Teachingnote

<IntroductiontoStrategy>
Definitions,notions,approaches.

Authors

Courses
Date
Keywords

CompiledbyDr.KaiRiemer
InterorganisationalSystems,ManagingtheinformationAgeOrganisation
2002(updated2008)
Strategy,Competitvestrategy,MBV,RBV

WI&IOSProf.Dr.StefanKlein:Allrightsreserved.


RiemerTeachingnoteonStrategy

TableofContents
1 WHATISSTRATEGY?.........................................................................................................................................3
1.1 THEROOTSOFSTRATEGICTHINKING ............................................................................................................................... 3
1.2 DEFINITIONSANDNOTIONSOFSTRATEGY ...................................................................................................................... 3
1.3 STRATEGYIS .................................................................................................................................................................. 5
1.4 STRATEGICSCHOOLS............................................................................................................................................................ 6
1.5 THEDIFFERENCEBETWEENINTENDEDANDREALISEDSTRATEGY ............................................................................ 8
2 LEVELSOFSTRATEGICTHINKINGANDPLANNING.............................................................................. 10
2.1 ORGANISATIONALLEVELS ................................................................................................................................................10
2.2 STRATEGYVERSUSTACTICS..............................................................................................................................................10
3 COMPETITIVESTRATEGY ............................................................................................................................. 11
3.1 OVERVIEWTWODIVERGINGVIEWS .............................................................................................................................11
3.2 THEMARKETBASEDVIEWOFCOMPETITIVESTRATEGY(MICHAELE.PORTER)..................................................12
3.3 THERESOURCEBASEDVIEWOFCOMPETITIVESTRATEGY(PRAHALAD&HAMEL) .............................................13
3.4 INTEGRATIONOFMARKETBASEDANDRESOURCEBASEVIEW ................................................................................13
4 FROMSINGLEFIRMTOINTERFIRMSTRATEGY .................................................................................. 13
4.1 ASYSTEMSTHEORYEXPLANATIONOFTHEEXISTENCEOFFIRMSANDNETWORKS ..............................................14
4.2 THESINGLEFIRMVIEWONSTRATEGYINANETWORK...............................................................................................14
4.2 THEINTERFIRM/NETWORKPERSPECTIVEONSTRATEGY ........................................................................................15
4.3 CONCLUSION .......................................................................................................................................................................16
LITERATURE............................................................................................................................................................. 18


RiemerTeachingnoteonStrategy

1 Whatisstrategy?
Strategy is a controversial topic. Hence, in the literature there is not much agreement about what
qualifiesasstrategyorhowtoapproachstrategyinanorganisation.Numerousnotionsanddefinitions
have emerged over time, presented by strategists and practitioners dealing with strategy in various
contexts,emphasizingdifferentviews,andunderstandingstrategyindifferentways.Thus,insteadof
concentrating on just one definition of strategy, it is more useful to present and discuss different
notions and perspectives. In doing so, I will first look at the history (or roots) of strategic thinking
beforeIthenintroducedefinitionsandelaborateondifferentperspectivesandstrategicviews.Please
notethatthisteachingnoteonlyprovidesanintroductiontothetopic;itneedstobecomplemented
withadditionalreadingsthatarelistedtowardstheendofthistext.
1.1 Therootsofstrategicthinking
Theconceptofstrategystemsfromthemilitarycontextandhasbeenadaptedforuseinbusiness(cp.
Nickols2000a)1.StrategyisatermthatcomesfromtheGreekstrategia,meaning"generalship."Inthe
military, strategy often refers to maneuvering troops into position before the enemy is actually
engaged.Inthissense,strategyreferstothedeploymentoftroops.Oncetheenemyhasbeenengaged,
attentionshiftstotactics.Here,theemploymentoftroopsiscentral.Substitute"resources"fortroops
andthetransferoftheconcepttothebusinessworldbeginstotakeform.
1.2 Definitionsandnotionsofstrategy
Table1exemplarilyintroducesbusinessrelateddefinitionsandmeaningsofstrategyderivedfromthe
work of wellknown strategists (taken from Nickols 2000a). The various definitions and notions
illustratetheambiguousnessoftheconceptandthatstrategycanbeapproachedfromdifferentangles.
Consequently,theauthorFredNickolsasks:
What,then,isstrategy?Isitaplan?Doesitrefertohowwewillobtaintheendsweseek?Isita
positiontaken?Justasmilitaryforcesmighttakethehighgroundpriortoengagingtheenemy,
mightabusinesstakethepositionoflowcostprovider?Ordoesstrategyrefertoperspective,to
the view one takes of matters, and to the purposes, directions, decisions and actions stemming
fromthisview?Lastly,doesstrategyrefertoapatterninourdecisionsandactions?Forexample,
does repeatedly copying a competitor's new product offerings signal a "me too" strategy? Just
whatisstrategy?
Hisanswertothesequestionsisaninclusiveone:
Strategyisalltheseitisperspective,position,plan,andpattern.Strategyisthebridgebetween
policyorhighordergoalsontheonehandandtacticsorconcreteactionsontheother.Strategy
andtacticstogetherstraddlethegapbetweenendsandmeans.Inshort,strategyisatermthat
refers to a complex web of thoughts, ideas, insights, experiences, goals, expertise, memories,

