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SACI HT24 Frågebatteri Book: Book: Book: Book: Articles Introducing Strategic Strategic Strategy in strategy position choices action Av Browall och Dalloz, njut! ...

SACI HT24 Frågebatteri Book: Book: Book: Book: Articles Introducing Strategic Strategic Strategy in strategy position choices action Av Browall och Dalloz, njut!  Models and Techniques: Oliver, Heracleous & Jacobs (2014) Divergent Techniques: - Brainstorming: Encourages idea generation but is criticized for issues like free-riding, evaluation apprehension, and production blocking. Electronic brainstorming has attempted to address some of these limitations. Key concepts - Mind Mapping: Expands ideas outward from a central problem but struggles Divergent vs. Convergent Thinking: with integrating disparate thoughts into a cohesive output. - Divergent thinking involves generating a wide range - Storyboarding: Constructs stories using visual and textual elements but often of ideas and perspectives without immediate concern fails to connect unrelated ideas in a meaningful way. for solving a specific problem. Techniques include Convergent Techniques: brainstorming, mind mapping, and storyboarding. - Strategic Planning: A structured approach that focuses on formalized goals but - Convergent thinking focuses on narrowing down is criticized for being rigid and uninspired. It may lead to routine, less creative options to solve specific challenges. Techniques like strategies. formal strategic planning and management - Management Simulations: These synthetic environments allow managers to test simulations are examples of structured, convergent ideas and decisions in controlled contexts but tend to limit creativity due to methods. predefined frameworks. - Hybrid thinking balances both approaches, Hybrid Thinking: combining the creativity of divergent thinking with - Combines the open, exploratory nature of divergence with the focused, the focus of convergent thinking. It allows for idea practical approach of convergence. Techniques like serious play are used to generation followed by refinement into practical bridge the gap between these modes of thinking. solutions. - Serious Play: Encourages creativity through playful interaction with materials (e.g., LEGO or similar tools). It involves both individual and collective Challenges to Creativity: construction to address organizational issues, blending creative thinking with problem-solving. - Managers face difficulties in stimulating creativity due to short-term incentives, limited budgets, and a Case Studies (Serious Play Examples): lack of effective tools for quantifying the payoffs of ChemInc: Used serious play to revise a strategic plan, resulting in a more innovative approach that addressed operational complexity and customer relations through the metaphor of "tubes." creativity. PaintInc: Explored brand identity across diverse markets. The exercise revealed cultural differences and led - Organizational diversity is necessary for real to a better understanding of how the brand could evolve in international settings. creativity but is hard to harness effectively without MobileInc: Developed strategic guiding principles through serious play, using metaphors like a "flotilla of ships" to represent the organization's identity. This led to actionable insights and a more energized structured intervention. decision-making process.  …Continuing Key Arguments: - Hybrid thinking offers a balanced approach to generating creativity in organizations. By allowing for both exploration (divergence) and decision-making (convergence), it provides both novelty and practical value. - Techniques like serious play allow participants to construct physical models of abstract organizational problems, enabling deeper understanding and engagement compared to purely cognitive approaches. - Creativity interventions must avoid premature closure (too convergent) and endless openness (too divergent) to foster both engagement and ownership of the creative process. Conclusion: The article argues that hybrid thinking, exemplified through techniques like serious play, can foster organizational creativity by integrating divergent and convergent approaches. The process encourages creativity while ensuring that the solutions generated are practical and implementable. For organizations to succeed in dynamic environments, they need to embrace both exploration and exploitation, using hybrid techniques to drive innovation.  Relative vs. Absolute Performance: Rosenzweig (2007) Rosenzweig emphasizes that company performance is relative rather than absolute. For example a company's success is measured by how well The Halo Effect: The halo effect describes how perceptions of a it does compared to competitors, not just by how much it improves on its own. → (E.g., Kmart got better in the 1990s but still lost to Wal-Mart, company’s overall performance influence evaluations of specific traits which improved even more. like its strategy, leadership, culture, and other factors. → When companies perform well, they are attributed with positive traits (e.g., The Role of Strategic Risk: strong leadership, excellent strategy), and when they perform poorly, Strategy and business decisions involves making choices under those same traits are viewed negatively, even if there is no big change in uncertainty, without a guarantee of success. Thus, poor outcomes don’t the company's internal processes. necessarily imply poor decisions, and good outcomes don't always result from good decisions.. Retrospective Bias (aka hindsight): When people evaluate a company's Problems with Leadership Attribution: success or failure after it happens, they often give simple explanations When a company is doing well, its leaders are often praised but when the like "bad leadership" without using objective facts. This oversimplifies the company struggles, those same leaders are quickly blamed and labeled real reasons and leads to misleading conclusions. → (E. g., Dell’s decline as poor decision-makers. This kind of judgment overlooks how complex in 2007.. Dell was previously praised for its direct sales model, but after business challenges are and assumes leadership is the only factor performance declines, the same model was criticized. In reality, Dell’s affecting success. relative decline was more due to competitors like HP improving rather Evidence-Based Management: = Rosenzweig promotes evidence-based than Dell becoming "complacent.") management, which means making decisions based on facts and objective data, not on opinions or biased views of how a company is Flawed Business Models in Popular Studies: doing. In Search of Excellence (1982), Built to Last (1994), and Good to Great (2001) are heavily criticized for methodological errors: - Selection Bias: These studies selected only top-performing companies and then Key Takeaways for Managers: attributed their success to internal factors without valid comparison to less - Managers should avoid looking for easy formulas/blueprints for successful firms. success. Instead, they should focus on making strategic decisions that - The Halo Effect: These books often used data from biased sources (e.g., media increase the probability of success, understanding that uncertainty and reports, retrospective interviews) that were influenced by a company’s success, competition make outcomes unpredictable. leading to circular reasoning. - Good management involves gathering valid, independent data and - The companies studied often experienced sharp performance declines shortly focusing on relative performance in a competitive market, rather than after these books were published, suggesting that the "causes" identified were relying on retrospective attributions based on past success. not predictive of sustained success.  Competitive Segments: Businesses compete within specific Henderson (1983) "competitive segments," defined by advantages and environmental factors. The boundary of a competitive segment is where competitors Universal Principles of Competition: → “Competition is universal” hold no relative advantage over one another. Shifts in environmental Henderson draws a parallel between biological competition and business competition, conditions can change the boundaries of these segments, requiring suggesting that both operate under the same fundamental laws. Darwin's theory of competitors to adapt quickly. natural selection and Gause’s Principle of Mutual Exclusion apply equally to business. - Gause’s Principle of Mutual Exclusion: In biological competition, no two species Trophic Levels and Resource Competition: In biology, trophic levels can occupy the same niche. In business, the same applies: companies need to represent the steps in a food chain. In business, resources (like money, differentiate themselves to survive. energy, or materials) are converted across different levels (e.g., raw - Darwin’s Theory of Competition: Competition is more intense between similar materials to finished goods). Vertical and horizontal competition competitors. Differences in traits or strategies that match environmental factors occurs between these levels, driving the dynamics of competition. allow competitors to coexist. Darwinian Fitness Factor (DFF): Measures the growth or decline of a Competitive Systems are like Relationships: species or business over generations. A DFF above 1.00 