Strat Mgmt Part 1 - 2012-13 -- Themes & Sub-Themes

8/12/2019 Strat Mgmt Part 1 - 2012-13 -- Themes & Sub-Themes

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Financial logic:

Recycling profits generated by profitable economic activity; Providing financial resources for development of further economic activity

Efficiency versus effectiveness; definition of each concept; relative importance of each.

Efficiency: doing things right. MEANS: pursuing ones objectives with the minimum of waste of resources.

Effectiveness: doing the right things. ENDS: choosing and achieving the right objectives.

Layers of the business environment (conceptual map); direct-action environment versusindirect-actionenvironment of the firm

Direct-action environment: industry/sector & competitors.

Indirect-action environment: the macro-environment.

THE CONCEPT OF STRATEGY

Grants four key characteristics of an effective strategy; the notion of strategic fit; distinguishing strategyfrom tactics

Four key characteristics of an effective strategy:

clear, consistent & long-term goals; profound understanding of the competitive environment; objective appraisal of resources; effective implementation.

Strategic fit: the consistency of firms strategy witha. The firms external environment;b. The firms internal environment(goals, values, resources, capabilities)

Strategy: the overall plan to deploy resources to establish a favorable position.(winning the war)

Important; Considerable amount of resources required; Hardly irreversible.

Tactic: a scheme for a specific action.(winning battles)

Sources of superior profitability (where to compete and how to compete); distinguishing business strategy fromcorporate strategy (business versus corporate in the study and practice of strategy)

Strategy as designstrategy as process; intended versus emergent strategy

Corporate strategy: the scope of the firm in terms of the industries and markets in which it competes(where tocompete)

Business strategy: how the firm competes within a particular industry or market(how to compete).

GOALS,VALUES,AND PERFORMANCE

Stakeholder versus shareholder approach to (or perception of) the firm


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understand the sources of superior performance so that strategy can protect and enhances these

determinants of success.

However, the world of business is one of constant change and the role of strategy is to help the firm adapt to

the change. The challenge is to look into the future and identify factors that threaten performance or create

new opportunities for profit. While financial analysis is inevitably backward-looking, strategic analysis

allows us to look forward and understand some of the critical factors impacting a firms success in the future.

Three requirements of performance targets for them to be effective; how, in general, does the nature of

performance targets change as one moves from the CEO level to the department/team level of the firm?

Three requirements of performance targets:

Consistent with long-term goals;

Linked to strategy;

Relevant to the tasks and responsibilities of individual organizational members.Broad corporate goals need to be translated into specific objectives that meaning to managers further down

the organization. The key is to establish performance targets that match the variables over which different

managers exert influence.

For what two reasons, according to Grant, does the pursuit of profit so often fail to realize its goal?

First, profit goals will only guide effective management action if managers know what determines profit.

Obsession with profitability and shareholder return can blinker managersperception of the real drivers of

superior performance.

Secondly, there is also the danger that whenever broad, long-term goals are translated into time-specific

performance metrics the performance targets become divorced from the ultimate objective.

What is an option? Growth options versusflexibility options?

How, and why, does option value vary with uncertainty (volatility), duration (time to expiry), and dividends

Option: the choice of whether to do something or not.

Growth options: allow a firm to make small initial investments in a number of future business opportunities butwithout committing to them.(small investments to create opportunities for bigger investments)

Flexibility options: relate to the design of projects and plants that permit adaptation to different circumstances.

Option value rises with greater volatility, more time, higher project value, higher interest rates.

INDUSTRY ANALYSIS: THE FUNDAMENTALS

How does the macro environment impact on the firm? What are the four variables of the classic, macro-environment analytical framework?

The macro environment impacts the firm through its effect on the industry environment; the industry

environment lies at the core of the macro environment.

PEST/PESTEL analysis

What three factors determine the profits earned by the firms in a given industry?

Three key influences:The value of products to customers;

The intensity of competition;

Relative bargaining power at different stages of the [external] value chain.


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Define key success factors (ksf); define, and explain in detail, the two prerequisites for success underlying theevaluation of the key success factors faced by a firm; what makes a success factor truly key?

Key Success Factors: factors within the industry environment that influence a firms ability to outperform its rivals.

