Managing Strategic Change Summary Notes Lecture 2 – Models of Strategic Change Global Issues:
Michael Porter, best known for:
• Porter’s Five Forces Analysis
• Product strategies – differentiation, cost leadership and focus
• Value chain and value system Porter’s Five Forces Model:
• This is a static model
• Government, resources and technology are seen as influencing all of these forces, but are not a force themselves
Example: Tesla Motors Threat of New Entrants
• Barriers to entry high or low?
• Infrastructure costs
• Learning effects from other industries minimal
• Advanced technology requirements Bargaining power of buyers:
• Traditionally: significant bargaining power in traditional industry supply chain – dealers/consumers negotiate prices
• However, Tesla sells direct to consumer, alters the relationship Bargaining power of suppliers:
• Higher in past than now
• Many small, weak suppliers
• Engine made in-house
• Chassis/engineering made in-house
• Tesla investing in supply-chain capabilities (ie. the machines that make the machines)
Threat of substitutes:
• Hybrids and plug-in hybrids
• Diesel engines with good fuel economy
• Mass transportation (trains, buses, subways)
• Are Tesla vehicles significantly differentiated from these options Existing industry rivalry:
• Automotive industry is highly competitive
• Low switching costs for consumers
• Large, powerful competitors
• Globalized industry – any brand can potentially sell all over the world
• Need for strong brand identity and differentiation from other carmakers What business are we in (Porter, 2008)?
• Often when there is a radical innovation the industry is not well-defined
• In infant industries categories need to be understood by the consumer
• Companies will often band together to ensure survival
• Contradicts Porter’s ‘wartime approach’ – competition is not always a zero-sum game
Tesla: Are electric vehicles the same market as traditional cars? What about self- driving cars? Changing the parameters of industry changes our understanding of the Five Forces
Limitations of Porter’s Five Forces model:
• It is a static model and is only based on one point in time. This is not favorable for situations of ongoing change
• It focuses on a firm’s external environment
Why are there so many different firms and how do they differ with regard to their survival prospects? Important distinction:
• Why do firms differ? – refers to non-deliberate differences
• Why do successful firms differ? – refers to deliberate attempts to stand out and generate superior performance
Strategic management only interested in the latter Why firms differ:
• Individual sources
o Dispositional -people differ, entrepreneurial personality
o Situational – circumstance’s differ, push/pull factors, social learning theory
• Organisational sources o Spin-offs
o Internal change
• Environmental sources
o Demographic, economic, technological, etc.
• Organisational blueprints
o Lasting effects of foundational activities (eg. organisations have memories)
Why successful firms differ:
• Porter – long-term survival dependent on effective choice of generic strategy (cost leadership, differentiation or focus)
• Contingency theory – organisations adapt to their environments
• Resource-dependence theory – buffering (stockpiling) and bridging (alliance-formation) strategies
• Process models – suggest that it’s not what the actual strategy is, but the process in which is it formulated and implemented
• Dispositional models – leadership matters
• Transaction cost – cost-efficient governance
• Organisational ecology – market compatibility (specialism vs. generalism)
• Institutional theory – sanctioning of particular practices and not others Example – Why is Nike successful?
• Porter’s generic strategies – differentiation/brand recognition
• Supplier relationships – resource dependence
• Ubiquity across markets – institutional theory (sports sponsorships, celebrity endorsements)
Why successful firms continue to differ:
• Environmental expectations – next year, I will be rich
• Ambiguity excellence – Apple, how do they do it?
• Imitation inability – difficulty of copying
• Structural constraints – companies are inert
• Precariousness of change – risk does not outweigh the benefits