indicates * Competitors that endure must have a unique advantage over others. growth, while a DFF below 1.00 predicts eventual extinction. * Similar competitors experience more intense competition. - Competitors that coexist have different characteristics suited to different environmental Specialization and Differentiation Are Essential: For a business (or factors, leading to equilibrium. species) to survive, it must be specialized and differentiated. This - Markets have segments where each competitor has an advantage. When things change, allows it to occupy a distinct niche in the competitive environment, competitors must adapt to remain successful.. preventing other competitors from crowding it out. Competition as a Complex Web: Henderson argues that the competitive environment is a The Role of Marketing in Competition: complex web of relationships where each competitor affects and constrains the others. Marketing is a critical subsystem in the broader competitive Success in this environment requires an understanding of how each competitor interacts environment. It plays a crucial role in generating revenue, which is the with others and the environment. common medium for competing for resources in the business world. The goal of marketing is to leverage a firm’s competitive advantage to Dynamic Equilibrium: secure its position within a dynamic and competitive system. Businesses are in constant adaptation to maintain their competitive advantage. The “Red - My own example; Gorilla the medium for computing could be Queen Syndrome” describes this need for continual change, as all competitors must power and strength. By showing (marketing this) they show evolve just to keep up with one another. Failure to adapt leads to extinction. their competitors and secures its position. - Competitors must achieve equilibrium in the marketplace, where forces that disturb this balance are countered by forces that restore it.  Emerging Perspectives on Strategy: Modern thinking about strategy has Burt et al.. (2006) changed. Instead of believing that strategy can be fully planned out and controlled, researchers now see it as something that develops over time. It’s Key Concepts: influenced by both what happens inside the company (like decisions by Contextual Environment Analysis: employees and leaders) and what happens outside (like market changes or Organizations must adapt to changes in their external environment to new laws). Also, every organization sees the world differently. The survive. However, many strategies focus on simplistic approaches like environment isn’t the same for everyone—it depends on how the people in PEST, STEEP (adds environmental factors), or PESTEL (adds the organization, especially managers, understand and interpret what’s environmental and legal factors). happening around them. So, the way a company views its challenges and - These models fail to capture the complexity, opportunities is shaped by its own unique perspective. → The environment interrelationships, and drivers of change in the is organization-specific and socially constructed environment. Pest ect. focuses on macro perspective. Pest etc. often produce lists of factors but lack depth in understanding Shifts that comes with scenario planning: the causes and relationships between variables. Scenario Planning as a Tool for Learning and cooperation: Scenario - Traditional strategy textbooks underemphasize the planning encourages collaborative learning and helps organizations complexities of the environment. The majority dedicate less understand not just what could happen, but how different factors might than 5% of their content to environmental analysis, favoring interact to create unexpected outcomes. generic, static models like PEST. Shift from “The Environment” to “Our Environment”: The authors argue that organizations need to shift from viewing the environment as something Scenario Planning: objective and external to something that is shaped by their own perceptions Unlike PEST, which is static and often retrospective, scenario planning and actions. is a tool that helps organizations explore multiple plausible futures. Early models: - Scenario planning allows managers to explore complex Causal Texture of Environments (Emery and Trist, 1965): Describes different types relationships between uncertainties and identify potential of environments: placid and randomized, placid and clustered, Disturbed and reactive drivers of future change. and turbulent. Most modern environments are seen as turbulent, constantly changing, and hard to predict. - It focuses on creating stories or narratives about how the Two approaches: The contextual → environment that is understood in terms of future could unfold, helping managers to think creatively and macro factors (such as political, economic, societal, and technological factors). The prepare for discontinuities (sudden changes in the task (or organization-specific) → environment that is understood in terms of choice environment). of strategy by an organization toward that particular environment.  Experience Curve (BCG) Developed by the Boston Consulting Group (BCG), the Experience Curve Market-based view: Ghemawat, suggests that as companies produce more, their costs decrease due to learning, economies of scale, and improved efficiency. This model emphasizes the importance of market share and Pankaj (2002) production efficiency in maintaining competitive advantage. Historical Context and Emergence of Strategy → Critique: By the 1970s, the limitations of the experience curve became evident. The model was Adam Smith's Invisible Hand: In the 19th century, the criticized for being too mechanical and for oversimplifying complex business environments. "invisible hand" meant that businesses couldn’t control the Critics also argued that focusing on cost minimization might reduce a firm's ability to innovate. market. Competition was tough, but companies were small and couldn’t really affect the overall market on their own. They had BCG Growth-Share Matrix Also known as Portfolio Analysis, this matrix categorizes business to follow the natural flow of supply and demand. units into four types: Stars, Cash Cows, Dogs, and Question Marks. It helps firms decide how to allocate resources based on market growth and market share. Development of Mass Markets: After the U.S. railroad boom in → Critique: Although popular, portfolio models (e.g., BCG matrix) faced criticism for being too the mid-19th century, mass markets emerged, enabling firms to rigid and for relying on historical data rather than future opportunities. This led to exploit economies of scale and scope. Alfred Chandler’s recommendations for more flexible, dynamic approaches. concept of the “visible hand” of managers signaled the rise of professional management and large corporations, leading to Porter’s Five Forces Developed by Michael Porter, this model identifies five competitive forces vertically integrated, multidivisional firms that altered that shape an industry’s profitability: Bargaining power of suppliers, Bargaining power of buyers, competitive dynamics. Threat of new entrants, Threat of substitutes, Rivalry among existing competitors The model helps companies assess the attractiveness of their industry and craft strategies to improve their SWOT Analysis Strengths, Weaknesses, Opportunities, and competitive position. Threats (SWOT) was developed at Harvard Business School. It → Critique: Too simplistic, focusing too much on structural barriers, and assuming predictable helps businesses analyze their internal capabilities (strengths behavior in markets, which isn’t always realistic and weaknesses) and external factors (opportunities and threats) to align their strategy. Strategic Business Units (SBUs) The concept of SBUs emerged in the 1970s, especially in large → Critique: Too static and oversimplified. It struggles to define diversified firms. SBUs are distinct business segments within a company, each with its own long-term strengths ("distinctive competence") and doesn’t strategy and objectives, allowing firms to manage their diverse operations effectively. account for changes in the competitive environment. This makes it less effective for dynamic strategic planning. Value Chain (Porter) The Value Chain concept was introduced by Michael Porter in Competitive Advantage (1985). It disaggregates a company into activities (e.g., production, marketing, The article stresses the importance of analyzing both industry logistics) that contribute to its cost position and differentiation. This allows businesses to analyze attractiveness (through models like Porter’s Five Forces) and a firm's where value is created and how to improve competitiveness. competitive position within an industry. Competitive advantages are often fleeting, requiring companies to continuously adapt and innovate. …Continuing Game Theory Game theory is the study of how people or businesses make decisions when their choices depend on what others do. In business, it's used to understand competitive interactions between firms. - Zero-sum games: One player's gain equals another's loss (e.g., one company wins at another's expense). - Non-zero-sum games: Players can cooperate, where both can benefit, or compete, where one may gain more. - Strategic actions: In game theory, firms make moves that commit them to certain paths, affecting competitors' expectations