Competition and Strategy - WordPress.com Michael Porter, “The Five Competitive Forces that Shape Strategy,” HBR Jan 08. Brandeis University, International Business School Lecture
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Brandeis University, International Business SchoolLecture notes for BUS 260a Competition and Strategy
© B. Gomes‐Casseres 2017For use by students in this class only. Please do not distribute or post.
Class LecturesFor use by students in this course only.Please do not post or distribute further.
Bus 260a
Brandeis UniversityInternational Business School
Competition and StrategyIntroduction
Bus 260a
Brandeis UniversityInternational Business School
Competition and StrategyIntroduction
Ben Gomes‐Casseres
bgc@brandeis.edu
1. Average industry profitability
2. Variance of profitability within each industry
3. Profitability of your business
4. Profitability of your company
Source: Michael Porter, “The Five Competitive Forces that Shape Strategy,” HBR Jan 08.
Brandeis University, International Business SchoolLecture notes for BUS 260a Competition and Strategy
© B. Gomes‐Casseres 2017For use by students in this class only. Please do not distribute or post.
A definition of business strategy
The set of goals and functional policies that
collectively define the way a business uses
internal and external resources and positions
itself in its environment to achieve and sustain
superior performance.
Source: Saloner, Shepard, and Podolny, Strategic Management (New York: John Wiley, 2001).
BUS 260a
Competition and Strategy
Brandeis University, International Business SchoolLecture notes for BUS 260a Competition and Strategy
© B. Gomes‐Casseres 2017For use by students in this class only. Please do not distribute or post.
Functional areas of business
• Control
• Marketing
• Production
• Finance
• Strategy
• Organization
General Management
Levels of strategy in organizations
Corporate strategy
Business unit strategies
Functional strategies
Brandeis University, International Business SchoolLecture notes for BUS 260a Competition and Strategy
© B. Gomes‐Casseres 2017For use by students in this class only. Please do not distribute or post.
Pre‐history of strategy: 1950s
Strengths
Weaknesses
Opportunities
Threats
Distinctive competence
Internal to the firm
Compared to rivals
Industry structure
External to the firm
Compete with rivals
Competitor Analysis
Industry Analysis
Advances in strategic thinking
• Industrial Organization
– Structure, conduct, performance
– Barriers to entry
• Game Theory
– Competitive reaction
– First‐mover advantages
• Theory of the Firm
– Capabilities and resources
– Boundaries of the firm
• Organizational Economics
– Information and incentives
– Coordination and control
1970s
1980s
1990s
2000s
Brandeis University, International Business SchoolLecture notes for BUS 260a Competition and Strategy
© B. Gomes‐Casseres 2017For use by students in this class only. Please do not distribute or post.
Fundamentals of StrategyFundamentals of Strategy
Ben Gomes‐Casseres
Notes on lectures given throughout the course
Brandeis UniversityInternational Business School
Bus 260aCompetition and Strategy
Ten sets of concepts in strategic thinking
1. BCG matrix – updated
2. Porter’s Five Forces
3. Generic strategies
4. Sources of competitive advantage
5. Capabilities, positions, and activities
6. International and global strategy
7. Porter’s Country Diamond
8. Multi‐business (corporate) strategy
9. Organizational strategy
10. Value‐chain competition
Brandeis University, International Business SchoolLecture notes for BUS 260a Competition and Strategy
© B. Gomes‐Casseres 2017For use by students in this class only. Please do not distribute or post.
The BCG MatrixBoston Consulting Group
Industry growth rate
Low
High
Company’s market share
Low High
?
Industry and position (BGC Matrix Updated)
Industry
attractiveness
Low
High
Company’s competitive position
Low High
Industry growth rate
Company’s market share
Brandeis University, International Business SchoolLecture notes for BUS 260a Competition and Strategy
© B. Gomes‐Casseres 2017For use by students in this class only. Please do not distribute or post.
Analyzing the competitive environmentPorter’s Five Forces
Threat of new entrants
Supplier power
Industry rivalry
Buyer power
Threat of substitutes
Porter, “How competitive forces shape strategy,” HBRMar-Apr 1979.
The idea of core competence
Hamel & Prahalad, "Core Competence of the Corporation," HBR, May-Jun 1990
Brandeis University, International Business SchoolLecture notes for BUS 260a Competition and Strategy
© B. Gomes‐Casseres 2017For use by students in this class only. Please do not distribute or post.
