12. Vor le s u ng
What is Strategy?
Strategic decisions have a long term performance impact Strategic decisions v. Tactical decisions
What is long term?
Time horizon varies by industry (3-5 yrs.) What is performance?
Profit: Accounting v. Economic Success: Market share, well being Wealth: MVA; Dividend history; EPS Consequential: Cascading effect
Chrysler/Benz; Citibank/Travelers
Rare
Is Strategy really important?
The automobile industry
Chrysler / Benz Nissan
General Motors
The steel industry
U.S. steel v. Japan NUCOR v. USX
The dotcom businesses RCA in liquid crystal displays Sears Roebuck
Disciplinary foundations of Strategy
Competitive strategy evolved from several fields Industrial organization economics
Organization Theory Sociology
Financial Economics Marketing
Operations Research
History and anthropology
Alternative conceptualizations of strategy Strategy as the product of rational planning Strategy as an intuitive response
Logical incrementalism
Deterministic
The Strategy Process
External Environment (O/T)
Internal Environment (S/W)
Formulation Evaluation/
Control Implementation
Mission Objectives
Strategy
Corporate Business Functional
Industry is the source of competitive advantage
Internal resources provide competitive advantage
Efficient and effective resource utilization is the source of advantage
Where are we headed?
Why do some firms succeed when others fail?
What are the fundamental principles leading to sustainable competitive advantage?
How do resource acquisition and management decisions impact the success of strategy?
How do domain and scope decisions influence strategy outcomes?
How is corporate governance related to the strategy process?
Key Topic Areas
Dynamics of competition within industries Resource based view of the firm
Cost and differentiation as the bases of competitive advantage
Corporate strategy and the scope of a firm
Corporate governance
Competitive Dynamics:
Understanding Industries
Environmental Analysis
Macro Environment Analysis
National Competitiveness Analysis
The Levels of Environmental Analysis
Macro Environment
Industry Environment
Firm
The Macro Environment
The focus of a macro environmental analysis is primarily to understand the “context”
Economic forces Socio-cultural forces
Political-legal forces Technological forces
Are there any systematic sources of country specific
competitive advantage that can be leveraged?
Determinants of National Competitiveness
Demand Conditions
Related and Supporting
Industries
Firm strategy, Structure and
Rivalry Factor Conditions
M.E. Porter (1990)
Competitive Dynamics within Industries
Power of Suppliers
Rivalry among competitors
Threat of Substitutes
Power of Buyers Threat of
New Entrants
M. Porter (1980)
The Threat of New Entrants
Barriers to Entry:
Economies of scale are significant
Product differentiation is a major selling feature High capital requirements
Customers incur significant switching costs Limited access to distribution channels
Existing firms have cost advantages independent of scale
Extensive government regulation
The Threat of Substitution What are substitutes?
Meet the same customer needs
Two products or services that perform the same general function
Threat of substitution is high if…..
Product demand is price elastic
Rate of change in price v. rate of change in demand Price-performance tradeoff is unfavorable
Incremental cost v. incremental performance
Pressure from Buyers and Suppliers
Buyers will have power if…..
There are fewer buyers than suppliers
Buy in large quantities Product is standard Switching costs are low Can integrate backwards Have full information on
costs of the product or service
Suppliers will have power if….
There are fewer suppliers than buyers
Buyer industry is relatively small
Product is differentiated Switching costs are high Can integrate forward
Intensity of Rivalry will be High if…..
There are equally balanced competitors – Hi concentration Industry growth rate is slow
The industry is characterized by high fixed/storage costs The products lack differentiation or switching costs Industry capacity is augmented in large increments Industry has high exit barriers
The players have high strategic stakes - Cross-subsidization
