Strategy Flashcards
Survivor bias
Denrell (2005):
- only see start-ups past 2 years: under-sampling failure
- corr risks vs high performance
- entry and exit bias inferences from reverse engineering causes of success
Performance data
Cubbin and Geroski (1987):
- regression to mean for most. - 17% sustained above average. Biased towards success.
Denrell (2005): performance is a noisy signal of capability - many factors impact including luck
Diligence approach
Powell (2017): diligence-based strategy
- people not eco agents so analysis of comp adv matters less than dil execution of fundamental activities
Powell and Arregle (2007):
- 2 axis as persistence of errors
- fail to capture opp, imitate, solve
- heterogenous in absence of comp adv
Denrell (2004):
- simulation models produce long-run performance under ass about underlying firm heterogeneity, diff emerged no differences in initial stock
Diligence examples
Flybe / Ryanair
Boeing
Grant Thornton - Patisserie Valerie
Generic strategies
Porter (1985):
- cost leadership and differentiation
RBV sources
Wernerfelt (1984)
Prahalad and Hamel (1990):
- core competencies
Barney (1995): VRIO
- valuable (exploit opp or neutralise threats)
- org: can take adv
Industry life-cycle
Johnson et al (2011):
- development, growth, shake-out, maturity, decline
Evidence for / against RBV > Industry
Rumelt (1984): - dispersion within industries 5-8x as large as across Rumelt (1991): - industry at best 8% dispersion - collective vs unique endowments
Waring (1996):
- intra-industry rents persist
- pharma/ software vs airline/utilities
Stategic factor markets
Barney (1986):
- logical impossibility for a theorem for high profits
- info in public domain
Alternative view to add to RBV / Industry view
Dyer and Singh (1988):
- linked with coopetition
- networked of relationships in which firm embedded in = dis(adv)
- idiosyncratic interfirm linkages source of relational rents: beyond boundaries of the firm
- e.g. 55% value in product in US is purchased -> many highly specialised inputs
- relation-specific assets, knowledge sharing
Dynamic capabilities
Eisenhardt and Martin (2000)
- set of specific and identifiable processes (alliawcing, strategic decisions, product development), path dependent in emergence
Felin and Powell (2016)
- organisational design is key enabler of dynamic capabilities
- Valve case study
- adhocracy: polyarchy, self-selecting teams, open - guard against obsolescence in a volatile industry
First mover difficulties
Aldrich and Fiol (1994):
- carve out new market, raise capital from sceptical investors, recruit untrained employees
- cognitive legitimacy (taken for granted) and sociopolitical legitimacy (acceptability)
Network effects
Van Alystne et al (2016):
- more people use platform, greater value for players. Virtuous feedback cycle.
- important for development phase.
First move advantages
Liberman and Montgomery (1988):
- geographic, switching costs, tech (patent or learning curve), network externalities, brand loyalty, scale economies, meld customer expectations
Adv fast follower
Cusumano et al (1992):
- buyer education, free-rider effects on RandD, marketing/distribution channels
Small firms innovate
Pavitt (1990):
- tech discontinuities tend to come from small firms as large are hindered by bureaucracy and conservatism
Complementary assets
Teece (1986):
- successful commercialisation requires know-how in Q to be used in conjunction with other capabilities. Cospecialised assets.
Tech: broader eco-system
Adner and Kapoor (2016):
- “right tech, wrong time”
- necessity of broader ecosystem
- e.g. HDTV pioneered in 1980s but 30 years..
