Contents

CRAFTING STRATEGY............................................................................................................................................................... 1 WHAT IS STRATEGY? BY MICHAEL PORTER............................................................................................................................ 3 Robin Hood ............................................................................................................................................................................. 7 LOOKING INSIDE FOR COMPETITIVE ADVANTAGE ................................................................................................................. 9 HOW COMPETITIVE FORCES SHAPE STRATEGY-PORTER ................................................................................................... 11 Dominant logic ...................................................................................................................................................................... 12 Focused versus Diversification Strategies in Emerging Markets .................................................................................. 13 The Nature of the Firm.......................................................................................................................................................... 14 Competing on Resources ...................................................................................................................................................... 15 Schumpeter and personal capitalism.................................................................................................................................... 15 Nature of Firm: ...................................................................................................................................................................... 16

CRAFTING STRATEGY
Henry Mintzberg Creative process, deliberate & emergent, first hand experience, craftsperson feel, peripheral vision, Natural synthesis of the future, present & past Intensive involvement, iterative, accidental, method & PURPOSE Henry Mintzberg skillfully and competently equates the process of strategy making to the process of making pottery. The strategist is similar to a craftsman, or potter in this case. Mintzberg says, the crafting image better captures the process by which efective strategies come to be. There are several key ideas that Mintzberg parallels to the potter and her craft. First, the potter may create a product that follows in the tradition of her past work, but she may also create a work that breaks away from tradition in a new direction. Similarly, strategies are patterns that are put into action over time; but strategies may emerge in a different direction than tradition has previously held. Second, strategy making must be a deliberate process-thought must precede action. But strategies can form as well as be formulated. Third, strategists do not necessarily have to be top management running an organization but removed from the innerworkings of that organization. Instead, like the potter is intimately connected with her work, strategists may be those most intimately connected with the company and those products/services it sells. Strategists may be those on the front lines, so to speak. Fourth, the potter may fail to make one piece, but the lump that remains may be formed into something completely different. In the same way, strategies can emerge any time and at any place; errors themselves may become chances for opportunity. The image of a craftsman is someone who is dedicated, passionate, intimately involved with the materials, has a personal touch, has mastered the detail of their art, and is experienced. The strategist must also be someone who is involved and connected with their industry and who is personally involved with the industrial processes. Finally, just as a craftsman may see things that other people miss, the strategist must be able to see emerging patterns and guide them into place as strategies. *********************** 1

Mintzberg Crafting Strategy

Planning strategy portrays the wrong picture as to how strategy comes about. Instead, strategies are usually crafted using skill and dedication until the strategy is perfect. This is Mintzberg underlying statement for the article. He points out that strategy is as much of a plan as it is a reflection of the past and finding patterns in the organization. His second point in the article is that strategies can emerge or be formed. While most companies try to for a strategy, sometimes strategy emerges from a mistake or an action with unexpected consequences. Somewhat similar to his second point, his third point mentions that strategies can form in strange ways. Accidents, boredom, and random events can end up forming or inspiring strategy. This is why some companies allow lower level employees to take part in strategy making of strategy implementation. Umbrella strategy is where a top manager lays broad guidelines and lower level employees make more specific decisions. Process strategy is where management is in charge of strategy formation, but leaves the actual content of it to other people. The next point that Mintzberg makes is in relation to change. Large companies, for example, tend to have long periods of stability with little substantial change that are interrupted by period of brief, substantial, and often chaotic change. Innovative companies, on the other hand, tend to have more constant, cyclical change where there are brief periods of stability and brief periods of change that is overall more stable. Finally, at the end of the article, Mintzberg describes how managers should manage strategy. First, they need to realize discontinuity. These subtle changes or irregularities in patterns can cause trouble for a company in the future. Second, a manager needs to have knowledge of his business so that he can take advantage of opportunities that may be hidden to others. Third, managers must manage patterns. As mentioned before, these patterns may be planned or emergent from unexpected sources. Fourth, a manger must know when to exploit times of stability and when to make changes. In the end, Mintzberg emphasizes that strategies are crafted by combining knowledge from the past, present, and future.
************** Strategies are both plans for the future and patterns from the past

Why Organizations need Strategies

Strategy determines where an organization is going but shouldnt become a straightjacket which precludes interesting side trips! Strategy helps to get everybody on the same page pulling together but shouldnt preclude individuals from experimenting with new ideas! Strategy helps to make an organization comprehensible but can something as complex as a (large) organization really be well understood, especially by those outside it?