1 The German author von Clausewitz states: Die Strategie ist der Gebrauch des Gefechts zum Zwecke des
Krieges;siemussalsodemganzenkriegerischenAkteinZielsetzen,(...)sieentwirftdenKriegsplan,undan
dieses Ziel knpft sie die Reihe von Handlungen an, welche zu demselben fhren sollen (von Clausewitz,
19thCentury)


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perceptions, and expectations that provides general guidance for specific actions in pursuit of
particularends.Strategyisatoncethecoursewechart,thejourneyweimagineand,atthesame
time, it is the course we steer, the trip we actually make. Even when we are embarking on a
voyage of discovery, with no particular destination in mind, the voyage has a purpose, an
outcome,andanendtobekeptinview.(cp.Nickols2000a).
Thefollowingparagraphsfurtherindicatethevarietyofthestrategyterm.

Source

Strategydefinition/notion

Steiner,George(1979): 1.Strategyiswhattopmanagementdoesthatisofgreatimportancetothe
StrategicPlanning.
organization.
2.Strategyreferstobasicdirectionaldecisions,topurposesandmissions.
3.Strategyconsistsoftheimportantactionstorealizethesedirections.
4.Strategyanswersthequestion:Whatshouldtheorganizationbedoing?
5.Strategyanswersthequestion:Whataretheendsweseekandhow
shouldweachievethem?
Mintzberg,Henry
(1994):TheRiseand
FallofStrategic
Planning

1.Strategyisperspective;thatisvisionanddirection.
2.Strategyisposition;thatis,itreflectsdecisionstoofferparticular
productsandservicesinparticularmarkets.
3.Strategyisaplan,ahow,ameansofgettingfromheretothere.
4.Strategyisapatterninactionsovertime.
Ergo:strategyemergesovertimeasintentionscollidewithand
accommodateachangingreality(realizedstrategy).

Andrews,Kenneth
Corporatestrategyisthepatternofdecisionsinacompanythat
(1980):TheConceptof determines(...)itsobjectives(...)andproducesthe(...)plansforachieving
CorporateStrategy.
thosegoals,anddefinestherangeofbusinessthecompanyistopursue,...
Distinguisheslevelsofstrategicplanning:corporatestrategyand(the
moredetailed)businessstrategy.
MichaelPorter(1996): Competitivestrategyisaboutbeingdifferent.Itmeansdeliberately
WhatisStrategy?
choosingadifferentsetofactivitiestodeliverauniquemixofvalue.
Ergo:strategyiscompetitivepositioninganddifferentiation.
Table1:Differentnotionsofstrategy.


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1.3 Strategyis
Strategyismanythings(partlytaken,partlyadaptedfromNickols2000b):

Strategyisplan,position,ployandperspective.Asplan,strategyspecifieshowweintendto
realize our goals. As position, strategy is the stance we take: e.g. be the lowcost provider,
competeonthebasisofvalue,setpricesaccordingtowhatthemarketwillbear,orbeatany
priceofferedbyanycompetitor.Asploy,strategyreliesonsecrecyanddeception:"Letnotthy
lefthandknowwhatthyrighthanddoeth."Asperspective,strategyispartvantagepointand
part the view from that vantage point, particularly the way this view shapes and guides
decisionsandactions.

