STRATEGY &

COMPETITIVE
ADVANTAGE

Business Proposition

Profits = Quantity (Revenue - Cost)

MARGIN
3 most fundamental variables in Business
2

Definition
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, Strategy and Structure
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Levels of Strategy
Corporate strategy... defines the scope of the
business in terms of the industries and markets in
which it competes.
includes decisions about diversification, vertical integration,
acquisitions, new ventures, divestments, allocation of scarce
resources between business units

Business strategy... is concerned with how the firm

competes within a particular industry or market... to
win a business unit must adopt a strategy that
establishes a competitive advantage over its rivals.
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Domain of Strategy
strategic competitiveness and above normal returns
concerns managerial decisions and actions which
materially affect the success and survival of business
enterprises
involves the judgment necessary to strategically
position a business and its resources so as to
maximize long-term profits in the face of irreducible
uncertainty and aggressive competition
strategy is the linkage between a business and its
current and future environment
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Concepts of Firm
Performance
firm survival
accounting profits (ROA, ROE, ROS)
surplus of revenues over expenses

economic profit/rent (economic value added,

positive NPV)

normal return on capital

abnormal return - surplus after all inputs

shareholder value/market value(EVA,

Tobins q)

Change in market value over time

Common Elements in Successful Strategy

Successful
Strategy

EFFECTIVE IMPLEMENTATION

Long-term, simple
and agreed upon
objectives

Profound
understanding of
the competitive
environment

Objective
appraisal of
resources

$
7
Source: Adapted from Robert S. Grant, 1991

Sources of Superior Performance

Above Normal
Profits
(in Excess of the Competitive Level)

Avoid
Competitors
Attractive
Industry

Attractive
Strategic
Group

Attractive
Niche

Entry
Barriers

Mobility
Barriers

Isolating
Mechanisms

Be Better Than
Competition
Cost
Advantage

Differentiation
Advantage
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Types of Competitive Advantage

Low Cost
Differentiation

Sources of Competitive Advantage

Theoretical Frameworks
The Industrial Organization View
The Resource-based View
Relationship between these two views

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The Emergence of
Competitive Advantage
External Sources of Change
(fast food, cars, oil)
Responsiveness to Change
(soft drink, retail)
Innovation
(book-selling, video games)

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Sustaining Competitive Advantage

Causal Ambiguity and Uncertain Imitability
Isolating Mechanisms
-first mover advantage
-deterrence and preemption
-resource constraints
-dynamic capabilities
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