CHAPTER 4: ANALYZING STRATEGY(亨利•明茨伯格)

• 亨利·明茨伯格《戰略過程》

  
  

  　亨利·明茨伯格　

  加拿大蒙特利爾麥吉爾大學管理研究領域克萊格霍恩(Cleghorn)講座教授。他的研究主要集中於一般管理和組織問題，特別是管理工作的性質、組織的形式以及戰略形成過程。著有《經理工作的本質》（The Nature of Managerial Work)  、《組織的結構》  (The  Structuring  of Organations)  、《明茨伯格論管理》  (Mmtzbergon Management)、  《戰略規劃的興衰》  (The  rise and Fall Strategic PIanning)等。他發表於《哈佛商業評論》上的文章曾兩次獲得麥肯錫獎。
  　　明茨伯格教授擁有麥吉爾大學機械工程學士學位、麻省理工學院斯隆管理學院科學碩士學位和博士學位；曾獲加拿大國家勳章和魁北克傑出人士獎。
  　　明茨伯格教授曾于1988—1991年擔任戰略管理協會主席，現為加拿大皇家學院院士(第一位管理學院士)、管理學會會員、國際管理學會會員。他還被管理學會評為2000年度傑出學者。

   

  
  

   

  CHAPTER 4: ANALYZING STRATEGY

  PORTER, "HOW COMPETITIVE FORCES SHAPE STRATEGY"

  Summary of Reading

  The essence of strategy formulation is coping with competition. Competition in an industry is rooted in its underlying economics. Competitive forces go well beyond established combatants, and include customers, suppliers, potential entrants, and substitute products. A strong set of competitive forces means poor long‑run profitability prospects. The weaker the forces are collectively, the greater the opportunity for superior performance. The strategist's goal is to find a position in the industry where the company can best defend itself against these forces, or can influence them in its favour.

  
  

  Contending forces

  The seriousness of the threat of entry depends on the barriers present and the reaction from incumbent competitors. There are six major sources of barriers to entry: economies of scale, product differentiation, capital requirements, cost advantages independent of scale, access to distribution channels, and government policy. Aspirants must take at least four things into account with regard to potential retaliation from incumbents: have incumbents lashed out at entrants in the past? do incumbents possess substantial resources to fight back? do incumbents seem likely to cut prices? is industry growth slow? Actions by large segments of the industry, as well as other changing conditions, may affect entry barriers.

  Powerful suppliers and buyers

  Suppliers can exert bargaining power by raising prices or reducing quality. Buyers can force down prices, demand higher quality or more service, and play competitors off against each other. The degree of concentration of a supplier group, the uniqueness of its product, capacity to forward integrate, and the existence of switching costs all powerfully contribute to its bargaining power. The bargaining power of a buyer group is determined by the converses of many of the factors that determine supplier bargaining power. Thus buyer bargaining power increases to the extent that purchases in question are undifferentiated or insignificant, buyers possess the capacity to backward integrate,  switching costs are low etc. The choice of suppliers and buyers should be viewed as a crucial strategic decision.

  
  

  Substitute products

  Substitutes limit the profit potential of an industry by placing a ceiling on prices. The more attractive the price‑performance trade‑off offered by substitutes, the firmer the lid. They also reduce the bonanza during boom times. The most important substitutes are those that are subject to trends improving their price/performance trade‑off.

  
  

  Jockeying for position (intra‑industry rivalry)

  The most common tactics used in situations of rivalry are price competition, product introduction, and advertising slugfests. Rivalry is intensified by the presence of such factors as numerous or roughly equivalent competitors, slow industry growth, lack of differentiation or switching costs (so buyers are not locked in), high fixed costs, etc. Companies can counter these things by strategic shifts like creating switching costs or differentiating the product.

  
  

  Formulation of strategy

  The strategist now has the tools to identify the strengths and weaknesses in the company's posture vis‑à‑vis the competitive forces. There are three types of choices: position the firm for its best defense against the forces; influence the balance among the competitive forces to improve the company's position; anticipate shifts in the factors underlying the competitive forces and trying to exploit these change. “The key to growth, even survival, is to stake out a position that is less vulnerable to attack from head‑to‑head opponents, whether established or new, and less vulnerable to erosion from the direction of buyers, suppliers, and substitute goods. Establishing such a position can take many forms ....”

  Discussion Questions

  1. How is it that “The essence of strategy formulation is coping with competition”?

  This question is intended to stimulate discussion. Some students will say that, of course, competition is the most pervasive of the things facing strategists. They will agree that the most important thing the strategy must address is the competition. Porter makes a convincing case. The problem that some students may identify is that this is a limited view of strategy. It is rooted almost entirely in the idea of strategy as position. Porter's model is a wonderful tool for understanding part of the firm's environment, but that's about it. It does the best job, of all available models, of addressing Rumelt's advantage test (discussed below). But it is not as good at the consonance test, and really doesn't address the feasibility and consistency tests. Yet the factors examined by these tests (environmental fit, company strengths and weaknesses, the existence of a central vision of strategy) are also part of the essence of strategy.

