Corporate Strategy A Lecture 1

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Warwick Business School
Key Questions of the Module
What is strategy?
What does it mean to have a good strategy?
Why do some firms perform better than others?
How can firms improve their performance?
How can good performance be sustained?
Module Objectives
By the end of the module, you should be able to

Recognise and explain the key concepts, frameworks and
perspectives in the field of strategic management

Think critically and strategically about strategic management
concepts and principles, and how these might be applied in
real organisations
Identify and evaluate strategic issues as they occur in
organisations and design appropriate courses of action
Understand and evaluate the sources of competitive
advantage or disadvantage for particular businesses, along
with ways to strengthen a firms competitive advantages
Overview
Session 1 (10 Oct)
Course Introduction & What is Strategy
Juha Uotila
Session 2 (17 Oct)
Strategy from the Outside-In Industry Analysis
Juha Uotila
Session 3 (24 Oct)
Strategy from the Inside-Out Resources &

Capabilities
Juha Uotila
Session 4 (31 Oct)
Competitive Advantage Business-Level Strategies Juha Uotila
Session 5 (7 Nov)
Sustaining Competitive Advantages Hyper

Competition and Dynamic Strategy
Hossam Zeitoun
Session 6 (14 Nov)
Strategy at the Corporate Level Managing the

Scope of the Firm
Hossam Zeitoun
Session 7 (21 Nov)
Strategies for Firm Growth: Comparing Organic

Growth with M&A
Hossam Zeitoun
Session 8 (28 Nov)
Strategy and Technology Invention, Innovation,

and Competitive Advantage
Hossam Zeitoun
Assessment
Individual write-up of up to 2000 words (12 CATS) or
2500 words (15 CATS) (100% of module mark)
Title page, list of references, tables and figures are
not included in the word count
The word limit is strict and any text exceeding it will
be ignored in marking
Deadline: Thursday 15 January, 12pm (noon)
Individual Assignment
Conduct an in-depth strategic analysis and comparison of two

companies of your choice
Choose companies with publicly available information, operating in the
same industry (or otherwise sufficiently similar for comparison)

Gather information from publicly available sources (e.g. annual reports,
press releases, news articles) remember to cite your sources!
The report should include

An analysis of the markets that the firms serve and the changes in these
An analysis of how the two firms compete in these markets, their
sources of competitive advantage, the relationship between the firms

and the differences in their strategies and success
A statement of the main strategic challenges facing the companies, and
an analysis of how the firms might manage these challenges
All sources must be properly referenced
Readings
What is Strategy?
the long-term direction of an organisation (Johnson et al. 2011: 3)
Strategy provides a link between an organisation and its

environment
Strategy includes
Long-term goals (where the firm wants to be)
Means to achieve those goals (how the firm can get there)
Especially in changing business environments, strategy

represents an overall direction rather than a detailed plan
Strategy is
the determination of the long-run goals and objectives of

an enterprise, and the adoption of courses of action and the
allocation of resources necessary for carrying out these goals.
Alfred Chandler (1962)
.a pattern of behaviour that emerges over time. Henry

Mintzberg (1987)
.a pattern of resource allocation that enables firms to

maintain or improve their performance Jay Barney (1997)
a firms theory about how to gain competitive advantages

Peter Drucker (1994)
...about being different. It means deliberately choosing a

different set of activities to deliver a unique mix of value
Michael Porter (1996)
Quest for Competitive Advantage

Strategy is often seen as a quest for competitive
advantage
How can the organisation be better than other
organisations with the same goal?
Sustainable competitive advantage (SCA) is the ability
to consistently outperform rivals
Can competitive advantage be sustainable in a
constantly changing business environment?
Characteristics of Strategic Decisions

Major decisions with long-term implications, typically
made by the firms top management
Significant commitment of organisational resources
Aim to improve or maintain the companys position in
its business environment
Setting long-term organisational objectives and the
means to achieve them
Levels of Strategy
Corporate strategy
Where to compete?
What is the scope of the
organisation?
What industries and markets
does the company compete in?
Business strategy
How to compete?
Business-level competitive
strategy
How does the company
compete in the markets and
industries it is in?
De Wit & Meyer 2010, p. 9
Strategic Fit
An effective strategy needs to be consistent with

the firms external environment (competitive dynamics, socioeconomic
trends etc.)
the firms internal environment (resources and capabilities of the firm)
Achieving strategic fit requires a thorough understanding of

both external and internal factors that affect the companys
business
Positive
Negative
Internal
Strengths
Weaknesses
External
Opportunities
Threats
Your Strategy?
Draw an outline of your career

strategy for the next five years
Identify your long-term goals and
ambitions
Analyse the characteristics of and
possible future changes in your
career environment
Note your personal strengths and
weaknesses and how they influence
your career strategy
Delineate the ways in which you
intend to achieve your goals
Strategy Analysis
Strategic problems are typically complex and often
ill-defined
The frameworks of strategic analysis are not
algorithms that yield optimal solutions to problems;
rather, they offer support for our decision-making by:
Helping us to understand and make sense of the complexity
of the strategic decisions