Strategy is ubiquitous. It can be found at the highest levels of corporate, governmental,

militaryandorganizationalendeavorandinsmall,mediumandlargeunits.Itisusedtodefine
thebasisforcompetitionanditcangiverisetocollaborationandcooperation.Itcanevenbe
foundguidingandexplainingindividualinitiative.Itiseverywhere.

Strategyisanabstraction,aconstruct.Ithasnoconcreteformorsubstance.Atbestitcanbe
communicated in words and diagrams. But, just as "the map is not the territory," the words
anddiagramsusedtocommunicatestrategyarenotthestrategytheyconvey.

Strategyistheartofthegeneral.Itisbroad,longrangeandfarreaching.Inpart,itisabout
thepreparationsmadebeforebattle,beforetheenemyisengaged.Butitisalsoaboutavoiding
battleandmakingcombatunnecessary.Itisasmuchaboutdestroyingtheenemyswilltofight
asitisaboutdestroyingtheenemyinafight.Ifthatsoundstoomilitaristicforyou,consider
the business parallel: a firm that raises such formidable barriers to entry that wouldbe
competitors throw up their hands and walk away. In short, destroying the will to compete
differslittlefromdestroyingthewilltofight.

Strategy is a general plan of attack, an approach to a problem, the first step in linking the
meansorresourcesatourdisposalwiththeendsorresultsweholdinview.Tactics,ofcourse,
is the second step.Strategy is concerned with deploying resources and tactics is concerned
with employing them. Without some goal there can be no strategy and tactics will consist of
aimlessflailingabout.Strategy,then,isrelative,whichistosaythatitexistsonlyinrelationto
somegoal,endorobjective.Ifsomeoneasksyou,"Whatisyourstrategy?"besuretoreply,"In
relationtowhat?"

Strategy is direction and destination. At one and the same time strategy says, "We are
headed there by this path." Strategy defines the destination (e.g. the goals) and the
direction,i.e.guidanceastohowwegetthere.

Strategy is a set of decisions made. What business are we in? What products and services
willweoffer?Towhom?Atwhatprices?Onwhatterms?Againstwhichcompetitors?Onwhat
basiswillwecompete?

Strategy is getting it right and doing it right. On the one hand, we have to pick the right
courseofaction.Ontheotherhand,oncechosen,wehavetocarryitoutproperly.


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Strategythusismanifold;itreferstotheplan,aswellastotheprocessofimplementingtheplan.At
thesamemomenttherearedifferentviewsofhowstrategytakesplace:Isitreallyaboutplanning?Or
isstrategyanemergingissue?Areweabletoplaneverythingandthenimplementthepan?Ordowe
have to accept that in a complex world strategy emerges in the process of action? To elaborate on
thesequestions,wehavetotakealookatthehistoryofstrategicthinkingandstrategytheory.
1.4 Strategicschools
Thehistoryofstrategytheoriesistosomeextentsimilartothatoforganizationtheory:Startingfroma
mechanistic idea of strategic planning and design, newer approaches deal with strategy in a more
holistic manner, accepting, that strategy can only be planned to a certain extent, while a significant
part results from other effects during the implementation process within the organisation (socalled
emergentstrategies[Mintzberg,et.al.2001]).
Mintzberg introduces 10, more or less distinctive, theory schools, each representing a special
perspective on strategy or emphasising certain issues within the field [Mintzberg, et. al. 2001].
Although emerging in a historically order, each school remains important, retaining their group of
supporters(viewfigure1forabriefoverviewofthe10strategyschools).


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Figure1:Strategyschools(Mintzbergetal.1999and2001).


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Forourpurposesathreefoldcomplexityreducingclassificationmightbesufficient,distinguishing
strategyin(neo)classical,modernistandcultural(symbolic)perspectives:
1.