Core competence may yield profits if …
• Valuable to buyers, who will pay for it
• Unique, or at least a scarce capability
• Hard to imitate or substitute
• Slow in becoming obsolete or eroding
• You are able to appropriate the value
Collis & Montgomery, "Competing on Resources," HBR, Jul-Aug 1995.
Jay Barney's VRIN framework
When does a resource yield competitive advantage?
• Valuable . . . leads to higher revenue or lower cost
• Rare . . . not available to all
• In‐imitable . . . difficult (or costly ) to copy
• Non‐substitutable . . . few functional substitutes
Brandeis University, International Business SchoolLecture notes for BUS 260a Competition and Strategy
© B. Gomes‐Casseres 2017For use by students in this class only. Please do not distribute or post.
Porter’s “generic strategies”
Broad market
Niche market
Cost Quality
Low-cost strategy
Differentiation strategy
Focus strategy
$/unit
Willingness to pay
Price
Cost
Profit
Low cost strategy
Differ’n strategy
Both
Sources of competitive advantage
Brandeis University, International Business SchoolLecture notes for BUS 260a Competition and Strategy
© B. Gomes‐Casseres 2017For use by students in this class only. Please do not distribute or post.
Competitor analysis
Competitive position
1. Compare activities, cost, prices
2. Compare motivations, behavior
Competitive reaction
1. Forecast their moves and reactions to yours
2. Influence competitor behavior
3. Fight, accommodate, ally
4. Game theory rule: “Think ahead and reason backward”
Three international strategies
• Multi‐domestic– Replicate the business in different locations
– Advantages developed in one (home?) country
• Global– Integrate globally
– Single brand and globally‐scaled production
– Advantages derive from scale, diversity, flexibility
• Arbitrage– Trade and transfer products and services
– Advantages arise from combining locations
Brandeis University, International Business SchoolLecture notes for BUS 260a Competition and Strategy
© B. Gomes‐Casseres 2017For use by students in this class only. Please do not distribute or post.
Sources of international advantage
Firm-based Technology and brands Capabilities and experience Scale and scope Strategy and structure
Country-based Factors of production Structure of industry Patterns of demand Industry clusters
Government-based Trade protection Subsidies, preferences Investment regulation Bargaining power
Analyzing country competitivenessPorter’s Country Diamond
Source: Michael Porter, Competitive Advantage of Nations, 1990.
Strategy,structure,
rivalry amongdomestic firms
Domesticdemand
conditions
Domesticfactors of
production
Related andsupportingIndustries
(“clusters”)
Brandeis University, International Business SchoolLecture notes for BUS 260a Competition and Strategy
© B. Gomes‐Casseres 2017For use by students in this class only. Please do not distribute or post.
The logic of corporate strategy
• Strategic spillovers
– Positive or negative
– Shared resources, capabilities, information
– Bargaining power with buyers and suppliers
– Customized inputs/outputs in vertical chain
– Diversification? Cost of capital?
• Managing strategic spillovers
– Organizational architecture
– Flow of information
– Allocation of resources
– Processes and culture
From context to strategy to organization
Neededcapabilities
Organizationalstructure
Externalcontext
Strategy
Internalorganization
Alliancewith other
Mergerwith other
Brandeis University, International Business SchoolLecture notes for BUS 260a Competition and Strategy
© B. Gomes‐Casseres 2017For use by students in this class only. Please do not distribute or post.
Classic organizational structures
One business
Multiple businesses
One country
Multiple countries
Functional Product
Geographic Matrix
Use a variety of tools
• Architecture– division into subunits and linking mechanisms– reporting relationships– governance structure– reward and compensation
• Routines– procedures,– processes,– systems for dealing with repeated decisions
• Culture– commonly held values and beliefs– habits and “way of doing things”– informal communication and social patterns
Saloner, Shepard, Podolny, Strategic Management (Wiley, 2001).
Brandeis University, International Business SchoolLecture notes for BUS 260a Competition and Strategy
© B. Gomes‐Casseres 2017For use by students in this class only. Please do not distribute or post.
0
25
50
75
100
125
150
Stand-alonevalues of
companies
Realizedvalue?
Combinedvalue
(in theory)
Synergyvalue toacquirerSynergy
value totarget
Economic logic of an acquisition
Corporate strategy: Add value to stand‐alone
Acquisition strategy: Add more value than rival
“Parenting advantage”
(Best owner)
+
=
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