  
  

  2. How does the author define an industry?

  One of the problems with this reading is that Porter does not define industry, at least not explicitly. In some places he is quite vague. For example, he describes the producers of fiberglass insulation as an industry when he discusses substitutes like cellulose, rock wool and Styrofoam. Yet one could make a good case that al four of these products are in one industry, insulation. Any analyst using this model should first be explicit about the boundaries of the industry, remaining consistent with this choice throughout the analysis. Used this way, Porter's model is obviously very useful.

  
  

  3. The author discusses entry in a reverse way, by talking about barriers. How useful is this to strategic managers?

  This question is designed to stimulate discussion. Some students will have a difficult time visualizing entry as overcoming barriers. They will adopt the perspective of the incumbent firm that wants to know what its specific rivals are going to do. These students will be unimpressed by a discussion of barriers. But Porter's model is designed to give strategists insight into economic conditions in the industry. This is related to Andrews's comment that strategists must learn what are the underlying economic conditions in the firm's industry. Viewed from this perspective, analyzing barriers to entry in the industry is extremely useful. Strategists can take a systematic look at the role of economies of scale, product differentiation, capital requirements, cost disadvantages independent of scale, distribution channels, and government policy. Even if the strategist doesn't get a good prediction about the behaviour of a particular aspirant, doing this analysis would be of great benefit.

  
  

  4. How important do you think switching costs are?

  Switching costs seem trivial to most students. But they can be powerful shapers of competitive behaviour. High switching costs increase the power, relative to the industry, of a supplier group. This could lead to higher prices or lower quality for the industry. Low switching costs increase rivalry within the industry, because buyers are not locked in. This may result in price competition and advertising slugfests to lure customers away from rivals. Companies spend a lot of resources trying to create switching costs to prevent these things from happening. The point is, switching costs are much more important to competitive strategy than most students think.

  
  

  5. What is the price/performance trade‑off ?

  It is the comparison, on price and quality, of a product and its substitute. If the price of the product gets too high, the consumer may elect to purchase its substitute, as long as the quality of it is not too low relative to the product. Similarly, if the quality of the product declines, the consumer may purchase the substitute, as long as the price is reasonable. A related scenario occurs when the price of the substitute drops dramatically and its quality remains constant, suddenly making it a more attractive alternative. As Porter says, “Substitutes often come rapidly into play if some development . . . in their industries . . . causes price reduction or performance improvements.”

  
  

  6. How important, and how common, are exit barriers?

  Porter's discussion of exit barriers would indicate that they are both common and important. They include things like specialized assets, large investment in fixed assets, and management loyalty to a particular business. These are fairly common phenomena. One result of high exit barriers is excess capacity, which intensifies rivalry, primarily manifested by price warn (to keep fixed assets productive) and advertising battles (to unload excess inventory). Clearly these are important consequences of exit barriers.

  
  

  7. The author says that strategy is “finding positions in the industry where [competitive] forces are  weakest”. He also says that  “The key to growth . . . is to stake out a position that is less vulnerable to attack . . .” So shouldn't his approach be called “avoiding competition”?

  Porter never claims that his model helps firms engage in head‑to‑head competition. We tend to assume that competition is related to war or sports rivalry, which is characterized by head‑to‑head confrontation. Porter’s model is actually closer to population ecology models, which say that organizations must adapt to the conditions extant in their environments. One of the best ways to do this is to find protected niches. This is similar to how animals in the wild make specialized adaptations to their locales, which ultimately result in species. The majority of competition in the world is of this “protect yourself, adapt to your local environment” kind. Porter’s implicit point is that business is no different.

  
  

  BARNEY, “LOOKING INSIDE FOR COMPETITIVE ADVANTAGE”

  Summary of Reading

  This reading draws heavily on the work of Michael Porter and Ken Andrews, both of whom have representative readings in Chapter 1 and 3, and whose work is also discussed in the Mintzberg and Lampel reading in Chapter 1. In the spirit of Andrews’ SWOT  framework, it marries Porter’s positioning perspective (as a means of identifying and analyzing the nature of external opportunities and threats) to an internally-oriented focus on resources and capabilities  (as a means of identifying and analyzing internal strengths and weaknesses). The author identifies four key criteria questions that this internally-oriented analysis must address: value creation (resources and capabilities  are valuable only when they exploit opportunities or mitigate threats); rareness (capabilities or resources that are valuable but common will be essential in allowing a firm to achieve parity, but not to out-compete, its rivals); imitability (resources and capabilities that are valuable and rare will confer long-term advantage if rivals find it difficult to either duplicate or substitute for these resources and capabilities);  finally, there is the question of organization (valuable, rare, and hard-to-imitate resources will confer superior long-term profitability depending on how well they are orchestrated into a coherent system; another way of thinking of this is the quality of complementary resources such as control systems and compensation policies, and the quality of fit between these and “core” resources and capabilities.)