- consider pressing issues in broader eco-system
Formal planning author and studies
Andrews (1971): formal planning - creation, evaluation, implementation
Boyd (1991):
- meta-analysis of 21 studies found the link between formal planning and performance weak
Mankins and Steele (2005):
- deliver 63% of the financial performance their strategies promised
Under-develop planning capabilities
Brews and Hunt (1999):
- in stable environment
- planning = learning how to adapt
- e.g. utilities, banks (reg, shadow banking)
Design school
Andrews (1971):
- determine strategy -> implement strategy
- ‘after full-blown, explicit, simple strategies are fully formulated can be implemented’
Emergent approach to strategising
Mintzberg (1990)
- formation and implementation inextricably entangled’
- allow innovation but avoid extreme incrementalism - muddling and reactive improvisation
- reject assumption of universality - not ‘one best way’
- must emphasis learning
- pure deliberate no external force whilst pure emergent require order despite absence of intention
Logical incrementalism
Quinn (1978):
- integrates analytical and behavioural
- strategic subsystems
Coopetition
Coopetition is identifying the value net and seizing strategic opportunities by cooperating with complementors
Brandenburger and Nalebuff (1996):
- value net: all players in the game
- value creation vs value appropriation
Gnyawali et al (2008):
- coopetition is simultaneous cooperation and competition between org actors
- 50% collaborative relations in same industry
- cognitive-psychological stress
Examples of coopetition
American Airlines and United Airlines
- update fleets as Boeing only recoup cost if enough buy
Samsung and Sony: LCD 7th gen in 2003 - tech nd manufacturing plant South Korea - leader over past decade
5G incremental cell sites
- pool networks together as mass civil engineering challenge
Apple and Kindle: 2007
Airline alliances: OneWorld
Toyota and GM: fuel cell-powered cars
How to make coopetition successful
Chin et al (2008):
- development of trust
Bouncken and Kraus (2013):
- inlearning occurs and uncertainties.
- pool risks, share costs
Emergent strategy examples
- Ikea: mail order -> flat pack furniture
- Airbus A380 - germany and france diff software incompatibilities - $6bn
- Johnson and Johnson: medical plasters -> talcum -> 40% sales consumer
Tech examples
Polariod: complementary assets - digital manufacturers in 1996 then went bankrupt 2001
Spotify: buyer education
Tupperware: tech
Ebay: network
Microsoft network: base of computer operating systems produce network externalities -> barrier to competitive replication
Amazon: Steve Kessel run digital book section - head of book sales - became the competition
5G: educate consumers of the benefits - marketing
Lyft: learn from Uber - NY storm 8 fold prices - 10% market share since 2015
Non-market actors
Entities that make the rules, awareness, campaigns
- Regulators, citizens, activists, media, govt
Issue framing
Bach and Blake (2015):
- promotes a particular problem definition, causal interpretation, moral evaluation or treatment recommendation
- e.g. Dubai Ponts World acquire PO US assets - competitor Eller and Co - roots in UAE - linked with AL Qaeda - Senator Charles Schumer
Non-market issue lifecycle
Ian Wilson
- identification, interest formation, legislation, adminisation
- show how they evolve
- 2 curves: issue impact on firm, firm impact on issue
- Pro-active (develop issue) -> responsive (adaption) -> damage control (compliance)
- media/private activists -> political / legal institutions
- use media to find growing issues and shape early (Dell)
Non market surveys
Deloitte (2013):
- ‘regulatory risk’
McKinsey (2012):
- customer 74%, govt/regulators 53%, employees
- inc in future
Back and Allen
(2010) :
- (ia)3 framework
- flexibility vs consistency (cynicism)
- juggling non-business
- after-thought, uncoordinated
- Toyota and BP
Non-market examples
- cambridge analytica vs cola
- Huawei: consistent image
- BDO
- EDF nuclear (Bonardi)
Institutional theory
Myers and Rowan (1977):
- gain legitimacy/ survival practices, independent of immediate efficacy of the practices
- adv due to laws, credentialing systems and public opinion
- integrity, social and environmental responsibility
Political connections theory
- having access to lawmakers, because of personal ties and knowledge of those lawmakers.
- stock price values so assume must be comp adv
Bonardi (2011):
- can be VRIN but also lobbying, public good
- causal ambiguity
- stock variable that is accumulated - Diereckx and Cool
Acemoglu:
- best intentions, beliefs shaped by who you know
Baron (2013):
- exercise restraint in grey area
- govt more control in pharma than consumers but growing
Information is key for sustainability e.g. Google Big data - between 2009-15, the White House had 427 meetings with Google. Then can impact interest formation.