Two pre-requisites for success:What do customers want?(analysis of demand)

Who are customers?

What do they what?

How do they choose between competing offers?How does the firm survive the competition?(analysis of competition)

What drives competition? What are the main dimensions of competition? How intense is the competition? How can we obtain a superior competitive position?

FURTHER TOPICS IN INDUSTRY AND COMPETITIVE ANALYSIS

What is meant by complementarity between products? How can a firm on one side of a complementaryrelationship profit more from the situation than a firm on the opposite side?

Compliments(complimentary products) have the opposite effect to substitute. While substitutes reduce the

value of an industrys product, complements increase it. Where products are close compliments, they have

little or no value in isolation: consumers value the whole system.

Where two products complement one another, profit will accrue to the supplier that builds the stronger

market position and reduces the value contributed by the other. The key is to achieve monopolization,

differentiation, and the shortage of supply in ones own product, while encouraging competition,

commoditization, the excess capacity in the production of the complementary product.

What argument does Porter make against treating complements (complementary products) as a 6thcompetitive

force?

Porter considers that complimentary products do not constitute a competitive force because the presence of

strong complements is not necessarily bad (or good) for industry rivalry. Complementscan factor into

industry rivalry either positively (as when they raise switching costs) or negatively (as when they neutralize

product differentiation).

What impact does the intensity of competitive dynamics have on industry structure, and why?

Porter framework assumes:1) Industry structure drives competitive behavior;2) Industry structure is (fairly) stable.But dynamic competition can also change industry structure:

Schumepterian Competition(creative destruction): market-dominating incumbents are challenged,

and often unseated, by rivals that deploy innovatory products and innovatory strategies;

Hypercompetition: intense and rapid competition moves, in which competitors must move quickly

to build new advantages and erode the advantages of their rivals. The only route to sustained superior

performance is through continuously recreating and renewing competitive advantages.

The issue is the speed of structural change in the industry.


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Two valuable contributions of game theory to strategic management;the meaning and importance of the following key game-theory concepts: cooperation, deterrence,commitment, signalling;problems or limitations of game theory as a basis of strategic theory;

Two valuable contributions:

1) It permits the framing of strategic decisions as interactions between competitors;2) It can predict outcomes of competitive situations involving a few, evenly-matched players.Cooperation: game theory can show situations in which cooperation is more advantageous than competition.

Deterrence: changing the payoffs in the game in order to deter a competitor from certain actions.

Commitment: irrevocable deployments of resources that give credibility to threats.

Signalling: the selective communication of information to competitors (or customers) designed to influence theirperceptions and hence provoke or suppress certain types of reaction.

Problems of Game Theory:

Useful in explaining past competitive behavior, weak in predicting future behavior;

Lack of an integrated general theory - many different models; outcomes highly sensitive to smallchanges in assumptions.

Segmentation: definition, strategic importance, bases, stages in segmentation analysis, vertical segmentation

and profit pools

Segmentation:the process of disaggregating industries into specific markets.

Base:

Initially, it may be convenient to define industries broadly, but for a more detailed analysis of competition

we need to focus on markets that are drawn more narrowly in terms of both products and geography.

Importance:

Segmentation is particularly important if competition varies across the different submarkets within anindustry such that some are more attractive than others.

Stages:

1Identify key segmentation variables;2Construct a segmentation matrix;3Analyze segment attractiveness;4Identify the segments Key Success Factors(KSFs);5Select segment scope(broad or narrow).

Vertical segmentation: segment an industry vertically by identifying different value chain activities.

Profit pools: the total profits earned at all points along thevalue chain of an industry.

Strategic group: definition; different strategic dimensions as basis of strategic-group analysis

Strategic group: a group of firms in an industry following the same of similar strategies along the strategicdimensions.

Strategic dimensions might include product range, geographical breadth, choice of distribution channels,

level of product quality, degree of vertical integration, choice of technology, and so on. By selecting the most

important strategic dimensions and locating each firm in the industry along them, it is possible to identify

groups of companies that have adopted more or less similar approaches to competing within the industry.

TUTORIAL 1

PORTER, Michael E. "What Is Strategy?"Harvard Business Review. 74(6) (November-December 1996) 61-78.

