Teaching note <Introduction to Strategy> Definitions, notions, approaches. Authors Courses Date Keywords Compiled by Dr. Kai Riemer Interorganisational Systems, Managing the information Age Organisation 2002 (updated 2008) Strategy, Competitve strategy, MBV, RBV WI & IOS – Prof. Dr. Stefan Klein: All rights reserved. Riemer – Teaching note on Strategy Table of Contents 1 WHAT IS STRATEGY?.........................................................................................................................................3 1.1 THE ROOTS OF STRATEGIC THINKING ............................................................................................................................... 3 1.2 DEFINITIONS AND NOTIONS OF STRATEGY ...................................................................................................................... 3 1.3 “STRATEGY IS…” .................................................................................................................................................................. 5 1.4 STRATEGIC SCHOOLS............................................................................................................................................................ 6 1.5 THE DIFFERENCE BETWEEN INTENDED AND REALISED STRATEGY ............................................................................ 8 2 LEVELS OF STRATEGIC THINKING AND PLANNING.............................................................................. 10 2.1 ORGANISATIONAL LEVELS ................................................................................................................................................10 2.2 STRATEGY VERSUS TACTICS..............................................................................................................................................10 3 COMPETITIVE STRATEGY ............................................................................................................................. 11 3.1 OVERVIEW – TWO DIVERGING VIEWS .............................................................................................................................11 3.2 THE MARKET‐BASED VIEW OF COMPETITIVE STRATEGY (MICHAEL E. PORTER)..................................................12 3.3 THE RESOURCE‐BASED VIEW OF COMPETITIVE STRATEGY (PRAHALAD & HAMEL) .............................................13 3.4 INTEGRATION OF MARKET‐BASED AND RESOURCE‐BASE VIEW ................................................................................13 4 FROM SINGLE­FIRM TO INTER­FIRM STRATEGY .................................................................................. 13 4.1 A SYSTEMS THEORY EXPLANATION OF THE EXISTENCE OF FIRMS AND NETWORKS ..............................................14 4.2 THE SINGLE‐FIRM VIEW ON STRATEGY IN A NETWORK...............................................................................................14 4.2 THE INTER‐FIRM/NETWORK PERSPECTIVE ON STRATEGY ........................................................................................15 4.3 CONCLUSION .......................................................................................................................................................................16 LITERATURE............................................................................................................................................................. 18 ‐ 2 ‐ Riemer – Teaching note on Strategy 1 What is strategy? Strategy is a controversial topic. Hence, in the literature there is not much agreement about what qualifies as strategy or how to approach strategy in an organisation. Numerous notions and definitions have emerged over time, presented by strategists and practitioners dealing with strategy in various contexts, emphasizing different views, and understanding strategy in different ways. Thus, instead of concentrating on just one definition of strategy, it is more useful to present and discuss different notions and perspectives. In doing so, I will first look at the history (or roots) of strategic thinking before I then introduce definitions and elaborate on different perspectives and strategic views. Please note that this teaching note only provides an introduction to the topic; it needs to be complemented with additional readings that are listed towards the end of this text. 1.1 The roots of strategic thinking The concept of strategy stems from the military context and has been adapted for use in business (cp. Nickols 2000a)1. Strategy is a term that comes from the Greek strategia, meaning "generalship." In the military, strategy often refers to maneuvering troops into position before the enemy is actually engaged. In this sense, strategy refers to the deployment of troops. Once the enemy has been engaged, attention shifts to tactics. Here, the employment of troops is central. Substitute "resources" for troops and the transfer of the concept to the business world begins to take form. 1.2 Definitions and notions of strategy Table 1 exemplarily introduces business‐related definitions and meanings of strategy derived from the work of well‐known strategists (taken from Nickols 2000a). The various definitions and notions illustrate the ambiguousness of the concept and that strategy can be approached from different angles. Consequently, the author Fred Nickols asks: “What, then, is strategy? Is it a plan? Does it refer to how we will obtain the ends we seek? Is it a position taken? Just as military forces might take the high ground prior to engaging the enemy, might a business take the position of low­cost provider? Or does strategy refer to perspective, to the view one takes of matters, and to the purposes, directions, decisions and actions stemming from this view? Lastly, does strategy refer to a pattern in our decisions and actions? For example, does repeatedly copying a competitor's new product offerings signal a "me too" strategy? Just what is strategy?” His answer to these questions is an inclusive one: “Strategy is all these—it is perspective, position, plan, and pattern. Strategy is the bridge between policy or high­order goals on the one hand and tactics or concrete actions on the other. Strategy and tactics together straddle the gap between ends and means. In short, strategy is a term that refers to a complex web of thoughts, ideas, insights, experiences, goals, expertise, memories, 1 The German author von Clausewitz states: „„Die Strategie ist der Gebrauch des Gefechts zum Zwecke des Krieges; sie muss also dem ganzen kriegerischen Akt ein Ziel setzen, (...) sie entwirft den Kriegsplan, und an dieses Ziel knüpft sie die Reihe von Handlungen an, welche zu demselben führen sollen“ (von Clausewitz, 19th Century) ‐ 3 ‐ Riemer – Teaching note on Strategy perceptions, and expectations that provides general guidance for specific actions in pursuit of particular ends. Strategy is at once the course we chart, the journey we imagine and, at the same time, it is the course we steer, the trip we actually make. Even when we are embarking on a voyage of discovery, with no particular destination in mind, the voyage has a purpose, an outcome, and an end to be kept in view.” (cp. Nickols 2000a). The following paragraphs further indicate the variety of the strategy term. Source Strategy definition/notion Steiner, George (1979): 1. Strategy is what top management does that is of great importance to the Strategic Planning. organization. 2. Strategy refers to basic directional decisions, to purposes and missions. 3. Strategy consists of the important actions to realize these directions. 4. Strategy answers the question: What should the organization be doing? 5. Strategy answers the question: What are the ends we seek and how should we achieve them? Mintzberg, Henry (1994): The Rise and Fall of Strategic Planning 1. Strategy is perspective; that is vision and direction. 2. Strategy is position; that is, it reflects decisions to offer particular products and services in particular markets. 3. Strategy is a plan, a „how“, a means of getting from here to there. 4. Strategy is a pattern in actions over time. Ergo: strategy emerges over time as intentions collide with and accommodate a changing reality („realized strategy“). Andrews, Kenneth „Corporate strategy is the pattern of decisions in a company that (1980): The Concept of determines (...) its objectives (...) and produces the (...) plans for achieving Corporate Strategy. those goals, and defines the range of business the company is to pursue, ...“ Distinguishes levels of strategic planning: corporate strategy and (the more detailed) business strategy. Michael Porter (1996): Competitive strategy is „about being different.“ „It means deliberately What is Strategy? choosing a different set of activities to deliver a unique mix of value.“ Ergo: strategy is competitive positioning and differentiation. Table 1: Different notions of strategy. ‐ 4 ‐ Riemer – Teaching note on Strategy 1.3 “Strategy is…” Strategy is many things (partly taken, partly adapted from Nickols 2000b): • Strategy is plan, position, ploy and perspective. As plan, strategy specifies how we intend to realize our goals. As position, strategy is the stance we take: e.g. be the low‐cost provider, compete on the basis of value, set prices according to what the market will bear, or beat any price offered by any competitor. As ploy, strategy relies on secrecy and deception: "Let not thy left hand know what thy right hand doeth." As perspective, strategy is part vantage point and part the view from that vantage point, particularly the way this view shapes and guides decisions and actions. • Strategy is ubiquitous. It can be found at the highest levels of corporate, governmental, military