Week 1 - The Strategy Field and its Evolution

Question 1

Grant (2019)

Answer 1

Features of a successful strategy (through the example of Queen Elizabeth II and Lady Gaga):
- Goals that are consistent and long term (strategic fit)
- Profound understanding of the competitive environment
- Objective appraisal of resources
- Effective implementation

Contingency theory: No single best way for organising or managing, it depends upon the circumstances – organisations need to react to the environment

Value creation is the fundamental goal of enterprises – this can be done by production and commerce (repositioning products through trade)

Value creation can be measured by consumer and producer surplus and externalities, but these are hardly quantifiable – performance is hard to compare

Measuring profit: accounting profit vs economic profit (counts in cost of capital as well)

Performance analysis:

Stock market value as a forward-looking measure

Accounting ratios as backward-looking measures

Performance diagnosis – works only within a firm, not for comparison

Balanced scorecard method for combining financial and strategic targets (by Kaplan and Norton) – combines financial analysis with other performance measures

Values, principles, CSR also matter

Question 2

Porter (1996)

Answer 2

Operational effectiveness needs to be distinguished from a strategy that leads to sustainable profitability

Greater efficiency results in lower unit costs, but is not a long-term guarantee (like TQM, lean, benchmarking – productivity frontier moves outwards constantly)

OE means performing activities better than rivals (e.g. Japanese companies in the 1980s that did not have strategies), but this leads to standardised companies that are easy to copy

Strategic positioning means performing different activities or performing the same activities in different ways (e.g. Ryanair, IKEA)

Strategic positions can be based on customers’ needs (a set of customers with different needs or serving a wider variety), customers’ accessibility (based on geography or customer scale), and the company’s existing products or services

Variety-based positioning: e.g. doing only one activity, but much better than others, like Vanguard Group offering index-following funds that are cheap

Positioning requires trade-offs, which gives protection against competitors, e.g. an airline cannot be both luxurious and low-fare

Fit locks out imitators because it creates a string chain of activities – entire system, e.g. Reinforcing activities, like advertising Neutrogena in upscale hotels and providing a dermatologist-recommended product

Strategic positions should have a horizon of a decade or more

Question 3

Whittington (2001)

Answer 3

4 approaches to defining strategy:
- Classical: rational planning methods
- Evolutionary: builds on the metaphor of biological evolution
- Processualist: processes of organisations and markets
- Systematic: linked to the cultures and powers of the local social systems

2 main questions:
- What is strategy for: profit maximisation, or other goals as well
- How strategy is done: governed by chance or deliberate

• Profit-maximising + deliberate: Classical
• Profit-maximising + Emergent: Evolutionary
• Plural goals + Deliberate: Systemic
• Pluaral goals + Emergent: Processual

Question 4

Mintzberg (1987)

Answer 4

Five Ps for Strategy:

Strategy as a plan: Consciously intended course of action

Strategy as a ploy: Relies on outplaying the opponent

Strategy is a pattern: Consistency in action, whether or not intended
It can be deliberate and emergent

Strategy as a position: Strategy is a mediating position between the organisation and the environment

Strategy as a perspective: An integrated way of perceiving the world
Strategy is a concept, a shared perspective

E.g. the emergent strategy of Honda

Question 5

Ghemawat (2002)

Answer 5

Portfolio analysis of the 1970s: strategic recommendations became very sensitive to the specific portfolio-analytic technique employed

The structure of an industry determines economic performance just as much as competitive advantage

Competitive cost analysis: disaggregating companies into component activities and processes

Customer analysis to determine position – differentiated ways of competing (not only with low costs)

Question 6

Porter (1979)

Answer 6

essence of strategy formulation: coping with competition (customers, suppliers, potential entrants and substitute products are all competition)

Competition depends on 5 forces, the strongest ones determine the profitability of an industry

1. Threat of new entry: barriers to entry - economies of scale, strong existing differentiation, capital requirements, access to distribution channels, cost disadvantages, government policy

2+3. Power of suppliers & buyers: bargaining power? - concentration, uniqueness, importance, differentiation, costs

4. Threat of substitute products: powerful trends?
5. Rivalry among existing competitors: factors of intensity, like size, power, fixed costs, switching costs, exit barriers

Positioning company: Dr Pepper - avoided the largest-selling drink segments, maintained a narrow flavour line, developed a captive bottler network, marketing

Question 7

Mintzberg & Waters (1985)

Answer 7

deliberate strategy: strategy is realised as intended
emergent strategy: pattern or consistencies realised despite or in the absence of intentions
planned strategy: environment assumed to be constant, mostly standard strategies
entrepreneurial strategy: one person controls an organisation and imposes their vision on it, mostly young and small companies or emergency
ideological strategy: collective vision of the organisation, roots in collective experiences and history
umbrella strategies: partial control by the leader, general guidelines of thinking, “deliberately emergent”
process strategy: leadership controls the process of strategy making, but leaves the content to others
consensus strategy: grows out of mutual adjustment among different actors - developing a pattern
imposed strategy: environment forces an organisation into a pattern of actions

Question 8

Porter (1989)

Answer 8

Strategies of diversified company:
- competitive: on a business unit level – how to gain competitive advantage
- corporate (companywide): what businesses the corporation should be in and how the corporate office should manage the array of business units

diversification has costs - adds value when: attractive industry, cost-of-entry low, business unit gains advantage from having the parent company

Ways to enter: portfolio management (keeping leadership), restructuring (transforming the new unit), transferring skills, sharing activities (cost-benefit)