and actions. → Critique: Limitations: Game theory can be overly complex and relies on the assumption that all players behave logically, which isn't always realistic. The value net and Co-opetition Introduced by Adam Brandenburger and Barry Nalebuff, The value net is a model that highlights how firms both compete and cooperate. The process of creating value in the marketplace involves four types of players, customers, suppliers, competitors, and complementers. It adds "complementors" to the competitive forces—firms whose products complement your own, showing the importance of strategic alliances and partnerships. Time-Based Competition Developed by George Stalk (BCG) in the late 1980s, this concept emphasized the importance of speed and responsiveness in gaining competitive advantage. → Critique: However, it warned of the risk of focusing too much on efficiency at the expense of customer needs, leading to a strategic "treadmill." Value-Based Strategic Management This model focuses on maximizing shareholder value by connecting competitive positioning with discounted cash flows and growth opportunities. It emphasizes sustaining competitive advantage and leveraging profitable reinvestment opportunities. Strategic Groups and Mobility Barriers These concepts arose from Industrial Organization Economics (IO). Strategic groups represent clusters of firms within an industry with similar strategies. Mobility barriers are factors that prevent firms from moving between these groups, explaining why some firms outperform others. Red Queen Effect This concept highlights that businesses need to constantly improve to stay competitive. Companies must "run fast" just to maintain their position in competitive markets. This reflects the constant pressure to adapt and innovate in dynamic industries.  Resources and Capabilities: Chandler. (1992) First Movers and Their Advantages: Companies that invested early in manufacturing, marketing, and management Historical Beginnings and Evolution of Industrial Enterprises: led their industries by mastering new technologies and processes, creating Chandler describes how large industrial companies started in the late 19th strong organizational learning systems to stay ahead of competitors. century, especially during the Second Industrial Revolution. These companies used new technologies and transportation systems to scale up production and Oligopolistic Competition: distribution. Important Point: → The emergence of modern industrial firms was Firms gained an edge not just through price, but by improving efficiency, closely linked to the rise of transportation (railroads, steamships) and products, and marketing. This created strong organizational capabilities, communication networks (telegraphs), which enabled large-scale production and making it hard for new companies to compete with established firms that had distribution. already optimized production and distribution. Organizational Capabilities: Chandler emphasizes that the success of these The Importance of Organizational Learning: companies was due to their organizational capabilities—their ability to Chandler argues that the success and growth of these industrial enterprises efficiently manage production, marketing, and management through depended on their ability to learn and improve continuously. This learning continuous learning and adaptation. → Companies that made early investments process allowed them to dominate industries for long periods. in manufacturing, marketing, and management (the "first movers") were able to → Organizational capabilities, developed through learning, are what allowed dominate their industries. These investments created a long-lasting advantage. these companies to maintain their competitive edge and expand into new markets. Economic Theories Related to Firms: - Neoclassical Theory: Sees the firm as a simple legal entity that knows Relevance of Transaction Cost and Evolutionary Theories: everything it needs to maximize profit. Chandler critiques this as too Chandler believes that the transaction cost and evolutionary theories are simplistic, not taking the complexities of firm behavior into account. most useful for understanding how large industrial companies grow and - Principal-Agent Theory: Focuses on the relationships between owners maintain their success. These theories explain how companies manage internal (principals) and managers (agents). It addresses issues of asymmetric operations and adapt over time to stay ahead. information and performance measurement. Chandler notes that while this theory is useful, it doesn't explain the complexities and evolution of Important terms: firms. Firms grew by expanding vertically (controlling their supply chains and - Transaction Cost Theory: This theory looks at how companies reduce distribution) and horizontally (entering related product markets). They costs by keeping activities in-house rather than relying on outside adjusted these strategies depending on their capabilities and market needs, as suppliers. Chandler agrees with this but stresses that the firm itself (not well as changes in competition and technological conditions. just transactions) should be the focus. - Evolutionary Theory: This is Chandler’s favorite theory. It suggests that The development of large industrial enterprises was driven by their ability to companies constantly learn and adapt, and this helps them stay exploit economies of scale (cost reduction through high production volume) competitive over time. It explains how firms evolve through and economies of scope (cost savings through diversification in related organizational routines and practices. products).  Technological Capabilities and Firm Survival Innovation and Entrepreneurship: The article argues that technological capabilities—the ability of firms to innovate, solve problems, and integrate new technologies—are crucial in explaining why certain firms survive Bergek et al., (2008) shakeouts and others exit the industry. The article divides Technological capabilities into Industry Life Cycles and Shakeouts Technological strategy and Technological activity: Two kinds of "shakeouts," where weaker companies leave an industry. Technological strategy refers to the top management's intentions and plans for how to - Early Shakeouts: These happen when an industry is new develop and use technological resources. It is about decisions. and growing fast. Lots of new companies enter, and only the Four Key Dimensions of Technological Strategy: strongest survive, often because they innovate better than - Technology Leadership: The ambition to lead in technological advancements (e.g., others. introducing breakthrough technologies). - Late Shakeouts: These occur in older, well-established - Technology Scope: The range of technologies a firm invests in, either focusing industries. Instead of new companies entering, it's the big, narrowly or diversifying. existing companies that compete. When a new technology - Technology Sourcing: Whether firms develop technologies internally (in-house R&D) or appears, some companies can adapt, but others can't keep source them externally (alliances, joint ventures). up and are forced to exit. - Cost Leadership: The firm’s ability to achieve cost efficiency while developing new The article focuses on late shakeouts in the gas turbine industry. technologies. Complex Product Systems (CoPS): The article highlights that CoPS Technological activities refers to the actual operations that firms/employees undertake to industries often see ongoing product innovation, as companies work explore, develop, and improve their technologies. These are day-to-day efforts. to enhance individual components and overall system performance. Three Key Dimensions of Technological Activities: So even in old industries like gas turbines, companies still need to - R&D activity: Involves exploring new technologies and improving existing ones, often keep improving their products. Innovation never really stops. measured by patents or investment. Companies like GE, with high R&D activity, stay competitive by continually innovating and leading the market. (research and Technological Discontinuities: Sometimes, big changes in development efforts, often measured through patents). technology happen, even in mature industries. These changes force - Product launching: This is the process of bringing new products to market. Successful companies to either adapt or fall behind, which can cause some launches help companies take advantage of R&D efforts. All four companies (GE, companies to fail and leave the industry. Siemens, ABB, and Westinghouse) introduced new turbine models, though some were → Example: In the gas turbine industry, a new technology called more reliable than others. CCGT made the competition intense again, causing another round of - Problem-solving: Involves fixing issues that arise after products are launched. shakeouts where only the strongest companies, like GE and Companies that solve problems quickly maintain customer trust. GE excelled at this, Siemens, survived. which helped them maintain leadership in the industry.  