Guiding us to ask the questions that we need to ask
Helping us to organise the relevant information
Providing a direction to get us started on the problem
Goal of the Firm: Shareholder Value

For-profit business firms are, by definition,
established with the aim of making a profit
The owners invest their money in the firm in the
hope of making more money
Regardless of the firms strategy, the end goal is to
make a profit that can be distributed to the owners
=>
The ultimate goal of the business firm is to

increase the wealth of its owners (shareholders)
Purpose(s) of the Firm
The purpose of the firm is to maximise

shareholder value.
Is the statement correct? Why?
Shareholder Value Perspective
According to the shareholder value perspective, the purpose

of the firm is to increase the wealth of the firms owners
(shareholders)
Firm should maximise economic value, i.e. profit, that is then distributed
to its shareholders (e.g. through dividends)

Activities that do not contribute to this can be considered stealing
from the owners
From the societal perspective, such activities mean inefficient use of
capital, as self-interest of profit-maximising firms leads the free
market to optimal self-regulation (invisible hand)
From the strategic perspective, focusing on shareholder value gives a
unity of purpose and a measureable metric of performance
Other stakeholders mostly represent costs and/or revenues and provide
the (economic, legal, moral, ethical etc.) boundaries to profit
maximisation
Value Creation and Capture
2.
3.
Create value for its

customers that is larger than
the firms cost of inputs
Appropriate (extract) some
of that value as profits
Distribute the profits to the
firms owners (shareholders)
Cost of inputs
- raw material
- wages
- interest
- taxes
-
Value captured
1.
Price
Value created
According to the
shareholder value
perspective, the purpose of
the business firm is to
Value of output
to customer
Shareholder View: Brief Timeline

It is indefensible that a company board could, under whatever pretext, retain
anothers money for longer or use it in ways other than the latter wishes, for
that would be a kind of tyranny.
- Isaac Le Maire, Dutch merchant/investor, 1609 (cited by Koppell, 2011: 1)
1960 Many firms (and managers) saw growth as a purpose in itself (=> conglomerates)
1970 Recession, theoretical developments (agency theory), influential shareholders
(institutional investors)
Primacy of shareholder value
2000 Corporate scandals and other apparent failures of shareholder-focused
management
Developments in stakeholder theory have started to challenge the shareholder
view
Stakeholder Theory
Purpose of the firm is to provide benefits to the

different actors that it has a relationship with
(stakeholders) and coordinate stakeholder interests
Shareholders are only one group of such actors
From the societal perspective, the invisible hand only
works in theory and a better social outcome is achieved by

cooperative relationships and trust between different actors
From the strategic perspective, taking into account the
different stakeholders leads to higher performance than
focusing on shareholder value
Stakeholders
Employees
Governments, trade
unions, communities,
alliance partners
Raw material,
The Firm
Suppliers
Money,
relationships,
Shareholders
Value, quality,
Revenue,
relationships,
Creditors
Customers
Goal of the Firm in the Strategy Field
Most strategic frameworks and theories take the shareholder

perspective
Strategy theories typically focus on ways to increase shareholder value
Empirically, firm performance in strategy research is often measured as
shareholder returns (accounting-based or financial)
The shareholder and stakeholder perspectives are not

necessarily contradictory
Pursuing alternative goals requires the firm to be economically viable
The interests of different stakeholders tend to converge, and thus the
analytical frameworks of strategy are mostly compatible with alternative

viewpoints of the purpose of the firm
Pursuing shareholder value requires taking into account the various
stakeholders and pursuing a variety of different strategic goals
Measuring Firm-Level Performance
Share price (shareholder return)
Accounting profits (ROE, ROA, ROS)
Growth
Market share
Survival
Strategic Performance Goals
To maximise profits in the long term, the organisation and its

members need a number of actionable short-term goals
One classic framework to outline a variety of such operational

objectives is the balanced scorecard
The Balanced Scorecard
Financial Objectives
- Sales growth
- Cash flow
- Profitability
-
Customer Objectives
- On-time delivery
- Perceived quality
- Customer retention
-
Internal Objectives
- Productivity
- Reduction of defects
- Technological capability
-
Innovation and Learning Objectives

