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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


Competition and StrategyIntroduction

Ben Gomes‐Casseres

[email protected]

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.



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



Functional areas of business

• Control

• Marketing

• Production

• Finance

• Strategy

• Organization

General Management

Levels of strategy in organizations

Corporate strategy

Business unit strategies

Functional strategies



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



Fundamentals of StrategyFundamentals of Strategy

Ben Gomes‐Casseres

Notes on lectures given throughout the course


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



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



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



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



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



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



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”)



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



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).



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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