Strategic Management

Model to understand relationship between a firm's environment, firm's behavior, firm's performance.

• Indsutry Structure: Industry structure (No. of buyers/sellers, product differentiation, barriers to entry, cost structures, vertical integration.
• Firm Conduct: Pricing behavior, product strategy, advertisting, R&D, investments
• Performance: performance of the ecnomoy as a whole and the firm, level of employment and progress.

• Industry competitiors
• potential of new entrants
• substitutes
• bargaining power of suppliers
• bargaining power of buyers

Limits: stable conditions, static perspective, no collaboration, only competition, non-market forces such as government policy are not taking into account

Can be viewed as a collective capital good, generating joint profits for the going firms. Connected to porters 5 forces

1. economies of scale
2. product differentiation (new entrants must spend heavily to overcome eisting customer loyalty)
3. capital requirements
4. switching costs
5. distribution channels
6. cost disadvantage (proprietary product technology, favorable acces to raw materials, favorable locations, government subsidies, learning and experience curve)
7. Government policies

Indicator of intensity of competition

\(HHI=\sum^N_{i=1}\frac{x_i}{\sum^N_{j=1}x_j}\)

Sum of squared market shares (normally of the 50 largest firms)

0: huge number of very small firms, 1: perfect monopoly

To measure intesity of competition

CR4=(sales of 4 largest firms) / (total industry sales)

Porters 5 forces.

1. numerous and equally balanced competitiros
2. slow industry growth
3. high fixed costs
4. lack of differentiation or switching ocsts (product or service is perceived as a commodity)
5. capacity increase
6. diversity of competitiros
7. high strategic stakes
8. high exit barriers (eg. specialised assets, fixed cost of exit, strategic interrelationships, emotional barriers, government and social restrictions

Porter fice forces

• switching costs are low
• substitute product's price is lower
• subsitute's product quality and performance is equal or greater

• more concentrated than the industry it sells to
• not obliged to cntend with other substitute products for sale to the industry
• industry is not an important customer of the supplier grouo
• suppliers' products are important inputs to the buyers business
• products are differentiaed and/or there are high switching costs
• suppliers can integrate forward into the industry

• purchases large volumes relative to totale sales of incumbent firms
• products pruchased represent a significant share of buyer's costs or spending
• products are undifferentiated
• low switching costs
• low profits
• buyers pose a credible threat of backward integration
• product unimportant to the buyer's own business
• buyers has full information

• Political
• Economic
• Technological
• Sociocultural
• Environmental
• Legal

• Stable conditions - static perspective
• No collaboration but only competition among players - coopetition?
• What about complements?
• Non-market forces such as government policy and international politics

• Technology leadership
• Product quality
• Service level
• Pricing
• Choice of distribution channel

Within industries, group membership of firms (similar values in strategic dimensions) can be associated with certain levels of economic performance. There are strong incentives for firms to move to groups with superior economic performance, but mobility is deterred by a set of mobility barriers

Invention is the conversion of cash into ideas.

Innovation is the conversion of ideas into cash.

1. Novel
2. Useful
3. Successfully Implemented.

Radical vs. incremental innovation

• Innovation in product
• Innovation in services
• Innovation in processes
• Social, administrative, organizational innovations

• increase in productivity => increase economies of scale
• Increase rate of experience => increase economies of knowledge

A technological discontinuity represents major shifts in technical performance. This shift is typically associated with the introduction of a new technology

• A feeling among a firm‘s management that R&D productivity is declining
• A trend towards missed R&D deadlines
• A shift in the company from product to process oriented R&D
• An apparent loss of productivity in the R&D department and the industry
• Dissension among R&D staff

• Disruptive technologies are typically simpler, cheaper, more reliable, and convenient than established technologies.
• Disruptive technologies allow to overleap barriers to entry.
• The impact of sustaining and disruptive technological change

In open innovation the firm commercializes both its own ideas and innovations from other
firms and buyers. The boundary between the firm and its environment is porous, enabling
innovations to flow more easily between the two

rivate investment model  + collective-action innovation model

As combination of these two models, the private-collective model of innovation explains the creation of public goods through private funding. The model is based on the assumption that the innovators privately creating the public goods benefit more than the free-riders only consuming the public good. While the result of the investment is equally available to all, the innovators benefit through the process of creating the public good. Therefore, private-collective innovation occurs when the process-related rewards exceed the process-related cost

Breadth: Number of different search channels that a firm draws upon in its innovative activities

Extent to which firms draw intensively from different search channels/ sources of innovative ideas

=> Both U-shaped relation to firm performance

• Create uncontested market space
• Make the competition irrelevant
• Create and capture new demand
• Break the value/cost trade-off
• Align the whole system of a company‘s activities in pursuit of differentiation and low cost

Tangible Resources:

• Capital
• Land
• Buildings
• Plant
• Equipment
• Supplies

Intangible Resources:

• Culture
• Routines
• Brand Equity
• Reputation
• IP (Patents, Copyright, Trademarks, Trade, Secrets)?

Human Resources:

• Skill, know-how
• Capacity for communication and collaboration
• Motivation

Mergers and acquisitions should be viewed in the light of their ability to build resourceposition
barriers and impact on entry barriers

• Value:The extent to which a resource allows a firm to neutralize external threats and exploit business opportunities
• Rarity: The extent to which a resource is unique to the firm
• Imitability: The extent to which a resource can be imitated by competitors
• Potential for substitution: The extent to which the resource can be substituted by other, not rare and/or imitable, resource

• The low-cost acquisition or development of a firm’s resource depended on a unique historical condition
• As a source of imperfect imitability, a unique historical condition can
  • Give the firm a first-mover advantage
  • Provide the firm with competitive advantages in later time periods, based on resources acquired or developed in earlier periods

Value - Price - Cost-Model

• Firm A enjoys a competitive advantage, over rivals B and C because it can either
  • Attract buyers due to better surplus offered by its products (V-P)
  • Make a higher profit (P-C)
  • A combination of 1. and 2

Part of the VRIO framework, I, Imitability

• unique historical positions
• causal ambiguity: (competitor is not able to analyze the factors that lead to the competitive advantage of an innovative firm
• social complexity: source for imitability is interpersonal relationship, culture, ...
• Patents

1. Capturing & Locating
2. Sharing
3. Creating