Week 1 – Introduction and External Analysis
Clip 1 – Resource Based View of the Firm by Jay Barney.
Why do some firms outperform other firms? Why profit for one firm but other firm not while
operating in same industry + same concepts?
What is strategic management? What is a firms’ strategy?
Not a mission statement.
Not a strategic plan. = more operational. You can have strategic plans without strategy
and also the other way around. Not having strategic plan maar wel strategy en dan wel
succesful zijn.
Strategy = theory of how it is getting competitive advantage in the marketplace. Use
economic theory to understand industry dynamics and how resources and capabilities can
be combined whereby one firm gets CA and the other not.
Firm’s strategy = in book ‘’as its theory about how to gain competitive advantages’’.
- When this theory reflects competition evolvement in industry accurately/reality =
(implementing strategy will gain) Competitive Advantage.
It is usually very difficult to predict how competition in an industry will evolve so not sure
about theory: so it is kind of the firms’ best bet of how competition is going to evolve and
how that evolution can be exploited for CA.
Strategic Management Process:
= a sequential set of analyses and choices that can increase the likelihood that a firm will
choose a good strategy; that is, a strategy that generates competitive advantage.
1. Mission
= Long-term purpose (broad statement of its purpose and values)
- Defines what firm aspires to be in long run + what it wants to avoid in meantime
- Often are written down in form of mission statements
,- Some mission may not affect firm performance: Mission statement sometimes contains so
many common elements that its question if it creates value for firm + if it does not influence
behavior it will not have much impact on firms’ actions.
- Some missions can improve firm performance: indien visionary firm = mission is central to
all they do. Indien focus op mission statement, dan focus op long-term dus dan goede
balance tussen in toekomst kijken + niet altijd reageren op short-term.
- Some mission scan hurt firm performance: focused and defined only by founders or top
managers, independent whether those values and priorities are consistent with economic
realities facing a firm.
2. Objectives
= specific measurable targets a firm can use t evaluate the extent to which it is realizing its
mission.
- High quality = tightly connected to elements of a firm’s mission and are relatively easy to
measure and track over time.
3) External and Internal Analysis
External = threats and opportunities in competitive environment
- Theorie: SCP model.
- Tools: 5 forces(threats) + industry structure (opportunities)
Internal = identify organizational strengths and weaknesses
- Theorie: Resource based view.
- Tool: VRIO framework.
4) Strategic choice
Business-level strategies
- Cost leadership
- Product differentiation
Corporate-level strategies
- Horizontal Expansion
- Vertical Integration
- Product diversification
- Alliances
- Mergers & Acquisitions
5) Strategy Implementation
= adopting organizational policies and practices consistent with its strategy
- Organizational structure
- Management Control systems
- Employee compensation policies
6) Competitive Advantage
= creating more economic value than rivals
Measuring CA: Accounting performance measures vs. Economic Performance
measures (ken de formules + hoe te berekenen)
,CLIP:
How should we change? Where do we want to go? – Lots of change in industry + world.
Competitive advantage
Is not about survival but more about THRIVING
Depends on differences
Strategy is about discovering and exploiting these differences
Resources determine of je profitable bent
Economic Value Created. (zie figuur ipad)
= Difference between perceived benefits gained by a customer and the full economic costs.
Imperfect/perfect competition – equilibrium = kijk nog een keer hierna clip 2:39.
Total economic value created = producer + consumer surplus.
Triangle = consumer surplus.
Rectangle = producer surplus
Example Hamburger:
Value = €40
Price = €30
Cost = €15
Consumer surplus: 40-30=10 (Value-price) (Value = wat mensen ervoor over hebben)
Producer surplus: 30-15=15 (Price – Cost)
Economic Value Created: 40-15=25 (Value – Cost) OR (Consumersurplus + Producer surplus)
Measuring Competitive advantage:
- Accounting and economic performance
Competitive Advantage and Firm Performance:
Competitive Advantage Above Average Above normal economic performance
Accounting Performance
Competitive Parity Average Accounting Performance Normal Economic Performance
Competitive Disadvantage Below Average Below Normal Economic Performance
Accounting Performance
External Analysis
- 1. General External Environments (Macro) (DESTEP)
= TRENDS!
1) Demographic trends
2) Economic Climate
3) Specific international events
4) Technological change
5) Cultural trends
6) Legal/Political conditions
, - 2. Industry Analysis – 5 Forces Porter.
= Measure the profitability of an industry
Higher threat Lower average profits
Industries with level of threat.
All 5 threats really high = perfect competition (expected performance is competitive parity)
All 5 threats really low = monopoly
All 5 threats moderate = monopolistic competition and oligopoly
1. Threat from new Competition/Entrants
Possible barriers to entry into an Industry:
1. Economies of scale
2. Product differentiation
3. Cost advantages independent of scale
a) Proprietary(secret/patented) technology
b) Managerial know-how
c) Favorable access to raw materials
d) Learning-curve cost advantages
4. Government regulation of entry
2. Threat from Existing Competitors (Rivalry)
Attributes of an Industry that increase the threat of direct competition:
1. Large number of same size firms
2. Slow industry growth
3. Lack of product differentiation
4. Capacity added in large increments
Industry Structure and Environmental Opportunities
Industry Structure Opportunities
Fragemented industry Consolidation
Emerging Industry First-mover advantages
Mature Industry Product refinement
Investment in service quality
Process innovation
Declining industry Leadership
Niche
Harvest
Divestment
- 3. Strategic Groups
= Firms with the same strategy
(e.g. Lidl & Aldi, but not Albert Heijn)
Between strategic groups are mobility barriers
More competition IN strategic groups than between strategic groups
Clip 1 – Resource Based View of the Firm by Jay Barney.