Political connection studies
Acemoglu et al (2014):
- Timothy Geithner as Treasury secretary 2009. 10 trading days - 12% returns
- reversed when trouble
- Goldman and Hank Paulson 2006
Fishman (2001):
- Indonesian companies connected to the then-President Suharto - market value varied (relative to otherwise similar companies) as rumours spread about his health
Political connection example
Sebastian (2010): Excelon Tom Ridge, draw support nuclear power plant - as jobs in recession - Dec 2009 - on board - was former govt of pennsylvania
Non-market added complication and how grown in complexity
Baron (2013):
- moral determinants based on well-being, justice, rights
Complexity: new media shaping reputation (e.g. OhPolly), intellectual property, health and safety, fuel standards, trade policy, consumer protection, competition policy, privacy
Diversification statistic
Berger et al (1995):
- diversification discount
- cong: loss value 13-15%
- market cap of individual businesses added up vs the conglomerate
- n is low for cong
Clough (2018):
- Digital Age still has emerging conglomerates e.g. Amazon
- GE shake-up
Conditions for good corporate strategy
Porter (1987):
- attractiveness test, cost-of-entry test, better-off test (gain comp adv)
Reasons why diversify
Montgomery (1994):
- market power
- agency view
- resource view (excess capacity that cannot be sold in markets - growth for management - attract them)
MandA statistics
Porter (1987):
- 33 US companies 1950-86
- 74% unrelated divestment rate
KPMG - 83% MA not boosted shareholder returns
- often average treatment effect: lots of heterogeneity within
Dyer et al (2004):
- loss of wealth 10% over 5 years after completion
How best to diversify
Palich et al (2000):
- curvilinear model: conversion under-utilised resources, strain control and governance
Collis and Montgomery (1998):
- align in resources
- Tyco vs Sharp
Goold and Lusch (1993):
- synergies, core competencies, managerial dominant logic
MandA issues
Competition
- Between firms: Barney (1988): perfect factor markets. NPV = 0.
- Acquirer trying to capture more of value - Andrande (2001): -1% 16%, over 4000 deals
Estimation
- HandH (1997): hubris
- HandJ (1987): predicted synergies in acc dossiers. Operating limited role
- Jemison and Sitkin (1986): secrecy, premature closure
Integration - undermine synergy benefits
- GandH (2014): 68%, 33%
- BandP (1995): unlearning
- Power shifts, job insecurity, blurred roles and responsibilities
How best to conduct MandA
Capron and Pistre (2002): 101 acquisitions
- optimal resource allocation: leverage its managerial and innovation and use locally embedded marketing
- increased commercial potential
- if sources of synergies lie with target then market allocate gains to the target
Martin (2016):
- take vs give acquisitions
- Yahoo-TUmblr 1.1bn -> 712m write-down
HandJ (1987)
- asset stripping
Problems with diversification
- bureaucracy (standardisation_
- influence (politics)
- incentives
Alliances
- not indepth integration but learning and use of soft resources
Dyer et al (2004): - 24% consider as alternative
- learning is paramount
- cooperated, negotiated, not so risky
- synergies required, marketplace, competencies at collaborating
Bleeke and Ernest (1995):
- distinctive qualities
- median life-span 7 yrs
MandA examples
Microsoft and Nokia 2013
Chrysler and Daimlet Benz
PandG marketing, sales, distribution
Aberdeen /standard: Aug 2017 -> Oct 2018 1/3 . Times: epic culture clash.9 senior managers resign. Dual CEO, tribal loyalties.
Kraft Heinz - Buffet 89-40bn 2015
Behavioural strategy goal
Powell (2011):
- strengthen usefulness, grounding realistic assumptions about human cognitive, emotion and social interaction
Simon (1957): bounded
- judgement limited by available info, cognitive limitations
Unconcious biases / innate pyschological obstacles
Confirmation bias
Schwenk (1984):
- groupthink
- Kahneman and Tversky (1974): representativeness heuristic - view most represented in info e.g. halo vs hot stove effect
- seek info confirm and ignore refutes
- if personal ties in board room then less likely to oppose dominant view or consider alternative in the first place
Hubris
Hayward and Hambrick 97
- not techno-economic but irrational exuberance
- excessive self-confidence in ones own ability
- Drucker: investment in managerial ego
Svensson (1981):
- 93% above average drivers
Status quo bias
Sibony et al (2017):
- inertia
Choice architecture
Felin (2014):
- interface of options available for individuals / impacts salience
- knowing about the biases isn’t enough
- independent judgement process (multiple gateways)
- opportunities to check biases before manifest
- Google internal prediction markets
- culture conformity / tick box mentality
Devil’s advocate
Schwenk (1984):
- initiate assumption negotiation
- informal dissenter - articulate opposing view
- objective vs carping critic
- solids confidence to disastrous, think rational and objectively
- need sincere commitment
Scenario planning
Schoemaker (1995):
- avoid tunnel vision
- institutionalises the hunt for weak signals
- requires intellectual courage to reveal evidence that doesn’t fit with current conceptual maps - not variations on one theme
- simplify avalanches of data into no. of possible states
Disruptive innovation
Christiansen 1995:
- “Disruption” describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses.
