Strategy Theory

Module
M
d l
Material Business
What is Business Strategy?
What is Business Strategy?
Week 2:
Strategy Theory
gy
y
Paul Mantle
What is Strategy:
What is Strategy:
Strategic Positioning
R
Resource Based View
B d Vi
Dynamic Capabilities
What is Business Strategy?
What is Business Strategy?
• The
The literature identifies some 10 different literature identifies some 10 different
perspectives on Strategy. We will look briefly at 3 of these:
briefly at 3 of these:
– Strategic positioning
– Resource Based View
– Dynamic Capabilities
Dynamic Capabilities
Strategy according to some Strategy Gurus
• Michael Porter
• Jay Barney
• Henry Mintzberg
Henry Mintzberg
• Gary Hamel
Strategic Positioning
Participation
Strategy –
which markets
shall we
participate in
Entry Strategy
Exit strategy
Environmental
Analysis
Business
Strategy –
External Analysis
Positioning
(Macro-environment
RBV
and Industry)
Dynamic
Market and
pricing strategy
Operations
strategy
Financing
strategy
Source: Adapted from McTaggart et al. (1994)
Porter‘ss Generic Strategies
Porter
Generic Strategies
Strategic Groups
Strategic Groups
High Price
Focused
Differentiation
Differentiation
Strategy
Focused Cost
Cost Leadership
Leadership
Strategy
Low Price
Narrow market
appeal
Source: Hill and Jones (2007)
Wide market
appeal
• These are groups of companies following g
y
similar strategies within an industry
P orman
Perfo
nce
Internal
y (SWOT)
(
)
Analysis
Parentin
ng
Strategic Positioning Choices
g
g
Strategic Groups in
the automobile
industry
High
Hyundai
Kia
Mercedes
BMW
Chrysler
General Motors
Ford
Ferrari
Lamborghini
Porsche
1
Toyota
Honda
Nissan
Strategic Positioning
Strategic Positioning
• Is about the type of product and service that y
you set out to offer to your customers
y
3
Price
2
4
Low
Low
High
Breath of product line
Source: Dess et al., 2003, p65
Value creation may be buried deep in y
p
key operations: activities
Primary
activities
Inbound
Logistics;
- Supply
chain
- W/H ops
Operations;
- Merchandising
- Pricing
- Shelf management,
- Display
-Store Ops,
Outbound
Logistics;
-Car park
-Till points
- S/S Tills
Marketing:
Promotion
-Promotion
- Loyalty cards
- Discounting
- Brand
- Ethics
The intent of these activities might be to achieve differentiation or lowest cost
Source: Adapted from Porter, 1985
...has two simplifying assumptions;
• Firms within an industry (or strategic Group) are identical y(
g
p)
in terms of strategically relevant resources (firms are homogenous with essentially similar resources) and the strategies they pursue
Firm infrastructure
Human resource management
Technology development
Estate Management
Support
The Strategic Positioning Approach
The Strategic Positioning Approach
Service:
- in-store
in store support
-Returns
• Should resource heterogeneity develop within an industry or group (such as a new entrant) then this will be short lived because resources are highly mobile (they can be
lived because resources are highly mobile (they can be bought and sold)
Criticisms of the SP approach;
Criticisms of the SP approach;
1.
Strategy according to some Strategy Gurus
• Michael Porter
2.
• Jay Barney
3.
• Henry Mintzberg
Henry Mintzberg
4.
• Gary Hamel
5.
Competitive Advantage of the firm
Competitive Advantage of the firm
Resource Based View • What is meant by this?
What is meant by this?
