Lectures Notes

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STRATEGY LECTURES - FINALS 2011 Lecture 1 - The concept of strategy • Choose a strategy that makes it difficult for the opponent to use his strengths and which relies on your strengths • Any recommendations have to take into account the reactions of the competition, who are also strategising Lecture 2 - Strategic management • Overview: o Many firms enter o Few survive o Some grow large, but growth is nearly random o Some gain large market share o Some become profitable, but it seldom lasts • 'The chance of identifying the next Microsoft are about the same as the odds of winning the lottery.' Chan et al 2003 • The distribution of performance o Problems  The best performers don't continue to perform as well  Most studies only include survivors  The direction of causality • E.g. behaviour -> high performance -> behaviour -> high performance? o Reciprocal causality leads to overestimation of the effect on performance  Endogeneity or unobserved heterogeneity • Maybe not early entry -> high performance • But firm with strong distribution network leads to early entry and high performance • High performance in competitive settings requires beating others Lecture 3 - Competitive Advantage • Why not profits? o Free entry or potential entry • When profits? o Impossible to enter o Or possible to enter but heterogeneity in costs  For some reason, others cannot recreate your methods of production • Can't imitate what you're doing/or come up with a different method which is just as effective - substitution  Low profits even if demand is high, and product really valuable, if easy to imitate/substitute and vice versa o Peteraf (1993) model  4 factors leading to competitive advantage • Heterogeneity (rents) • Ex post limits to competition (rents sustained) • Ex ante limits to competition (rents not offset by costs) • Imperfect mobility (rents sustained within the firm) • Supplier group powerful if: o Dominated by a few companies and more concentrated than the industry it sells to o Its product is unique or at least differentiated o If it has built up switching costs o If the suppliers' goods are critical to buyers' marketplace success • Porter's Five Forces o Competitive environment is ideal from a profit making stand point when:  Rivalry is moderate  Entry barriers are high and no firm is likely to enter  Good substitutes do not exist  Suppliers and customers are in a weak bargaining position o See Porter diagram  Supplier Power  Industry competitiveness  Threat of substitutes  Buyer power  Threat of entry • Strategies that maximise your share of the pie might reduce the size of the pie and possibly threaten long term survival Lecture 4 - sustaining competitive advantage • Incumbency advantages o Cost side  Economies of scale • If fixed cost • If takes time to get customers • Demand can't be too large, or growing fast  Experience curves • It takes time to accumulate volume/experience • Does not work well if fast learning/technology changes o Customer benefits  Demand side increasing returns  Switching costs  Experience goods • Can only find out quality if you try it o Worth trying the new product? It could be better, but unlikely - unless current quality of incumbents product is loq. o On average, this process produces an advantage for the incumbent  Reputation and credibility Lecture 5 - Technology strategy and increasing returns • The rise of Microsoft o 1980 - Microsoft didn't even have a PC operating system o As the market for PC's grew and IBM realised they were missing out on what might be a significant industry, they rushed to get a PC to the market  Kildall (who wrote the dominating operating system at the time - CP/M) did not get back to IBM fast enough so they turned to Bill Gates who was already writing software for IBM  Gates bought an operating system from Seattle Computer Company and called it MS DOS. It was a clone of CP/M

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