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Ô
  

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 ³It is not the strongest of the species that
survive, nor the most intelligent, but the one
most responsive to change.´
 Charles Darwin

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2
 ³Nothing focuses the mind better than the
constant sight of a competitor who wants to
wipe you off the map.´
 Wayne Calloway, Former CEO, PepsiCo

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^
 0

  

 
- It is about organizational á


- Competitive advantage¶ that can be

3 3



- ?aintaining the status quo.

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4
 - Increasing a firm¶s competitiveness but in a
way that is not sustainable in the future.

- Strategy is about both: choosing new

games to play and playing existing games
better.

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5
 |
 

- |
 3á
 strategy as a rational and
deliberate process
- (the Design school)

- while others describe it as an evolutionary

process which emerges from
experimentation and trial and error

- (the Evolutionary and Processual schools).

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 - Some place more emphasis on external
factors, like the structure of the industry to
which the firm belongs (e.g. the Industrial
Organization approach),

- while others place more emphasis on

factors internal to the organization, like the
way production is organized (e.g. the
Resource-Based approach).

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7
 V
  

- Some describe a relatively 3


á



 3 

 3





 


 
 

3
respond to external conditions
(the Structure-Conduct-Performance approach),

- while others describe a 

á á

 
á


   
 

3 


 influenced by
the environment, but also actively seek to change it
(e.g. the Schumpetarian approach).

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8
 ’ 




- Xhe µresource-based theory of the firm¶

- Edith Penrose suggested viewing the firm as a

µpool of resources¶. Both tangible and intangible
and can be combined differently

- ?odern strategy theorists, inspired by Penrose,

have called this ability to combine resources in
an innovative and efficient way the firm¶s
µcapabilities¶ or µcompetencies¶.

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9
 º 


 

 

- Xhe competitive forces approach to strategy

- by ?ichael Porter to create µmarket position¶

- è


 á 33 
 effect of five industry-
level forces impacting on strategy and
performance:
- entry barriers, threat of substitution, bargaining power
of buyers, bargaining power of suppliers and rivalry
among industry incumbents.

- Xhis framework is connected to the

µstructure±conduct±performance¶
approach to industrial organization

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10
 m
- unique capabilities refer to the productive activities
that the firm is very good at.

- Core competencies refer to those broad capabilities

that are essential to the firm¶s performance and that
allow it to enter different product markets.

- Competencies are unique, and hence hard to imitate,

because they are the results of particular
combinations and interactions between different
resources.
- Since different firms have different capabilities, their
implementation of strategies will differ.

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11
 ’


  
 

- Xhe market positioning framework views differences
between firms as resulting from the different
characteristics of the markets they operate in.

- µImperfect competition¶ is often blamed for not allowing

all firms to achieve the same level of efficiency and
hence performance.

- i.e. barriers to entry which prevent new firms from competing

with incumbents, or

- information asymmetries that allow only some firms access to

special information/knowledge.

- It is assumed that such differences will disappear in the

µlong run¶ when µperfect competition¶ is restored.

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12
 ’


  ’
 

Resource based approach

- In the µresource based approach¶ firm

differences arise due to their unique
competencies and capabilities.

- Xhese differences will persist even in the long

run since by definition competencies and
capabilities are difficult to imitate and strategy
is about renewing core competencies.

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14
 M | º
 


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15
 

|
   

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16
 §
 |
   
- Competitive advantage
- Strategists
- Vision and mission statements
- External opportunities and threats
- Internal strengths and weaknesses
- Long-term objectives
- Strategies
- Annual objectives
- Policies

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- Xhe ultimate goal of business strategy
- High quality-low cost
- Xechnical innovation
- Design leadership
- Efficiency
- CA is only possible if firm creates value for
the buyer
- Which leads to the achievement of principle
objective of the firm ±Profit maximization

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18


 




- Xo Attain: Firm must posses competitive
advantage in the form of either low cost or
differentiated product that command
premium price
- Xo Sustain: Firm must achieve more
sophisticated competitive advantage over a
period of time by providing higher quality
product and services or producing more
efficiently

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19
 m
- Four sustainable competitive advantage
firm must have

- Commitment to improvement
- Innovation & Change
- Superior human resources
- Xechnical capability

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20
 
 
- C-A lies not just in differentiation and cost
leadership strategy but also in being able to tap
the company¶s special skills or core competencies
and rapidly responding to customer¶s need and
the moves of the competitors

- C-A lies in managements ability to consolidate

corporate wise technologies and production skills
in to competencies that empower an individual
business to adapt quickly to changing
opportunities

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21
 {   

 
- C-A as an organizational ability to
differentiate its product or service from
those of its competitors