Porter or Mintzberg: Whose View of Strategy Is the Most Relevant Today?

You can contrast their two views as Porters taking a more deliberate strategy approach while Mintzbergs emphasize emergent strategy. Both are still taught, in fact, I taught Porters 3 Generic Strategies and his 5 Forces Model not two weeks ago in an undergraduate strategy course at McGill. Which is most useful today? 2

WHAT IS STRATEGY? BY MICHAEL PORTER

Operational effectiveness is not strategy: Operational effectiveness means performing similar activities better than rivals. It is necessary, but not sufficient, for competitive advantage. Strategic positioning means performing different activities from rivals or performing similar activities in different ways: Variety-based positioning (producing a subset of products/services) Needs-based positioning (serving needs of particular group of customers) Access-based positioning (using different ways to reach customers) Strategy involves trade-offs, choosing what not to do.

Types of Competitive Advantage and Sustainability Three generic strategies to overcome the five forces and achieve competitive advantage Overall cost leadership Low-cost-position relative to a firms peers Manage relationships throughout the entire value chain Differentiation Create products and/or services that are unique and valued Non-price attributes for which customers will pay a premium Focus strategy Narrow product lines, buyer segments, or targeted geographic markets Attain advantages either through differentiation or cost leadership These definitions characterize strategic positions at the simplest and broadest levels. ***************************