The design model (classical): Under this model, strategy is the object of a planning and
designprocess,wheretopmanagersdefinetheorganisationsgoalsandtheprocessesfortheir
implementation (machine metaphor). According to Mintzbergs design, planning and
positioningschool,organisationalstrategycanbeplannedandpannedoutindetail.Important
tothisperspectiveistheconceptofaligning(fit)theinternalcompetenciesandresourcesof
the organisation with the external (market or environmental) situation, by making decisions
concerning the development of resources and the positioning in the market (cp. also
Contingency theory). Porters marketbased view (MBV) and the resourcebased view (RBV)
[acc. to Prahalad, Hamel 1996], representing the two main strands in strategic planning, are
partofthisstrategyperspective(seelater).

2.

The emergent model (modernist): In the emergent model, strategy is seen as emerging in
theprocessofaction.Strategycannot(oronlytosomeextent)beplannedandistheoutcome
of the organisations struggle to survive (cp. Darwinist ideas in Population Ecology) and the
adaptation to certain internal and external influences. Strategy formulation and
implementationareinterdependent, strategydevelopmenthappensoneverylevelwithinthe
organisation. Moreover, the realised strategy, the one observable in the marketplace, may
differconsiderablyfromtheintendedstrategy(itemerges).Theorganisationisviewedfrom
a modernist perspective, interpreted as some form of organism (living system). The
perspectivecorrespondstoMintzbergslearningschoolandthepowerschool,wherestrategy
istheoutcomeofintensivediscussionsandthebalancingofpowerrelationships.

3.

Theculturemodel(cultural/symbolic):Inthisview,strategyformationisasocialprocess,
grounded in the specific culture (of the organization and the environment). In the culture
model the organisation develops and uses powerful symbols of business culture to mobilise
support for strategy formation and implementation. Strategy formation is based on a social
framing and defining the right organisational context, more than on planning and designing
strategyinarationalway.ThisviewcorrespondstoMintzbergsculturalschool.

Regardingthedifferentschools,Mintzbergarguesthatoveremphasisingoneschoolmaycausefailures
duetoarestricted,unilateralview:Thegreatestfailingsofstrategicmanagementhaveoccurredwhen
managerstookonepointofviewtooseriously.
1.5 Thedifferencebetweenintendedandrealisedstrategy
Itisbeyonddoubtthatthestrategy,whichwillberealisedintheend,differsfromtheintendedoneat
the beginning of the process. Parts of the intended strategy will not be realised, whereas emerging
aspects and changes in the process (slightly or more dramatically) adjust the strategy, so that the
realisedstrategyisdifferentfromtheintendedone(seefigure2).


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Figure2:Fromintendedtorealisedstrategy(Mintzberg1999,p.30).
Itbecomesobviousthatonecannotpersistexactlyonwhatwasplanned.Therearetomanyinternal
andexternalinfluencesintheprocessthatrenderitnecessarytoadjusttheintendedstrategy.Onthe
other hand this does not necessarily mean that planning is useless at all. Planning is not necessarily
aboutformalisedanalysis,butaboutthinkingbeforedoing.Thus,wecanstateasfollows:

Thedifferentstrategyschoolareontheonehandparadigms,aswellassimplydifferentviews
intheprocessofstrategydevelopmentandformation.

Itisimportanttoviewthecompanyssituationinaholistmultiperspectivemannerandtoask
therightquestionstouncoverthemainproblems.

Thinkinproblems/issuesnotinconcepts.Trytouseconcepts.

Plan,butnotinawaythatistoobureaucratic/formalised.

Think,insteadofblindlyfollowingoneschool,orthelatestconsultancyfadforthatmatter.

Acceptdynamics,changeandemergingstrategies,butdonotforgettoplan(note:Ifyouplan,
youmayfail.Butwithoutplanning,youwillnotknowwhetheryoufailedornotintheend.And
thereforeyoumaybeunabletolearnfromfailureandtoimprove!)


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Levelsofstrategicthinkingandplanning

Strategic decisions in companies take place on different organisational levels. In the most simple
terms,onecandistinguishthreeorganisationallevelsofstrategicthinking:(1)thecorporatelevel,(2)
thebusinessunit(ordivisional)levelandthe(3)functionallevel(seefigure3).