- Barney (1991)
- C-A as when a firm is implementing a value
creating strategy that is not been implemented
simultaneously by any current or potential
competitors
- A sustained C-A exists only after efforts to
replicate that advantage have ceased

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22
 {
 
- C-A can only occur in situations of firm
resource heterogeneity and form resource
immitability of physical, human and
organizational capital

- Sustainability of C-A depends

- Resource must add positive value to firm
- Resource must be unique and rare among
current and potential competitors
- Resource must be imperfectly imitable
- Resource can not be substituted with an other
resource by competing firms

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2^
 {

!
- C-A is obtained through

- Highly skilled employees

- Distinctive culture

- ?anagement processes and

systems

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24
 - History of strategic management is to fill in
the blanks created by SWOX analysis

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25
 - Xhe importance of integrating internal and
environmental analyses is shown as follow

- Wal-?art for the last twenty years consistently earned a

return on sale twice the average of its industry

- Southwest airline¶s profit continued to increase 10-b$ from

1990-199^ despite the losses of other airlines

- Nucor Steel¶s stock prices continuously increased during

80¶s and 90¶s despite the fact all other steel firm were down

- Xhe internal weaknesses and strengths are

referred as ³resources´ and ³capabilities´

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26
 - Xo fill the ³internal blanks´ created by
SWOX analysis, managers must address
four important questions about their
resources and capabilities

- Xhe question of value

- Xhe question of rareness
- Xhe question of imitability
- Xhe question of organization

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27
 - Xhe Question of Value

- Do a firm¶s resources and capabilities add

value by exploiting opportunities or by
neutralizing threats

- Xhe answer can be ³yes´ as SONY and ^-

? are exploiting opportunities through
specialized skills and creative
organizational culture

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28
 m

- unfortunately for other firms the answer is

³No´

- uSX a steel company could not recognize and

respond to the changes in steel industry and
delayed investment in certain areas But Nucor
responded well

- Sear was not able to recognize changes in retail

market created by Wal-?art

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29
 - Due to environmental shifts many firms
have tried to find new ways of using its
strengths

- AX&X known for quality long distance calls

Due to competitors like ?CI, Sprint and
others AX&X have developed its
competitive edge by shifting the Bell Lab¶s
mission from basic research to Applied
research

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^0
 Case of Hunter Fan Company
- Fans to cool large manufacturing facilities
- Invention of air conditioning reduced the
market share
- In 70¶s rise in energy prices high lighted the
low energy consumption of fans

- By exploiting this opportunity Hunter Fan

became market leader

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^1
 "  

#
 
- Only the rareness of resource can give C-A

- It does not mean that common but valuable

resources are not important they are
required for survival

- Wal-?art¶s skills in developing and using

point of purchase data collection to control
inventory have given C-A over K-?art

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 "  

’ $ 
- Any thing can be imitated but if imitation is costly
it can give sustainable C-A
- Imitation can occur in two ways
- Duplication
- Substitution

- Xhe reasons of cost disadvantage are grouped

- Xhe importance of history in creating firms resources
- Xhe importance of small decisions
- Xhe importance of socially complex resources

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^^
 

 




- Every firm has a long history of developing C-A

- Caterpillar ± medium sized construction company ± during
world war-II uS department of defense fully supported the
firm to establish the infrastructure for war
- After the war caterpillar became a giant in market with
widest service and supply network
± is it possible to imitate caterpillar?

- Komatsu ± is trying to counter caterpillar not by

duplicating its service and supply network
- By special design and durability of machines

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 ’

 
% 

- Strategic mangers always highlighted the
impact of big decisions
- IB? decision of ^60 series of computers
- GE¶s decision to invest in medical imaging
technologies
- But still C-A depends on small important
decisions
- ?ailbox company
- Have aligned all of the internal functions

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^5
 

 


 




- All of the resources might be complex like physical resources

but they are bought able

- On the other hand socially complex resources and

capabilities like reputation, trust, friendship, teamwork,
culture can not be imitated

- Sony, always try to throw new products in market ±

competitors imitate it through reverse engineering

- But due to innovation, creativity Sony creates new one ±

- Enjoy short lived C-A

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 "  

&
 ' 

- Xo fully realize the potential of rareness, value
and Imitability firm must be organized
- Includes formal reporting structure, managerial control
system, compensation policy
- Also known as complementary resources coz limited
ability to generate C-A in isolation
- As in caterpillar organizational structure

- Xerox do have other rare, costly to imitate

resources and capabilities but lack of organization
made it lose C-A
- Highly bureaucratic product development structure

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(

- Pepsi introduced it heavy advertizing
Compiegne & coke imitated
- Coke introduced diet cola and targeted
mature citizens & Pepsi imitated
- Pepsi targeted young generation & Coke
imitated
- Now Pepsi is moving towards fast food and
other businesses
- Etc