Operational effectiveness is not strategy Porter refers to operational effectiveness (OE) as the means of performing similar activities better than rivals and strategic positioning as the means to perform activities in a different way. He uses the Japanese manufacturing during the 1980s as example to show that operational effectiveness can be responsible for lower cost and superior quality among those Japanese companies but question a unique strategic position of those companies. He shows that an industry (Japanese electronic industry) has worked as cluster of competitors within this industry. The Japanese companies could not win market share within their own industry because most companies employed similar processes and methodology and had a similar cost-base therefore the strategic decision of those firms was to go a broad and compete outside of Japan where operational effectiveness seemed to be a strategic advantage. The pure reliance on operational effectiveness as strategy replacement works only as long competitors not employing to same process and improvements but as soon those best practices are made common within the industry, operational effectiveness becomes mutual destructive and counter-productive with imitations and homogeneity as end result. Strategy rest on unique activities Porter postulates that real competitive strategy can only be about being different with deliberately choosing a different way to deliver a mix of values and activities. Ikea is cited as example that chooses a position as low-cost provider within the furniture industry where customer are targeted under a self-serving model. The combination of functional design, streamlined manufacturing and a modular furniture system have been successful deployed to gain scale economies and a lower cost base. Those combined activities are different to established service oriented activities within this furniture industry. Targeted on do-it-yourself, young families that look for contemporary design and a possibility to combine various furniture into an individual style served as strategic position, taken into account that the service factor has been deliberately altered by choosing a value-cost model, large store displays and self delivery to fit the chosen image. Strategic positioning as a guiding factor to find positions that are new or not filled by products or customers and while not easy to be identifiable, a managers ability to combine creativity, vision, method and technology to a unique set of activities to be valuable for both the company and its customer makes it an outstanding intellectual challenge. Porter divides between variety-based positioning, needs-based positioning and access-based positioning. He defines variety-based positioning as a selection process where products are selected due to superior value chain optimization that produces a specialized product within an industry segment. Its reliable performance and consistency makes it a subset of choices for customers to full fill a sufficient need. Serving all needs on a particular customer segment, is named by Porter as needs-based positioning with a customer in mind that wants to reduce search cost and looks for a solution from one provider with tailoring service. Thus building a platform of activities that can deliver solutions for various needs and at the same time can be differentiated from competitors is vital to serve as competitive advantages.
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Strategy is about finding a unique position by combining a unique set of activities A Sustainable strategic position requires trade-offs Porter argues that only the optimal (right) mix of activities is responsible to maintain sustainable advantages and this optimum comes with trade-offs that will not allow every company to participate fully. This implies that a company should know its limits and that it should know that certain sacrifices can not be made without putting other activities behind. Those trade-offs occur when activities are incompatible[Porter 1996:68] and might come from missing skills, heritage, inoperable change management etc.. Imitators are by far the biggest threat for a companys position, to protect ones position choices have to be made, barriers to be raised to ensure their are not easily to overcome. Barriers such as image, technology or intellectual property can help to protect but they need constant review in terms of diffusion and adoption and operational effectiveness can be excluded as potential barrier since diffusion rate is far to high to be a lasting factor. Porters sees it as inevitable that choices are made that limit a companies offering, reach and availability to ensure focused activities by not being everything to everybody. Strategy is about choices and about what not do. Fit drives both competitive advantage and sustainability The right mix or as Porters puts it strategy is about combining activities[Porter 1996:70], synergies that come from combining the right activities and leave other activities aside are essential part of the strategy making equation. Core competence and key success factors are components but only connection of a fit with other complementary activities that full fill a companies mission to accelerate competitive advantage and profitability. Technology, capital or skills are important but not everything to achieve competitive advantage. Interconnections between assets and its functional execution is as of similar importance. This includes the ability on how to reach decisions, what to communicate etc. all are part of a system of activities serving a particular goal and mission. Coordinating and executing this system of activities is the real strategic capability of any organization as it requires long-term commitment and a positioning that looks beyond currents trends and short-term goals. Strategy is about finding complementary activities that create an internal and external fit. Rediscovering strategy The failure to choose a strategic position, the misunderstanding of competition and its related forces, organizational mismanagement, the reliance on technology and the desire to grow exponentially are examples for unsuccessful strategy making and execution. He asks for courage and leadership to make deliberate decisions to limit a companies reach and at the same sharpen its focus. He remind us that improving operational effectiveness is a necessary part of management, but it is not strategy[Porter 1996:78] and only the continues effort to find a unique position will ensure a competitive standing and profitability.
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**************** Operational Effectiveness Is Not Strategy Concentration on core competencies and competitive positioning via benchmarking can lead companies down the path toward mutually destructive competition. Companies must distinguish between operational effectiveness and strategy and not confuse them. Operational effectiveness is necessary to compete but not sufficient to win. A company can outperform others and win only if it can establish a difference that it can sustain a differential competitive advantage. In the past barriers to entry were the primary competitive advantage. Now, it's better products and service. Operational effectiveness means doing things better than competitors, strategic positioning means doing things different from competitors and having better products and service. Strategy Rests On Unique Activities The essence of strategy is choosing to perform activities differently than rivals do. Strategic positions can be based on customers needs, customers accessibility, or the variety of a companys products or services. Porters concept of fit is no longer valid. Change is happening too fast. Remember, structure follows strategy Michael Porter Strategy as product positioning/pricing: cost leadership & focused differentiation Strategy as industry structure & firm positioning 5 Forces Country Competitiveness

Foundations of Competitive Advantage

The Value Chain

Five Tests of a Strategy A unique value proposition compared to other organizations A different, tailored value chain Clear tradeoffs, and choosing what not to do Activities in the value chain that fit together and reinforce each other Strategic continuity with continual improvement in realization

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Robin Hood
Key Attributes of strategic management: Directs the organization toward overall goals and objectives Includes multiple stakeholders in decision making Needs to incorporate short-term and long-term perspectives Recognizes trade-offs between efficiency and effectiveness Leaderships Strategic Role: Define the Organizational Mission - it may have changed. Rebellion has been routinized into banditry. Identify Stakeholders - focus may need to be broadened beyond Robins private grudge to include the needs of the district, the region, or the nation Establish Goals - depending on the stakeholders, these may include replacing the Sheriff or changing the political order Strategic Implementation Have a meeting with the Merrymen - explain the strategic dilemma and long term issues Increase organizational discipline Avoid contact with Sheriff Prepare for the possibility of ceasing operations by providing outplacement training 7

Recruit qualified leaders for new decentralized structure - involve lieutenants in the solution Recognize that mistakes will occur - anticipate costs of implementation, especially the problems of extended communication Pursue alliances beyond the current band of Merrymen - negotiate a possible change in the political order, negotiating amnesty, returning the band to legality