  Discussion Questions

  1. Does the reading offer a coherent account of competitive advantage?

  With its clear focus on creating value in hard-to-imitate ways, the “resource-based” view articulated by the reading clearly addresses competitive advantage. The recognition of the importance of coordination recognizes that to contribute meaningfully to advantage, any resource or capability can be evaluated in terms of its relative value, rarity and imitability, and cannot be managed in isolation. Thus, advantage can be explained in terms of maximizing the utilization of one or a few resources in the presence of such complementary resources as control systems (say where cost efficiencies are curial) in ways that are hard to imitate; alternatively, advantage may be explained in terms of hard-to-imitate optimizing across a wide range of resources (say, where innovation is crucial and needs to draw on diverse stocks of knowledge). Thus this view of advantage coherently uses a limited number of concepts to explain a range of competitive situations.

  
  

  2. What does the author have to say about the imitability of strategy? How persuasive do you find his argument?

  Barney emphasizes that imitation is made difficult or even impossible due to firm-specific resources i.e., resources that cannot be bought and sold in well-functioning markets. Thus, the human resources of a firm, and in particular the body of expertise it can command, are likely to be a crucially hard-to-imitate resource. But more than this, Barney would argue that the resources that matter can vary across firms depending on the strategies that the pursue – success in the high end or low end of the market, for example, will often be associated with quite different kinds of expertise. Finally, Barney recognizes that a firm’s stock of resources is path dependent. For reasons of a firm’s experiences, relationships and managerial personalities, what it does tomorrow is a function of what it is doing. Thus, potential imitators face a significant degree of “lock-out” in trying to duplicate the target’s resource stock.

  
  

  3. Does the reading offer useful insights into how to deal with change?

  It can be argued that while the resource-based view recognizes how a firm changes over time in the sense that its stock of resources evolves as a function of experience and managerial personalities, it is limited in its ability to account for managed change. That is, the path-dependent characterization of a firm’s resource stock too readily invokes an argument of gradualism and complexity. This diminishes the role of managerial agency in guiding the evolution of the firm. It is not, therefore, an especially dynamic account of advantage and consequently is limited in its capacity to account for change in competitive position.

  
  

  GHEMAWAT AND PISANO, “SUSTAINING SUPERIOR PERFORMANCE”

  Summary of Reading

  This reading builds on the previous Barney reading by emphasizing a value-creation orientation in understanding advantage, but adds the important emphasis of value capture i.e., the capacity of a firm to keep for itself in the form of profits a portion of the value it generates. This emphasis is added to the structural orientation of the previous Porter reading to devise a framework that explains long-term firm profitability in terms of four threats to value creation and capture by the firm (imitation, substitution, holdup, and slack). However, Ghemawat and Pisano share Barney’s emphasis  (previous reading) on time lag as a fundamental source of advantage, which serves to distinguish them from Porter’s work i.e., each threat takes time to really hurt a firm, if at all, with the corollary that early moves are key to continuing success. Finally, the intensity of any given threat is directly related to the amount of value generated by the position the firm occupies: superior profits draw a crowd.

  
  

  The threat of imitation essentially collapses Porter’s “rivalry” and “threat of entry,” and the authors are consistent with Porter in emphasizing this as the threat most typically present in manager’s minds. Substitution threats are less direct, both in the sense that they tend to come from players off incumbents’ “radar screens” (substitution is all the more powerful in undercutting incumbents’ positions because it is so unanticipated), and offer are grounded on a novel value-creation-and capture proposition. Such novelty exploits a significant mis-match between a firm’s strategy and market possibilities due to changes in technology, demand, &/or the availability and prices of inputs; in particular, cost-cutting technological change  - offering more for less – can sweep away advantages built up by incumbents.

  
  

  Imitation and substitution are fundamentally threats to the scarcity value of the firm’s value proposition; hold-up and slack, on the other hand, fundamentally threaten the gains that accrue to a firm from such scarcity value by diverting such gains to players who are necessary to the firm but who are “non-owners.” Holdup diverts gains to buyers, suppliers, or complementors; slack, on the other hand, doesn’t just divert portions of value creation to other players, but reduces the amount of value available to begin with; through inefficiency and waste, value is dissipated. For a firm to be subject to slack requires past success (so that there is value to be dissipated), and improvement potential (so that it is falling short of the possible).    

  
  

  These threats are dynamic; no position is forever. The reading usefully supplements the Porter reading in Chapter 1 (“What is Strategy?”), and the Barney reading in this chapter by offering the opportunity to compare, contrast, and reconcile the activity-based (Porter) and resource-based (Barney) views of advantage.  Thus, while both agree on what constitutes advantage (hard-to-imitate value creation), Barney explains it in terms of the resources (or, “stock variable”) that firms deploy, whereas Porter explains it in terms of the systems of activities that firms perform (or, “flow variables”). Ghemawat and Pisano seek to integrate these perspectives. They argue that advantage is not to be explained solely in terms of a set of activities (Porter), nor even a set of activities contingent on a firm’s stock of resources i.e. resource endowments (Barney). Rather, resource endowments act on activities via resource deployment decisions (or, resource commitments). Moreover, both activities and commitments feed back on endowments, tending either to deplete or augment them, which alters the extent to which endowments affect future commitments and activities and the opportunity set open to the firm. Thus neither management (Porter) nor history (Barney) can be said to be more significant in explaining long-term advantage.