Definition of key terms: operational effectiveness; strategic positioning; productivity frontier; competitive
http://www.mbabrief.com/what_is_value_chain.asphttp://www.mbabrief.com/what_is_value_chain.asp


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convergence (mutually destructive competition); the meaning of competitive strategy.Operational effectiveness: performing similar activities better than rivals perform them.

Strategic positioning: performing different activities from rivalsor performing similar activities in differentways.

Productivity frontier: the sum of all existing best practices at any given time or the maximum value that acompany can create at a given cost, using the best available technologies, skills, management techniques, and

purchased inputs. Thus, when a company improves its operational effectiveness, it moves toward the frontier.

Competitive convergence: Situation in whichcompetition amongsuppliers of aproductis so intense that there

is little or nodifferentiation left on the basis of which abuyer may choose one supplier over the other.

Competitive strategy: how a company can gain a competitive advantage through a distinctive way ofcompeting. Competitivestrategies are essential tocompaniescompeting inmarkets that are heavilysaturatedwith alternatives forconsumers.

Three sources of strategic positions.

Variety-based positioning: produce a subset of an industrys products or services; based on the choiceof products or services.

Needs-based positioning: serves most or all of the needs of a particular group of customers; based ontargeting a segment of customers.

Access-based positioning: segmenting customers who are accessible in different ways.Importance to sustainable advantage of trade-offs between activities; three reasons why trade-offs arise.

According to Porter, a sustainable advantage cannot be guaranteed by simply choosing a unique position,

as competitors will imitate a valuable position in one of the two following ways:

1. A competitor can choose to reposition itself to match the superior performer.

2. A competitor can seek to match the benefits of a successful position while

maintaining its existing position (known as straddling).

Trade-offs occur when activities are incompatible and arise for three reasons:

1. A company known for delivering one kind of value may lack credibility and

confuse customers or undermine its own reputation by delivering another kind of

value or attempting to deliver two inconsistent things at the same time.

2. Trade-offs arise from activities themselves. Different positions require different

product configurations, different equipment, different employee behavior, different

skills, and different management systems. In general, value is destroyed if an

activity is over designed or under designed.

3. Trade-offs arise from limits on internal coordination and control. By choosing to

compete in one way and not the other, management is making its organizationalpriorities clear. In contrast, companies that try to be all things to all customers,

often risk confusion amongst its employees, who then attempt to make day-to-dayoperating decisions without a clear framework.

What is meant by the activity system? What is meant by strategic fit among activities, and why is suchfit essential to the sustainability of competitive advantage?
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HAMBRICK, Donald C. and James W. FREDRICKSON, "Are You Sure You Have a Strategy?" Academy of

Management Executive. 15(4), (November 2001) 48-59.

Strategy as correctly defined by H & F; importance of strategy (its definition) for subordinate managers

Five elements of the firms strategy ( la H & F).

Notion (examples) of mutual reinforcement between H & Fs elements of strategy.

Strategic comprehensiveness (order in which strategic decisions should be made).

ANALYZING RESOURCES AND CAPABILITIES

Rationale for the resource-based approach to strategy; distinction between resources and capabilities

When the industry environment is volatile, internal resources and capabilities offer a more stable basisfor strategy than an industry or market focus.

Resources and capabilities are the primary sources of profitability.Resources: the productive assets owned by the firm.

Capabilities: what the firms can do; the essence of superior performance.

Individual resources do not confer competitive advantages, they must work together to create organizational

capabilities.

Resources (categories & subcategories) underlying organizational capabilities; examples of indicators for eachspecific type of resource; figure showing links among resources, capabilities, and competitive advantage.

Tangible resources: financial resources and physical assets that are valued in the firms balance sheet.

Intangible resources: R&D, reputational resources(brand names, trademarks), intellectual property(patents,copyrights, trade secrets, trademarks comprises technological and artistic resources, technical know-how)

Human resources: the skills and productive effort offered by an organizations employees.


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Two ways in which additional value can be created from tangible resources

What opportunities exist for economizing on their use? Can we use fewer resources to support the

same level of business or use the existing resources to support a larger volume of business?

Can existing resources be deployed more profitability?