Figure3:Levelsofstrategicplanning
2.1 Organisationallevels
Corporate strategy defines the markets and the businesses in which a company will operate.
Competitiveorbusiness(unit)strategydefinesforagivenbusinessthebasisonwhichitwillcompete
with other companies. And a functional strategy elaborates on goals, aims and actions to be
undertaken in single functional areas of the firm. Often, this is also referred to as tactics: specific
decisionsfollowingthebroadstrategicones(seelaterforadistinctionbetweenstrategyandtactics).
Corporatestrategyistypicallydealtwithinthecontextofdefiningthecompanysmissionandvision,
thatis,decidingonwhatthecompanydoes,whyitexists,andwhatitisintendedtobecomesomeday.
Competitive strategy hinges on a companys capabilities, strengths, and weaknesses in relation to
market characteristics and the corresponding capabilities, strengths, and weaknesses of its
competitors(positioningandresources).Here,itispossibletoargueinamoremarketbasedormore
resourcebasedmanner(seelater).
2.2 Strategyversustactics
As mentioned above, tactics is the specification, concretisation and operationalisation of strategic
aims. Whereas strategy draws the grand, longterm picture and gives ideas for the process of
implementation, tactics brings these general ideas down to earth. Tactics describes a more short
term thinking and takes place during the process of strategy implementation. One might argue that

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goodtacticsisnecessarytoreacttoenvironmentalororganisationalchanges.Thus,tacticalactionisa
reasonforwhatwascalledemergingstrategiesinthesectionabove.Whiletopmanagersmightbe
concerned with strategy formulation, managers on the lower organisational levels are usually
responsiblefortacticaldecisionswithinfunctionalareasofthefirm.
Aspects
ScaleoftheObjective
ScopeoftheAction
Guidanceprovided
Degreeofflexibility

Strategy
Grand
Broadandgeneral
Generalandongoing
Adaptable,butnothastily
changed
Longterm
Beforeaction

Temporalscope
TiminginRelationto
Action
Focusofresource
Deployment
utilisation
Table2:Comparisonofstrategyandtactics

Tactics
Limited
Narrowlyfocused
Specificandsituational
Fluid,quicktoadjustandadaptin
minorormajorways
MidtermorShortterm
Duringaction
Employment

Competitivestrategy

In the following paragraphs I will briefly introduce the most wellknown approaches to competitive
strategy the marketbased view and the resourcebased view. In doing so, I will provide brief
accountsofbothapproachesandthenrefertofurtherreadingsonthesubjectmatters.
3.1 Overviewtwodivergingviews
So far, we have recognised that there are several different strategiy views. In elaborating on
competitive strategy, I will now concentrate on the most popular ones: the marketbased and the
resourcebased approach. Following theses two approaches, I will describe strategic planning as
identifying and developing competitive advantages, in which the two approaches simply apply
differentperspectivesandtechniques.Underthetwonotions,anycompetitiveadvantagemayeither
derivefromasuperiormarketpositioningorfromavaluableanddefendableresourcebase(figure4).

Figure4:Sourcesofcompetitiveadvantage

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The marketbased view of strategy evolved largely from the positioning school coined by American
economist Michael E. Porter. Many authors have contributed to forming what is known as the
resourcebased view of strategy, one influential contribution was made by Prahalad and Hamel. In
short,thetwoapproachedcanbecharacterisedasfollows:

Marketbased view (MBV): Following this view economic success is determined by the
structureofthemarketinwhichafirmoperatesandbythefirmsbehaviourinrelationtothe
forces prevalent in this market. These forces are described by the wellknown five forces
model;thefiveforcesare1)therivalryamongcompetitors,2)thepowerofcustomers,3)the
power exerted by suppliers, 4) the threat of new entrants to the market and 5) arising
substitutes to the firms products. Competitive advantage now derives from a strategic fit of
thefirmsbehaviourwiththefirmsenvironmentintermsofauniquemarketpositioningthat
isabletodealwiththeseforces.Thus,theMBVfollowsanoutsideinperspectiveofstrategic
planning by positioning the firm in the market and then adjusting the firms value chain
accordingtotheseexternalrequirements.