  
  

  Key to understanding the significance of resource commitments is their irreversibility. They are irreversible because of sunk costs (thus locking a firm into the decision, once made), opportunity costs (thus locking a firm out of the benefits of an alternative not taken, or taken too late), and time lags (results take time to come through but also continual investment, which demands perseverance in a long-term path of action once an initial choice has been made). Commitments can therefore be understood as turning points, and occasions for re-evaluation of the organization’s entire strategy.

  
  

  The significance of commitments to sustainability can be explained in terms of their impact on the four threats to sustainability that the authors identify. First, resources can be committed to pursue certain opportunities early, securing first-mover advantages that preserve value. Second, commitments can hobble a firm’s ability to initiate or indeed respond to a substitutor’s way of competing; alternatively, the nature of commitments implies that resources should be deployed in experimental fashion independently of the main activity set in order to anticipate substituting sets of activities. Third, commitments can constrain a firm to particular configuration of supplier-buyer- and complementor relationships; this can have the effect of blocking channel access to rivals but also cutting down a firm’s room to manoeuvre in re-negotiating value division. Finally, the authors recognize that internal organization is key to minimizing slack, but is not obviously connected to notions of irreversibility. We might observe, however, that understanding irreversibility has a reciprocal relation with configuration i.e., slack is likely due to complex cause-effect relations but multiple interdependencies make it difficult to do things differently. Therefore, irreversibility implies a “configuration mindset” if slack is to be minimized, and significantly reducing slack may require quantum change.

  
  

  The authors conclude with an interpretation of the notion of organizational capabilities in terms of their framework. Capabilities, they argue, are complex organizational processes that are difficult to observe and learn and that take time to build (i.e. are cumulative). They are constituted by choices and actions that are individually frequent and unimportant but these many choices may flow from one big choice, i.e., commitment, such as developmental thrust, in certain new technologies and markets. Thus, the choice of which capabilities to develop may be lumpy, though their development may be incremental.

  
  

  Discussion Questions

  1. What do you think is the difference between commitment and investment?

  Commitments are irreversible investments but not all investments are irreversible (e.g. investments in land or a stake in a publicly-traded company can be fairly easily unwound). Thus, lock-out effects can persist because of the difficulty of reacquiring discarded resources or recreating lapsed opportunities to deploy particular resources in particular ways.

  
  

  2. Does commitment theory offer a coherent account of competitive advantage?

  Commitments must pass the test of whether they lead to value creation and capture, and therefore clearly address the notion of advantage, commitments might destroy rather than create value. What effect a commitment has depends on how it alters the present and future impact on the firm of threats to sustainability.  Thus advantage can be explained in terms of making investments that commit the firm to a course of action over several years, as a consequence of which the firm’s stock of resources and activity set evolve in a particular direction. To the extent that this evolution supports superior value creation and capture, the commitment generates competitive advantage; if the commitments fail they can lead to persistently inferior performance.

  
  

  3. Does the reading offer useful insights into how to deal with change?

  A central argument of the reading is the notion of irreversibility. This implies that the scope for managerial discretion in a major (re)deployment of resources (i.e., commitment) deteriorates very rapidly as lock-in and lock-out begin to take effect. However, irreversibility need not preclude a degree of flexibility. That is, intensive attention in feedback will be important, especially in the early stages of a commitment, permitting timely revision in response to bad news. But irreversibility also implies the need for perseverance (albeit with some modifications) with a major change initiative, as results take a long time to come to fruition. Thus, the reading imparts a view of “lumpy” change, not unlike the quantum view of change briefly discussed in the Mintzberg and Lampel reading in Chapter 1.

  HENDERSON, "COMPETITIVE MANOEUVERING"

  Summary of Reading

  Behaviour in business is not logical. The critical factor is one's emotional bias compared to the emotional bias of opponents. Competition is not impersonal, objective, or colourless. Victory is won in the mind of the competitor. Management must persuade an opponent to voluntarily stop short of maximum competitive effort. This persuasion depends on emotional and intuitive factors, not analysis or deduction. The negotiator should be as arbitrary as needed to get concessions, without destroying the other's motivation for cooperation. Three common‑sense rules for this are: make sure your rival knows what he'll gain if he cooperates or lose if he doesn't; don't arouse your rival's emotions; and convince your opponent that you are emotionally committed to your position and are completely convinced that it's reasonable.

  It may seem strange to talk about cooperation with competitors. But it is rarely worthwhile to go all out in competition. It decreases stability of the overall market, and everyone loses. “Utter destruction of a competitor is almost never profitable unless the competitor is unwilling to accept peace.” Better to come to implicit agreements that limit competition. If both sides persist in being arbitrary, negotiations will break down. Yet negotiators must be somewhat arbitrary, in a kind of brinkmanship. In these situations, deciding what to accept is arbitrary and emotional. The key is to convince your opponent that you are arbitrary and emotionally committed, while trying to discover what he'd accept in settlement. Your rival is most handicapped if he acts logically, because he will keep on making concessions until there is no more benefit to him.