Coordination vs. Control: Business Strategy and Models: Collis & Montgomery Companies must decide how to coordinate their resources and manage their (1998) divisions. This can be done through: Shared resources: Centralized functions like sales or R&D. Corporate Advantage vs. Competitive Advantage: Transferred resources: Skills or practices moved between divisions. - Competitive advantage focuses on creating value within a single business or division. Control systems also vary: - Corporate advantage refers to creating value across multiple businesses Financial control: Focuses on measuring financial outcomes, holding in a corporation. It involves aligning resources, organizational structure, managers accountable for quantitative targets like profit and revenue (used and business strategies to create more value collectively than individual in companies like Tyco with general resources/ used in mature, stable units could on their own. industries).. Operating control: Focuses on evaluating management actions and decisions, The Triangle of Corporate Strategy: focusing on performance drivers and qualitative evaluations (used by The three key components are: companies like Sharp with specialized resources/ used for complex, dynamic - Resources: Specialized or general assets, skills, and capabilities that a businesses). company develops. - Businesses: The markets or industries in which a corporation competes. → Companies need different control systems depending on their resource - Organization: The way a corporation structures itself to leverage continuum position. For example, Sharp uses operating control systems to resources across its businesses. manage functional units that require coordination, while Tyco relies on When all three are aligned, they enable a company to capture synergies and gain financial controls and incentive systems due to its more general business corporate advantage. Misalignment results in inefficiency and value destruction. structure. Resource Continuum: Corporate resources exist on a continuum: Synergies: Synergy refers to the benefits (or additional value) a company - Specialized Resources: Unique, highly specific resources that give can achieve by coordinating or integrating activities across multiple competitive advantage in a limited number of businesses (e.g., Sharp’s businesses. The challenge is determining whether resources should be shared LCD technology). or transferred, and how to structure the organization to maximize these - General Resources: Broad, flexible resources that can be applied to synergies without adding unnecessary costs. many different businesses (e.g., Tyco’s financial management practices). The alignment of resources, businesses, and organizational structures is crucial Fit and Alignment: A key argument is that corporate strategy succeeds when for creating corporate advantage. Companies with specialized resources should there is a "tight fit" between a company’s resources, businesses, and focus on fewer businesses, while those with general resources can operate in a organizational structure. Misalignment can lead to inefficiencies or the failure broader range of industries. of corporate strategies, as seen in examples like Saatchi and Saatchi. … Continuing Case Studies of Corporate Strategy: Key Arguments: Newell: Their strategy is based on leveraging Relatedness is About Resources, Not Products: Companies often make the mistake of relationships with discount retailers and focusing on expanding into businesses that appear related in terms of products but do not leverage the high-volume, low-cost manufacturing. They excel in same resources. The success of a corporate strategy depends on resource relatedness, not integrating acquisitions into a coherent system that product relatedness. benefits from shared corporate resources like sales expertise and manufacturing efficiency. One Size Does Not Fit All: There is no universal approach to corporate strategy. Different companies require different organizational structures, control systems, and resource Sharp: Sharp relies on specialized technological coordination mechanisms based on their position along the resource continuum. resources, particularly in optoelectronics (e.g., liquid crystal displays). Its strategy focuses on leveraging Continual Improvement is Essential: Corporate strategy must evolve continuously. The best these core technologies across multiple products while strategies are not static but involve ongoing upgrades to resources, coordination, and maintaining centralized functional units for efficiency. organizational structures to maintain corporate advantage. Tyco: Operating at the opposite end of the spectrum, Corporate Strategy Costs vs. Benefits: The costs of maintaining corporate structures (e.g., Tyco uses general management skills and financial overhead, complexity) must always be less than the benefits of coordination and synergy. If controls to create value across unrelated businesses. Its not, the company may fail to achieve corporate advantage. decentralized structure encourages entrepreneurial behavior within its divisions.  Corporate Strategy: Stuckey & White Risks of Vertical Integration Vertical integration often reduces some risks and transaction costs but comes with (1993) high setup costs and uncertain coordination efficiency. There are potential pitfalls, Overview Vertical integration, though a potentially powerful strategy, such as: is risky, complex, expensive, and difficult to reverse. Managers often - High fixed costs. misjudge its utility. The central advice is: only vertically integrate - Risk of inefficient internal coordination. when absolutely necessary to create or protect value. - Exposure to long-term operational risks. When to Integrate Alternatives to Integration The main reasons for vertical integration include: Companies should consider "quasi-integration" strategies, such as: - Market Failure: When the market is unreliable or "fails," - Long-term contracts. making external trading too risky. - Joint ventures or strategic alliances. - Market Power Imbalance: When adjacent companies in the - Technology licenses or asset ownership arrangements. supply chain have more power, making it beneficial to These can offer similar benefits to full integration without the high costs and risks. integrate. - Creating Market Power: Raising barriers to entry or price When Not to Integrate discrimination across customer segments through integration. Vertical integration should be avoided unless absolutely necessary. Many managers - Industry Lifecycle: In young markets, integration may help justify it for invalid reasons like reducing cyclicality or assuring supply. Often, the develop a market; in declining markets, it may be needed to returns do not outweigh the costs, and many alternatives can be more flexible and maintain business operations. cost-effective. Market Failure Conclusion This is the most compelling reason for vertical integration. It occurs Vertical integration decisions must be carefully analyzed using a structured when: framework, considering market power, transaction costs, and alternatives. Missteps - There are only a few buyers and sellers (bilateral in integration strategy are costly, but companies that leverage it correctly can gain monopoly/oligopoly). a significant competitive advantage. - High asset specificity, intensity, or durability makes switching between suppliers costly. - Frequent transactions or uncertainties make external agreements costly and risky. … Continuing Important Terms & Concepts: Vertical Integration: Vertical integration means that a company takes control of more than one step in the process of making or selling a product. - Backward integration: The company buys or merges with a supplier, so it can control the supply of raw materials or components. - Forward integration: The company takes over distribution or sales, meaning it now controls how the product reaches customers. In both cases, the company manages more stages of the production or delivery process itself, rather than relying on other businesses. This can help reduce costs or give the company more control, but it also comes with risks and complexity. Vertical Market Failure (VMF): A market fails when it becomes too risky or costly for companies to trade with external partners. This occurs when transaction costs, asset specificity, or uncertainties make external trading inefficient. VMF is one of the strongest reasons for companies to integrate vertically. Asset Specificity: The degree to which an asset can only be used in a particular transaction or relationship. High asset specificity (e.g., specialized equipment) increases the need for integration because switching partners becomes prohibitively expensive. Bilateral Monopoly/Oligopoly: Situations where few buyers or sellers dominate a market, creating high transaction risks. A bilateral monopoly (one buyer, one seller) or oligopoly (few buyers/sellers) can lead to haggling, exploitation, and high transaction costs. Vertical integration reduces these risks. Transaction Costs: Costs of negotiating, monitoring, and enforcing contracts. High transaction costs may justify vertical integration. Market Power: Companies integrate vertically to protect themselves from suppliers or customers who have greater market power. By owning the adjacent stages of the supply chain, companies can prevent being exploited by others with monopolistic control.  