Competitive advantage
Competitive
advantage for a firm is reflected in its for a firm is reflected in its
ability to generate greater than the average profitability in its industry. It is sustained
p
y
y
when this situation is able to be maintained over a number of years
Source: Hill and Jones (2007)
The Resource Based View
The Resource Based View
The Resource Based View of the Firm
The Resource Based View of the Firm
The RBV key assumptions:
• Origin in the ideas of Edith Penrose (1959)
O i i i th id
f Edith P
(1959)
– A firm can be regarded as a bundle of resources
– Firms are heterogeneous – they have different resources
– Resources are not perfectly mobile so heterogeneity can be long lasting
heterogeneity can be long lasting
• Popularised
Popularised and incorporated in Strategic Management and incorporated in Strategic Management
literature by Rumelt (1984) , Barney (1991) and Peteraf
(1993)
• RBV suggests that competitive advantage of the firm rests on it
its own resources and capabilities (Barney 1991) d
biliti (B
1991)
• Argues
Argues that firm specific resources are the main drivers of that firm specific resources are the main drivers of
superior profitability rather than industry structure
Source: Based on Barney (1986, 1991)
Resources
esou ces
Resources can be grouped under the following headings:
• Physical resources – buildings, equipment etc.
• Human capital: embodied in the skills and knowledge of Human capital: embodied in the skills and knowledge of
employees of the firm
• Financial capital –
Financial capital – access to funds that can include the firm
access to funds that can include the firm’ss own revenue and borrowing power
Intellectual capital ‐ e.g. reputation, goodwill, corporate e.g. reputation, goodwill, corporate
• Intellectual capital image, etc.
p
e.g relations with buyer and suppliers and other g
y
pp
• Social capital‐
stakeholders
To create Competitive Advantage...
To create Competitive Advantage...
Resources must be (VRIN):
(
)
•
•
•
•
Valuable Rare Rare
Imperfectly imitable
Not substitutable Source: Based on Barney (1986, 1991)
Capabilities
•
Resources and Capabilities
Resources and Capabilities
Are routines that firms perform to conduct their business (Nelson and Winter 1982)
their business (Nelson and Winter 1982)
• Are firm specific (non tradable, not transferable) • Can be both explicit and implicit (Conner and Prahalad 1996)
Resources
Capabilities/
competences
S
Same
as
competitors or
easy to imitate
B
Better
than
h
competitors and
difficult to imitate
Threshold
Resources
R
Unique Resources
Threshold
Competences
Core
Competences
What unique resources and capabilities does UCAM have?
Source: Barney (1986, 1991)
Core Competence
Core Competence
Core Competence
At its simplest, the Core Competence is that which you do better than anyone else! Gives you access to markets
• Gives you access to markets
• Adds value to the end product
• Is difficult to copy S
Source: Prahalad and Hamel (1990)
P h l d d H
l (1990)
The Core Competence Tree
Core
Product
A
Core
Product
B
Core
Product
C
Core
Product
D
Hard to
i it t
imitate
Sales
Can you think of an example of core competence?
Core
Product
E
Processes
that could be
outsourced
Hard to
acquire
C
Core
Competence 1
C
Core
Competence 2
C
Core
Competence 3
Core Competence is not
Core Competence is not...
• Costs shared over a number of businesses
• Vertical integration
Vertical integration
• A large research department
Core Competence is...
Core Competence is...
• 3M capability with films, adhesives and data storage media that can be used to make magnetic tape, DVD and post‐it
magnetic tape, DVD and post
it notes
notes
• Honda leads the world in engines and power trains
i
p
g g
• Canon lead in Optics and imaging
...which result in globally successful products
The industry life cycle
The industry life cycle
IIndustry
d
sales
IIndustry
d
sales
Resources and Capabilities
have become threshold
in this period
Shake out
Unique Resources and
Capabilities may confer CA
in this period
Introduction
Growth
Mature
Decline
Introduction
Time
Biotech
industry
Introduction
Home
entertainment
Growth
Criticism of the RBV
• R&D investment
• Product
development
• Establish brand of
products &
company image
• Sales &
marketing
• Design for
manufacture
• Branding
In the long term:
1.