  
  

  The most easily recognized way of enforcing cooperation is to exhibit a willingness to use overwhelming force. But it's difficult to convince others that you mean it, without actually using it (which would be expensive and inconvenient). Besides, in business, overwhelming force is rarely available. Each party to a conflict can usually hurt the other. Therefore, the prospects for agreement depend on three things: each party's willingness to accept the risk of punishment (if you're not willing, and your opponents realize it, you'll almost certainly get either the punishment or worse conditions); each party's belief that the other party is willing to accept the risk of punishment (what counts is the judgement of probable use of capability); the degree of rationality in the behaviour of each party (the less of this you have, the greater the advantage, as long as you don't cross the line of emotionally arousing your opponent). Know as accurately as possible what your opponent has at stake; make sure your opponent knows as little as possible about what you have at stake; know the character, attitudes, motives, and habitual behaviour of your competitor; the more arbitrary you are, the better as long as you do not emotionally arouse your competitor; and the less arbitrary you seem, the more arbitrary you can in fact be.

  
  

  The non-logical strategy

  “The goal of strategy in business…. is to produce a stable relationship favourable to you with the consent of your competitors...Any competition which does not eventually eliminate a competitor requires his cooperation to stabilize the situation....There is a point in all situations of conflict where both parties gain more or lose less from peace than they can hope to gain from any foreseeable victory.... The participant who is coldly logical is at a great disadvantage.... The arbitrary or irrational competitor can demand far more than a reasonable share and yet his logical opponent can still gain by compromise rather than by breaking off the cooperation…. [But there is a limit to how arbitrary, etc., one can be, because these behaviours will trigger a like response.]…. Thus, non-logical behaviour is self‑limiting. This is why…diplomacy can be described as the ability to be unreasonable without arousing resentment.”

  Discussion Questions

  1. Henderson says that business behaviour is not logical, but is instead laced with emotional bias. What do you think of this?

  This question may stimulate very different points of view. Some people, particularly those with a logical, rational bent, will object to Henderson's view of things. They will argue that the best business decisions are the logical ones, where all factors are taken into account, where most things are planned and thought through, and where the optimum decisions are taken. Other students may identify with the author's assertion. Many critics believe that business has become too analytical, and that the human side has been neglected. Henderson brings the human, emotional, side squarely to the forefront. There is little doubt that, even if we should make decisions logically (and that is not a given), we usually don't. This makes Henderson's point an important one.

  
  

  2. The author says that one must be as arbitrary as possible without eliciting an emotional response from the opponent. What do you think of this approach to competitive behaviour?

  Students may be able to understand this position, but most will find it difficult to implement it in their own behaviour. Most people realize that negotiation requires starting from a position that is unlikely to ever to be accepted by the other side. Henderson takes this a step further, saying that one must maintain this attitude throughout the negotiations, making sure never to go so far that one angers the other side. Obviously, this is a fine art, as the author implies (but never actually says) many times in the reading. But if you can pull it off, the outcome will be to your side of some completely fair result that might be identified.

  
  

  3. What do you think of the author's discussion of “friendly competitors”?

  Some students will have a hard time understanding this point, others will understand it but not accept it, and still others will do both. Henderson's point is basically that going all‑out to destroy rivals is too expensive to be worth the effort, unless a particular rival is unwilling to play the game. In most cases, he argues, it is better to come to implicit agreements that put boundaries around the competition. Some students will not accept this, arguing that competition must be unfettered if we are to gain its benefits. If a rival isn't playing the game, that may be helpful to the consumer, because that firm may be driving down industry prices. Students who accept Henderson's view will argue that consumers may benefit from competition, but firms may not, and Henderson is writing for the managers of firms. They will point out that it is very realistic to expect managers to want to limit competition in order to support the longevity of the firm. Both Mintzberg and Porter mentioned, in earlier chapters, the strong incentive management has to avoid competition. Those authors suggested economic approaches; Henderson is merely supplementing that with a political approach.

  
  

  4. Henderson says that threatening to use overwhelming force is not a good tactic in business because it is rarely available. What do you think?

  Henderson alludes several times to the analogy of international war, and deterrent strategy. But in this passage he quite rightly points out that, like all analogies, this one has a limit. Unlike the arena of international superpower politics, in business there is no arsenal of nuclear weapons. There may be examples in some industries of firms which have very large advantages over smaller firms (e.g., IBM in computers). But, in general, there are few knockout punches available to most firms, even the large ones, in most industries.

  
  

  5. The author says that if you're not willing to accept punishment, and your opponents know it, you'll almost certainly get punished. What do you think of this assertion?

  Henderson is saying that playing the game well implies the risk of sustaining some damage. If you are willing to accept some injury, you will be recognized as someone who will retaliate if attacked. Hence, willingness to accept punishment becomes a deterrent. Conversely, if you are not willing to go to the mat with opponents, they will sense this and make you pay dearly. A second‑best approach is to hide your unwillingness to be punished extremely well, so that your opponents will still be deterred. This is an aggressive reading. Some students will be angered by this kind of talk. For these people, it is interesting to see their reaction when exposed to this kind of real‑world, rough‑and­-tumble attitude. Some students will respond well to it.