Intangible assets market-to-book ratios

The exclusions and undervaluation of intangible resources is a major reason for the large and growing

divergence between companiesbalance sheet valuations (or book values) and their stock-market valuations.

Means of exploiting the profit potential of intangible assets (for example, means of exploiting brand value, or

brand equity)

Exploiting the profit potential of intangible assets typically involves extending the range of products over

which they are exploited. (NIKE, DOLBY)

Human resources: skills effort; how organizational culture impacts on the latter.

The ability of employees to harmonize their efforts and integrate their separate skills depends not only on

their interpersonal skills but also on the organizational context. This organizational context as it affects

internal collaboration is determined by a intangible resource: the culture of organization.

Definitions: Organizational capabilities, core competences, organizational routines

Organizational capabilities: a firms capacity to deploy resources for a desired end result.

Core competences: capabilities fundamental to a firms strategy and perform as they make a disproportionatecontribution to ultimate customer value or to the efficiency with which that value is delivered; as they provide a

basis for entering a new market.

Organizational routines: regular and predictable behavioral patterns comprising repetitive patterns of activity.

Functional-analysis approach to classifying organizational capabilitiesexamples of different organizational

functions, and of one or more specific capabilities located within each function


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Value-chain-analysis approach: Porters value chain (as an approach classifying organizational capabilities);primary versus support activities; description/definition of each of the 5 + 4 activities; examples of linksbetween the firms value chain and its buyers value chain

Value-chain-analysis approach: identifies a sequential chain of the main activities that the firm undertakes.

Primary activities: directly concerned with the creation or delivery of a product or a service.

Inbound logistics: activities concerned with receiving, storing and distributing the inputs to the productor service;

Operations: transform these inputs into the final product or service; Outbound logistics: collect, store and distribute the product to customers. Marketing and sales: provide the means whereby consumers/users are made aware of the product or

service and are able to purchase it;

Service: includes all those activities which enhance or maintain the value of a product or service.Support activities: help to improve the effectiveness or efficiency of primary activities.

1Procurement: the process of acquiring the various resource inputs to the primary activities;

2Technology development: concerned directly with product, or with process, or with a particular resource;

3Human resource management: activities involved in recruiting, managing, training, developing andrewarding people within the organization;

4Infrastructure: the systems of planning, finance, quality control, information management, etc.


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ORGANIZATION STRUCTURE AND MANAGEMENT SYSTEMS: THE FUNDAMENTALS OF STRATEGYIMPLEMENTATION.

Functional structure of a firm versusdivisional (or multidivisional) structure; specialization as the basis oforganizational structure and the need for integration of specialized efforts

Functional structureworks best for organizations that only produce a few products. One of its main advantages isthat employees within functional departments are highly specialized and thus are very skilled and knowledgeable.Another advantage is that with functional structure, it's easy to accomplish functional goals specific to certain

departments.There are two main weaknesses in the functional organizational structure: it responds very slowly to change, and itmay take too long for decisions to be made because of the hierarchy of various managers. Among other weaknessesis the lack of coordination between departments and lack of innovation.

The main strength of the divisional structureis that it is very adaptable to fast changes and to differences betweenproducts, geographic locations or customers. Also, it involves collaboration between various functions, which leadsto innovation.The lack of specialization, along with integration and standardization difficulties, are the primary

disadvantages of the divisional structure.

Specialization as basis: firm exists because of their efficiency advantages in producing goods and services. The

fundamental source of efficiency is specialization through the division of labor into separate tasks.

The cooperation problem versusthe coordination problem; the agency problem

Cooperation problem(agency problem):A conflict of interest inherent in any relationship where one party isexpected to act in another's best interests. The problem is that the agent who is supposed to make the decisions that

would best serve the principal is naturally motivated by self-interest, and the agent's own best interests may differfrom the principal's best interests.

Coordination problem: the problem associated with making diverse efforts mesh together seamlessly to achievethe expected result.

Mechanisms (organizational solutions) for achieving goal alignment; and for achieving coordination

Goal alignment:

Control mechanism(hierarchical supervision); Performance incentives(rewards to output); Share values.Coordination:

Rules and directives; Routines; Mutual adjustment.

