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Introduction to Business 10-10-2016

Strategy (Part I)

Defining the subject

Strategy can mean different things: (5 P’s of strategy)

• Plan = from A to B, from B to C, from C to D. Your goal and how to achieve it.
• Ploy = you make your competitors believe you do A but in fact you are doing B.
• Pattern = you look at past behaviour, and act like that behaviour
• Position = what is your position in the surrounding environment? (internal and external)
• Perspective = see opportunities and chances

Mintzberg’s Typology of strategies:

Distinction between plans and patterns:

• Distinction between intentions and reality
• Distinction between looking ahead and looking backward

Mintzberg: intended, deliberate, unrealised, emergent and realised strategies.

[pic 1]

Strategic management consist out of two parts:

• Formulating strategy
• Implementing strategy

Strategic management has 3 dimensions:

• Process: How is strategy developed in an organization?
• Content: What strategic actions should an organization take?
• Context: under which environmental circumstances does the firm operate?

5 P’s are implemented in this model.

Process and content should take account of the organization and its environment.

12 Questions about the 4 strategy lectures, EMPHASIZE on the lectures!

Schools of thought = how you can look at specific things, group of researchers building on each other’s work

Prescriptive = this is how things should be.

• Should be applied or put into practise
• These schools center around one key prescription for how to achieve success

Descriptive = this is how things should go.

• Van be tested or falsified
• These descriptive schools center around one key explanation for how strategy forms in real life.[pic 2]

Prescriptive schools:

• Design school → managers should design (engineer) optimal fit between the organization and its environment (strong focus on context and content). Critique: School hardly addresses implementation.
• Planning school → strategy should be a sequence of rigorously executed steps (strong focus on process). Example: General Electric. Critique: Risk averse and hardly addressing implementation.
• Positioning school → strategy entails a choice for a position in the industry, by choosing a generic strategy (strong focus on context).  [pic 3]

Similarities:

• All three are prescriptive: describe how things should be done and not happen in reality.
• Focus on measurement, calculation, accuracy
• Associated with consulting firms.

Describe/ understand strategy:

Political, environmental and cultural school.

Introduction to Business 13-10-2016

Strategy (Part II)

External Analysis

Purpose: external analysis allows you to identify opportunities and threats

SWOT-analysis: Strengths, Weaknesses, Opportunities, Threats.

Macro-analysis:

Macro = external conditions out of your power

SEPTEmber Analysis

1. Sociocultural segment → one part:…, another part: environment
2. Economic segment → interest rate,
3. Political-legal segment → e.g. Airbnb, Uber etc. are illegal in some cities, countries
4. Technological segment → e.g. Amazon decided to sell via the internet
5. Ecological segment → you cannot control it

Industry-analysis:

Industry = industries are defined around its product/ services and encompass all competing firms creating these products/ service. (markets are more about, where do we buy ours products from)

Industry lifecycle

Stages: Initiation, Growth, Maturity, Decline.

Experience Curve →The more experience in producing a certain product, the lower the costs.  So it is easier to enter w growing market because you don’t have a lack of experience compared to the competitors.

Competitive Forces

Five Forces Analysis (Slide 55)

Threat of new Entrant

Prevent players from charging too much, reducing average industry profitability. This threat is determined by barriers to entry (e.g. capital requirements, customer switching costs, reputation etc.)

Bargaining power of suppliers

Introduction to Business 17-10-2016

Strategy (Part III)

Recap and finalizing external environment

Bargaining power of buyers: the more powerful the buyers from your industry, the less they can pay. In that way they are reducing average industry profitability. The bargaining power of buyer is high when:

• Concentration
• Switching costs of customers are low: independence of focal industry
• Quality not very important

High price sensitivity only results in high bargaining power of buyers it concentration and switching costs are low and few substitutes are available.

Threat of substitutes → substitutes performs same or similar function, but in a different way. Substitutes are produced outside the industry.

If you can be substitutes, you cannot charge too much for your product.

Threat of substitutes is higher when:

• Substitutes are available with better price/performance trade-off
• Switching costs are low

Threat of Rivalry → rivalry drives down profits.

Rivalry is high when:

• There are many competitors OR competitors are of equal size
• Mature market (industry lifecycle)
• Exit barriers are high
• Competition is based on same features (specifically price)

According to Michael … the five forces still apply. (the fundamental, basics)