Strategic Management Lectures 2019
Week 1: introduction to strategic management and external analysis
1. What is strategy (and what not)?
2. Strategic management
3. General environmental analysis
4. Industry analysis
1. What is strategy? And what not?
• What do you first think of when you hear the word strategy?
• Origin: strategos
o = “the general’s view”
• Generic definition of strategy
o = means by which individuals or organizations achieve their goals
• Volberda et al. (2011, p.7)
o = “A strategy is an integrated and coordinated set of commitments and actions
designed to exploit core competencies and gain a competitive advantage”
▪ A sustaining lead over others, that other firms don’t have, uniqueness →
results in above average performance.
Porter (1996) on strategy
• Operational effectiveness means performing similar activities better than rivals
perform them
• Management tools like benchmarking, outsourcing, business process reengineering,
change management
• Why is operational effectiveness not strategy? (according to Porter)
o It is only a temporary competitive advantage, sooner or later will be caught up
by competitors.
o These tools can be applied by all firms in the industry. You have to think about
how to be different (in order to have a unique, distinct position) How to do this?
• Strategic positioning means (2 forms of activities)
o performing different activities from rivals’
o or performing similar activities in different ways
• Why is strategic positioning
strategy?
Value chain: organizational activities:
Porter (1996) on activity fit
• Activity fit is important: configure
activities in the value chain so that they are integrally related
o so the more activities combined, the more difficult to be imitated.
• Why? Activities can’t be imitated without significant trade-offs
• Example of IKEA:
o Inbound: multiple suppliers worldwide (DIY-packages)
o Operations: not own production (you have to assemble it)
o Outbound: transportation done by customers (you need to do it)
o Marketing: family-friendly (low cost)
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, o Service: limited
o → all these activities nicely fit together.
o What is IKEA’s target market?
2. Strategic management – definition time
• The strategic management process is the full set of commitments, decisions and actions
required for a firm to achieve strategic competitiveness and above-average returns
• Strategic competitiveness is achieved when a firm successfully formulates and
implements a value-creating strategy
o Adapt organizational structure/culture
• Above-average returns are returns in excess of what an investor expects to earn from
other investments with a similar amount of risk
o From financial perspective
• Two main perspectives: Industrial Organization (I/O) → outside in and the Resource
Based View (RBV) → internal characteristics
o But nowadays we have more perspectives, from different backgrounds
Strategic management model (chapters of the book)
The I/O model of above-average returns
(same strategy, external)
• Industrial organization is rooted/connected in classical economic theory
o Supply-demand curve: high price = a lot of suppliers (upwards) & low demand
(downwards). They meet at an equilibrium → the price.
• Model assumes:
o Strategic determination by external environment
o Similarity of most firms’ resources and strategies
within an industry
▪ Homogeneity of players
o Resources are highly mobile across firms
▪ In case there is a difference, it is only
temporary. All the firms have the same
access to recourses/assets
o Rational decision-making for profit maximization
▪ They serve the best interest of the firm
• Above-average returns: locate attractive industries;
generic- strategy; try to set structural conditions at your
hand
• Outside, the firm has to choose the best industry.
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, • (Application: Porter’s five forces model)
The RBV model of above-average returns
(different strategy, internal)
• The resource based view model views organizations as unique bundles of resources
and capabilities
• Model assumes:
o Strategic determination by internal characteristics
o Heterogeneity of firm resources and strategies within an industry
o Resources are highly immobile across firms
• Not transferable
• E.g. A-spot location
o Rational decision-making for profit maximization
• Above-average returns: assess core competencies; build firm-specific strategy; exploit
environmental opportunities
• Internal firm factors (starting point)
• Application: VRIN model (week 2)
Strategy versus luck
• Research findings suggest that about 20% of a firm’s
profitability is explained by industry structure (e.g. I/O model).
Approximately 36% of variance in profitability is attributed to
internal firm characteristics (e.g. RBV). → tutorial:
External analysis
• How can we identify opportunities and threats? → analyze an organization’s macro
and industry environment!
o Industry environment → porters 5 forces
3. General environmental analysis (similar to PESTEL)
• Identify forces in the macro environment that are (mostly) beyond a firm’s control
o Views broad society in distinct parts
• Political factors: Stability, taxation, etc.
• Economic factors: Growth rates, interest rates, etc.
• Socio-cultural factors: Workforce diversity, work/life, etc.
• Technological factors: Speed of change, etc.
• Demographic factors: Population, age, ethnic mix, etc.
• Global factors: Political events, BRIC, etc.
• Environmental factors: Pollution, resource depletion, etc.
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, Impact on productivity, supply & demand, customer behavior → strategy!
General environment: scenarios
→ scenario analysis fits into general environmental analysis
1. Use general environmental analysis to identify important trends in the macro
environment that may affect the success or failure of your organization
2. After the initial analysis, identify the 2 most important trends or key drivers of change
based on two criteria:
a. Degree of uncertainty
b. Degree of impact
3. Sketch (4) scenarios (alternative futures) based on these 2 key drivers that form the x
and y axis in a diagram
4. Implement strategic options NOW that lead to success in all scenarios
Scenario planning is a tool to aid the strategy formulation process:
• The goal is not to accurately predict the future..
• ..but about being prepared for several futures (it helps to predict several possible
futures) → helps managers to put general environmental analysis it into a more
practical tool.
Although it is beyond a firm’s control, there is
a tool that managers may use general
environmental analysis for something good:
scenario analysis
Firms can build on 2 factors (from general
environmental analysis)
• Technological development (fails or
succeeds)
• Public acceptance (or rejection)
4. Industry analysis
• An industry is a group of firm(s) that
are active with the same/similar products on the same market
• But when are products “similar” (what are the industry boundaries?)
o Important to know for strategy development
▪ Who are your core competitors?
• What is a company’s industry?
o Risk A: too inclusive, missing core issues (→ you will lack focus, your
management time is spread to widely)
o Risk B: too exclusive, missing important threats and opportunities (→ too much
focus)
→ balance between these two
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