  
  

  6. The author repeatedly makes the point that the non-logical competitor has an advantage over the logical one. How is this possible?

  As Mintzberg points out in the chapter introduction, this reading fits neatly into the “strategy as ploy” concept. Henderson calls the emotional competitor non-logical but in fact that individual may be viewed as crazy. His point is that the unemotional competitor will want to keep his distance. The logical opponent will do this, according to Henderson, by adopting a bargaining stance that makes many concessions to the less logical opponent, as long as logical payoffs are still possible. In other words, long after an emotional opponent would have angrily said, “That's it! I’m not giving you another thing!” the logical opponent will still be making concessions. Many students will question this stance, with some justification. There is nothing in the research literature to suggest that logical negotiators necessarily fall into the traps set by their more emotional opponents. A very good logical negotiator may be able to see through these ploys.

  
  

  7. What is your opinion on the author's point that “non-logical behaviour is self‑limiting”?

  This is a point well‑taken, one that should actually have more weight in his reading. He argues that if you go too far with your non-logical behaviour, it will become counter‑productive. There will be a backlash against you by your opponent. One of the unspoken but critically important elements of Henderson's thesis is that knowing when to stop short of that point is a fine art that must be mastered. Henderson may have some good advice here, but he offers no guidance on how to carry it out, short of trying it and learning from experience.

  
  

  8. Henderson says, "The less arbitrary you seem, the more arbitrary you can in fact be." How is this possible?

  This is merely the other side of the coin of being as arbitrary as possible without eliciting an emotional response from the opponent. Here Henderson is saying that if you seem like a nice, reasonable person, you will get away with more arbitrariness than someone else would. This is a good thing, as he argued earlier in the reading, because it will tend to keep the outcome of the negotiations closer to your desired position than to your opponent's.

  
  

  MINTZBERG, “GENERIC BUSINESS STRATEGIES”

  
  

  Summary of Reading

   

  This article seeks to outline in an orderly fashion the families of strategies widely represented in organizations, divided into five categories:

  
  

  
  

  ·         Locating the core business

  
  

  ·         Distinguishing the core business

  
  

  ·         Elaborating the core business

  
  

  ·         Extending the core business

  
  

  ·         Reconceiving the core business

   

  
  

  Locating the core business

   

  Strategies of stage of operations:

   

  Upstream business strategy: functions close to raw material  (e.g., mining, basic material processing)

   

  Midstream business strategy: takes a variety of inputs, gives out a variety of outputs (e.g., canoe manufacturing)

   

  Downstream business strategy: takes in and sells a wide variety of inputs (e.g., department store)

   

  Strategies of industry: trying to find the commonality among a group of firms called an industry (SIC coding)

   

  Distinguishing the core business

   

  Functional areas:

   

  ·         Input sourcing strategies (procurement, recruitment, financing)

  
  

  ·         Throughput processing strategies (process development, fabrication, assembly, product research, product development)

  
  

  ·         Output delivery strategies (distribution, promotion, pricing, sales, service)

  
  

  ·         Supporting strategies (legal, control, training, MIS)

  
  

  ·         Value chain

  
  

  Primary activities:

  
  

  ·         Inbound logistics

  ·         Operations

  ·         Outbound logistics

  ·         Marketing and sales

  ·         Service

  
  

  Support activities:

  
  

  ·         Procurement

  ·         Technology development

  ·         Human resource management

  ·         Firm infrastructure

   

  Porter’s generic strategies: firms that wish to gain competitive advantage must make a choice from among these—“being ‘all things to all people’ is a recipe for strategic mediocrity and below‑average performance….A firm that engages in each generic strategy but fails to achieve any of them is stuck in the middle.”  Generic strategies include:

  
  

  cost leadership (broad competitive scope, competitive advantage sought through lower cost)

  
  

  differentiation (broad com­petitive scope, competitive advantage sought through differentiation)

  
  

  cost focus (narrow competitive scope, competitive advantage sought through lower cost)

  
  

  differentiation focus (narrow competitive scope, competitive advantage sought through differentiation)

   

  Strategies of differentiation: acting to distinguish one’s products or services from others’.

  
  

  ·         Price differentiation strategy (having a lower price)

  
  

  ·         Image differentiation strategy (create a distinctive perception of the product)

  
  

  ·         Support differentiation strategy (having better sales, service, or related products)

  
  

  ·         Quality differentiation strategy (making the product better)

  
  

  ·         Design differentiation strategy (offering something that is truly different)

   

  Undifferentiation strategy: “To have no basis for differentiation is a strategy too, indeed by all observation a common one, and in fact one that may be pursued deliberately.”

  
  

  Scope strategies: distinguishing the extent of one’s products and services

  
  

  Unsegmentation strategies: “one size fits all”

  
  

  Segmentation strategies: virtually limitless possibilities

  
  

  Niche strategies: focus on a single segment

  
  

  Customizing strategies: each customer is a unique segment

  
  

  Elaborating the core business

  
  

  Given a core business with a distinguished competitive posture, what generic strategies are available to extend that core business?