Personal
computers
Pagers
Mature
Decline
Critical success factors- some examples:
• Cost efficiency
• High quality
• Process
innovation
Mature
Time
• Cost reduction
• Rationalise
capacity
• Identify niche
markets
Decline
Resources and Capabilities may be
redundant once the industry enters decline
Critical capabilities and industry life cycle
p
y
y
Industry
Sales
Growth
2.
3.
4.
5.
Time
Strategy according to some Strategy Gurus
• Michael Porter
Dynamic Capabilities
• Jay Barney
• Henry Mintzberg
Henry Mintzberg
• Gary Hamel
In High Velocity Markets...
In High Velocity Markets...
Dynamic Capabilities
y
p
• The firm’s processes that use resources –
specificall the processes to integrate
specifically
integrate,
reconfigure gain and release resources – to
match and even create market change
• These are the organisational and strategic
routines by which firms achieve new
resource configurations as markets
emerge, collide, split, evolve and die.
Source: Eisenhardt and Martin (2000)
Sustained competitive advantage is not possible from Strategic Positioning or from building Resource bundles, but from;
•
•
•
•
The ability to learn from markets
The ability to anticipate market trends
Strategic processes and routines to achieve new resource configurations
Strategic processes and routines to achieve new resource configurations faster and more successfully than competitors
Willingness to destroy your own business to create a new market opportunity
Dynamic Capabilities Approach
• Reconfiguration
– Recombination of assets to do new things
The Emergent Strategy Approach
• Patterns of development emerge over time
i t consistency
into
i t
• Leveraging
– Replicating a process or system in another area
R li ti
t
i
th
• Strategies can form as well as be formulated
• Learning
– Performing tasks more effectively and efficiently
• Integration
• The future does not need to be predicted – It
is an opportunity
opportunity, not a threat
– Creating a new resource base by integrating existing assets and resources
Source: Teece et al. (1997)
Criticisms of Dynamic Capability Theory
Source: Mintzberg (1994, 2003)
What did we cover today?
What did we cover today?
• Strategic positioning
• The Resource Based View
The Resource Based View
• Dynamic Capabilities
...how does UCAM perform on these three how does UCAM perform on these three
measures?
Strategy according to some Strategy Gurus
References
•
•
• Michael Porter
•
•
• Jay Barney
•
•
•
• Henry Mintzberg
Henry Mintzberg
•
•
•
• Gary Hamel
Barney, J. B. (1986) ‘Organisational Culture: Can it be a source of sustained competitive
advantage’, Academy of management review. Vol. 11, No. 3, pp. 656 – 665.
Barney, J. B. (1991) ‘Brilliant Strategy, but can you execute’, McKinsey Quarterly. Vol. 1 pp
88 – 89.
Barney, J. B. and Hesterley, W. (2008) Strategic Management and Competitive Advantage
(2nd ed.). New Jersey; Pearson education Ltd.
McTaggart J.
McTaggart,
J M
M., Kontes,
Kontes P.W.
P W and Mankins,
Mankins M.C.
M C (1994) ‘The
The Value Imperative’
Imperative . New
York; The Free Press
Mintzberg, H. (1987) ‘Crafting strategy’, Harvard Business Review. July – Aug.
Mintzberg, H. (1994) ‘The fall and rise of strategic planning’, Harvard Business review. JanF b
Feb.
Mintzberg, H. et al. (2003) ‘The Strategy Process: Concepts; contexts; cases’ (4th ed.). New
Jersey; Prentice Hall.
(
) What is strategy,
gy, ‘Harvard Business Review’. Nov-Dec.
Porter,, M. E. (1996)
Tallman, S. in Faulkner, D.O. and Campbell, A. (2003) The Oxford Handbook of Strategy
Vol. 1. Oxford; OUP.
Tampoe M. (1994), ‘Exploiting the core competence of your organisation’, Long Range
Planning Vol
Planning.
Vol. 2.
2 Iss.
Iss 4 pp 60-77.
60 77

Download Report