiveness test
- Cost of entry test
- Better off test
Strategies:
1. Portfolio management
2. Restructuring Creating value through a company’s relationship with an autonomous unit
3. Transferring skills Creating value through relationships based on shared activities
4. Sharing activities
- Competence development (Prahalad and Hamel)
Across SBUs
!SBUs low autonomy (headquarter makes decision)
!High relationship of SBUs
!Looking for added value; what core competences do the companies within corporate share?
!Competence
- Knowledge about specific technologies (electronics, engines, software, design etc.)
- Ability that contributes to long run competitive advantage
- Long run competitive advantages is determined by the ability to build at a lower cost and
faster than competition
! Coordination and integration
(Involves the organization of work (across different SBUs) and the delivery of value)
!Core Competence (related to Barney’s resource based view)
- Provide access to a wide variety of markets/industries
- Makes a significant contribution to perceived customer benefits
- Should be difficult for competitors to imitate
!How to lose a core competence
- Underinvest in competencies
- Outsourcing
- A parenting challenge (Campbell et al.)
Horizontal/vertical
!Horizontal and vertical relationship; organized by the headquarters
!Underlying Premise: value crated > cost incurred
!How to create value? Increase performance
!Misfit in critical success factors destroys value
(If different success factors, companies should not be in the same collection)
!Grasping parenting opportunities creates value
!Parenting Advantage rests on fit between parent and SBU
(Does the parent add more value than any other parent could?)
All above operate on a hierarchy basis, so no flexibility and creates bureaucracy
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