  
  

  Penetration strategies: using existing products in existing markets to get more share

  
  

  Market development strategies: promoting existing products in new markets

  
  

  Geographic expansion strategies

  
  

  Product development strategies: new products in existing markets

  
  

  Discussion Questions

  1.  How useful, for locating a business, is the framework given by the author?  Would you add anything?

  The answer to this question depends on what you mean by locating.  Mintzberg’s scheme tries to show where a business is in the chain of produc­tion.  Is the business upstream (early in the production of the products in question), midstream (takes in lots of inputs, throws off lots of outputs), or downstream (many products sold in one distribution mode)?  He also discusses the notion of identification of industries (e.g., Standard Industrial Classi­fication codes).

  
  

  The framework assumes that “locating” a business means identifying the spot in the production chain to which it belongs, or the industry to which it belongs.  This is a very content‑oriented sense of the word identifying.  But identifying could also mean figuring out which general approach a firm is following, regardless of where it is in the production chain.  Used this way, Porter’s generic strategies can be used to “locate” a firm, i.e., which strategy is it using compared to other firms in the industry?  This is related to the notion of strategy as position, from Chapter 1.

  
  

  2.  What is the basic concept behind Porter’s value chain?

  The value chain breaks down all the activities performed by a firm, and how those activities interact.  He distinguishes between primary value activities and support value activities.  Primary activities involve “the physical creation of the product and its sale and transfer to the buyer as well as after‑sale assistance.”  Support activities provide “purchased inputs, technology, human resources, and various firm-wide functions.” 

  
  

  Each activity (and each interaction) is examined to show how it adds value for the firm’s buyers.  The point of value‑chain analysis is to increase the firm’s profit margin.  Porter defines margin as “the difference between total value and the collective cost of performing the value activities.”

  
  

  3.  What are the four generic strategies proposed by Porter?

  Porter’s four strategies are based on two factors.  The first is the source of competitive advantage which is being sought; this could be either lower cost or differentiation.  The second factor is the desired competitive scope of the firm; this could be either broad or narrow. 

  
  

  Firms with broad competitive scope who base their sought‑after advantage on lower cost follow a strategy of cost leadership.  Broad‑scope firms with an emphasis on differentiating themselves are using differentiation.  Narrow‑tar­get firms seeking lower cost are using cost focus; similar firms relying on differentiating themselves follow the strategy of differentiation focus.    

  
  

  
  

  4.  Mintzberg places the value chain and Porter’s generic strategies in the category of “distinguishing the business.”  What do you think of this?

  This question is intended to stimulate discussion.  It is akin to question 1, designed to make students think about the terms Mintzberg is using to describe his five categories of generic strategy. 

  
  

  Firms which follow value‑adding strategies, or which follow one of Porter’s four generic strategies will, if they succeed in operationalizing the strategy, distinguish their business.  But this framework could also be used to locate the business (in the sense of an outside observer’s identifying the firm’s approach). 

  
  

  All of this is related to the notion of strategy as position, from Chapter 1.  Porter’s framework could be used to characterize the approaches used by all the various firms in an industry, in a sense “locating” them.  From the standpoint of the firm, the particular approach it used would distinguish it from other firms.

  
  

  5.  The author says that cost leadership is merely a form of differentiation.  What is your opinion?

  This question is designed to stimulate discussion.  Some students will argue that cost leadership is not a form of differentiation because firms that follow this approach tend to have plain‑vanilla products.  They succeed with this strategy because their costs are so low that they can still make a profit. 

  
  

  Other students will agree with Mintzberg.  He argues that the point of competitive strategy is to seize competitive advantage, and that can only be operationalized in the marketplace.  In the case of a cost leader, that would be operationalized as low price.  This low price would distinguish (i.e., differentiate) the firm from its competitors.  Hence, cost leadership must translate into price leadership, which is a form of differentiation.

  
  

  
  

  
  

  6.  Mintzberg says, “To have no basis for differentiation is a strategy too, indeed by all observation a common one, and in fact one that may be pursued deliberately.”  What is your opinion of this assertion?

  This question is intended to stimulate discussion.  Mintzberg’s assertion may strike some as being heretical.  Most marketing texts, for example, strongly urge firms to distinguish their products and themselves.  Students who buy into this thinking will be mildly outraged by the statement in the question.

  
  

  Mintzberg is pointing out that when one looks at the realized strategy of firms, there are many which are undistinguished.  So, any complete listing of generic strategies would be incomplete without including the undifferentiation strategy.  Furthermore, some firms may deliberately follow such a strategy, because there is enough demand in the market for them to get away with it, or because their managements are not skilful or energetic enough to distinguish the firm, or both.