Advantages of hierarchical structures in coordinating; mechanistic versusorganic organizational forms

Economizing on coordination Adaptability(loose-coupled, modular hierarchy)


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Four bases for defining organizational units; intensity of coordination as choice criterion between latter bases

1. Common tasks;maintenance service2. Products; software designing3. Location; Starbucks stores4. Process. assembly lineIntensity of coordination needs: those who need to interact most closely should be located within the sameorganizational unit.

Fundamental flaw in all matrix structures; practical solution to that problem

The problem is when this multidimensional structural is over-formalized, resulting in a top-heavy corporate

HQ and over-complex systems that slow decision-making and dull entrepreneurial initiative.

The trend has been for companies to focus formal systems of coordination and control on one dimension,

them allowing the other dimensions of coordination to be mainly informal.

Alternative organizational forms (emerging organizational phenomena): Delayering; adhocracies and team-based organizations; project-based organizations; network structures; permeable organizational boundariestheir common characteristics

A focus on coordination rather than on control; Reliance on informal coordiantion where mutual adjustment replaces rules and directives; Individuals in multiple organizational rules.SOURCES AND DIMENSIONS OF COMPETITIVE ADVANTAGE

Basic definition of competitive advantage (C.A.); how does C.A. emerge?

Competitive advantage: An advantage that a firm has over its competitors, allowing it to generate greater sales ormargins and/or retain more customers than its competition.

External sources of change: which have differential effects on companies because of their different resources andcapabilities or strategic positioning.

Changing customer demand

Changing price

Technological change

Internal sources of change: through innovationwhich creates competitive advantages for the innovator while

undermining the competitive advantages of the incumbents -- creative destruction.

Two capabilities required in order to ensure responsiveness to external change.

The ability to anticipate changes in the external environment Speed.


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Strategic innovation (internally-generated change): definition; dimensions of innovatory strategies.

Strategic innovation: new approaches to doing business, including new business models.

Dimensions:

New industries(blue-ocean strategy:the creation of uncontested market space) New customers segments New sources of competitive advantages(new game strategy: reconfiguring the industry value chain in order

to play change the rules of the game)

Imitation or innovation as processes which undermine C.A., requirements for imitation and types of isolating

mechanisms, barriers to imitation created by first-mover advantage.

The speed with which competitive advantage is undermined depends on the ability of competitors to

challenge either by imitation or innovation. Imitation is the more direct form of competition.

Requirement for Imitation Isolating Mechanism(barriers to imitation)

Identification Obscure superior performance

Incentives for ImitationDeterrence

Preemption

DiagnosisCausal ambiguity

Uncertain imitability

Resources AcquisitionImmobility

Irreplicability

Causal ambiguity: when a firms competitive advantage is multidimensional and is based on complexbundles of resources and capabilities, it is difficult for rivals to diagnose the success of the leading firm. Itsoutcome is uncertain imitability: if the causes of a firms success cannot be known for sure, success isuncertain,

Perfect versusimperfect competitionpossibility of [sustainable] competitive advantage

Sources of competitive advantage; Porters generic strategies

Cost advantage: supply an identical product or service at a lower cost. (cost leader)

Differentiation advantage: supply a product or service that is differentiated in such a way that the customer iswilling to pay a price premium that exceeds the additional cost of the differentiation.

Law of Experience underlying the experience curve; three bases of experience; relationship betweenexperience and market share; experience and the possibility of penetration pricing


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The unit cost of value added for a standard product declines by a constant proportion each time cumulative

output doubles.

Sources of experience effect:

1) Economies of scale;2) Learning by doing;3) Replacing labor with capital(i.e. with machines)Penetration pricing:the practice of offering a low price for a new product or service during its initial offering inorder to attract customers away from competitors. Law of experience suggests this practice is possible since the

cost will be reduced by the accumulation of experience.

Economies of scale: definition; three principal sources; limits to scale economies (how sme offset thedisadvantages of their small scale)

Economies of scale: the cost advantages that enterprises obtain due to size, throughput, or scale of operation, with

cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units ofoutput.

Technical input-output relationships;

Indivisibilities;

Specialization.The essence of economies of scale is volume. Small & medium enterprises offset this problem by:

1) Exploiting flexibility;2) Outsourcing activities where scale is critical to efficiency;3) Avoiding motivational and coordination problems that often afflict large organizations.