and organizational endeavor and in small, medium and large units. It is used to define the basis for competition and it can give rise to collaboration and cooperation. It can even be found guiding and explaining individual initiative. It is everywhere. • Strategy is an abstraction, a construct. It has no concrete form or substance. At best it can be communicated in words and diagrams. But, just as "the map is not the territory," the words and diagrams used to communicate strategy are not the strategy they convey. • Strategy is the art of the general. It is broad, long range and far reaching. In part, it is about the preparations made before battle, before the enemy is engaged. But it is also about avoiding battle and making combat unnecessary. It is as much about destroying the enemy’s will to fight as it is about destroying the enemy in a fight. If that sounds too militaristic for you, consider the business parallel: a firm that raises such formidable barriers to entry that would‐be competitors throw up their hands and walk away. In short, destroying the will to compete differs little from destroying the will to fight. • Strategy is a general plan of attack, an approach to a problem, the first step in linking the means or resources at our disposal with the ends or results we hold in view. Tactics, of course, is the second step. Strategy is concerned with deploying resources and tactics is concerned with employing them. Without some goal there can be no strategy and tactics will consist of aimless flailing about. Strategy, then, is relative, which is to say that it exists only in relation to some goal, end or objective. If someone asks you, "What is your strategy?" be sure to reply, "In relation to what?" • Strategy is direction and destination. At one and the same time strategy says, "We are headed there — by this path." Strategy defines the destination (e.g. the goals) and the direction, i.e. guidance as to how we get there. • Strategy is a set of decisions made. What business are we in? What products and services will we offer? To whom? At what prices? On what terms? Against which competitors? On what basis will we compete? • Strategy is getting it right and doing it right. On the one hand, we have to pick the right course of action. On the other hand, once chosen, we have to carry it out properly. ‐ 5 ‐ Riemer – Teaching note on Strategy Strategy thus is manifold; it refers to the plan, as well as to the process of implementing the plan. At the same moment there are different views of how strategy takes place: Is it really about planning? Or is strategy an emerging issue? Are we able to plan everything and then implement the pan? Or do we have to accept that in a complex world strategy emerges in the process of action? To elaborate on these questions, we have to take a look at the history of strategic thinking and strategy theory. 1.4 Strategic schools The history of strategy theories is to some extent similar to that of organization theory: Starting from a mechanistic idea of strategic planning and design, newer approaches deal with strategy in a more holistic manner, accepting, that strategy can only be planned to a certain extent, while a significant part results from other effects during the implementation process within the organisation (so‐called “emergent strategies” [Mintzberg, et. al. 2001]). Mintzberg introduces 10, more or less distinctive, theory schools, each representing a special perspective on strategy or emphasising certain issues within the field [Mintzberg, et. al. 2001]. Although emerging in a historically order, each school remains important, retaining their group of supporters (view figure 1 for a brief overview of the 10 strategy schools). ‐ 6 ‐ Riemer – Teaching note on Strategy Figure 1: Strategy schools (Mintzberg et al. 1999 and 2001). ‐ 7 ‐ Riemer – Teaching note on Strategy For our purposes a threefold ‐ complexity reducing ‐ classification might be sufficient, distinguishing strategy in (neo‐) classical, modernist and cultural (symbolic) perspectives: 1. The design model (classical): Under this model, strategy is the object of a planning and design process, where top managers define the organisation’s goals and the processes for their implementation (machine metaphor). According to Mintzberg’s design, planning and positioning school, organisational strategy can be planned and panned out in detail. Important to this perspective is the concept of aligning (“fit”) the internal competencies and resources of the organisation with the external (market or environmental) situation, by making decisions concerning the development of resources and the positioning in the market (cp. also Contingency theory). Porter’s market‐based view (MBV) and the resource‐based view (RBV) [acc. to Prahalad, Hamel 1996], representing the two main strands in strategic planning, are part of this strategy perspective (see later). 