  
  

  MINTZBERG, “A GUIDE TO STRATEGIC POSITIONING”

  Summary of Reading

  This is a highly visual review of a perspective on strategy that itself relies on a highly visual metaphor; the notion of “positioning” a firm in some business space, by an author most of whose work is antipathetic to the perspective. The reading is constructed around a model that is a “metaphor of sorts, consisting of a launching device, representing an organization, that sends projectiles, namely products and services, at a landscape of targets, meaning markets, faced with rivals, or competition, in the hope of attaining fit.”

  
  

  The launching device (organization)

  In the positioning school, the organization is viewed as a series of business functions (Porter’s “value chain”). Products are pushed through this system: given sufficient lift into the market (i.e. commercial potential), they are given their final “boost” by sales, marketing and distribution. The business functions are executed using a set of competencies, some core some not, with non-core competencies out-sourced. Competencies are combined to achieve synergy.

  
  

  The projectile (products and services)

  Porter’s generic strategies describe the ways a product can be launched at a target market: differentiation, cost leader, or focus strategies. Based on his own earlier work, the author adapts these to describe a wide range of generic strategies. There are those strategies that characterize the product (e.g., price or image differentiation), and those that elaborate or extend the product range (e.g., penetration or diversification).

  
  

  The target (markets)

  Markets are described in generic terms: size and divisibility (e.g., mass, thin), location (local, national, global), and stage of evolution or change (e.g., emerging, erupting). In addressing the issue of industry definition - where does one market end and another begin?  The author notes that the job of economists is to identify industries but the job of strategists is to destroy them. Industry definition is an important aspect of the positioning perspective; thus there are concepts like barriers to entry (“blockages in the terrain”), barriers to mobility (lesser blockages i.e. those separating strategic groups).

  
  

  The fit (strategic positions)

  This is “how the product sits in the market”: the match between the breadth of the products offered and markets served (Porter’s “scope”) e.g., commodity, niche, and the quality of fit (“sustainability”). This second dimension of fit is either natural (“inherently sustainable”), or forced (“vulnerable”). Fit will typically be imperfect, and will therefore need either reinforcing or isolating mechanisms. There are four such mechanisms: burrowing strategy (increased market penetration), packing strategy (adding supporting elements), fortifying strategy (building up barriers), and a learning strategy (improve fit through adaptability). Finally there can be misfit, a concept that “has not been much developed in the literature” (e.g., competency misfit, myopia, wrong design).

  
  

  
  

  Rivalry

  “So far, almost all of these relationships have been between a single seller and one or more target markets. But sellers are no more found alone than are buyers.” Noting again the deep roots in economics that this perspective has, Mintzberg draws on that discipline to describe various competitive situations e.g., duopoly, multipoint competition, unstable competition in a mature market. But the perspective also owes a debt to the literature on military strategy: because markets are contestable, we have such phenomena as first and second movers; there are frontal attacks (concentration of forces), guerilla attacks (e.g., sudden deep discounting), and market signaling by feint. And, of course, there is also the possibility of negotiated settlement, or cartel. 

  Discussion Questions

  1. What does the author mean when he says “There is woefully little synthesis in the world of analysis!”

  The significance of synthesis to strategy-making is a recurrent theme in Mintzberg’s work (“strategy formation,” emergent strategy”). He introduces it here to underline the need for a “glossary” of the key concepts in the strategic positioning perspective of strategy-making. However, his more general argument, touched upon in the closing paragraph to the reading, is that a novel strategy is a creative process (of synthesis); the strategic positioning perspective encourages the use of formal techniques (analysis) for strategy-making. Thus the “world of analysis” needs synthesis on two levels in its conception of strategy-making, to bring order to the perspective, and to add more realism to it.

  
  

  2. What can the value chain and generic strategies achieve for a firm?

  Together, these serve to distinguish the business. The value chain describes those activities by which a firm adds value in terms of primary activities (inbound and outbound logistics, operations, marketing and sales, service) and support activities (procurement, R&D, human resource management, firm infrastructure). These are organized and executed (whether internally or outsourced) with a particular target market in mind; in Porter’s terms a firm must choose the target in terms of scope (broad or narrow) and the basis of competing (cost or differentiation); together these yield a particular generic strategy (cost leader, differentiation, focus).  Mintzberg views the choice as being between generic strategies in terms of those that characterize the product, and those that elaborate or extend it. Such choices determine whether the product fits the market in a distinctive way.

  
  

  3. “Economists spend a lot of time worrying about identifying industries….they often no sooner find one than a strategist destroys it.” What do you think?

  Students may find it difficult to come up with examples of industries that have been destroyed; some well-worn ones are the horse-buggy and ice-block (as a means of refrigeration) industries. But in both cases the markets, in terms of needs served, were not destroyed; rather, other “projectiles” that achieved a superior fit were developed. Whether an industry is “destroyed” or not depends on the means you use to define it; if defined in terms of given inputs and outputs (the basis for SIC codes) then these two industries were indeed destroyed. Elsewhere in the text and cases there are examples of industry convergence (e.g., the Sony case), or of redefinition (e.g., the Pascale reading, Chapter 5). A novel strategy works to destroy existing ways of competing, and, as Mintzberg notes, defies (ex-ante) categorization, hence the instability of the economist’s industry definitions and the limitations of analysis.