Economies of learning: levels at which learning occurs and nature of learning at each level

Learning occurs both at individual level through improvements in dexterity and problem solving and at

group level through the development and refinement of organizational routines.

Process technologyrelative prices of factor inputs; importance of organizational innovations

Definition of design-for-manufacture;

Design-for-manufacture: designing products for ease of production rather than simply for functionality andaesthetics.

Capacity utilizationproportion of fixed costs to total costs;

Underutilization raises unit costs because fixed costs must be spread over fewer units of production. Pushing

output beyond normal full capacity also creates inefficiencies.

Sources of variations between firms in the cost of a given input

Locational differences in input prices Ownership of low-cost resources of supply Non-union labor Bargaining power

Examples of particular cost drivers for different activities in the value chain of firm (e.g. of an automobilemanufacturer)


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Differentiation (Porters definition); differentiation advantage; tangible differentiation versusintangibledifferentiation; differentiation versussegmentation; broad-scope versusfocused differentiation

Differentiation: providing something unique that is valuable to the buyer beyond simply offering a low price.

Differentiation advantage occurs when a firm can obtain from its differentiation a price premium in the

market that exceeds the cost of providing the differentiation.

Tangible differentiation: observable characteristics(including delivery, after-sales services & accessories);Intangible differentiation: unobservable and subjective characteristics that appeal to the customers status, desirefor exclusivity, individuality, security and community.

Differentiation: how a firm distinguishes its offerings from those of its competitors(how a firm competes)

Segmentation: which customers, needs, localities a firm targets(where a firm competes)

Broad-scope differentiation: appealing to what is common between different customers(fast food chains).Focused differentiation: appealing to what distinguishes different customer groups.(luxury products)

Advantage of differentiation over cost leadership; limits to the sustainability of cost advantage

Differentiation offers a more secure basis for competitive advantage than low-cost advantage. It would

appear to be more sustainable, large companies that consistently earn above-average returns on capital tend

to be those that have pursued differentiation through quality, branding, innovation.

A position of cost advantage is vulnerable to the emergence of new competitors from low-cost countries and

to adverse movements in exchange rates. Cost advantage can also be overturned by innovation.

Analyzing differentiation from demand side: multidimensional scaling; conjoint analysis; hedonic priceanalysis; value curve analysis

Multidimensional scaling(MDS): permits customersperceptions of competing products to be representedgraphically in terms of key product attributes.

Conjoint-analysis: measures the strength of customer preferences for different product attributes to forecast

demand for hypothetical new product that comprises different bundles of product attributes.

Hedonic price analysis: uses regression to estimate the implicit market price for each product attribute.

Value curve analysis: maps competing products according to bundles of attributes in order to identify

opportunities for new products with a different combination of attributes.

Analyzing differentiation from supply side: examples of firms decision variable which constitute (Porters)

drivers of uniqueness

product features and product performance; Complementary services(credit, delivery, repair); Intensity of market activities(rate of advertising spending) Technology embedded in design and manufacture; Quality of purchased inputs; Procedures that influence the customer experience; Skill and experience of employees; Location; Degree of vertical integration.

Product integrity and its importance for a successful differentiation strategy; internal versusexternal integrity

Product integrity: the total balance of product features. It is the key to successful differentiation: consistency of

all aspects of the firms relationship with its customers.


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INDUSTRY EVOLUTION AND STRATEGIC CHANGE

Forces driving the industry life cycle; dominant design versustechnical standard; how do the rates of productand process innovation change over the phases of the industry life cycle and why? Examples of industry lifecycles varying with the particular industry

Demand growth Creation & diffusion of knowledgeDominant design: a product architecture that defines the look, functionality, and production method for theproduct and becomes accepted by the industry as a whole; the overall configuration of a product or system.Technical standard: a technology or specification that is important for compatibility.

A dominant design may or may not embody a technical standard, but they are closely related.

Evolution of industry structure and competition over the life cycle (especially with respect to demand, product,competition, and key success factors); examples of driving forces of industry evolution and their impacts

Introduction Growth Maturity Decline

Demand

Technology

Products

Manufacturing

Trade

Competition

KSFs

Sources of organizational inertiaDefinitions: competency traps, institutional isomorphism, bounded

rationality and satisficing.