- targeting overlooked segments of customers at bottom of market access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill
- important for non-substitutability
- counter-intuitive: lot of innovation from low-level/end
- e.g. Christensen et al 2015: Netflix - 1997 service appealed to only a few customer groups—movie buffs who didn’t care about new releases, early adopters of DVD players, and online shoppers - not Blockbuster’s customers - not until went onto online streaming 07
Dierickx and Cool (1989)
Framework to gauge the sustainability of stream of quasi-rents from the deployment of nontradeable assets. Choosing the appropriate time path of flows to accumulate a stock of these assets.
Asset stock accumulation
- For non-traded assets - e.g. rep and loyalty
- Distinguishing stocks and flows.
- Factors impact imitability: time compression diseconomies (crash-course RandD) and asset mass efficiencies (initial level -> pace of further accumulation), interconnectedness of asset stocks, asset erosion (easier for flows than stocks), causal ambiguity (discontinuous process)
First mover advantage paper
Fudenberg and Tirole 1980s:
- Fat Cat: innovate to have less competition e.g. Highland spring water. Here not win-lose.
Non-market strategies
- Information provision (technical and political) Political capital helps pass this info.
- Representation (certain constituencies interests). Change narrative.
- Majority building
Why don’t have uniform distribution of MandA
- financial cycle / liquidity
- Game theory: upsets the balance of forces so others make big moves
- Behavioural: ego reasons
What Porter and RBV ignores
- Diligence approach
- network of relationships (Dyer and Singh 1998) - similar to coopetition
- non-market
Use institutional logic in parallel with industry level analysis
Examples of nontradeable assets
Reputation - historically path dependent
Issue framing example
Uber spent $2m lobbying for congestion pricing in NY since 2015 - better than tax or quote - less cars has counterintuitive benefits - shorter wait times and less owning cars - combine transit and uber
Defining the industry example
Netflix compete with fornite more than BDO - compare with other screen time experiences
Example if merger integration failure
Essilor (optical expertise) and Luxottica (frame distribution and branding)
- ‘executives have been battling for supremacy’
- stock fallen 15% since the merger
Coopetition forms
sharing costs, distribution channels, innovation efforts, marketing campaigns, risks
Define unique competitive position
Creating a differentiated offering that should reap significant abnormal returns
Define non-market
Relationships that don’t unfold in markets yet nevertheless affect the company’s ability to reach its objective
Key question with diversification
‘Best owner’: are the businesses in the portfolio worth more under the management of the company in question than they would be under any other ownership (Goold & Luchs 1993
Definition of diversification
a firm expands the scope of its business by entering new markets or offering new products
- problematic if lots of costs but not reaping many benefits
Example of unsuccessful diversification
GE - electrical products then into finance
- diminishing growth to overall stock market since 2008 - dramatic reshaping and break up
Texas instruments - exploit their competency in semi-conductors to consumer goods such as calculators and watches. However, TI failed as they had no experience in managing such consumer-oriented businesses - synergies not sufficient
Define competitive advantage
a resource, intangible or tangible, of a firm that allows the firm to outperform its competitors
Why plan
Beinhocker and Kaplan (2002): counterintuitive notion not designed to make but creates prepared minds and intensive knowledge so can better react in unpredictable events
Strategy planning plan
- evidence against
- emergent
- Quinn
- Brews Hunt / Beinhocker and Kaplan - planning to learn
- Dynamic capabilities
- Scenario planning