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^8
 
  
 

 

- Gained C-A through user friendliness of operating
system when competitors were on DOS
- On the bases of socially complex resources
- Xwo mindsets
- IB?- computers run by specialists
- Apple- computers are toys for everyone
- With the introduction of ³Windows for ?acintosh´
the C-A is lost
- ?acintosh introduced new strategies
- Low prices
- Strategic alliances

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 |   $
     

- unique resources and capabilities

- Xo discover these resources one must look

Inside for

- valuable, rare, costly to imitate resources

- Xhan

- Exploit these resources through organization

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40
 - Schools in Strategic ?anagement

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41
 X0 

- Xhis school sees strategy formation as a

process of conception.
- Approach:
- Clear and unique strategies are formulated in
a deliberate process.
- In this process, the internal situation of the
organization is matched to the external
situation of the environment.

- Basis: Architecture as a metaphor.

- In short: Fit! "Establish fit!´

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42
 Contributions:
- Order.
- Reduced ambiguity.
- Simplicity.
- useful in relatively stable environments.
- It supports strong, visionary leadership.

Limitations:
- Simplification may distort reality.
- Strategy has many variables and is inherently
complex.
- Bypassing learning.
- Inflexible.
- Weak in fast changing environment.
- Xhere is the risk of resistance

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 X 


-
Xhis school sees strategy formation as a a


 .

- Approach: A rigorous set of steps are taken,

from the analysis of the situation to the
execution of the strategy.
- Basis: system theory, cybernetics.
- In short: Formalize! "Strategy should be like a
machine."

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44
 Contributions:
- Gives clear direction.

- Enables firm resource allocation.

- Analysts can pre-screen the facts and they can

judge the crafted strategies.
- Control.

Limitations:
- Strategy can become too static.

- Xhe risk exists of Groupthink.

- Predicting is difficult.

- Xop managers must create the strategy from an

ivory tower.
- Strategy is partly an art.

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45
 X

 


- Xhis school sees strategy formation as an



á

á33.

- Approach: It places the business within the

context its industry, and looks at how the
organization can improve its strategic
positioning within that industry.

- Basis: Industrial organization (economics)

and military strategy.

- In short: Analyze! "Nothing but the facts"

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 Contributions:
- Xhis school made Strategic ?anagement into a
science, enabling future progress.
- Provides content in a systematic way to the
existing way of looking at strategy.
- Focus on hard (economic) facts.

- Particularly useful in early stages of strategy

development, when data is analyzed.

- Limitations:
- Neglects power, politics, culture, social elements.
- Is biased towards large firms.
- Number-oriented
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47
 X 


- Xhis school sees strategy formation as a ÷


 .

- Approach:
- Xhe visionary process takes place within the mind of

the charismatic founder or leader of an organization.

- intuition, judgment, wisdom, experience, and insight.

- Basis: Economics.

- In short: Envision! "Xhe CEO is the architect of the

Strategy."

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48
 Contributions:
- A sound vision and a visionary CEO can help
organizations to sail cohesively through muddy
waters.
- Especially in early or very difficult years for the
organization.
- Flexible and emergent in the details.

- Limitations: How can you find the right leader, with all of
the many needed qualities?

- Entrepreneurial, visionary leaders have a tendency to

go too far.
- Being CEO is an extremely demanding job in this
perspective.

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49
 X
  


- Xhis school sees strategy formation as a



á33.

- Approach:
- It analyzes how people perceive patterns and
process information.
- It concentrates on what is happening in the mind
of the strategist, and how it processes the
information.

- Basis: Psychology.

- In short: Frame! "I'll see it when I believe it."

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50
 Contributions:
- Sees strategy as a cognitive process in the mind
of the strategist.
- Strategies emerge as concepts, maps, schemas
and frames of reality.
- Stresses the creative side of the strategy
process.
- very useful to explain why our minds are
imperfect

Limitations:
- Not very practical beyond the conceptual stage.
- Not very practical to conceive great ideas or
strategies.
- Currently not very useful to guide collective
strategy processes.

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51
 X 


- Xhis school sees strategy formation as an 



á33.
- Approach:

- Xhe management pays close attention over time to what

does work, and what doesn't work.
- Xhey incorporate these 'lessons learned' into their overall
plan of action.
- Xhe world is too complex to allow strategies to be
developed all at once. As clear plans or visions.
- Hence strategies must emerge in small steps, as an
organization adapts, or ³learns´.

- Basis: Education, learning theory.

- In short: Learn! "If at first you don't succeed, try again."
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52
 Contributions:
- Offers a solution to deal with complexity and
unpredictability in strategy formation.
- ?ore people can learn than just the leader. No need for
omnipotent leader.
- Strong in complex conditions with continuous change.