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LOOKING INSIDE FOR COMPETITIVE ADVANTAGE

Barney, Jay B. Summary A competitive advantage is shaped by both environmental threats and opportunities, and internal strengths and weaknesses. The author Jay B. Barney indirectly states that valuable tools are available to analyze external forces, but there seems to be a lack of valuable tools to analyze internal threats and opportunities in the article referred to as internal attributes or resources and capabilities that are built on a companys financial, physical, human, and organizational assets. In order to overcome this gap, which the traditional SWOT analysis leaves out, Barney suggests focusing on: 1. The question of value Is the organization able to consistently add value? 2. Rareness Resources and capabilities must be rare in order to guarantee a competitive advantage and/or a unique selling proposition. 3. Imitability Companies who enter the market might have a cost disadvantage by imitating e.g. production, design, distribution channels. 4. Organizations A culture that fosters competitive potential towards competitive advantage Evaluation By reading the article only once, the reader could wrongly assume that the SWOT analysis solely focuses on the external environment, while neglecting the internal environment at the same time. Organizations usually use the SWOT analysis to evaluate both external and internal threats and opportunities. The author mentions various examples of how organizations were and are able to react in the market place. In order to be successful in adding sustainable value, he suggests to reward risk taking and creativity. Some organizations do not foster risk taking at all, and creativity falls short. But there are still successful entities in the marketplace, and consistently able to add value for other reasons (monopoly, backward-integrated feedstock, etc.). When he talks about rareness as a means for an organization to position itself, he does not mention the possible downsides of decentralizations (see AT&T e.g.), and the possible time frame necessary to not only prepare and educate the people involved, but also to implement what can be considered a cultural change in the organization. Regarding Imitability, Jay Barney does not mention that entire industry segments, mainly in Asia, exists and operate successfully, simply because they only produce and offer me-too products. In addition, a company that is able to simply copy a product successfully without spending millions of dollars on research and development has a clear cost advantage, and not as he describes it firms [have] a cost disadvantage in imitating anothers resources and capabilities. Last but not least, Mr. Barney mentions organizations as such that need to focus on the competitive potential of its internal attributes. His examples are valuable, but he does not mention leadership as a powerful part of an organization that basically can create this competitive potential. Sam Walton (Wal-Mart) and Michael OLeary (Ryanair) are only two excellent examples as leaders as well as entrepreneurs. 9

*************** SWOT analysis, this traditional logic suggests that firms that use their internal strengths in exploiting environmental opportunities and neutralizing environmental threats, while avoiding internal weaknesses, are more likely to gain more competitive advantages than other kinds of firms. Categories of Resources Financial Available cash, access to financing Physical Property, Plant & Equipment Human Skills, knowledge, experience, judgment Organizational Formal systems & intangibles attributes

The Question of Value Are these resources useful?

Depends on the environmental context and the opportunities to which they are applied Keep your resources up to date! Apply them to appropriate challenges!

Implications?

The Question of Rareness If all or most competing firms also have the same valuable resources, they wont create an advantage for any one firm.
Common resources are still important as table stakes necessary in order to participate successfully in an industry

The Question of Imitability If a valuable resource can be easily copied it wont remain rare for long. Resources that arise from
Idiosyncracies of history Numerous small decisions Social interactions

are often difficult to imitate. A connection to Porter Resources that are rare and difficult to imitate can be a basis for competitive advantage. A company can outperform rivals only if it can establish a difference that it can preserve.
Michael Porter, What is Strategy? Jay B. Barney

A connection to Mintzberg Resources that arise from historical idiosyncracies and numerous small decisions can be difficult to imitate Strategies are both patterns from the past (and plans for the future).
Henry Mintzberg Jay B. Barney

The Question of Organization Can the firm coordinate and apply these resources effectively?
A collection of exceptional hockey players does not necessarily make for an exceptional hockey team.
Team Canada in the 2006 Winter Olympics

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HOW COMPETITIVE FORCES SHAPE STRATEGY-PORTER

Porter puts forth the essence of strategy as coping with competition; he goes on to outline five specific competitive forces that should shape a companys strategy (depending on which forces they deal with). The end goal is to understand how these forces affect an industry and then for a company to find a position where they can best defend themself against these forces, or at least influence them in their favor. The first force is the threat of new entrants as they seek to gain a market share as well as resources. The second force is the power of suppliers; suppliers can raise prices and/or reduce the quality of the goods they provide to a company. Similarly, the third force is the power of customers; this group can force prices down, demand either higher quality or better service, and put companies against each other. The suppliers a company buys from and the customers a company sells to are critical strategic decisions. The fourth competitive force is that of substitute products. Substitute products can limit the potential growth of an industry or force them to rethink the quality/design of their product or service. Finally, the fifth force is position-using tactics such as price competition, new production introduction, and advertising wars.