2. The emergent model (modernist): In the emergent model, strategy is seen as emerging in the process of action. Strategy cannot (or only to some extent) be planned and is the outcome of the organisation’s struggle to survive (cp. Darwinist ideas in Population Ecology) and the adaptation to certain internal and external influences. Strategy formulation and implementation are interdependent, strategy development happens on every level within the organisation. Moreover, the realised strategy, the one observable in the marketplace, may differ considerably from the intended strategy (“it emerges”). The organisation is viewed from a modernist perspective, interpreted as some form of organism (“living system”). The perspective corresponds to Mintzberg’s learning school and the power school, where strategy is the outcome of intensive discussions and the balancing of power relationships. 3. The culture model (cultural/symbolic): In this view, strategy formation is a social process, grounded in the specific culture (of the organization and the environment). In the culture model the organisation develops and uses powerful symbols of business culture to mobilise support for strategy formation and implementation. Strategy formation is based on a social framing and defining the right organisational context, more than on planning and designing strategy in a rational way. This view corresponds to Mintzberg’s cultural school. Regarding the different schools, Mintzberg argues that overemphasising one school may cause failures due to a restricted, unilateral view: “The greatest failings of strategic management have occurred when managers took one point of view too seriously.” 1.5 The difference between intended and realised strategy It is beyond doubt that the strategy, which will be realised in the end, differs from the intended one at the beginning of the process. Parts of the intended strategy will not be realised, whereas emerging aspects and changes in the process (slightly or more dramatically) adjust the strategy, so that the realised strategy is different from the intended one (see figure 2). ‐ 8 ‐ Riemer – Teaching note on Strategy Figure 2: From intended to realised strategy (Mintzberg 1999, p. 30). It becomes obvious that one cannot persist exactly on what was planned. There are to many internal and external influences in the process that render it necessary to adjust the intended strategy. On the other hand this does not necessarily mean that planning is useless at all. Planning is not necessarily about formalised analysis, but about “thinking before doing.” Thus, we can state as follows: • The different strategy school are on the one hand paradigms, as well as simply different views in the process of strategy development and formation. • It is important to view the company’s situation in a holist multi‐perspective manner and to ask the right questions to uncover the main problems. • Think in problems/issues not in concepts. Try to use concepts. • Plan, but not in a way that is too bureaucratic/formalised. • Think, instead of blindly following one school, or the latest consultancy fad for that matter. • Accept dynamics, change and emerging strategies, but do not forget to plan (note: “If you plan, you may fail. But without planning, you will not know whether you failed or not in the end. And therefore you may be unable to learn from failure and to improve!”) ‐ 9 ‐ Riemer – Teaching note on Strategy 2 Levels of strategic thinking and planning Strategic decisions in companies take place on different organisational levels. In the most simple terms, one can distinguish three organisational levels of strategic thinking: (1) the corporate level, (2) the business unit (or divisional) level and the (3) functional level (see figure 3). Figure 3: Levels of strategic planning 2.1 Organisational levels Corporate strategy defines the markets and the businesses in which a company will operate. Competitive or business (unit) strategy defines for a given business the basis on which it will compete with other companies. And a functional strategy elaborates on goals, aims and actions to be undertaken in single functional areas of the firm. Often, this is also referred to as tactics: specific decisions following the broad strategic ones (see later for a distinction between strategy and tactics). Corporate strategy is typically dealt with in the context of defining the company’s mission and vision, that is, deciding on what the company does, why it exists, and what it is intended to become some day. Competitive strategy hinges on a company’s capabilities, strengths, and weaknesses in relation to market characteristics and the corresponding capabilities, strengths, and weaknesses of its competitors (positioning and resources). Here, it is possible to argue in a more market‐based or more resource‐based manner (see later). 