Resourcebased view (RBV): Following the RBV notion strategic planning concentrates on
the development, maintenance and very important the exploitation of (core) resources.
Competitive advantage therefore derives from developing and/or owning a unique set of
(core) resources and the ability (capabilities) to develop products that capitalise on these
resources,whichprovideauniquesellingpropositioninthemarketplace.Ergo,aninsideout
approach to strategic planning is taken, by concentrating on (internal) resources and their
exploitationbyturningthemintouniqueproductsinthemarketplace.

Inthefollowingsections,thecoreconceptsofthetwoapproacheswillbelistedbrieflyandreferences
willbeprovidedtofurtherreadingsforselfstudy.
3.2 Themarketbasedviewofcompetitivestrategy(MichaelE.Porter)
Three major concepts constitute the positioning school by economist Michael E. Porter, which has
significantlyshapedthemarketbasedapproach:

TheFiveForcesmodelforanalysingthestructureoftheIndustryandforpositioningthefirm.

ThemodeloftheValueChainofthefirmfordesigningafirmsvaluecreationprocesses.

Thethreegenericstrategiesthatafirmcantakeinpositioningitselfinthemarketplace(cost
leadership,differentiationandfocus)

Instead of describing the concepts here, please read the following article as well as the Internet
resourcesfollowingthehyperlinksbelow.
Pleaseread: Porter,MichaelE.(1997):HowCompetitiveForcesShapeStrategy(HBSReprint),
in:HarvardBusinessSchool(Eds.),CompetitiveStrategy,S.110:HBSPublishing,
1997(originallypublishedin1979).
Pleaseread: FiveForcesModel:http://www.themanager.org/Models/p5f.htm

ValueChainConcept:http://www.themanager.org/Models/ValueChain.htm

3GenericStrategies:http://home.att.net/~nickols/competitive_strategy_basics.htm

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3.3 Theresourcebasedviewofcompetitivestrategy(Prahalad&Hamel)
TheresourcebasedviewhasbeenshapedbytheworkandarticlesofstrategistsPrahaladandHamel
and their book Competing for the Future. The main concept is the core competence/core product
typology. The following article elaborates on core competencies using several illustrative examples.
Pleaseusethisarticletoinformyourself.
Pleaseread: Prahalad, C. L., Hamel, G. (1990). The core competence of the corporation. In:
HarvardBusinessReview,Vol.90No.3,pp.7991.
3.4 Integrationofmarketbasedandresourcebaseview
Whilethetwoapproacheshavebeendiscussescontroversialintheliteratureandwhereseenbymany
tobeconflictingorevenincommensurable,somemorerecentpublications[Brner2000aandBrner
2000b] have tried to integrate them into a comprehensive strategy approach. This is exemplarily
showninfigure5.

Figure5:Integrationofmarketbasedandresourcebasedapproach

Fromsinglefirmtointerfirmstrategy

Thegoalofthisparagraphistoillustratewhathappenstotheideaofstrategyandstrategicplanning
when moving from the firm level to an interorganisational network context. Therefore, I will
elaborate on the aboveintroduced marketbased and resourcebased view. Moreover, I will use
functionalistic systems theory to outline the formation of a network as a subsystem of the market,
whichisintegratingallparticipatingsingleenterprisesasitsownsubsystems.Thiswillbeusefulin
pointing out the changing role of strategy approaches in an interfirm (network) context in
comparisontothesinglefirmcontext.