- New products
- Improvements in business processes
- Innovative output
-
The specific goals and measures depend on the firms

intended strategic direction
(Kaplan and
Norton 1992)
Mission, Vision and Purpose
A strategy with an explicit focus on profit often does not

maximise profits in the long term
Profit focus does not provide a long-term direction
Profit focus does not motivate organisational members
The firms guiding purpose can be articulated in statements of

mission, vision, values and principles
Mission: Why we exist
Vision: What we want to be
Company values and principles to guide decisions and actions of
organisational members
Goals and Values: Case Boeing
Prior to 1996, Boeings strategic focus was to build great

planes
Financial controls were weak
Profitability was high
One of the worlds most financially successful companies
New management team in 1996: focus on creating

shareholder value
Lack of investment in major new civil aviation projects
Diversification into defence and satellites
Loss of market leadership in passenger aircraft

Ethical lapses and bad publicity
Stock price had declined by 20% when the new CEO resigned in 2003
Summary: Firm Purposes and Goals
The ultimate purpose of the firm is a debated

topic, but the creation of shareholder value is
the most widely accepted view
To maximise shareholder value, the firm needs

both actionable short-term goals and a longterm guiding purpose
=> Strategy
Factors Influencing Strategy
The search for competitive advantage is influenced by

Macro-environmental factors
Industry structure
Competitors and markets
Internal resources and capabilities
The LEGO Case
In groups of 2-3 where youre sat, based on the

LEGO case, discuss (and be ready to report back
on)
What strategic decisions has LEGO made? What
strategic decisions is it facing now? What kinds of

strategic trade-offs do these decisions imply?
What would a SWOT analysis for LEGO look like?
What would you suggest LEGO do? Why?
LEGO History
Founded 1932 in Billund, Denmark
Profitable growth until mid-1990s
Changes in 1995
Addressing threat of electronic toys
Expanding brand (films, clothing, games)
Decentralisation of management
Profits turned into losses
First CEO from outside the family in 2004
Return to profitability in 2005

Focus on core business
Product innovation
Efforts to enter the digital scene
LEGO: Crisis in the mid-1990s
We had actually seen a decline in profitability since 1992,

1993, yet we continued to invest as if the company were
growing very strongly. We failed to realise that we were on a
slippery path. We were not making toys that were
sufficiently interesting to children. We failed to innovate
enough.
- Mads Nipper, Executive Vice President (cited in McLean, 2009)
Lego: Missteps in Innovation
LEGOs Explore product line (2002-2004) introduced bricks

that were faster and easier to build
But what happened was, those who dont like to build said, I
still have to build it so Id much rather buy a blow-moulded
[toy] from Hasbro,? And those millions of consumers who
appreciated what Lego was about said, This is not the real
Lego, this is not challenging enough for me.
- Mads Nipper, Executive Vice President (cited in McLean, 2009)
Explore was discontinued after only two years
Lego: Overextending the Brand
Numerous new product lines with varying levels of success
Bloated organisation, with expenses exceeding revenues
LEGO: Return to Profitability
Cutting costs, reducing headcount

Selling off Legoland theme parks
Discontinuing product lines, focusing on the core
products
Taking back control over outsourced production
Customer-centric innovation
http://www.youtube.com/
watch?v=uWkZ51yxvis
LEGO: Key Strategic Themes
Competitors and substitutes

Gaining and sustaining competitive advantage
Distinctive capabilities
Changes in business environment (e.g. digital markets)
Innovation strategy
Scope of product offering
Innovating while staying true to its brand
Diversification
Internationalisation
Lessons from the LEGO Case