Strategic Decision Making: Value Chains and International Strategy: Quinn & Hilmer (1994). Core vs. Non-Core Activities: Managers must determine which activities are critical to the company’s competitive edge and should Core Competencies: be kept in-house, and which can be outsourced to external specialists. Definition: Core competencies are the unique skill sets or knowledge bases that give a firm Strategic Risk Management: Firms must ensure that critical a competitive advantage. Companies should focus their internal resources on activities competencies are not outsourced to avoid losing skills or becoming where they can achieve preeminence and provide unique value to customers. too dependent on suppliers. Clear contracts, close collaboration, and → Core competencies are not tied to specific products or functions but represent careful management of relationships with suppliers are essential to long-term strategic capabilities that distinguish the company from its competitors. mitigate risks. Characteristics: Flexibility vs. Control: Strategic outsourcing requires carefully - Skill-based, not product-based. managing the trade-off between control over key processes and the - Flexible, evolving platforms that adapt over time. flexibility to adapt to market changes. Control should be maintained - Limited in number (usually 2–5 per company). where the company has a strategic need or competitive advantage, - Areas where the company can achieve dominance in the value chain. while flexibility should be prioritized in areas where suppliers can add value. Strategic Outsourcing: Definition: Outsourcing is the process of contracting out non-core activities to external suppliers that can perform them more effectively or efficiently. Competitive Edge vs. Strategic Vulnerability: Competitive Edge: Keeping in-house activities that give the company Benefits: a maintainable advantage in cost, quality, or speed. - Resource Maximization: Focusing internal resources on core competencies Strategic Vulnerability: The risk of losing control or becoming maximizes returns and increases a company’s competitive edge. dependent on external suppliers, which can hinder future innovation - Barrier Creation: Well-developed core competencies act as barriers to competition or market control. and protect market share. - Risk Reduction: By outsourcing, firms can minimize the risks associated with rapidly changing markets and technologies, while improving their responsiveness Examples: Nike: Nike outsources 100% of its shoe production while focusing on to customer needs. R&D, marketing, and sales. This strategic division of labor allows it to - Supplier Innovation: Outsourcing enables companies to benefit from the concentrate on its strengths while benefiting from external innovations and efficiencies of suppliers, enhancing overall performance. manufacturing expertise. Risks: Apple: Apple outsourced 70% of its manufacturing, focusing its - Loss of Critical Skills: Companies risk losing crucial skills and capabilities if key resources on software development and design, leveraging external activities are outsourced and the supplier gains a competitive edge. partners for components like chips and printers. This strategy allowed - Loss of Cross-functional Innovation: Outsourcing can diminish the opportunities Apple to maintain flexibility and avoid unnecessary investments. for cross-functional collaboration within the company, which may limit innovation. Stakeholder analysis: Jonsson & Regnér (2009). Normative Barriers as a Strategic Tool: → Differentiation Firms can strategically use institutional norms to delay competitive Resource-Based View (RBV): imitation. By introducing products that challenge these norms, firms - This strategic management theory posits that a firm's competitive advantage create temporary barriers to entry, giving them a competitive stems from resources that are valuable, rare, and difficult to imitate or advantage. substitute. (VRIN framework?) - → For example, Vanguard’s introduction of the index fund - The paper builds on RBV by exploring the social and normative aspects that was initially not imitated by competitors because it defied make certain resources or practices difficult to imitate. the professional norms of active asset management. Imitability: Ownership Structure and Imitation: Central to RBV is the idea that some resources are hard to copy, giving firms a The willingness to imitate also depends on a firm’s ownership competitive edge. structure. The paper expands this by identifying three stages of imitation: - → Union-owned firms, which are less tied to the professional ○ Identification: Recognizing which resources or practices to imitate. norms of the financial sector, are more likely to adopt ○ Willingness: The focus of the paper—firms may be unwilling to imitate products like SRI funds compared to privately held or due to institutional norms. state-owned firms. ○ Ability: Actual capacity to imitate a competitor’s product or practice. Socially Complex Resources: Institutional Theory: - Resources tied to professional norms (like the competence of - The paper uses institutional theory to explain how industry norms, values, and financial analysts) create barriers to imitation, not because professional standards influence organizational behavior. of technical difficulties but because of social and institutional - It argues that institutionalized norms create barriers to imitation, especially resistance. when certain products or practices challenge the prevailing logic of what is - Firms deeply invested in these norms may resist adopting considered appropriate in the industry. products that seem to contradict their core competences. Social Complexity: Social complexity refers to resources or competences that are deeply embedded in organizational culture or professional norms, making them Conclusion: The paper contributes to strategic management by difficult for competitors to imitate. → From the context of mutual funds → showing that institutionalized professional norms can be a significant - The paper examines how mutual fund firms in Sweden approach imitation of barrier to imitation. This extends the understanding of how firms can index and SRI funds. achieve sustainable competitive advantage not just through - These products were slower to be imitated because they challenged the technological or legal barriers but also through social complexity. industry’s established norms of "active management" where fund managers This study adds to the integration of institutional theory and are expected to beat the market through their expertise. strategic management by showing that institutions not only constrain - The study found that firms more heavily invested in professional groups like but can also be used to create strategic opportunities. financial analysts, who uphold these norms, were less willing to adopt these products. Stakeholder analysis: Elkington (2018). The Evolution of TBL-Related Models: Related Frameworks: Since the introduction of TBL, several related sustainability Triple Bottom Line (TBL): models have emerged, including ESG (Environmental, Social, and Governance), Social Definition: A sustainability framework that encourages businesses to Return on Investment (SROI), and Integrated Reporting. measure and address their social, environmental, and economic Challenge: While these frameworks have proliferated, Elkington argues that the impacts. abundance of models and options has diluted the impact of TBL, and many companies Goal: To go beyond just financial profits (the traditional bottom line) are not held accountable for meeting sustainability goals with the same rigor they and account for how a business affects people and the planet. apply to financial targets. Sustainability Sector: B Corporations and Systemic Change: Current Status: The sector has grown since the 1990s but remains B Corporations: Certified B Corps are businesses that commit to balancing profit and relatively small with around $1 billion in annual revenue, despite purpose, operating in line with TBL principles. Companies like Brazil’s Natura and predictions of enormous future market opportunities. Danone North America are notable examples. Impact: The progress in achieving sustainability goals has been Elkington's Optimism: He sees B Corps as a bright spot, with momentum growing for mixed, with critical sustainability issues still worsening. businesses to become "best for the world" rather than just "best in the world." However, he warns that even B Corps need to scale their ambitions to avoid overshooting Single Bottom Line Capitalism: planetary boundaries. Definition: The traditional business focus on profit maximization, often at the expense of social and environmental considerations. Planetary Boundaries and Radical Intent: Criticism: TBL was introduced to challenge this outdated model, but Argument for Radical Action: Elkington argues that to avert environmental disaster, many businesses still prioritize profits over broader concerns. TBL and related sustainability frameworks must become more radical and fast-moving. Incremental progress is insufficient, and a more urgent, transformative approach is Recall of the Triple Bottom Line: needed to avoid crossing planetary boundaries (limits to Earth’s natural systems). TBL Recall: Elkington proposes a strategic rethink of the TBL framework to bring it back to its original purpose: driving deep Triple Helix for Capitalism: system change, not just improving business reporting. Vision for the Future: Elkington envisions a "triple helix" framework for value creation, System Change Argument → Original