Finals Review

Basic Principles of Strategic Management Review for Final – Business 189 Stuff that’s worth remembering

Distinctive competence 

Very important strengths, unique to the particular firm, that create competitive advantage • Built from resources and capabilities 

Resource = possessions of the firm • Tangible – factories • Intangible – brand names

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Capability = skills at putting resources to productive use

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A competence = a bundle of resources and capabilities that does something fundamental and hard to imitate A competence is said to be distinctive when it gives or has clear potential to give the firm competitive advantage

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Strategies – actions and plans to attain one or more business goals

Levels of strategy 

Corporate level • What businesses should we be in? • What are our basic attitudes to them?

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Business level • Strategy for a unit that operates an entire business

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Functional level • Strategy for a unit that performs a particular function for a business unit (or for the organization as a whole)

Business people spend most time at business & functional levels 

The critical goal is usually competitive advantage • Higher returns than others in their industry

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The ultimate goal is sustained competitive advantage • For this, hard-to-imitate competencies are critical

Business model 

Management’s theory of how it will attain competitive advantage • Or, especially when considering corporate-level strategy, simply high profits

The basic model 

Good business model Good strategies

Distinctive competences you can defend

High profits – Higher return than competitors

Deliberate vs. emergent strategy 

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Emergent strategy = actions that happen without planning Deliberate strategy can be considered in terms of • Strategy formulation • Strategy implementation

Strategic Intent  

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Big goal Widely shared at all levels in the organization Pursued for a long period • with both deliberate and emergent strategies

Internal analysis 

Value creation Price

Consumer surplus Profit margin Cost, including cost of capital

Value to customer

Value chain 

The distinctive competence can be anywhere on the value chain • In primary activities or support activities

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Barriers to imitation • Very diverse • But capabilities that are hard to explain are typically hard to imitate

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Inertia Icarus paradox

External analysis 

Industry – firm and its close competitors • Sector • Segment

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Stages in industry evolution 5-forces analysis

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Globalization The competitive advantages of national industries • Factor endowments • Demand conditions • Related and supporting industries • Rivalry

Measuring success  

Return on invested capital Return on equity

Those are the central ideas 

The rest of the course examined issues in • Functional level strategy • Business-level strategy • Technology strategy • Global strategy • Corporate strategy • Managed change • Corporate governance • Ethics

Issues in functional-level strategy  

Economies of scale The experience curve – a combination of • Economies of scale and • Learning effects

Issues in business-level strategy   

Product/service differentiation Market segmentation Generic strategies • Cost leadership • Differentiation • Focus Focused cost leadership  Focused differentiation 

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Pursuing both cost leadership and differentiation • Difficulties (“stuck in the middle”) • Possible benefits

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Strategic groups Game theory – look forward / reason back

Issues in technology industries   

Standards Setting standards Strategies for winning format wars • Killer applications • Razor and blade • Cooperation with competitors

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Costs in high tech industries

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First-mover advantages, disadvantages Disruptive technology – why existing firms neglect new technology that produces cheap products

Global strategies 

Basic choices of strategies • International strategy – transferring existing competences abroad • Multidomestic strategy – responsiveness everywhere • Global strategy – cost reductions through centralization • Transnational strategy – seeking simultaneous cost reductions, competency transfer, responsiveness

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I did not prepare slides on corporate strategy because I thought slides could not easily summarize it. However, lecture notes on corporate strategy are on the web site – • Click on Business 189, then Lecture Notes, then Section 18: Corporate Strategy 1. 

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Note the diagrams I planned to put on the Board are at the end of the file Section 19: Corporate Strategy 2 may also be helpful.

A basic change process   

Unfreeze Movement Refreeze

Key issues in corporate governance 

Stakeholders • •

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Internal External

Stockholders (the owners) The agency problem • Information assymetry

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Corporate governance • • • •

Annual meeting Board of Directors Stock options Takeover threats

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Ethical decision – one a reasonable stakeholder can support Unethical decision – one you’d prefer to hide