Strategic decisions are complex and require
taking into account multiple external and
internal factors
Companies need to build their strategy on their
distinctive strengths while at the same time
avoiding myopia
Strategy entails trade-offs and balancing
between conflicting demands
Strategy Statements
Companies frequently communicate (non-confidential

elements of) their strategy to investors, customers, employees
and business partners in e.g. annual reports
Our strategy: High-value activities enabled by a family of devices
and services
We are still in the early days of our transformation, yet we made strong
progress in the past year launching devices and services that people
love and businesses need.
...
To increase innovation, capability, efficiency and speed we further
sharpened our strategy, and in July 2013 we announced we are
rallying behind a single strategy as One Microsoft. We declared that
Microsofts focus going forward will be to create a family of devices
and services for individuals and businesses that empower people
around the globe at home, at work and on the go, for the activities
they value most.
(Tesco Annual Report 2014, p. 3)
(Microsoft Annual Report 2013, CEO Letter to Shareholders)
Example Strategy Statement

Business Strategy
The Company is committed to bringing the best user
experience to its customers through its innovative hardware,
software and services. The Companys business strategy
leverages its unique ability to design and develop its own
operating systems, hardware, application software, and
services to provide its customers new products and solutions
with superior ease-of-use, seamless integration, and
innovative design. The Company believes continual investment
in research and development, marketing and advertising is
critical to the development and sale of innovative products
and technologies. As part of its strategy, the Company
continues to expand its platform for the discovery and delivery
of third-party digital content and applications ... The Company
believes a high-quality buying experience with knowledgeable
salespersons who can convey the value of the Companys
products and services greatly enhances its ability to attract and
retain customers. Therefore, the Companys strategy also
includes enhancing and expanding its own retail and online
stores and its third-party distribution network to effectively
reach more customers and provide them with a high-quality
sales and post-sales support experience.
Long-term, high-level
strategic goals and direction
Assessment of capabilities
and customer value creation
More detailed means to

achieve the strategic
objectives
More Strategy Statements
We believe our success depends on our ability to connect with consumers

by providing them with a wide variety of options to meet their desires,
needs and lifestyles. Our success further depends on the ability of our
people to execute effectively, every day.
Our goal is to use our Companys assets our brands, financial strength,
unrivaled distribution system, global reach, and the talent and strong
commitment of our management and associates to become more
competitive and to accelerate growth in a manner that creates value for
our shareowners.
Our strategy is to develop and deliver simple and transparent products,

run on scalable infrastructure and we invest heavily to try to enhance our
customers experiences.
Perspectives on Strategy
Strategy as a plan an intended course of action
Strategy as a ploy outmaneuvering competitors
Strategy as a pattern consistency in behaviour
Strategy as a position where do you stand
Strategy as a perspective how to view the world
http://www.youtube.com/
watch?v=ibrxIP0H84M
The Honda Debate
In groups of 2-3 where youre sat, based on the

Honda mini-case discuss (and be ready to
report back on)
Why was Honda successful?
What perspectives on strategy do the different
accounts of Hondas success imply?

What is the cause of the different explanations for
Hondas success?
Experience Curve
Cost
400
200
100
Cumulative output
(million units)
Honda Super Cub
Lessons from the Honda Case

A strategic situation can be seen in different
ways, depending on the perspective used (what
questions are asked, what data examined etc.)
Strategies, when rationalised ex post, can seem
quite different from what they seemed as lived
at the time of their execution
Coping with uncertainty can play a key role in
strategy development and implementation
Intended and Realised Strategy
Intended
strategy
Deliberate strategy
Unrealised strategy
Realised
strategy
Emergent strategy
The realised strategy of the firm is often partly

deliberate (i.e. realised as intended) and partly
emergent (i.e. realised in an unforeseen manner)
Planning versus Emergence

Planning may have limited benefits in uncertain
environments and may limit flexibility, learning,
innovation and creativity
Focus on emergent strategies can lead to a lack
of direction, lack of market awareness and lack
of efficiency
Realised strategies typically are and should be
a combination of deliberate and emergent
The Honda Question

From a transparency by Richard Rumelt (reproduced in Mintzberg et al. 2009: 121)
In 1977 my MBA final exam on the Honda Motorcycle case

asked Should Honda enter the global automobile business?
It was a giveaway question. Anyone who said yes flunked.

