Session 2 Strat intro
What is strategy
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“An integrated and coordinated set of commitments and actions designed to exploit
core competencies and gain a competitive advantage”
o Hitt, Ireland & Hoskisson (2016) Strategic Management, p. 4.
“An integrated set of actions designed to create a sustainable advantage over
competitors”
o McKinsey & Company (originally published in 1978)
Strategic competitiveness is achieved when a firm successfully formulates and implements a
value-creating strategy. A strategy is an integrated and coordinated set of commitments and
actions designed to exploit core competencies and gain competitive advantage.
A firm has competitive advantage when it implements a strategy that creates superior value
for customers – can’t duplicate
Working definition of strategy:
 Strategy is the path needed in order to get from point A (where we are today) to
point B (where we want to be)
o –It involves “long-term” thinking
o –Most times there are multiple strategies that take place concurrently
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The company’s distinctive approaches to competing and the competitive
advantageson which it will be based
o –Porter’s work
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Art of the war
Strategy as a boundary market
o What a company does/will do
o What a company does/will not do
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Actions/initiatives to reach a goal
Core competencies
Long term perspective
Competitive advantage
Proactive not reactive
Efficiency
Consistency
How to distinguish yourself from competition
Goal of companies is to make profit
Competing to be the best?
Competing to be unique?
Compete with rivals in the same dimensions or change the landscape of competition?
Depends on who customer is and what they need.
Aspirations
–“Our strategy is to be #1…”
–“Our strategy is to grow…”
Particular actions
–“Our strategy is to merge…”
–“Our strategy is to internationalize…”
Mission/vision statement
–“Our strategy is to meet the financial needs, social needs…”
–“Our strategy is to serve our customers…”
target Canada failure
Target Canada opened its first store in March 2013, and was operating 133 locations by
January 2015
•2010: Consideration of Canadian operations
•2011–2013: Leaseholds acquisition and partnership
•2013–2015: Years of operation
Target losses of $2.1 billion in its lifespan, and was widely viewed as a failure, termed a
"spectacular failure" byAmanda LangofCBC News,"an unmitigated disaster" byMaclean'sand
"a gold standard case study in what retailers should not do when they enter a new market"
by theFinancial Post
Prices couldn’t keep up in Canada – not attractive, exchange rate high
Consumer expectations too high
Target customers unclear – assumed same as US, didn’t test market
Why is strategy important
•To position or set direction within environment
–Position vs. Trajectory
•To focus effort within the organization
•To define the organization, to give meaning to the organization’s activities
•To provide consistency
–For efficiency & focus
–Risk of too much consistency (D. Miller, Icarus Paradox 1990)
•Blackberry-RIM –focus on government –industry customers
•Cell-phone business, not toy, so initially no camera or music, few apps
•Later realized need for apps, but by then low market share so unattractive to apps
developers compared to IOS and Android
Strategy  competitive advantages
•Efficiency
•Differentiation
•Innovation
Competitive advantages lead to high performance
•Business performance
•Employee careers
•Social strength
Profit, planet, people
What is strat
•Demand-side strategic management
–Identifying opportunities
–Building organizations
•Focused on value for current & future customers
•Takeaways from Amazon CEO Jeff Bezos
21st century competition – key factors driving many of today’s competitive markets
Global economy and globalisation
Goods, services, people, skills and ideas move freely across geographic borders.
Globalisation is the increasing economic interdependence among countries and their
organisations as reflected in the flow of goods and services, financial capital and knowledge
across country borders.
Large firms competing globally
Must make culturally sensitive decisions
Globalisation offers potential benefits to firms, but not without risks. One risk is the amount
of time typically required for firms to learn how to compete in markets that are new. May
over diversify internationally beyond ability to manage extended operations.
Growth of emerging economies – new market
Still critical to remain committed and strategically competitive in domestic market
Technology
1. Technology diffusion and Disruptive technologies
Speed at which new technologies become available and are used, has increased
substantially over the past 15-20 years.
Perpetual innovation – how rapidly and consistently information intensive tech replace
older ones
When products become somewhat indistinguishable because of widespread and rapid
diffusion of technologies, speed to market may be primary source of competitive advantage.
