Strategy and Organisation (2020/21) – An Overview of Theory Overviews by Neea Hooli
The three aspects of strategy (Stoelhorst, 2008):
Content = Prescriptive School = What is good strategy?
Process = Prescriptive and Descriptive School = How do strategies come into being in organizations?
Context = Descriptive School = How does the environment influence an organization and determine whether a
strategy succeeds or fails?
Prescriptive School of Thought: textbook approach to strategy; implicit message that the Standard Model is the
right way to develop strategy; strong normative overtone
à Joint product of Design and Planning: Standard Model of Strategy; joint product of Positioning and Resource-
Based School: how internal and external analysis should be executed
Descriptive School of Thought: observes how strategy actually takes shape in practice; proponents do not agree
that strategy is only about rational analysis and top-down implementation; descriptive in nature
Main topic per Main theories and definitions from lectures Main theories and takeaways from articles
week
Content
Competitive strategy: plan of action for a company or a single business unit of a 1. Porter, M. (1979) How competitive forces shape strategy Positioning School
diversified company with the goal of creating competitive advantage and realizing Strategy as an optimal fit between company and its competitive environment; strategies as generic
superior performance; usually limited by time; assures integration and alignment of all positions in the market; focus on external opportunities and threats
business levels to improve performance and reach the ultimate organizational goal; Assumptions: every industry has an underlying competitive structure and the essence of strategy
Porter (2008): ‘What unique position will we be able to achieve? What’s the advantage formulation is coping with the competition
going to be in the end as we take these steps over time? How are we going to sustain Key concern: why do some firms outperform others?
that advantage?’ Main takeaways: firms realize potential when they enter industries with (1) large profit potential
(depends on level of competition – Five Forces) and they are able to (2) position (through Generic
2 dominant approaches in competitive strategy: (1) Positioning School (Porter, 1979) Strategies) and (3) defend themselves well (through barriers) inside that industry
(2) Resource-Based View (Barney, 1991) SCP-Paradigm: structure (most attractive industry; Five Forces)– conduct (most suitable strategy to
realize industry-specific profit potential; Generic Strategies) – performance (Variance in S and
The Standard Model of Strategy (lecture): objectives (vision, mission, intent) – analyses C=Variance of firms’ performances); organizational superiority stems from optimally combining
of issues facing in pursuit of objectives – select most optimal strategic choice – conduct and performance
implementation (initiatives, plans, guidelines) Criticism: there is more than just industry and strategy that explains superior performance (44.5%
Standard Model of Strategic Management (Stoelhorst, 2008): process to support unexplained variability - Rumelt, 1991)
coherence and structure in strategy-making; (1) strategic analysis (SWOT), (2) strategic
choice (SAFe), (3) strategic implementation (action plans, tasks, responsibilities, 2. Barney, J. (1991) Firm resources and sustained competitive advantage Resource-Based View
budgets) Link between a firm’s individual resources and sustained competitive advantages (VRIN/VRIO)
Assumptions: firms differ from each other internally; these differences are relatively stable and lead
Concerns of Strategic Management Theories: to performance variability between firms
(1) why, how and when some firms outperform others Key concern: why do some firms outperform others consistently?
(2) why, how and when a firm does so consistently Main takeaways: (1) implement a value-creating strategy based on internal resources and
(3) why, how and when a plan of action leads to value creation capabilities to gain sustained competitive advantage (VRIO); (2) heterogeneity and uniqueness of
Week 1:
(4) why, how and when value creation leads to superior performance
, Competitive resources prevent duplication; (3) competitive advantages lead to and create superior performance;
Strategy Competitive advantage (Barney, 1991): value creating strategy not simultaneously competitive advantage is not equal to superior performance
implemented by any other current or potential competitor Criticism: possession of resources differs from implementation; causal ambiguity
Sustained competitive advantage (Barney, 1991): value creating strategy not
simultaneously implemented by any other current or potential competitor AND other 3. Baden-Fuller, C. and J. Stopford (1992) The firm matters, not the industry Firm-Based View
firms being unable to duplicate the benefits from the strategy Strategy as a stretch; strategies based on firm’s resources; only firms who understand the existence
of natural ups and downs in industries can survive
Differentiation of resources (Barney 1991): physical capital, human capital, Assumptions: variety in profitability does not stem from the industry, but from the firm itself (only
organizational capital 10% of variability in business unit performance can be attributed to the choice of industry); there is
Tool for evaluating resources in level of sustainability of competitive advantage gained: no such thing as mature industries, just mature firms
VRIO Model (Barney 1991): (Valuable, no – competitive disadvantage; Rare, no – Key concern: why are some firms more profitable than others?
