Strategic Management Rivalry is driven by competing market opportunities. Model of inter-rm rivalry: A! M! C!

awareness - need to know that the opportunity exists motivation - prots and performance, likelihood of success capability - can you do it? how many resources required?

To defend against a new entrant or competitive actions: A! M! C! awareness - knowing the competitors actions to be able to respond motivation - performance, likelihood of success capability - resources available to react? is it possible to counter?

Resource Heterogeneity VRIO Model helps to nd out if a rm can expect to have a sustained competitive advantage. V! R! I! O! valuable rare imitable organization

Valuable - does the resource result in an increase in revenues (or decrease in cost)? Rare - are resources easy to come by? the resource must be rare enough for perfect competitive advantage to not set in. There may be other rms that possess the resources, but few enough that it is still scarce One can only have a temporary competitive advantage with the above characteristics. In order to sustain it, the resource has to carry two other traits: Imitable - Is the company made up of more intangible resources? they are more difcult to imitate than tangibles. For example, Harley Davidson styles may be easily imitated, but its reputation can not be. ! Cost of Imitation: patents can be a double-edged sword, as a rms disclosure may make it cheaper for others to imitate, but still not allowed, nonetheless Organization - a rms structure and control mechanisms must be organized to exploit its resources - e.g. formal and informal reporting structures, management controls, compensation policies, relationships, structure (vertical or horizontal integration)

Pitfalls of VRIO model: - the resource being tested under the model may not actually generate an advantage in the market - the result for a resource may change in different markets, and so the test must be redone for each new market entered - the model is imperfect and it requires a lot of information Internal Analysis This tells us what the rm should do, given the relative strength and weaknesses of resources and capabilities. The managers job is to bundle resources and capabilities to achieve competitive advantage. Strategic Group is a group of rms within in industry with similar attributes. ! Two conditions for a strategic group: ! - entry barriers ! ! ! ! ! ! ! - exit barriers Without barriers, everyone can compete with each other, and it is not a strategic group. Corporate Strategy - which market are we competing in? How can we diversify? Whereas business strategy is how do we compete in that market? Competitive strategy is the General Manager or CEO Functional Strategy (the business level) is the departments: nance, marketing, R/D, HR, supply, quality, etc. As the rm becomes larger, we see a greater division of labour and more detailed jobs. Corporate value is the sum of the values of each stand-alone business plus the benets of being tied together. I.e. the whole is greater than the sum of its parts. Primary motives for diversication: - growth - increased revenue - decreased risk - lower external transaction costs - vertical labour integration - acquiring suppliers - more control over price and quality Expansion Options Vertical (upstream) includes buying out suppliers to have better control of price and quality of your products. Vertical (downstream) includes buying out your distributors to have better control of customer interaction, presentation, marketing, and lower costs to distribute. Horizontal includes international expansions, new markets, and diversifying based on entering new competitive arenas.

Economies of Scale means the more you produce, the cheaper each unit becomes. Economies of Scope means that you leverage your core competencies to share activities to create synergy. Benets of vertical integration: - lower costs to produce products - more control over price and quality - reduce the bargaining power of other suppliers - new market opportunities - acquire new capabilities Drawbacks or risks of vertical integration: - moving away from core competencies - control for distribution and quality costs more - transaction costs internally increase (this may alone outweigh the benets) - reduction in exibility Means to achieve diversication: - mergers and acquisitions - pooling resources together for a joint venture or strategic alliance - internal development - new products - new tech - new target markets Motives for Mergers and Acquisitions: - reduces competitive rivalry - reduces bargaining power of suppliers - reduces bargaining power of buyers - reduces threat of new entrants Consequences of Acquisitions: - they can lead to poor performance - they are popular to buyout competition or aligned companies Alliances Non-equity alliance ! - through contracts, without cross-equity holdings, or creating independent rms Equity alliance ! - equity investments by one partner into the other Joint venture ! - creation of independent rms Motives for alliances are very similar to M&A motives: - reducing competitive rivalry

- pooling funds, in some cases, for the benet of both rms - reducing bargaining power of buyers and suppliers - reducing the threat of new entrants With alliances, rather than acquiring a companys capabilities, you are learning them, and they learn yours, to benet from each other. Risks in Alliances Behavioural risks: - adverse selection: misrepresentation of what a rm can do - moral hazard: one rm not doing the work - holdup: manipulating the situation such that the other rm must make an unfavourable deal with you due to your agreement Partner Selection - choose partners that reduce risks - reputation, in alliances specically - referral from trusted companies or contacts Alliance Performance - while the risks with alliances might be lower with M&As, managing alliances is still a difcult task - still, why do some rms perform better than others given they have alliances?