Intent of TBL: TBL was not embedding social, environmental, and economic sustainability into the very DNA of meant to simply balance social, environmental, and economic tomorrow's capitalism. This would involve more aggressive actions like sidelining concerns, but to drive systemic change in capitalism. It sought to unsustainable sectors and rapidly scaling next-generation solutions. create a new model of capitalism that disrupts the traditional focus on profit alone. Stakeholder analysis: Freeman et al., (2021) Integration of Stakeholder Theory into RBV: The authors argue that four areas of Stakeholder Theory could enhance Introduction: The article highlights the parallels and divergences between RBV: RBV and Stakeholder Theory, arguing that although RBV is prominent in - Normativity: Adding ethical and moral considerations to strategic management, it is incomplete without incorporating stakeholder business decisions. perspectives. It mainly focuses on resources that generate profit and - Sustainability: The notion of sustainable competitive advantage competitive advantage, but often overlooks the people and relationships in RBV could be expanded to include sustainable stakeholder behind those resources. The authors suggest integrating elements of relationships. Stakeholder Theory into RBV for a more holistic management approach. - People: Stakeholder Theory views people as stakeholders with intrinsic value, while RBV often treats them as resources. Resource-Based View (RBV): RBV explains how firms achieve sustainable Integrating the two could help firms better manage human competitive advantage by utilizing unique internal resources (e.g., capital. financial, human, organizational). The VRIN framework highlights that - Cooperation: RBV’s focus on competition could benefit from resources must be valuable, rare, inimitable, and non-substitutable to Stakeholder Theory’s emphasis on cooperation, which is sustain an edge over competitors. increasingly important in complex, interconnected business environments. Stakeholder Theory: This theory advocates that firms should create value for all stakeholders—employees, customers, suppliers, communities—not Sustainable Stakeholder Relationships as Competitive Advantage: just shareholders. It stresses ethical management, sustainability, and The authors highlight that strong, trusting relationships with cooperation as essential for long-term success, emphasizing that firms stakeholders are themselves a source of competitive advantage. These must balance diverse interests to foster trust and cooperation. relationships are hard to imitate and can provide long-term value to a firm, much like physical resources. Historical Development: Both theories emerged in the 1980s in strategic management. RBV focuses on competitive advantage through firm Conclusion: The paper concludes that integrating Stakeholder Theory resources, while Stakeholder Theory prioritizes sustainable relationships into RBV offers a promising path to enhance the understanding of with stakeholders. Despite evolving separately, both share common strategic management. This unified view could help firms better serve origins. stakeholders and achieve long-term success. Other Terms: Key Differences: RBV centers on profit maximization and competition, Implicit Contracts: Incomplete contracts that rely on informal understandings and norms often overlooking stakeholders, while Stakeholder Theory promotes between the firm and its stakeholders. These contracts are supported by trust and ethical cooperation and considering the needs of all stakeholders, beyond cooperation, not just legal obligations. just shareholders. Stakeholders: Any group or individual who can affect or is affected by a firm's actions. This concept expands beyond shareholders to include employees, customers, suppliers, and communities. Birkinshaw & Gibson (2004). Examples: Renault: Achieved ambidexterity by aligning its performance management systems while encouraging Ambidexterity: Refers to a company's ability to balance both adaptability (responding to new adaptability through new products and strategic opportunities) and alignment (optimizing current operations and capabilities). This dual focus alliances. ensures both short-term efficiency and long-term innovation. Oracle: Excelled by fostering a culture of adaptability, - Structural Ambidexterity: Involves separate teams for alignment-focused and quick decision-making, and alignment around common adaptability-focused activities. However, this can lead to isolation of teams and goals. inefficiencies. - Contextual Ambidexterity: Refers to individual employees deciding when to focus on Nokia and GlaxoSmithKline are examples of current business and when to adapt to new opportunities in their day-to-day work. This is organizations balancing both well. However, focusing too seen as more flexible and integrated compared to structural ambidexterity. Better according to much on one at the expense of the other can result in authors failure, as seen with Lloyds TSB (alignment-focused) and Organizational Context: A supportive organizational context is essential for achieving Ericsson (adaptability-focused). ambidexterity. The authors identify two critical components of this context: - Performance Management: Setting challenging goals, encouraging accountability, and Pathways to Ambidexterity: Organizations can foster ensuring employees meet high expectations. ambidexterity by: - Social Support: Providing trust, security, and a conducive environment where employees - Diagnosing their current context. feel empowered to take risks and explore new ideas. - Focusing consistently on a few organizational levers (e.g., incentives, risk management). Ambidextrous Behaviors: Employees in an ambidextrous organization exhibit the following - Building understanding at all levels of the behaviors: company. - Initiative: Proactively identifying and acting on new opportunities. - Viewing structural and contextual ambidexterity - Cooperation: Collaborating across teams and functions. as complementary. - Brokering: Building connections between different parts of the organization to foster new solutions. In summary, ambidexterity is essential for organizations - Multitasking: Managing both current operational needs and long-term innovation goals. to succeed in both exploiting current strengths and exploring future opportunities. A supportive context, Performance Impact: Research shows a strong correlation between ambidexterity and where performance management and social support organizational performance. Companies that effectively balance performance management and coexist, enables this balance. social support outperform those that focus too much on one or the other. Iveroth & Hallencreutz (2015) Planned Change: This approach views change as a structured, Emergent Change: Definition: A bottom-up, organic process where change intentional, and often top-down process. It follows a linear path from is seen as a constant, ongoing activity. This perspective recognizes that one stable state to another, typically involving clear steps. small, daily changes can accumulate over time and lead to substantial transformations. Lewin's Three-Step Model is one of the foundational models of planned change, which involves: In contrast, this approach sees change as a continuous, evolving process - Unfreezing: Preparing the organization for change by that happens naturally over time. This perspective recognizes that small, identifying the need for it. daily changes can accumulate over time and lead to substantial - Changing/Moving: Implementing the change. transformations. The focus is on bottom-up activities like sensemaking. - Refreezing: Stabilizing the organization with the new changes - Sensemaking → A key concept in emergent change where change in place. agents (usually leaders or employees) adapt and adjust as they go. - Cyclical Nature → Emergent change is seen as a cycle, not a linear Seven-Step Process: Extended version, including diagnosing the path., with no clear end-state, and embraces the uncertainty and problem, assessing motivation, clarifying roles, and integrating the constant adaptation inherent in organizational life. change into the organization. Advantages: Advantages: - More adaptable and responsive to ongoing shifts in the market or - Provides clear structure and goals, useful for large-scale internal environment. transformations. - Involves employees at all levels, leading to greater buy-in and - Works well in stable environments where leaders can predict success in implementation. future needs and design appropriate strategies. - Recognizes that change is not a one-time event but an ongoing Critique: process. - Can be rigid and unresponsive to fast-paced, dynamic Critique: environments. - Can be chaotic and difficult to manage without a clear plan or - Often ignores the complexity and unpredictability of structure. real-world situations. - Lacks clear steps or guidelines for leaders on how to drive change, - Fails to involve front-line employees, who are often crucial to which can lead to confusion. successful implementation. … Continuing Comparisons: The document discusses the differences between these approaches, such as their views on change trajectory (linear vs. cyclical), the role of change agents (external prime movers vs. internal sensemakers), and the nature of interventions (top-down vs. bottom-up). Change Agents: - Planned Change: External actors (e.g., senior leaders or consultants) who drive change through analysis and intervention. - Emergent Change: Internal actors (often leaders and employees) who sense and adapt to change at the ground level. Linear vs. Cyclical Change: - Linear (Planned): Change follows a straight path from a current state to a future state, often following a plan. - Cyclical (Emergent): Change is ongoing, revisiting earlier phases in a constantly evolving process. Top-Down vs. Bottom-Up: - Top-Down (Planned): Senior leaders design and implement the change, while employees follow directives. - Bottom-Up (Emergent): Employees and middle managers drive change through daily actions and adaptations. Hybrid Approach: The text advocates for a middle ground, recognizing that in practice, organizations often need to combine elements of both planned and emergent change depending on their unique circumstances. Leaders should be flexible enough to plan for change but also responsive to emergent factors that arise during the process. Other Theories: - Process vs. Variance Models: - Process Model: Focuses on how change unfolds over time (emergent change). - Variance Model: Focuses on cause-and-effect relationships, analyzing inputs and outcomes (planned change). - Punctuated Equilibrium: In organizational theory, this model suggests that organizations remain in equilibrium for long periods, interrupted by bursts of radical change, often planned. Introducing strategy  3 elements of the definition strategy: Chapter 1 Horizon 1: → the long term: Why “exploring strategy”? - Represents current core activities. Strategy draws upon many perspectives, including economics, finance, marketing, - These businesses need defending and extending but may operational management, organisational behaviour and psychology (comprehensive eventually stagnate or decline in profitability. view of strategy). Strategy is complex and not always clear, that's why you EXPLORE it. Horizon 2: → Direction: Exploring Strategy “What is strategy?” - Involves emerging activities that could provide new profit sources. Chandler: "The determination of the long run goals and objectives of an enterprise, Horizon 3: → Organisation: and the adoption of courses of action, and the allocation of resources necessary - Encompasses uncertain, risky, and innovative possibilities. for carrying out these goals." - Includes R&D projects, start-ups, and pilots. - Emphasizes a logical sequence in strategy formulation. - Timescales can vary, with some industries seeing results in a few - Starts with the determination of goals and objectives. years, while others, like pharmaceuticals, may take a decade. - Follows with the allocation of resources to achieve these goals. Key Point: The 'three horizons' framework encourages managers to avoid Porter: "Competitive strategy is about being different. It means deliberately focusing solely on short-term issues and to consider future growth and choosing a different set of activities to deliver a unique mix of value." innovation. Strategy involves pushing out Horizon 1 as far as possible, at - Focuses on deliberate choices in strategy. the same time as looking to Horizons 2 and 3. - Stresses the importance of differentiation. - Views competition as a key element in strategic decisions. The exploring strategy framework Rumelt: "A strategy is a coherent mix of analyses, concepts, policies, arguments, The Exploring Strategy Framework includes: analysing the strategic position and action that respond to a high stakes challenge.". "The long-term direction of of an organisation; assessing strategic choices for the future; and managing an organization." strategy in action. - Advocates for coherence in policies and actions. Strategic position: The strategic position is concerned with the impact on - Emphasizes the importance of addressing high-stakes challenges strategy of the external environment, the organisation’s strategic resources effectively. and capabilities, the organisation’s purpose and stakeholders and the Henry Mintzberg. "A pattern in a stream of decisions." organisation’s culture. Understanding these factors is central for evaluating Peter Drucker. "A firm's theory about how to gain competitive advantage." future strategy. Book definition: “strategy is the long-term direction of an organisation” The book Strategic choices: Strategic choices involve the options for strategy in terms definition has two advantages. → of both the directions in which strategy might move and the methods by 1. The long-term direction of an organisation can include both deliberate, which strategy might be pursued. logical strategy and more incremental, emergent patterns of strategy. Strategic in action: Managing strategy in action is about how strategies are 2. Long-term direction can include both strategies that emphasise difference formed and how they are implemented. The emphasis is on the practicalities and competition, and strategies that recognise the roles of cooperation of managing. and even imitation. Purpose, vision, mission, objectives Strategy statements Organisational Purpose: Strategy statements should have three main themes: the fundamental goals - The reason why a company exists, driven by internal beliefs and (purpose, vision, mission or objectives) that the organisation seeks; the scope or external stakeholder influences. Also influenced by broader pressures like domain of the organisation’s activities; and the particular advantages or capabilities pandemics or climate change, which may lead to revisions of purpose. it has to deliver all of these. - According to Montgomery, purpose should answer: "How does the 2 main themes: SCOPE and ADVANTAGE organisation make a difference?" and "For whom?" SCOPE: Vision Statement: Refers to the domain of an organisation across three dimensions: - Focuses on the future the organisation seeks to create (goals/ 1. Customers or clients: Identifying who the organisation serves. aspirations). Example: Henry Ford’s vision of making car ownership 2. Geographical location: Deciding where the organisation operates. accessible to everyone; Spotify’s vision to be the “Operating System of 3. Extent of internal activities (Vertical integration): Determining which activities are music.” performed in-house versus outsourced. Mission Statement: ADVANTAGE: - Clarifies what the organisation fundamentally does on a daily basis, Describes how the organisation will achieve objectives within its scope. guiding progress towards the vision. Key question: "What business are we Involves defining and leveraging competitive advantage. in?" Refers to the organisation’s capability and demonstrating superiority over rivals. - Collins and Porras suggest starting with what the organisation does and digging deeper by asking "Why do we do this?" Example: A gravel Levels of strategy Inside an organisation, strategies can exist at three main levels company concluding its mission is to improve lives by enhancing the 1. Corporate-level strategy: This focuses on the overall direction of the entire quality of built structures; Utrecht University’s mission includes organization, including decisions about the range of products, markets, or education, training researchers, and addressing social issues. geographic areas the company operates in. For example, Tesla expanding Objectives: from making cars to producing batteries for homes is a corporate-level - Statements of specific outcomes to be achieved. decision. - In for-profit sectors, typically expressed in financial terms (e.g., sales, 2. Business-level strategy: This deals with how individual business units or profits, share valuation). In non-profits, focus on service delivery to products compete in the market. For example, Tesla’s strategy of producing a target groups while ensuring financial sustainability. more affordable electric car to gain market share before competitors enter - Increasingly, organisations set objectives for the "triple bottom line," the space. encompassing economic, environmental, and social goals related to 3. Functional-level strategy: This focuses on how specific departments (like HR corporate responsibility. or marketing) support the broader business and corporate strategies. For Purpose, vision and mission statements can offer sources of direction and instance, Tesla’s efforts to recruit AI engineers to drive innovation and motivation than dry financial objectives. However, these statements should be growth is a functional-level strategy. authentic and meaningful. If they are too bland and too wide-ranging they can be ineffective.  