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Introduction
In many industries, persistent performance differences exist among seemingly similar enterprises.
6.75
4.25
3.75
General Dynamics
3.25
Textron
2.75
2.25
1.75
1.25
Market-to-Book Ratio
Market-to-Book Ratio
6.25
5.75
Texas Instruments
5.25
4.75
4.25
3.75
Intel
3.25
2.75
2.25
1.75
2011
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2014
2015
2016
2011
2012
2013
Year
2014
2015
2016
Introduction
Strategic management as a
research discipline
What Is Strategy?
Porter (1986):
Strategy is a combination of the ends (goals) for which the firm is striving and the
means (policies) by which it is seeking to get there.
Competitive strategy is about being different. It means deliberately choosing a different set
of activities to deliver a unique mix of value.
Analyzing internal
environment
Implementing the
strategies
Feedback
Evaluating and
controlling the
strategies
Suppliers
bargaining power
Threat of
entry
Rivalry among
existing competitors
Bargaining power of
buyers
Threat of
substitution
Some forms of competition, notably price competition, are highly unstable and quite likely
to leave the entire industry worse off from the standpoint of profitability. Price cuts are
quickly and easily matched by rivals, and once matched they lower revenues for all firms.
Advertising battles, on the other hand, may well expand demand or enhance the level of
product differentiation in the industry for the benefit of all firms.
2- Threat Of Entry
Barriers to entry
Capital requirements: The need to invest large financial resources in order to compete
creates a barrier to entry, particularly if the capital is required for risky or unrecoverable
up-front advertising or research and development (R&D).
Product differentiation: If incumbents in a market benefit from brand identification and
customer loyalty, entrants are forced to substantially invest in differentiating their
offerings to obtain market share.
Switching costs: If the costs of switching from one supplier's product to another's are
high, then new entrants must offer a major improvement in cost or performance in order
to persuade customers to switch from their current suppliers.
Incumbents reactions: Established firms with substantial resources to fight back,
including excess cash and unused borrowing capacity are more likely to retaliate to entry.
Takeovers and predatory pricing are examples of actions taken by incumbents to deter
entry.
3- Threat of Substitution
Substitute products/services tend to have a common application and context of use such that one
product/service can replace the other in usage and satisfy the same needs (Aaker and Keller 1990).
The presence of readily available and competitively priced substitutes limits the potential returns of an
industry by placing a ceiling on the prices firms can profitably charge. The impact of substitutes can
be summarized as the industry's overall elasticity of demand.
Bargaining power of buyers reflects customers ability to negotiate lower prices, higher quality, or more services,
all at the expense of industry profitability. Buyer power is high if:
customers typically purchase large volumes relative to suppliers sales;
the purchased products represent a significant fraction of the customers costs;
products are highly standardized (i.e., substitutes are readily available);
or switching costs are low.
Suppliers can exert bargaining power over participants in an industry by threatening to raise prices or reduce the
quality of purchased goods and services. Powerful suppliers can thereby squeeze profitability out of an industry.
Supplier power is high if:
it is dominated by a few companies and is more concentrated than the industry it sells to. Suppliers selling to
more fragmented buyers will usually be able to exert considerable influence in prices, quality, and terms.
the supplier group's products are differentiated or it has built up switching costs. Differentiation or switching
costs facing the buyers cut off their options to play one supplier against another. If the supplier faces
switching costs the effect is the reverse.
RBV Framework
Porters strategic development process starts by looking at the relative position of a firm in a specific
industry. This is, we start by considering the firms environment and then try to assess what strategy is the
one that may maximize the firms performance.
The RBV, by contrast, can be seen as an inside-out process of strategy formulation. The RBV is a business
management tool used to determine the strategic resources available to a company. When the external
environment is subject to rapid change, internal resources and capabilities offer a more secure basis for
strategy than market focus. The RBV states that firms possess idiosyncratic bundles of resources, even if
they operate within the same industry. This heterogeneity in resources implies that some firms are more
skilled in performing certain tasks, because they access valuable, rare, inimitable, and non-substitutable
resources (Peteraf and Barney 2003). Due to difficulty of trading these unique resources across firms, their
benefits persist over time (Barney and Hesterly 2012). Deploying valuable resources that are rare and costly
to imitate enables firms to generate sustainable competitive advantage (Barney and Clark 2007).
Resources
According to the RBV, a firms resources are the stocks of available economic or productive factors owned or
controlled by the firm. Resources can be classified into two broad categories:
Capabilities
Capabilities refer to a firms capacity to deploy and coordinate different resources, usually in
combination, using organizational processes, to accomplish an activity or achieve a desired outcome
(Amit & Shoemaker, 1993). They are information-based, intrinsically intangible processes that are
firm specific and are developed over time through complex interactions among the firms resources.
They can abstractly be thought of as intermediate goods generated by the firm to provide enhanced
productivity of its resources, as well as strategic flexibility and protection for its final product or
service. Innovativeness, customer management, data processing and interpretation, execution risk
assessment and mitigation are some examples of organizational capabilities.
Competitive Advantage
A firm achieves a sustained competitive advantage (SCA) when it is creating more economic value
than the marginal firm in its industry and when other firms are unable to duplicate the benefits of this
strategy. In other words, a firm is said to have a competitive advantage when it is implementing a
value-creating strategy not simultaneously implemented being implemented by any current or
potential competitors and when these other firms are unable to duplicate the benefits if this strategy.
Value
The resource must enable a firm to develop and implement strategies that have the
effect of lowering a firms net costs and/or increase a firms net revenues though
exploiting an external opportunity and/or neutralizing an external threat
Rareness
The resource must be controlled by a small number of competing firms, implying that
the resource is scarce relative to demand for its use or what it produces.
Inimitability
The resource must be substantially costly to obtain or develop for competing firms.
Imperfectly imitable resources suggest that firms without that resource cannot obtain it
through direct duplication or substitution.
Organization
A firm must be organized to exploit the full competitive potential of its resources and
capabilities. That is, poor organizational processes, policies, and procedures may
undermine a resources potential competitive advantage.
Supportive Activities
Firm Infrastructure
Human Resource Management
Product and Technology Development
Procurement
Profitability
Inbound Logistics:
Operations:
Marketing and
Sales:
Outbound
Logistics:
Services:
managing
suppliers,
inspecting raw
materials and
component parts,
warehousing
manufacturing,
packaging,
production control,
quality control
Sales force
operations,
Advertising and
promotion, Market
research
Distribution,
invoicing,
Dealer/distributor
relations
Order processing,
training,
maintenance
Primary Activities