2.2 Strategy versus tactics As mentioned above, tactics is the specification, concretisation and operationalisation of strategic aims. Whereas strategy draws the grand, long‐term picture and gives ideas for the process of implementation, tactics brings these general ideas “down to earth”. Tactics describes a more short‐ term thinking and takes place during the process of strategy implementation. One might argue that ‐ 10 ‐ Riemer – Teaching note on Strategy good tactics is necessary to react to environmental or organisational changes. Thus, tactical action is a reason for what was called “emerging strategies” in the section above. While top managers might be concerned with strategy formulation, managers on the lower organisational levels are usually responsible for tactical decisions within functional areas of the firm. Aspects Scale of the Objective Scope of the Action Guidance provided Degree of flexibility Strategy Grand Broad and general General and ongoing Adaptable, but not hastily changed Long‐term Before action Temporal scope Timing in Relation to Action Focus of resource Deployment utilisation Table 2: Comparison of strategy and tactics 3 Tactics Limited Narrowly focused Specific and situational Fluid, quick to adjust and adapt in minor or major ways Mid‐term or Short‐term During action Employment Competitive strategy In the following paragraphs I will briefly introduce the most well‐known approaches to competitive strategy – the market‐based view and the resource‐based view. In doing so, I will provide brief accounts of both approaches and then refer to further readings on the subject matters. 3.1 Overview – two diverging views So far, we have recognised that there are several different strategiy views. In elaborating on competitive strategy, I will now concentrate on the most popular ones: the market‐based and the resource‐based approach. Following theses two approaches, I will describe strategic planning as identifying and developing competitive advantages, in which the two approaches simply apply different perspectives and techniques. Under the two notions, any competitive advantage may either derive from a superior market positioning or from a valuable and defendable resource base (figure 4). Figure 4: Sources of competitive advantage ‐ 11 ‐ Riemer – Teaching note on Strategy The market‐based view of strategy evolved largely from the positioning school coined by American economist Michael E. Porter. Many authors have contributed to forming what is known as the resource‐based view of strategy, one influential contribution was made by Prahalad and Hamel. In short, the two approached can be characterised as follows: • Market­based view (MBV): Following this view economic success is determined by the structure of the market in which a firm operates and by the firm’s behaviour in relation to the forces prevalent in this market. These forces are described by the well‐known five forces model; the five forces are 1) the rivalry among competitors, 2) the power of customers, 3) the power exerted by suppliers, 4) the threat of new entrants to the market and 5) arising substitutes to the firm’s products. Competitive advantage now derives from a strategic fit of the firm’s behaviour with the firm’s environment in terms of a unique market positioning that is able to deal with these forces. Thus, the MBV follows an outside‐in perspective of strategic planning by positioning the firm in the market and then adjusting the firm’s value chain according to these external requirements. • Resource­based view (RBV): Following the RBV notion strategic planning concentrates on the development, maintenance and – very important – the exploitation of (core) resources. Competitive advantage therefore derives from developing and/or owning a unique set of (core) resources and the ability (capabilities) to develop products that capitalise on these resources, which provide a unique selling proposition in the marketplace. Ergo, an inside‐out approach to strategic planning is taken, by concentrating on (internal) resources and their exploitation by turning them into unique products in the marketplace. In the following sections, the core concepts of the two approaches will be listed briefly and references will be provided to further readings for self‐study. 