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4.1 Asystemstheoryexplanationoftheexistenceoffirmsandnetworks
Following the social (action) systems theory by sociologist Parsons and especially the theoretical
explanation of systems formation (evolution theory), the formation of a system is a process of
differentiation and integration: By differentiation, the system is divided from its environment.
Integrationmeansboth,theintegrationofthesingleelementsformingthe(social)systemthatisbased
on shared integrative patterns like values, culture, etc., and the integration of the system into its
environment.
Applyingthismodeltotheeconomiccontextofenterpriseswithinamarketplace,theexistenceofan
enterprisecanthenbeexplainedusingtheconceptsofdifferentiationandintegration:theenterprise
has to differentiate itself from other systems (enterprises) in order to establish a unique and
legitimate position within the market. Furthermore it has to integrate its subsystems (e.g. its
personnelandresources)basedonacommonunderstandingoftheorganisationsmissionandshared
values, culture and rules. Last but not least, the enterprise itself has to become integrated in the
marketplace(andtheoverallsociety),whichisachievedbyprovidingasuitablecontributionforother
marketparticipantsintheformofproductsandservices.
In the same way, this model can also be used to explain the formation of a network as part of the
market: The network has to differentiate from the overall market and to integrate the single
enterprises as the elements forming the network, while at the same time each enterprise has to
differentiate within and to integrate itself into the network. From a strategy perspective, these
processes of differentiation and integration can be described as to be shaped and actively formed
usingapositioning(MBV)andresourcedevelopment(RBV)rationale.InthefollowingIwillshowhow
MBVandRBVincombinationwiththedifferentiationandintegrationlogiccanbeusedtodescribe
singlefirmandnetworklevelapproachestostrategicthinking.
4.2 Thesinglefirmviewonstrategyinanetwork
Enteringabusinessnetworkposesnewstrategicquestionsforthesinglefirm.Theenterprisefacesnot
only the positioning within the market, but also within the network. Using the marketbased and
resourcebasedapproachesincombinationwiththesystemstheoryconcepts,thiscanbeexplainedas
intermsofthesinglefirmhavingtodifferentiatefromandtointegrateitselfintothenetwork:

Marketbasedapproach:
o

Differentiation is about being different in terms of a competitive position within the

network.Eachcompanystrivesforasuperiororatleastequalpositioninthenetworkin
order to assure that it can draw economic rents from the network, e.g. that it can
participatetoanacceptableextentinthedistributionofthepositiveeffectsderivedfrom
cooperating. Such effects might be revenue streams, collaborative knowledge, patents or
other. Moreover, a good and powerful position in the network allows the company to
influence network strategy in order to assure achieving its own goals, which may differ
fromtheotherparticipantsgoals.Especiallyinnetworkswherecompaniescooperatewith
theircompetitors(coopetition),internalstrategicpositioningremainsveryimportant.

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Integration: To be part of the overall network, at the same time the enterprise has to
integrateintotheoverallvaluecreationprocessofthenetwork.Drawingfromtheoutside
in perspective of the marketbased approach, the internal enterprises value chain has to
bealignedwiththeexternalmarketpositionofthenetworkandthenetworksprocesses.
This means, that in the network context the internal value chain has to be part of and
alignedwiththeoverallnetworkvaluechain.Integrationthenmeansthecarefuldesignof
processinterfaces(aswellasInformationSystemsinterfaces).

Resourcebasedapproach:
o

Differentiation: From a resourcebased view differentiation means to contribute to the

network in terms of unique core resources. This is a wellknown concept in virtual
organisations, where a network of enterprises is built up with each enterprise
concentratingonitscorecompetenciescontributingtothenetworkbyfulfillingaspecific
role.Theenterprisescooperate,e.g.toachievevirtualsize,byestablishinganetworkwide
resource pool, where each company brings in its core competencies. To achieve best
networkwidequality,foreachtypeofresourceonlythebestcompanyintermsofquality
and efficiency may contribute. Therefore, companies have to differentiate and to
concentrate on core resources. A classification of resources is needed to identify critical
resourcesconstituentfortheenterprise,whichhavetobebuiltupinternallyandtobeable
toidentifyresources,whichcouldbeinternalisedfromexternalpartners(cp.Klein1996,
215).

Integration:Thesingleenterprisehastointegrateitselfintothesuperordinatenetwork.
Thismeans,thatontheonehandtheownresources(e.g.productionprocess,knowledge,
services)havetobeadjustedanddocumented,sothatitbecomestransparentfortheother
networkpartners,whichresourcesareavailableandfurthermorethattheresourcesmay
be easily used by the other partners. On the other hand, the company has to assure the
integrationoftheexternalresourcesofferedbyotherpartnersintotheinternaloperations.
Therefore the above mentioned differentiation of resources may be helpful. Another key
concept in this context is called networkability, which names a pool of competencies
necessary to ensure the ability of the single company to cooperate in terms of processes,
technology, personnel, knowledge etc. (For the concept of networkability please have a
lookat[Alt,et.al.2000]and[Fleisch2000]).