SWOT analysis: SWOT analysis involves the systematic analysis of an organisation’s strengths, weaknesses, opportunities and Chapter 2 threats. Typically, an organisation’s strengths and weaknesses are made up of factors over which it has some control, for example the organisation’s technologies, workforce, brands, mission, and so on. An organisation usually has less control over its opportunities and threats, for example macro-economic conditions, climate change or government regulations. Strategic thinking Thinking Slow: Thinking slow is deliberative, analytical and thorough → System 2 Thinking fast: Thinking fast is intuitive, quick and decisive → System 1 What does thinking slow mean in practice? It means that a full strategy analysis, both for practitioners and students, consists of many steps. It requires various frameworks, a great deal of quantitative and qualitative data, multiple iterations, and finally presenting in a way that clearly identifies key issues and makes persuasive recommendations. Thinking slow about strategy means not rushing to conclusions, both as a practitioner and as a student. Convergent and divergent thinking Left Brain: - Associated with rational, linear, and explicit thinking. - Focuses on analysis: breaking problems down into parts. Right Brain: The TOWS matrix The TOWS matrix, sometimes termed a collision matrix, is a useful way of - Associated with intuitive, holistic, and implicit thinking. transforming SWOT analysis into strategic actions. - Focuses on synthesis: integrating parts into a whole picture. Two Kinds of Thinking: - Convergent thinking: Associated with left-brain analysis. - Divergent thinking: Associated with right-brain intuition and creativity. Slow Thinking: - Involves both “analysis” and “right-brain/divergent thinking”. - Allows space for “creativity, synthesis, and judgement”, alongside analysis and calculation. - Strategy requires not only analysis but also “judgement” for well-rounded decision-making. Checklists help ensure that you are comprehensive in your thinking. To think about with SWOT: An effective SWOT analysis should focus on the most important Other important takeaways factors and be kept brief. Three rules: Learning from case studies involves good - Focus on strengths and weaknesses where the company stands out compared to preparation and active communication – you competitors. are wasting your time without these. - Include only relevant opportunities and threats for the specific industry. Your strategic plan should draw on the whole of - Summarize with clear, actionable conclusions. this book: Part I on strategic position, Part II on SWOT analysis should not replace deeper strategic analysis. It serves as an overview, but choices and Part III on putting strategy into needs to be complemented with other tools to avoid superficiality and biases. action. Avoid the characteristics of bad strategy: fluff, Allocentrism: Allocentrism involves thinking not only about your own organisation but ignoring challenges, desires rather than plans about other actors, for example customers, suppliers, rivals, partners and and lack of focus. governments. You need understanding on how your strengths and weaknesses compare to Strategies need to be understood by key competitors and how others will react to your actions. For example, strategies like price cuts audiences: invest in communication and or acquisitions depend on competitor responses. Allocentrism helps avoid egocentric, presentation. overconfident thinking, encouraging a broader, more thoughtful analysis of external factors. Strategy relies on understanding those upon whom your success depends. Issue trees help break down complex strategic problems into smaller, manageable sub-issues for deeper analysis. Similar to a tree's branches, big issues like growing an organization can be divided into smaller ones, such as expanding in existing markets or diversifying into new ones. The goal is to make the sub-issues mutually exclusive and collectively exhaustive (MECE)—meaning each option is distinct and all possible issues are covered. Issue trees ensure thorough and structured analysis for better decision-making. System mapping helps visualize the interconnectedness of elements in a strategic problem, showing how changes in one area can impact others through "feedback loops." Small changes can trigger larger effects, similar to natural ecosystems. In business, systems thinking is crucial, as elements like products, services, and organizational functions are interdependent.  The strategic position This commentary introduces four strategy lenses, which provide different perspectives for analyzing strategy. These lenses encourage a critical approach by looking at strategy from multiple angles. The four lenses are: 1. Design lens: Views strategy as a rational, logical process based on systematic analysis. It's focused on top management making decisions and careful evaluation. 2. Experience lens: Sees strategy as shaped by people's past experiences, culture, and habits. It values continuity but can resist change. 3. Variety lens: Emphasizes innovation, with strategy emerging from new ideas from different parts of the organization, not just from top management. 4. Discourse lens: Focuses on the power of language in strategy. Strategy is shaped by how leaders talk about it, influencing power, legitimacy, and how decisions are perceived. These lenses help generate different insights, options, and approaches to strategy, making decision-making more well-rounded and effective.  Pestle Analysis Chapter 3 PESTEL analysis highlights 6 environmental factors in particular. Pestel highlights that organisations need to consider both markets and non-market aspects of strategy. - Market Environment: The market environment includes suppliers, customers, and competitors, focusing mainly on economic interactions. Companies compete for resources, revenues, and profits by emphasizing pricing, quality, and innovation. Traditionally, this environment has been the primary focus for the strategies of private sector organizations. - Non-Market Environment: The non-market environment includes social, political, legal, and ecological factors, as well as economic influences. Key interactions occur with government agencies, regulators, political activists, and the media. This environment is especially important for organizations that rely on grants, such as schools and hospitals, and for businesses in heavily regulated sectors like healthcare and defense. Traditionally seen as external and hard to influence, the non-market environment is now viewed as a strategic area organizations can shape. Companies can promote their interests through reputation-building, lobbying, public relations, and collaboration. Political: There are two important steps in political analysis: first, evaluating the importance of political factors; second, carrying out political risk analysis. 1. The importance of political factors: The political element of PESTEL highlights the role of the state and exposure to civil society (non state organisations, like campaign groups/media). Examples: Defense Industry: Highly affected by political factors, with strong state involvement as national armed services are major customers. They also face pressures from civil society, like anti-arms trade campaigners. Food Industry: Less state involvement, mostly private ownership, but still faces pressures from civil rights groups and health organizations. Canal Industry: Typically state-owned, but generally not influenced by civil society organizations. Internet Companies: Increasingly scrutinized due to concerns over privacy and misinformation. 2. Political risk analysis: - Macro Political Risk: This assesses risks at the country level, such as political stability. For example, Western European countries usually have low political risks, while some countries have high risks due to potential sudden changes in government. - Micro Political Risk: This relates to specific risks faced by certain organizations or sectors within a country. For instance, Japanese companies in China face higher risks due to potential nationalist sentiments against them. Economic: The macro-environment is influenced by various economic factors that affect businesses globally. - Macro-Economic Influences like Currency exchange rates, interest rates, and global economic growth impact an organization's. - Economic growth rates tend to fluctuate over time /the economic cycle). Forecasts can help predict these trends, but they are often subject to unexpected shocks (e.g., the COVID-19 pandemic). - High Fixed Cost Industries: Industries such as airlines and hotels face challenges during downturns due to high fixed costs, often leading to price wars that erode profits. Social: The social elements of the macro-environment impact organizations in two ways: they (1) influence demand and supply, and they (2) shape an organization's innovation, power, and effectiveness. 1. Demographics: Aging populations in Western societies increase demand for elderly services but reduce the supply of young labor. - Distribution: Wealth concentration among elites has reduced middle-class consumption but expanded markets for luxury goods. - Geography: Economic growth and industries often cluster in specific regions, such as London or Silicon Valley. - Culture: Changing cultural attitudes, like those of Generation Z, challenge traditional strategies and reshape expectations around media, consumption, and investment ethics. 2. A second important social aspect of the macro-environment is organisational networks, with significant implications for innovativeness, power and effectiveness. = organisational field. An organisational field is a community of organisations that interact more frequently with one another than with those outside the field. These organisational fields are partly economic as they may include competing organisations within the industry or sector, as well as customers and suppliers in the marketplace. Networks and organisational fields can be analysed by means of sociograms, maps of potentially important social (or economic) connections. -