1. Organizational routines;competency traps: core capabilities become rigidities.2. Social & political structures;3. Conformity;institutional isomorphism: locks organizations into common structures and strategies that

makes it difficult for them to adapt to change.4. Limited search;bounded rationality: human beings have limited information processing capacity, which

constrains the set of choices they can consider; Satisficing: the propensity for individuals (and organizations)to terminate the search for better solutions when they reach a satisfactory level of performance rather than to

purse optimal performance.

5. Complementarities between strategy, structure, and systems.Industry evolution: organizational ecology versusevolutionary economics

Organizational ecology: in relation to changes in the number of firms in an industry over time. Its idea is thateconomic change is based on the assumption of organizational inertia. As a result, industry evolution occursthrough changes in the population of firms rather than by adaptation of firms themselves.(selection mechanism)

Evolutionary economics: focuses upon individual organizations as the primary agents of change.


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Variations in required resources and capabilities over industry life cycle: innovators versusconsolidators;

Innovator: pioneer of creation;

Consolidator: develops the creation.

Technological change: competence enhancing versuscompetence destroying; component level versus

architectural level ( architectural innovation ); new technology: sustaining versusdisruptive

Competence enhancing: preserve, even strengthen the resources that add capabilities of incumbent firms.

Competence destroying: render obsolete the resources and capabilities of established firms.

Architectural level: requires a major reconfiguration of a companys strategy and organizational structure.

Component level:

Sustaining: augmenting existing performance attributes.

Disruptive: incorporating different performance attributes than the existing technology.

Challenge of dual strategies in facing change; how can this challenge be met? Two types of organizationalambidexterity

Dual strategies: a strategy for today that focuses on exploiting existing resources and capabilities and currentmarket positions & a strategy for tomorrow based upon adaptation to future.

Companies are biased toward the exploitation of current resources and capabilities in relation to known

opportunities, rather than exploration for new opportunities, most firms will emphasize short-term over

long-term planning.

Ambidextrous organization:

Structural ambidexterity: exploration and exploitation are allocated to different organizational unit. Contextual ambidexterity: same organizational units and people perform both E&E.

Dynamic capabilities (basic definition)

Dynamic capabilities: a firms ability to integrate, build, and reconfigure internal and external competences toaddress rapidly changing environments.

Scenario analysis: definition; its value in dealing with environment change

Scenario analysis: a systematic way of thinking about how the future might unfold that builds on what we knowabout current trends and signals.

Path dependency of organizational capabilities; core capabilitiescore rigidities; four componentsfor integrating organizational resources to create organizational capabilities;

Path dependency: a companys capabilities today are the result of its history.

The presence of established capabilities and their embedding within organizational structure and culture

present formidable barriers to building new capabilities. The more highly developed a firms organizational

capabilities, the greater the barrier they create. Hence the argument that core capabilities are

simultaneously core rigidities.

Process Structure Motivation Organizational alignment


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Two types of knowledge; characteristics and strategic implications of each type; definitions: knowledge

management, communities of practice, best practice transfer;

Type of Knowledge Characteristics Implications

Explicit: knowing about Easy and cheap to transfer: a public good

Easy to exploit within the firm but

difficult to protect from rivals

Weak basis for sustainable competitiveadvantage

Tacit: knowing how

Difficult to articulate or codify

Transfer is slow and costly: requiresobservation and practice

Rather difficult to replicate it internally

Sound basis for sustainable competitiveadvantage

Knowledge management: the systematic leveraging of information and expertise to improve organizationalinnovation, responsiveness, productivity and competency.

Communities of practice: informal, self-organizing networks for transferring experiential knowledge among

employees engaged in the same occupation.

Best practice transfer: where operations are geographically dispersed, different units are likely to develop local

innovations and improvements. It aims to identify then transfer superior practices.

Replicationdefinition; strategic importance; the paradox of replication

Replication of knowledge: a power and lucrative source of scale economy.Paradox of replication: more tacit, more important, more difficult to replicate.

Knowledge conversioninternalization, externalization, socialization, combination,Systematization (scalability)

Documents

Strat Mgmt Part 1 - 2012-13 -- Themes & Sub-Themes