Once a company has considered these five forces and targeted the companys strengths and weaknesses, strategists can devise a plan of action including one or more of the following: positioning the company (defensive), influencing the balance (offensive), or exploiting industry change (altering the field).
a plan of action that may include (1) positioning the company so that its capabilities provide the best defense against the competitive force; and/or (2) influencing the balance of the forces through strategic moves, thereby improving the companys position; and/or (3) anticipating shifts in the factors underlying the forces and responding to them, with the hope of exploiting change by choosing a strategy appropriate for the new competitive balance before opponents recognize it.

Outline

Contending forces o Threat of entry The six major barriers to consider Economies of scale Product differentiation Capital requirements Cost disadvantages independent of size Access to distribution channels Government policy o Changing conditions It changes as the conditions change Strategic decisions involving a large segment of an industry can have a major impact on conditions determining the threat of entry o Powerful suppliers & buyers
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Suppliers Dominated by few companies Unique product/built up switching Not obliged to contend with other products Poses a credible threat of integrating forward into the industrys business Not an important customer of the supplier group Buyers It is concentrated or purchases in large volumes Purchases standard products/undifferentiated Products form a component and represents a significant fraction of the cost Low profits (seeks lower purchasing costs) Industrys product is unimportant to the quality of buyers products or services Product does not save buyer money (seeks quality) Buyers pose credible threat of integrating backward to make the industrys product o Strategic action o Substitute products Subject to trends improving their price-performance trade-off with the industrys product Produced by industries earning high profits o Jockeying for position Numerous competitors/equal in size and power Industry growth is slow Product/service lacks differentiation or switching costs Fixed costs are high or the product is perishable Capacity is normally augmented in large increments Exit barriers are high Rivals are diverse in strategies/origins/personalities Formulation of strategy o Positioning the company o Influence the balance o industry change Multifaceted rivalry

Dominant logic
From Wikipedia, the free encyclopedia Jump to: navigation, search

Dominant logic relates to the main means a company uses to make a profit. In essence, it is an interpretation of how a company has succeeded. It describes the cultural norms and beliefs that the company espouses. Dominant logic can be useful when applied to corporate diversification. In this sense, dominant logic is a common way of thinking about strategy across different businesses.[1] Negatively, it is logic which locks a company into thinking about making money in only one way. It is often used when talking about inefficient reasons for diversification of a company. This narrowed approach by a company can prevent a conducive environment for innovating and can stifle creativity. Dominant Logic is
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antipodal to the idea of using different methods and ways for generating profit. It is similar to the idea of kaizen which focuses on one process. In the field of strategic management, C. K. Prahalad and Richard A. Bettis first introduced the concept of Dominant Logic in 1986. Prahalad and Bettis suggested that the way top managers deal with the increasing diversity of strategic decisions in a company, which are caused by acquisitions or structural changes in the core business, depends on the cognitive orientation of those top managers. Dominant logic consists of the mental maps developed through experience in the core.

Why focused strategies may be wrong for emerging markets

Khanna T, Palepu K. 1997. Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75(4): 41-51. They argue that focused strategies may be wrong for emerging markets as the required institutions may not be present to support this western-world mindset. They suggest that companies must adapt their strategies to fit their institutional context.