3.2 The market­based view of competitive strategy (Michael E. Porter) Three major concepts constitute the positioning school by economist Michael E. Porter, which has significantly shaped the market‐based approach: • The Five Forces model for analysing the structure of the Industry and for positioning the firm. • The model of the Value Chain of the firm for designing a firm’s value creation processes. • The three generic strategies that a firm can take in positioning itself in the marketplace (cost leadership, differentiation and focus) Instead of describing the concepts here, please read the following article as well as the Internet resources following the hyperlinks below. Please read: Porter, Michael E. (1997): How Competitive Forces Shape Strategy (HBS Reprint), in: Harvard Business School (Eds.), Competitive Strategy, S. 1­10: HBS Publishing, 1997 (originally published in 1979). Please read: Five Forces Model: http://www.themanager.org/Models/p5f.htm Value Chain Concept: http://www.themanager.org/Models/ValueChain.htm 3 Generic Strategies: http://home.att.net/~nickols/competitive_strategy_basics.htm ‐ 12 ‐ Riemer – Teaching note on Strategy 3.3 The resource­based view of competitive strategy (Prahalad & Hamel) The resource‐based view has been shaped by the work and articles of strategists Prahalad and Hamel and their book “Competing for the Future”. The main concept is the core competence/core product typology. The following article elaborates on core competencies using several illustrative examples. Please use this article to inform yourself. Please read: Prahalad, C. L., Hamel, G. (1990). The core competence of the corporation. In: Harvard Business Review, Vol. 90 No. 3, pp. 79­91. 3.4 Integration of market­based and resource­base view While the two approaches have been discusses controversial in the literature and where seen by many to be conflicting or even incommensurable, some more recent publications [Börner 2000a and Börner 2000b] have tried to integrate them into a comprehensive strategy approach. This is exemplarily shown in figure 5. Figure 5: Integration of market‐based and resource‐based approach 4 From single­firm to inter­firm strategy The goal of this paragraph is to illustrate what happens to the idea of strategy and strategic planning when moving from the firm level to an inter‐organisational network context. Therefore, I will elaborate on the above‐introduced market‐based and resource‐based view. Moreover, I will use functionalistic systems theory to outline the formation of a network as a sub‐system of the market, which is integrating all participating single enterprises as its own sub‐systems. This will be useful in pointing out the changing role of strategy approaches in an inter‐firm (network) context in comparison to the single‐firm context. ‐ 13 ‐ Riemer – Teaching note on Strategy 4.1 A systems theory explanation of the existence of firms and networks Following the social (action) systems theory by sociologist Parsons and especially the theoretical explanation of systems formation (evolution theory), the formation of a system is a process of differentiation and integration: By differentiation, the system is divided from its environment. Integration means both, the integration of the single elements forming the (social) system that is based on shared integrative patterns like values, culture, etc., and the integration of the system into its environment. Applying this model to the economic context of enterprises within a marketplace, the existence of an enterprise can then be explained using the concepts of differentiation and integration: the enterprise has to differentiate itself from other systems (enterprises) in order to establish a unique and legitimate position within the market. Furthermore it has to integrate its sub‐systems (e.g. its personnel and resources) based on a common understanding of the organisation’s mission and shared values, culture and rules. Last but not least, the enterprise itself has to become integrated in the marketplace (and the overall society), which is achieved by providing a suitable contribution for other market participants in the form of products and services. In the same way, this model can also be used to explain the formation of a network as part of the market: The network has to differentiate from the overall market and to integrate the single enterprises as the elements forming the network, while at the same time each enterprise has to differentiate within and to integrate itself into the network. From a strategy perspective, these processes of differentiation and integration can be described as to be shaped and actively formed using a positioning (MBV) and resource development (RBV) rationale. In the following I will show how MBV and RBV – in combination with the differentiation and integration logic – can be used to describe single firm and network‐level approaches to strategic thinking. 