competitive parity; Inimitable, no – temporary competitive advantage; Non- Main takeaways: (1) Choice of strategy matters; fallacy of generic strategy - no one strategy works in
substitutable/Organized, no – unused competitive advantage, yes – sustained every industry (2) creativity and innovation lead to more profitable industries; less innovative
competitive advantage) industries are populated by firms that failed to innovate; those who have become mature and worse
performing tend to blame the environment (e.g. poor demand, exchange rates, crises), yet these are
Fallacy of Generic Strategies (Stoelhorst, 2008): impossible to be low in both cost and merely symptoms of poor performance (and their lack of ability to use resources innovatively), not
quality; many are stuck in the middle and perform well in neither category the cause of it
Porter vs Barney: 4. Stoelhorst, J.W. (2008) Thinking about Strategy Historical View
Porter: positioning, outside-in perspective on strategy (strategy analysis should focus on Overview and historical portrayal of strategic management; differentiation of Prescriptive vs.
the characteristics of the industry), deterministic view on strategy (the environment Descriptive School of Thought; see top row for definitions
determines the optimal strategy for a firm) Assumptions: strategic management generally comes in three aspects, but has gone through a split in
Barney: resource-based, inside-out perspective on strategy: strategy analysis should beliefs
focus on the characteristics of the firm itself; voluntaristic view on strategy: firms can Key concern: how has strategic management developed since the 1960’s?
actively influence the environment through their strategy Main takeaways: (1) three aspects to strategic management (Content, Process, Context); (2) Standard
Model of Strategy (see left); (3) Development of thought: Prescriptive School of Thought – Design
School (1960s); Planning School (1970s); Positioning School (1980s); Resource-Based School (1990s);
Descriptive School of Thought – Process School (1980s onwards)
Corporate strategy: The overall plan for a diversified company; tries to answer two 1. Hedley, B. (1977) Strategy and the “business portfolio” Matrix-View
questions: (1) what business(es) should the company be in? (2) how should the Popular framework for selecting an optimum combination of individual businesses from possible
corporate office manage its portfolio of strategic business units (SBUs)? alternatives; a way to spread risk and plan corporate strategy
Assumptions: SBUs need strategic autonomy as they have individual roles in the portfolio;
Diversification: a corporate strategy to enter a new market or industry and offering a Key concern: how do firms approach corporate strategy?
new product or service for that market; firm is engaging in multiple industries and Main takeaways: (1) Portfolio Concept: Growth-Share Matrix; growth and market share determine
markets; (1) a way to achieve growth; (2) a way to spread economic risk one in four competitive positions (Dogs, Question Marks, Stars, Cash Cows) within the portfolio;
Product-market diversification: company enters a new product market competitive position determines the use of the SBU and offers two courses of actions for their future
Geographic diversification: new region or area (Liquidate/ Divest, Invest)
Criticism: (1) narrow, 2-dimensional view: growth is not the only indicator for market attractiveness
Value-Adding Tests for corporate strategies (Porter, 1987): and market share is not the only success factor; (2) arbitrary, unrealistic assumptions: is investment
(1) Attractiveness Test: can we generate acceptable returns in this industry over time always needed to grow a market share? (3) limited role of HQs
(ROI)? (2) Cost of Entry Test: can we accept the costs to acquire a company in this
industry or start up a new one? (3) Better Off Test: do we bring competitive advantage 2. Porter, M. (1987) From competitive advantage to corporate strategy Value-Added View
to the unit and/or does the unit add to our advantage? Response to Hedley; advancing the matrix view to the value-added view
Assumptions: most diversified companies have failed to think in terms of how they really add value
Value-Creation in corporations (Porter, 1987): Key concern: which businesses should corporations invest in and how can they use corporate
Week 2: (1) Portfolio management: diversification through acquisition of businesses and the strategy to add value to their SBUs?
Corporate provision of autonomy; HQ is passive (banker/reviewer); (2) Restructuring: focused on Main takeaways: (1) value creating strategy must provide benefits to offset costs (opportunity costs,
Strategy unrealized potential (buying, restructuring, selling); HQ as an active restructurer; (3) overhead) and constraints of diversification; (2) three ways of determining whether a corporate
Transferring skills: knowledge-transfer between SBUs performance-related activities; strategy adds value: Attractiveness Test, Cost of Entry Test, Better Off test (see left); (3) value creation
creating synergies; HQ creates channels and stimulates exchange; (4) Sharing activities: through portfolio management/restructuring (actively creating value through a company’s
sharing one or more activities across the value chain; creating synergies; HQ relationship with an autonomous unit) and transferring skills/sharing activities (between SBUs;
coordinates sharing activities and encourages integration passively creating value through exploitation of interrelationships based on shared activities)