Markets were saturated
Efficient competitors existed in Japan, the US, and Europe
Honda had little or no experience in automobiles

Honda had no auto distribution system
In 1985 my wife drove a Honda.
If you know how to design a great

motorcycle engine, I can teach you all
you need to know about strategy in a
few days. If you have a Ph.D. in
strategy, years of labor are unlikely to
give you the ability to design great
new motorcycle engines.
- Richard Rumelt, Professor of Strategy, UCLA
Summary
Strategy includes both long-term objectives and the
means to achieve those objectives
Strategy can be examined on several different levels
and from several different perspectives
Strategy provides (and describes) a direction for the
organisation
Strategy is influenced by both the organisations
external environment and its internal resources and
capabilities
For Next Week
Read the case The US Airline Industry in 2012 and

consider the following questions:
Why have airlines generally lost money over the last 30
years?
What could or should airlines do about it?
Read also the mini-case Sportswear: Power is

money and think how you would answer the
questions presented in the case
Thank You!
In real life, strategy is actually very straightforward. You
pick a general direction and implement like hell.
- Jack Welch, Former CEO of General Electric
Getting the right people in the right jobs is a lot more important than
developing a strategy
- Jack Welch
References
Angwin, D., Cummings, S., & Smith, C. 2011. The Strategy Pathfinder (2nd edition). Oxford: Wiley/Blackwell.
De Wit, B., & Meyer, R. 2010. Strategy Synthesis: Resolving Strategy Paradoxes to Create Competitive
Advantage (3rd edition). London: Cengage .
Grant, R. 2013. Contemporary Strategy Analysis (8th edition). John Wiley & Sons.
Jensen, M. C., & Meckling, W. H. 1976. Theory of the firm: Managerial behavior, agency costs and
ownership structure, Journal of Financial Economics, 3(4): 305-360.
Johnson, G., Whittington, R., & Scholes, K. 2011. Exploring Strategy (9th edition). Pearson Education Ltd.
Kaplan, R. S., & Norton, D. P. 1992. The Balanced Scorecard Measures That Drive Performance. Harvard
Business Review, 70(1): 7179.
Koppell, J. G. S. 2011. Origins of Shareholder Advocacy. Palgrave Macmillan.
McLean, C. 2009. Lego: play it again. The Telegraph 17 Dec 2009. URL:
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/6825911/Lego-play-it-again.html
Mintzberg, H., Ahlstrand, B., & Lampel, J. 2009. Strategy Safari. Your Complete Guide Through the Wilds of
Strategic Management (2nd edition). Prentice Hall.
Mintzberg, H., & Waters, J. A. 1985. Of Strategies, Deliberate and Emergent. Strategic Management
Journal, 6: 257272.
Porter, M. E. 1980. Competitive Strategy. Free Press.

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http://dilbert.com/dyn/str_strip/000000000/00000000/0000000/100000/00000/2000/000/102048/102048.strip.zoom.

Warwick Business School

Warwick Business School

Warwick Business School

Key Questions of the Module

What does it mean to have a good strategy?

Why do some firms perform better than others?

How can firms improve their performance?

How can good performance be sustained?

Warwick Business School

By the end of the module, you should be able to

perspectives in the field of strategic management

Course Introduction & What is Strategy

Session 2 (17 Oct)

Strategy from the Outside-In Industry Analysis

Session 3 (24 Oct)

Strategy from the Inside-Out Resources &

Session 4 (31 Oct)

Competitive Advantage Business-Level Strategies Juha Uotila

Sustaining Competitive Advantages Hyper

Session 6 (14 Nov)

Strategy at the Corporate Level Managing the

Session 7 (21 Nov)

Strategies for Firm Growth: Comparing Organic

Session 8 (28 Nov)

Strategy and Technology Invention, Innovation,

Warwick Business School

Warwick Business School

Conduct an in-depth strategic analysis and comparison of two

same industry (or otherwise sufficiently similar for comparison)

The report should include

sources of competitive advantage, the relationship between the firms

All sources must be properly referenced

Warwick Business School

Warwick Business School

Warwick Business School

Warwick Business School

the long-term direction of an organisation (Johnson et al. 2011: 3)

Strategy provides a link between an organisation and its

Especially in changing business environments, strategy

Warwick Business School

the determination of the long-run goals and objectives of

.a pattern of behaviour that emerges over time. Henry

.a pattern of resource allocation that enables firms to

a firms theory about how to gain competitive advantages

...about being different. It means deliberately choosing a

Warwick Business School

Quest for Competitive Advantage

Warwick Business School

Characteristics of Strategic Decisions

Warwick Business School

An effective strategy needs to be consistent with

Achieving strategic fit requires a thorough understanding of

Warwick Business School

Draw an outline of your career

Helping us to understand and make sense of the complexity

of the strategic decisions

Goal of the Firm: Shareholder Value

The ultimate goal of the business firm is to

Warwick Business School

Warwick Business School

Purpose(s) of the Firm

The purpose of the firm is to maximise