Focused versus Diversification Strategies in Emerging Markets

Which one creates better shareholder value: Conglomerate diversified companies or focused corporations? Strategy scholars have converged that focused companies tend to create better shareholder value than diversified conglomerates. Two Harvard Professors, Tarun Khanna and Krishna Palepu in their article titled " Why Focus Strategies May Be Wrong for Emerging Markets" in the Harvard Business Review, July-August 1997 posited however that there is an emerging market context and exemption to the "focused companies create better shareholder value theory". The first commentary below is my critique of the Khanna and Palepu's article also published in the Harvard Business Review, November-December, 1997, page 178. The second article that follows titled "Critique of the Korean Chaebol Business Model in Nigeira" was inspired by developments in the Nigeria market in 2006. It pursues the same theme as the HBR 1997 Commentary, that even if Korean and Indian Conglomerates were successful in the 1960s to 1980s, it cannot be exactly replicated in Nigeria as a success and development formula becasue the global economic context has fundamentally changed. Please, read on. Article 1: Olu Akanmu, Strategies Focusing on Emerging Markets; Harvard Business Review, NovemberDecember, 1997, page 178 Khanna and Palepus article is an interesting contribution to business strategy in emerging markets. There is however a real danger that advocating diversification in emerging markets might be taken out of context. Many of the conglomerates discussed in the article owe their success to government protectionism, which insulated the companies from international competition (at the time). Those conglomerates have been able to maximize profit not because they were efficient but because their customers did not have access to goods from abroad that offered better value for money. Today, as national barriers to trade are broken down, the basis for successes of these highly diversified conglomerates in emerging markets can only be short-lived. The licensing and partnership agreements between these conglomerates and foreign companies are a transitional step towards the full scale entry of the foreign companies into emerging markets. Even if the conglomerates acquire technology from such agreements, their
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national markets are probably too small to offer the economies of scale they will need to compete with companies from abroad. Conglomerates in emerging markets should therefore move abroad to exploit the competencies they have successfully developed in their core business. While doing so, they will need to re-structure their portfolios to eliminate businesses unable to sustain long-term competitive advantage against new entrants from abroad. That will also help them raise the cash theyll need to accelerate their entry into foreign markets through acquisitions of fully owned subsidiaries. That is the trend in South Africa where, for example, the highly diversified conglomerate Anglo American Corporation divested certain businesses to focus on its core mining business while actively pursing related opportunities abroad. Gencor also restructured its business and later divided into two separate companies, Gencor and Billiton, who stock will be sold not in South Africa but on the London Stock Exchange. Conglomerates in emerging markets should work actively to promote ethical business practices, build local managerial capabilities, and lobby their governments to establish the regulatory and supportive institutions that the conglomerates have thus far been providing themselves. A most dramatic expression of this in South Africa, was the acceptance by the Chief Executive of the (then) diversified South African Breweries (SAB) to head the national police force and bring his managerial know-how to bear on strengthening the crime prevention system. Rather than celebrate the achievements of the past, the conglomerates in emerging markets should look forward and restructure to create as sustained competitive advantage.

The Nature of the Firm

Given that "production could be carried on without any organization [that is, firm] at all", Coase asks, why and under what conditions should we expect firms to emerge? Since modern firms can only emerge when an entrepreneur of some sort begins to hire people, Coase's analysis proceeds by considering the conditions under which it makes sense for an entrepreneur to seek hired help instead of contracting out for some particular task. The traditional economic theory of the time suggested that, because the market is "efficient" (that is, those who are best at providing each good or service most cheaply are already doing so), it should always be cheaper to contract out than to hire. Coase noted, however, that there are a number of transaction costs to using the market; the cost of obtaining a good or service via the market is actually more than just the price of the good. Other costs, including search and information costs, bargaining costs, keeping trade secrets, and policing and enforcement costs, can all potentially add to the cost of procuring something via the market. This suggests that firms will arise when they can arrange to produce what they need internally and somehow avoid these costs. There is a natural limit to what can be produced internally, however. Coase notices "decreasing returns to the entrepreneur function", including increasing overhead costs and increasing propensity for an overwhelmed manager to make mistakes in resource allocation. This is a countervailing cost to the use of the firm. Coase argues that the size of a firm (as measured by how many contractual relations are "internal" to the firm and how many "external") is a result of finding an optimal balance between the competing tendencies of the costs outlined above. In general, making the firm larger will initially be advantageous, but the decreasing returns indicated above will eventually kick in, preventing the firm from growing indefinitely.
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Other things being equal, a firm will tend to be larger:

the less the costs of organizing and the slower these costs rise with an increase in the transactions organized. the less likely the entrepreneur is to make mistakes and the smaller the increase in mistakes with an increase in the transactions organized. the greater the lowering (or the less the rise) in the supply price of factors of production to firms of larger size.