Why do some firms outperform other firms? Why profit for one firm but other firm not while
operating in same industry + same concepts?
What is strategic management? What is a firms’ strategy?
Not a mission statement.
Not a strategic plan. = more operational. You can have strategic plans without strategy
and also the other way around. Not having strategic plan maar wel strategy en dan wel
succesful zijn.
Strategy = theory of how it is getting competitive advantage in the marketplace. Use
economic theory to understand industry dynamics and how resources and capabilities can
be combined whereby one firm gets CA and the other not.
Firm’s strategy = in book ‘’as its theory about how to gain competitive advantages’’.
- When this theory reflects competition evolvement in industry accurately/reality =
(implementing strategy will gain) Competitive Advantage.
It is usually very difficult to predict how competition in an industry will evolve so not sure
about theory: so it is kind of the firms’ best bet of how competition is going to evolve and
how that evolution can be exploited for CA.
Strategic Management Process:
= a sequential set of analyses and choices that can increase the likelihood that a firm will
choose a good strategy; that is, a strategy that generates competitive advantage.
1. Mission
= Long-term purpose (broad statement of its purpose and values)
- Defines what firm aspires to be in long run + what it wants to avoid in meantime
- Often are written down in form of mission statements
,- Some mission may not affect firm performance: Mission statement sometimes contains so
many common elements that its question if it creates value for firm + if it does not influence
behavior it will not have much impact on firms’ actions.
- Some missions can improve firm performance: indien visionary firm = mission is central to
all they do. Indien focus op mission statement, dan focus op long-term dus dan goede
balance tussen in toekomst kijken + niet altijd reageren op short-term.
- Some mission scan hurt firm performance: focused and defined only by founders or top
managers, independent whether those values and priorities are consistent with economic
realities facing a firm.
2. Objectives
= specific measurable targets a firm can use t evaluate the extent to which it is realizing its
mission.
- High quality = tightly connected to elements of a firm’s mission and are relatively easy to
measure and track over time.
3) External and Internal Analysis
External = threats and opportunities in competitive environment
- Theorie: SCP model.
- Tools: 5 forces(threats) + industry structure (opportunities)
Internal = identify organizational strengths and weaknesses
- Theorie: Resource based view.
- Tool: VRIO framework.
4) Strategic choice
Business-level strategies
- Cost leadership
- Product differentiation
Corporate-level strategies
- Horizontal Expansion
- Vertical Integration
- Product diversification
- Alliances
- Mergers & Acquisitions
5) Strategy Implementation
= adopting organizational policies and practices consistent with its strategy
- Organizational structure
- Management Control systems
- Employee compensation policies
6) Competitive Advantage
= creating more economic value than rivals
Measuring CA: Accounting performance measures vs. Economic Performance
measures (ken de formules + hoe te berekenen)
,CLIP:
How should we change? Where do we want to go? – Lots of change in industry + world.
Competitive advantage
Is not about survival but more about THRIVING
Depends on differences
Strategy is about discovering and exploiting these differences
Resources determine of je profitable bent
Economic Value Created. (zie figuur ipad)
= Difference between perceived benefits gained by a customer and the full economic costs.
Imperfect/perfect competition – equilibrium = kijk nog een keer hierna clip 2:39.
Total economic value created = producer + consumer surplus.
Triangle = consumer surplus.
Rectangle = producer surplus
Example Hamburger:
Value = €40
Price = €30
Cost = €15
Consumer surplus: 40-30=10 (Value-price) (Value = wat mensen ervoor over hebben)
Producer surplus: 30-15=15 (Price – Cost)
Economic Value Created: 40-15=25 (Value – Cost) OR (Consumersurplus + Producer surplus)
Measuring Competitive advantage:
- Accounting and economic performance
Competitive Advantage and Firm Performance:
Competitive Advantage Above Average Above normal economic performance
Accounting Performance
Competitive Parity Average Accounting Performance Normal Economic Performance
Competitive Disadvantage Below Average Below Normal Economic Performance
Accounting Performance
External Analysis
- 1. General External Environments (Macro) (DESTEP)
= TRENDS!
1) Demographic trends
2) Economic Climate
3) Specific international events
4) Technological change
5) Cultural trends
6) Legal/Political conditions
, - 2. Industry Analysis – 5 Forces Porter.
= Measure the profitability of an industry
Higher threat Lower average profits
Industries with level of threat.
All 5 threats really high = perfect competition (expected performance is competitive parity)
All 5 threats really low = monopoly
All 5 threats moderate = monopolistic competition and oligopoly
1. Threat from new Competition/Entrants
Possible barriers to entry into an Industry:
1. Economies of scale
2. Product differentiation
3. Cost advantages independent of scale
a) Proprietary(secret/patented) technology
b) Managerial know-how
c) Favorable access to raw materials
d) Learning-curve cost advantages
4. Government regulation of entry
2. Threat from Existing Competitors (Rivalry)
Attributes of an Industry that increase the threat of direct competition:
1. Large number of same size firms
2. Slow industry growth
3. Lack of product differentiation
4. Capacity added in large increments
Industry Structure and Environmental Opportunities
Industry Structure Opportunities
Fragemented industry Consolidation
Emerging Industry First-mover advantages
Mature Industry Product refinement
Investment in service quality
Process innovation
Declining industry Leadership
Niche
Harvest
Divestment
- 3. Strategic Groups
= Firms with the same strategy
(e.g. Lidl & Aldi, but not Albert Heijn)
Between strategic groups are mobility barriers
More competition IN strategic groups than between strategic groups