Another indicator of rapid technology diffusion is that it now may take only 12-18 months
for firms to gather information about their competitor’s research and development and
product decisions. In the global economy, competitiors can sometimes imitate a firs
successful competitive actions within a few days.
Patents effective in pharmaceticals and stuff like that but not electronics.
Disruptive technologies – technologies that destroy value of an existing technology and
create new markets. Harm industry incumbents. Need to adapt. Apple introduced disruptive
tech such as iphone and ipad and changed several industries.
2. Information age
Dramatic changes – computers, phones, AI, VR, massive databases, social media
3. Increasing knowledge intensity
Knowledge (information, intelligence and expertise) is the basis of tech and its application.
In 1980s basis of competition shifted form hard assets to intangible resources.
Strong knowledge base necessary to create innovations. Firms need to learn. Spillovers
often happen to other companies. Everyone gains but then firms must move quickly.
Strategic flexibility isa set of capabilities used to respond to various demands and
opportunities existing in a dynamic and uncertain competitive environment. Coping with
uncertainty.
Strategic choices influenced by multiple internal and external factors
Two models related to competitive strategy decisions: The Industry / Organization Model,
Resource Based Model and Institution Based Model
I/O Model based on four key assumptions
Explains the external environments dominant influence on a firms strategic actions. Industry
in which a company chooses to compete has a stronger influence on performance than do
the choices managers make inside organisations.
Influenced by range of industry properties:
1.The external environment imposes pressures and constraints that determine strategic
choices;
2.Similarity in strategically relevant resources causes competitors to pursue similar
strategies; most firms competing within an industry are assumed to control similar
resources and make simikar strategies based on those resources
3.Resource differences among competitors are short-lived due to resource mobility across
firms; resources used to implement stratgeies are assumed to be highly mobiule across
firms so any resource differences that might develop will be shortlived
4.Strategic decision makers are rational and engage in profit-maximizing behaviors.
It challenges firms to find the most attractive industry to compete in. and imitate each
other.
Five forces driving industry competition
The set of factors directly influencing a firm and its competitive actions and competitive
responses:
Analytical tool which helps firms find more attractive industry.
- Buyers
- Suppliers
- Competitive rivalry among firms currently in the industry
- Product substitution
- Potential entrants
Suggests firms can earn above average returns by producing either standardised goods or
services at costs below those of competitors (cost leadership) or by producing differentiated
goods or services for which customers are willing to pay a price premium (differentiation).
Have to identify attractive industry and implement appropriate strategy –
Can reduce competitive rivalry and erect barriers to entry by forming joint ventures for
example.
Returns are determined primarily by external factors not unique resources and capabilities.
Resource based model of above-average returns based on four key assumptions
Assumes each organisation is a collection of unique resources and capabilities
The uniqueness of its resources and capabilities is the basis of a firms strategy and its ability
to earn above average returns. Not industry
Resources are inputs into a firms production process, such as capital equipment, the skills of
individual employees, patents, finances, talented managers. In general a firms resources are
classified into:
- physical
- human
- organisational capital
resources are either tangible or intangible
individual resources alone may not yield a competitive advantage. Need to be formed into a
capability. A capability is the capacity for a set of resources to perform a task or activity in
an integrative manner. Core competencies are capabilities ha serve as a source of
competitive advantage for a firm. E.g. apple’s R&D department s a core competency.
Firms acquire different resources and develop unique capabilities based on how they
combine and use the resources. A capability must not be easily imitated but not too difficult
for competitors to understand.
Resources and capaiblities need to be valuable, rare and costly to imitate and nonsubstitutable.
1.Firms acquire different resources;
2.Firms develop unique capabilities based on how they combine and use resources;
3.Resources and certain capabilities are not highly mobile across firms; and
4.Differences in resources and capabilities are the bases of competitive advantage and a
firm’s performance rather than its industry’s structural characteristics.
The Resource-Based Model of Above-Average Returns: Resources, Capabilities and Core
Competences
Resources As Core Competencies: Multiple Reasons How Resources Become Core
Competencies
VRIO analysis