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|Category:||Economics and Management 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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