Notesale: Turn your study into money

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Understanding the development of business strategy
"Without a strategy, an organization is like a ship without
a rudder, going around in circles
...
"
—Joel Ross and Michael Kami
The formulation of strategy can develop competitive
advantage only to the extent that the process can give meaning to workers in the
trenches
...
He who will not worry
about what is far off will soon find something worse
than worry
...

Strategy formulation issues
• Deciding what new businesses to enter,
• What businesses to abandon,
• How to allocate resources,
• Whether to expand operations or diversify,
• Whether to enter international markets,
• Whether to merge or form a joint venture,
• How to avoid a hostile takeover
...

• 3 fundamental strategy-evaluation activities are:
o Reviewing external and internal factors that are the bases for current
strategies,
o Measuring performance,
o Taking corrective actions
...

• In this sense, the chosen strategy indicates what the firm will do as well as what the
firm will not do
Competitive advantage
• A firm has a competitive advantage when it implements a strategy competitors are
unable to duplicate or find too costly to try to imitate
...
In addition, firms must understand that no competitive advantage is
permanent
...

Above average returns
• Above-average returns are returns in excess of what an investor expects to earn
from other investments with a similar amount of risk
...
Alternatively, returns can be
measured on the basis of stock market returns,
competitive advantage and above average returns
• Understanding how to exploit a competitive advantage is important for firms
seeking to earn above-average returns
...

• Average returns are returns equal to those an investor expects to earn from other
investments with a similar amount of risk
...

• Failure occurs because investors withdraw their investments
from those firms earning less-than-average returns
risk
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Risk is an investor’s uncertainty about the economic gains or losses that will result
from a particular investment
...

Effectively managing risks reduces investors’ uncertainty about the results of their
investment
...
The reality is that financial capital is scarce and markets are increasingly
volatile
...

• Today, not only do cable companies and satellite networks
• compete for entertainment revenue from television, but telecommunication
companies are moving into the entertainment business through significant
improvements in fibre-optic
• Conventional sources of competitive advantage such as economies of scale and huge
advertising budgets are not as effective as they once were in terms of helping firms
earn above-average returns
...
Managers must adopt a new mind-set that
values flexibility, speed, innovation, integration, and the challenges that evolve from
constantly changing conditions
• Effective use of the strategic management process reduces the likelihood of failure
for firms as they encounter the conditions of today’s competitive landscape
...

• Under conditions of hypercompetition, assumptions of market stability are replaced
by notions of inherent instability and change
...
It is a condition of rapidly escalating competition
based on price-quality positioning, competition to create new know-how and
establish first-mover advantage, and competition to protect or invade established
product or geographic markets
...

The global economy
• A global economy is one in which goods, services, people, skills, and ideas move
freely across geographic borders
...

The march of globalisation

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Globalisation is the increasing economic interdependence among countries and
their organizations as reflected in the flow of goods and services, financial capital,
and knowledge across country borders
...

Wal-Mart, for instance, is trying to achieve boundary-less retailing with global
pricing, sourcing, and logistics
...

Through boundary-less retailing, the firm seeks to make the movement of goods and
the use of pricing strategies as seamless among all of its international operations as
has historically been the case among its domestic stores
...


Technology and technological changes
• Technology-related trends and conditions can be placed into three categories:
• Technology diffusion and disruptive technologies,
• the information age, and
• increasing knowledge intensity
...

Technology diffusion and disruptive technologies
• The rate of technology diffusion, which is the speed at which new technologies
become available and are used, has increased substantially over the past 15 to 20
years
...

o It took TV 26 years
...

• The shorter product life cycles resulting from these rapid diffusions of new
technologies place a competitive premium on being able to quickly introduce new,
innovative goods and services into the marketplace
...

• Think of the new markets created by the technologies underlying the development
of products

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such as iPhones, Tablets, WiFi, and the browser
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• The I/O model of above-average returns explains the external environment’s
dominant influence on a firm’s strategic actions
...
(Bowman & Helfat)
The Industrial Organisation (I/O) Model of Above-Average Returns
• The I/O model has four underlying assumptions
...

• Second, most firms competing within an industry or within a segment of that
industry are assumed to control similar strategically relevant resources and to
pursue similar strategies in light of those resources
...

• Fourth, organizational decision makers are assumed to be rational and committed to
acting in the firm’s best interests, as shown by their profit-maximizing behaviors
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The I/O model suggests that above-average returns are
earned when firms are able to effectively study the external environment as the
foundation for identifying an attractive industry and implementing the appropriate
strategy
...

Hence, this model suggests that returns are determined primarily by external
characteristics rather than by the firm’s unique internal resources and capabilities
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However, this research also shows that 36 percent of the variance in firm
profitability can be attributed to the firm’s characteristics and actions
...
The uniqueness of its resources and
capabilities is the basis of a firm’s strategy and its ability to earn above-average
returns
...
In
general, a firm’s resources are classified into three categories: physical, human,
and organizational capital
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• Individual resources alone may not yield a competitive advantage
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