- Strong in professional organizations.

Limitations:
- Xhis school could lead to having no strategy or just doing
some tactical maneuvering (muddling through). Or to
strategic drift.
- Not useful at all during crises.

- Not very useful in stable conditions.

- Xaking many sensible small steps does not necessarily

add up to a sound total strategy.
- Xhere are costs associated with learning.

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 X


- Xhis school sees strategy formation as a

á33  


 .

- Approach: Xhe strategy is developed as a

process of negotiation between power
holders within the company, and/or between
the company and its external stakeholders.

- Basis: Political science.

- In short: Grab! "Look out for number one."

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 - ?icro power
- Xhe development of strategies within the
organization as essentially political, a process
involving bargaining, persuasion, and
confrontation among inside actors.

- ?acro power
- Xhe organization as an entity that uses its power
over others and among its partners in alliances,
joint ventures, and other network relationships.
- Xo negotiate "collective" strategies in its interests

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55
 

$ 
)
- Can help to let the strongest people survive in the
corporate jungle.
- Can help to ensure that all sides of an issue is fully
debated.
- Can help to break through obstacles to necessary
change.
- Democratic.
- Can help to decrease resistance after a decision is made.
- Realistic.
- Particularly useful to understand Strategic Alliances,
Joint-Ventures and to do Stakeholder Analysis.

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56
 M  
)
- Politics can be divisive,

- uses a lot of energy,

- causes wastage and distortion and is costly.

- Can lead to aberrations.

- Can lead to having no strategy or just doing some

tactical maneuvering (muddling through).

- Overstates the role of power in strategy formation.

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 X


- Xhis school sees strategy formation as a
á á

á33.
- Approach:
- Xries to involve the various groups and
departments within the company.
- Strategy formation is viewed as a fundamentally
collective and cooperative process.
- Xhe strategy that is developed is a reflection of
the corporate culture of the organization.

- Basis: Anthropology.
- In short: Coalesce! "An apple never falls far from
the tree."
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58
 Contributions:
- Emphasizes the crucial role that social
processes, beliefs and values are playing in
decision-making and in strategy formation.
- Explains resistance to strategic change and
helps to deal with dominant values in
organizations or in regions, and helps to deal
with mergers and acquisitions.
Limitations:
- Vague,

- can feed resistance to change and can be

misused to justify the status-quo.
- Gives few clues on how things should become.

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 X 



- Xhis school sees strategy formation as a

á

á33.

- Approach:
- Xhe strategy is a response to the challenges imposed
by the external environment.
- Where other schools see the environment as a factor,
the environmental school sees it as an actor ±
indeed
 actor.

- Basis: Biology.

- In short: Cope! "It all depends."

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60
 Contributions:
- Gives a central role to the environment in
strategy formation.

Limitations:
- Xhe dimensions of the environment are often
vague and aggregated.
- Xhis renders it less useful for strategy
formation.
- Denies real strategic choice for organizations.

- Xhis is unrealistic.

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61
 X





- Xhis school sees strategy formation as a
á33 



3



 .

- Approach: Strategy formation is a process of

transforming the organization from one type of decision-
making structure into another.

- Basis: Context.

- In short: Integrate, transform! "Xo everything there is a

season."

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62
 - Contributions:
- Strategy and organizational shape (organizational
development) are closely integrated and should be
reconciled.

- An organization can be described in terms of some

stable configuration of its characteristics, which it
adopts for a period of time in a particular type of
context.

- Xhis causes it to behave in particular ways, that

give rise to a particular set of strategies.

- Xhe periods of stability are interrupted occasionally

by some process of transformation.
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6^
 - Key to strategic management is most of the time: to
sustain stability, or at least adaptable strategic change.

- But periodically there is a need for transformation.

- And to be able to manage that disruptive process

without destroying the organization.

- Xhe way of strategy formation must adapt to its own

time and context, while it takes one or more of the 10
mentioned forms.

- Xherefore strategy formation itself has configurations.

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64
 - Limitations:

- In reality there are many shades of grey, not

just a limited number of valid configurations.

- Also, pattern is in the eye of the beholder.

- If you describe the reality by using

configurations, you are distorting the reality in
order to explain it.

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65
   

- Focused on how strategies should be made

- Xhe Perspective schools

- Design school
- Planning school
- Positioning school

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66
 Xhey focused on how strategies are made in
practice

- Xhe Descriptive schools

- Entrepreneurial school
- Cognitive school
- Learning school
- Power school
- Culture school
- Environmental school

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67
 Offers possibility of reconciliation

- Organization and its context (fit at any point of time)

- Xransformation (to other required state)

- Xhe Configurational school

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