4.2 Theinterfirm/networkperspectiveonstrategy
Afterelaboratingonthesinglefirmviewonstrategicplanninginanetworkcontext,Iwillnowsketch
out key questions of strategic planning on the network level. Therefore we follow the above
introducedstructuring:

Marketbasedapproach:
o

Differentiation:Comparableto thepositioningof asingle enterprise, the entire network

has also to be positioned within the market. In case of a direct value contribution to the
marketplace(likeforexampleinstrategicairlinealliances),thenetworkasawholetriesto

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actandstrivestobeperceivedlikeasingularactorinthemarketplace.Thepositioningof
thenetworkinthemarketmovescompetitionfromasinglefirmleveltoanetworklevel,
whichmayultimatelyleadtowhathasbeentermedagroupvsgroupcompetition,with
jointbrandandstrategydevelopment[GomesCasseres1994].
o

Integration: One of the biggest challenges in network formation is the integration of all
partnerscontributionstoafunctioningwhole.Drawingfromthemarketbasedapproach,
allpartnersvaluechains(ormorepreciselythepartscontributingtothenetwork)haveto
beintegratedtoformanoverallnetworkvaluechain.Therefore,anetworkwideplanning
and a common understanding of value creation processes and a certain degree of
standardisationarerequired.

Resourcebasedapproach:
o

Differentiation:Similartothedifferentiationonthesinglefirmlevel,thenetworkhasto
workoutitscorecompetenciesandresourcesinordertoensurethedeliveryofaunique
valuepropositiontothemarketintermsofproductsandservices.Thisrequiresanexplicit
planning of the network resource pool and the development of products and services
basedontheseresources.

Integration:Allresourcescontributedbythepartnershavetobe(virtually)aggregatedto
form a network resource pool. Therefore, compatibility has to be ensured, e.g. by
standardisation activities and documentation of partner competencies, processes and
interfaces,products,services,etc.

4.3 Conclusion
Thediscussionofstrategicshiftfromsinglefirmtoanetworkperspectiveshowsthatnewchallenging
questionsariseandthatcompanieshavetodifferentiateandintegratethemselveswithinthenetwork
andthatanewlevelofstrategicplanningisconcernedwiththepositioningandresourcedevelopment
of the entire network. This requires differentiation and integration of the entire network within the
marketplace. Recapitulating, some important questions arise that enterprises have to face when
enteringanetworkcontext:
o

Positioningwithinthenetworkintermsofpower/influencetoachievetheowngoals.

Ensure integration into the network by taking care of interfaces regarding processes and
resources.

Classification of resources with respect to importance and role to ensure full control over
criticalresourcestominimiseexternaldependencies.

Taking care of networkability, internal capabilities necessary to ensure the ability to

collaboratewithothers.

Challengesofcollaborationwithandlearningfromcompetitors(coopetition).

Changingscopeinstrategicplanning:eachsinglefirmhastofacetheformationoftheoverall
networkstrategy:groupvsgroup.

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RiemerTeachingnoteonStrategy

Inordertostudyinmoredetailtheroleofalliances,networksandstrategicthinkinginaninterfirm
context,pleasereadthefollowingarticlesfromtheHarvardBusinessReview.Again,onearticleargues
morefromamarketbasedperspective,whereastheotherismoreinfluencedbytheresourcebased
view:
Pleaseread:
1. GomesCasseres, Benjamin (1994). Group versus Group: How Alliance Networks
Compete.In:HarvardBusinessReview,4,pp.6274.
o

MBVrelated:Positioningofstrategicgroupsinthemarket.

2. Hamel, Gary; Doz, Yves L.; Prahalad, C. K. (1989): Collaborate with your Competitors
andwin,in:HarvardBusinessReview,1(1989),S.133139.
o

RBVrelated: Learning from competitors (internalise external and protect internal

resources)thecoopetitionconcept.

17


RiemerTeachingnoteonStrategy

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