The first two costs will increase with the spatial distribution of the transactions organized and the dissimilarity of the transactions. This explains why firms tend to either be in different geographic locations or to perform different functions. Additionally, technology changes that mitigate the cost of organizing transactions across space will cause firms to be largerthe advent of the telephone and cheap air travel, for example, would be expected to increase the size of firms. On a related note the use of the internet and related modern information and communication technologies seem to lead to the existence of so called virtual organizations. Coase does not consider non-contractual relationships, as between friends or family.

Competing on Resources
What gives your company a competitive edge? Your strategically valuable resources -- the ones enabling your enterprise to perform activities better or more cheaply than rivals. These can be physical assets (a prime location), intangible assets (a strong brand), or capabilities (a brilliant manufacturing process). For example, Japanese auto companies have consistently excelled through their capabilities in lean manufacturing. Strategically valuable resources have five characteristics, say Collis and Montgomery: 1) They're difficult for rivals to copy. 2) They depreciate slowly. 3) Your company--not employees, suppliers, or customers--controls their value. 4) They can't be easily substituted for. 5) They're superior to similar resources your competitors own. To keep your edge sharp, build your strategies on resources that pass these five tests. Regularly invest in those resources. And acquire new ones as needed, as Intel did by adding a brand name--Intel Inside--to its technological resource base.

The main points of the article are the following: Superior performance is based on a development that is competitively distinct. The History of Strategy: Strategy is the match beween what a company can do (organizational strength and weaknesses) with in the universe of what it might do (environmental opportunities and threats). (121) The core competence should be an external assessment of what it does be8er than competition. Core competence identies the critical role that the corporate oce has to play in order to guard their strengths or jewels of their corporation (125).

Schumpeter and personal capitalism

Business leaders usually visualize a market economy in the context of how capitalism administers existing structures, whereas the wiser approach is to understand how it creates and destroys them. 15

 The interaction of technological innovation with the competitive marketplace is the fundamental driving force in capitalist industrial progress. (Schumpeter, 1942) The normally healthy economy was not one in equilibrium, but one that was constantly being disrupted by technological innovation (The Economist, Schumpeter, 1999) Schumpeter believed that the creative destruction of entrepreneurs drove economic growth. He believed that innovation was central to capitalism. He thought that new production functions served to shake up the system. Schumpeter believed that new business and new firms were central the economy.

The Schumpeterian story of the business cycle included an upside and a downside. On the upside, innovation led to new investment opportunities, which had a ripple effect. Yet its welcoming investment climate led people to overbuild and borrow, thinking that the good times would continue indefinitely. The result was a decline in the business cycle. Schumpeter saw these shifts as cycles of innovation. He found that the availability of profits signaled where money should be invested. Schumpeter mused on capitalism and socialism. Schumpeter did not think capitalism would survive. He argued that with pure productive power, capitalism would continue. He believed that over time, large firms would make entrepreneurs obsolete. He thought that the political weakness of entrepreneurs would undermine that roots of capitalism. He believed that intellectual complainers would become disgruntled and more powerful, and they would undermine the moral sustainability of capitalism.

Nature of Firm:
Price movement vs. Entrepreneur directed production Relevant prices: o Negotiating and concluding a separate contract for each exchange transaction Contract: 1. State the limits of entrepreneur 2. Government treats exchange transactions in market and within firms differently (Diminishing returns to management) 3. Rise in supply prices A firm will tend to be larger: o Less costs of organising and slow rise in cost o The entrepreneur is less likely to make mistakes o Supply price of factors of production o Decrease in spatial distribution due to: changes in relevant prices, inventions, improvement in management technique Uncertainty and confidence in judgement Cost curve of the firm (assumption: slopes upward) How the no of products to be produced are determined: cost of organising limits the size of firm o Marketing costs
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o Costs of organising different entrepreneurs What constitutes a firm? o Legal relationship b/w employer and employee Conclusion: o Equilibrium is maintained due to businessmen constantly experimenting and controlling o Management: reacts to price changes and rearranges factors of production in its control o Initiative: forecasting and operating thru price mechanism

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