4.2 The single­firm view on strategy in a network Entering a business network poses new strategic questions for the single firm. The enterprise faces not only the positioning within the market, but also within the network. Using the market‐based and resource‐based approaches in combination with the systems theory concepts, this can be explained as in terms of the single firm having to differentiate from and to integrate itself into the network: • Market­based approach: o Differentiation is about being different in terms of a competitive position within the network. Each company strives for a superior or at least equal position in the network in order to assure that it can draw economic rents from the network, e.g. that it can participate to an acceptable extent in the distribution of the positive effects derived from cooperating. Such effects might be revenue streams, collaborative knowledge, patents or other. Moreover, a good and powerful position in the network allows the company to influence network strategy in order to assure achieving its own goals, which may differ from the other participants’ goals. Especially in networks where companies cooperate with their competitors (“coopetition”), internal strategic positioning remains very important. ‐ 14 ‐ Riemer – Teaching note on Strategy o • Integration: To be part of the overall network, at the same time the enterprise has to integrate into the overall value creation process of the network. Drawing from the outside‐ in perspective of the market‐based approach, the internal enterprise’s value chain has to be aligned with the external market position of the network and the networks processes. This means, that in the network context the internal value chain has to be part of and aligned with the overall network value chain. Integration then means the careful design of process interfaces (as well as Information Systems interfaces). Resource­based approach: o Differentiation: From a resource‐based view differentiation means to contribute to the network in terms of unique core resources. This is a well‐known concept in virtual organisations, where a network of enterprises is built up with each enterprise concentrating on its core competencies contributing to the network by fulfilling a specific role. The enterprises cooperate, e.g. to achieve virtual size, by establishing a network‐wide resource pool, where each company brings in its core competencies. To achieve best network‐wide quality, for each type of resource only the best company in terms of quality and efficiency may contribute. Therefore, companies have to differentiate and to concentrate on core resources. A classification of resources is needed to identify critical resources constituent for the enterprise, which have to be built up internally and to be able to identify resources, which could be internalised from external partners (cp. Klein 1996, 215). o Integration: The single enterprise has to integrate itself into the super‐ordinate network. This means, that on the one hand the own resources (e.g. production process, knowledge, services) have to be adjusted and documented, so that it becomes transparent for the other network partners, which resources are available and furthermore that the resources may be easily used by the other partners. On the other hand, the company has to assure the integration of the external resources offered by other partners into the internal operations. Therefore the above mentioned differentiation of resources may be helpful. Another key concept in this context is called networkability, which names a pool of competencies necessary to ensure the ability of the single company to cooperate in terms of processes, technology, personnel, knowledge etc. (For the concept of “networkability” please have a look at [Alt, et. al. 2000] and [Fleisch 2000]). 4.2 The inter­firm/network perspective on strategy After elaborating on the single‐firm view on strategic planning in a network context, I will now sketch out key questions of strategic planning on the network level. Therefore we follow the above‐ introduced structuring: • Market­based approach: o Differentiation: Comparable to the positioning of a single enterprise, the entire network has also to be positioned within the market. In case of a direct value contribution to the marketplace (like for example in strategic airline alliances), the network as a whole tries to ‐ 15 ‐ Riemer – Teaching note on Strategy act and strives to be perceived like a singular actor in the marketplace. The positioning of the network in the market moves competition from a single‐firm level to a network level, which may ultimately lead to what has been termed a “group‐vs‐group” competition, with joint brand and strategy development [Gomes‐Casseres 1994]. o • Integration: One of the biggest challenges in network formation is the integration of all partners’ contributions to a functioning whole. Drawing from the market‐based approach, all partners’ value chains (or more precisely the parts contributing to the network) have to be integrated to form an overall network value chain. Therefore, a network‐wide planning and a common understanding of value creation processes and a certain degree of standardisation are required. Resource­based approach: o Differentiation: Similar to the differentiation on the single‐firm level, the network has to work out its core competencies and resources in order to ensure the delivery of a unique value proposition to the market in terms of products and services. This requires an explicit planning of the network resource pool and the development of products and services based on these resources. o Integration: All resources contributed by the partners have to be (virtually) aggregated to form a network resource pool. Therefore, compatibility has to be ensured, e.g. by standardisation activities and documentation of partner competencies, processes and interfaces, products, services, etc. 4.3 Conclusion The discussion of strategic shift from single‐firm to a network perspective shows that new challenging questions arise and that companies have to differentiate and integrate themselves within the network and that a new level of strategic planning is concerned with the positioning and resource development of the entire network. This requires differentiation and integration of the entire network within the marketplace. Recapitulating, some important questions arise that enterprises have to face when entering a network context: o Positioning within the network in terms of power/influence to achieve the own goals. o Ensure integration into the network by taking care of interfaces regarding processes and resources. o Classification of resources with respect to importance and role to ensure full control over critical resources to minimise external dependencies. o Taking care of networkability, internal capabilities necessary to ensure the ability to collaborate with others. o Challenges of collaboration with and learning from competitors (“coopetition”). o Changing scope in strategic planning: each single firm has to face the formation of the overall network strategy: “group‐vs‐group”. ‐ 16 ‐ Riemer – Teaching note on Strategy In order to study in more detail the role of alliances, networks and strategic thinking in an inter‐firm context, please read the following articles from the Harvard Business Review. Again, one article argues more from a market‐based perspective, whereas the other is more influenced by the resource‐based view: Please read: 1. Gomes­Casseres, Benjamin (1994). Group versus Group: How Alliance Networks Compete. In: Harvard Business Review, 4, pp. 62­74. o MBV­related: Positioning of strategic groups in the market. 2. Hamel, Gary; Doz, Yves L.; Prahalad, C. K. (1989): Collaborate with your Competitors ­ and win, in: Harvard Business Review, 1 (1989), S. 133­139. o RBV­related: Learning from competitors (internalise external and protect internal resources) the coopetition concept. ‐ 17 ‐ Riemer – Teaching note on Strategy Literature Alt, Rainer; Fleisch, Elgar; Werle, O. (2000). The Concept of Networkability ‐ How to make Companies competitive in Business Networks. In: Hansen, H. R. et al. (eds.): Proceedings of the ECIS 2000. A Cyberspace Odyssey, Wien 2000, pp. 405‐411. Andrews, Kenneth (1980): The Concept of Corporate Strategy, 2nd Edition . Dow‐Jones Irwin, 1980. Börner, Christoph (2000a). Porter und der "Resource‐based View". In: Wisu, 5 (2000), pp. 689‐693. Börner, Christoph (2000b). Die Integration marktorientierter und ressourcenorientierter Strategien. In: Wisu, 6 (2000), pp. 817‐821. Fleisch, Elgar (2000). Gestaltung netzwerkfähiger Unternehmen. In: Wisu 8/9, pp. 1112‐1119. Gomes‐Casseres, Benjamin (1994). Group versus Group: How Alliance Networks Compete. In: Harvard Business Review, 4, pp. 62‐74. Hamel, Gary; Doz, Yves L.; Prahalad, C. K. (1989): Collaborate with your Competitors ‐ and win, in: Harvard Business Review, 1 (1989), S. 133‐139. Hamel, Gary; Prahalad, C. K. (1996). Competing for the Future. Boston. Klein, Stefan (1996). Interorganisationssysteme und Unternehmensnetzwerke: Wechselwirkungen zwischen organisatorischer und informationstechnischer Entwicklung. Wiesbaden. Mintzberg, Henry (1994): The Rise and Fall of Strategic Planning, Basic Books, 1994. Mintzberg, Henry; Ahlstrand, Bruce; Lampel, Joseph (1999): Strategy, blind men and the elephant, in: Financial Times Mastering, 27.09.1999, S. 6‐7. Mintzberg, Henry; Ahlstrand, Bruce; Lampel, Joseph (2001). Strategy Safari: the Complete Guide Through the Wilds of Strategic Management. Financial Times Prentice Hall. Nichols, Fred (2000a): Strategy. Definions and Meaning, [http://home.att.net/~discon/ strategy_definitions.pdf]. [Access: 22.10.2008]. Nickols, Fred (2000b): Strategy is Execution, [http://home.att.net/~discon/strategy_is_execution.pdf]. [Access: 22.10.2008]. Porter, Michael (1996): What is Strategy?, in: Harvard Business Review, Nov‐Dec 1996. Prahalad, C. L., Hamel, G. (1990). The core competence of the corporation. In: Harvard Business Review, Vol. 90 No. 3, pp. 79‐91. Steiner, George (1979): Strategic Planning. Free Press, 1979. ‐ 18 ‐