Advanced Strategic

Management

Session 1, Winter Semester, 2023

Christian Bruck, MSc, MIB
Sebastian Priestersberger, MSc

08.11.2023
General Course Information – Online
Guidelines

Check the call links and materials in advance and let us know if
there are any issues

Keep the camera on for the duration of the lecture

Switch off your microphone during the lecture to avoid background

noise

If you have any questions, please type them in the chat or raise your
hand

There will also be dedicated Q&A sessions

General Course Information

▪ Full attendance is required, unexcused absence results in failing the

class
▪ However: you are allowed to miss half of a session

▪ Lively discussions are expected: Ask questions at any time

▪ Please turn on your camera during each online session

▪ Slides can be found on Canvas on the day before each session

About us

Christian Bruck

Research Associate (Prae doc)

Institute for Strategic Management

[email protected]
About us

Sebastian Priestersberger

Research and Teaching Associate (Prae doc)

Institute for Strategic Management

[email protected]
Grading

Composition of the Grade

90-100%: 1 (A) 5%
5%
80-89%: 2 (B)

70-79%: 3 (C)
20%
60-69%: 4 (D)
50%

20%

Final Exam: 60 minutes and 100 points,

less than 60%: 5 (F)
questions from class notes and book (passing
the final exam is required to pass the course)
Case study Ringier (individual)
Case study Facebook (group work)
Class participation
Grading
Percentage
Peer review
Reading Assignment

In this course we use two books:

→ can be found in the syllabus on
Learn@WU

Frank T. Rothaermel:
Strategic Management (5thnd edition)
McGraw Hill International Edition

Gary Yukl, William L. Gardner

Leadership in Organizations (9th Edition)
Global Edition

▪ There will be reading assignments

Introduction

▪ Please briefly introduce yourself to your fellow colleagues and course

instructors

▪ Tell at least your name, your nationality, your university, your study
program, and how much/what you have learned in your prior studies
about strategic management and leadership. Any practical
experience? Any other interesting or funny aspect about yourself that
you would like to share with us?

▪ Expectations for this course?

Case Assignments
Case Study Group Work

▪ You will be randomly assigned to one of the groups with 4 or 5 students

▪ Each group will have to prepare a case study for session 3
▪ One group will present their case study, all others are asked to comment
▪ All groups will have to upload the case study presentation to Canvas
▪ The presentation should take about 20 minutes
▪ Discussion rounds after the presentation another 15-20 min
▪ Peer review of group on Canvas at the end of the course
How to get the case studies?

▪ 1) Open the following coursepack:

https://hbsp.harvard.edu/import/1110466

▪ 2) Buy two cases in the coursepack ($4.25 per case)

▪ A) The group case „Facebook and WhatsApp: Acquire or Ally?“
▪ B) The individual case „Ringier - Building a Digital-Age Media Company”

3) Download the case studies after purchasing them

Group allocation

Group 1 Group 2 Group 3

▪ Chum Hiu Ying ▪ Fantoni Mara Benedetta ▪ Binte Abdul Mutalib Nur
▪ Font Cuadras Alba ▪ Haunlieb Franz Xaver Aisyah
▪ Lavoie Felix-Antoine ▪ Lim Ivory ▪ Geneloni Filippo
▪ Maccio Margherita ▪ Turra Gutierrez Josefina ▪ Gibbons Sarah Leslie
▪ Pfeifer Emily Marie Paz ▪ Heng Sarah Chin Yee
▪ Yildirim Hava Rana ▪ Krentz Anna

Group 4 Group 5 Group 6

▪ Costantini Stefano ▪ Aristizabal Llamazares ▪ Ferreira Carneiro Ines
▪ Rymbayeva Nazira Valentina ▪ Harmak Habiba
▪ Traunbauer Marlene ▪ Filippou Natalia ▪ Lam Rui Han
▪ Zhao Na ▪ Haider Maximilian ▪ Redlhammer Marie Claudia
▪ Koh Cheng Cze Xu Jingci ▪ Tay Ling Hui
Kirbie
▪ Shalamanova Vladislava
 Group case assignment:
Facebook and WhatsApp: Acquire or Ally
Facebook Case Study

▪ This Harvard Business Case describes Facebook’s decision to acquire WhatsApp.

▪ This case presents both firms perspectives on this transaction, as well as providing an overview of the
mobile communications industry at the time, with a focus on messaging and social media apps.
▪ Sample questions:
‒ Why was Facebook interested in acquiring WhatsApp?
‒ What were the advantages and the risks of this acquisition to both parties?
‒ Does a financial analysis support the decision?
‒ Should either firm have pushed for a strategic alliance instead? Why/Why not?
▪ In general, your presentation should focus on providing solutions, ideas and suggestions – we want to
see you critically engage with the cases and NOT simply repeat what was presented in the text.
▪ Upload your slides in pdf format to Canvas on the day before the course.
▪ The presentation should take about 20 minutes
 Individual case assignment: Ringier

Ringier Case Study

▪ This Harvard Business Case presents an overview of the strategic re-orientation and
diversification of Ringier a Swiss based media company as they confront the challenges
of staying competitive and profitable in the new and increasingly digital media landscape.
▪ Sample questions
‒ How did the scope of the firm change over the years?
‒ How did the strategic actions that Ringier took affect the company’s competitive position?
‒ What should the CEO do next with regard to corporate strategy, to tackle the changes in the firm‘s
environment?
▪ Upload your written answers to the case study in pdf format to Canvas on the day before
the 4th session
▪ The document should not exceed 3 pages
Semester Schedule
Unit Content
Introduction
Review of ISM I: Basics of Strategic Management & Strategy Analysis
1
Rothaermel (RA) Chapter 6: Business Strategy: Differentiation, Cost Leadership and Integration
Yukl & Gardner (YG) Chapter 5: Leading Change and Innovation
Reading Assignment RA Chapter 6, 8 + 9 and YG Chapter 5 + 12

RA Chapter 8: Corporate Strategy - Vertical Integration and Diversification

2
RA Chapter 9: Corporate Strategy: Acquisitions, Alliances, and Networks

Case Preparation Facebook, Reading Assignment RA Chapter 10

Case Presentation Facebook

3
RA Chapter 10: Global Strategy: Competing Around the World

Case Preparation Ringier, Reading Assignment RA Chapter 11+12

Case Discussion Ringier
RA Chapter 11+12: Strategy Implementation
4
YG Chapter 12: Strategic Leadership in Organizations
Review for the Exam
Study for the final exam
5 Final Exam
Agenda

Basics of Strategic Management & Strategy Analysis

Lecture 1

Business Strategy

Leading Change and Innovation

2+3
Lect

Corporate Strategy
ure

Strategy Implementation
Lect. 4

Strategic Leadership in Organizations

 The Overarching AFI-Framework

Focus of ISM II

Source: Rothaermel (2021)

What is strategy about?
What is Strategy?

Strategy is a set of goal-oriented actions in a firm’s quest to gain and sustain

competitive advantage!

Successful
Strategy

EFFECTIVE IMPLEMENTATION

Long-term, simple, and Profound understanding of the Objective appraisal of

agreed objectives competitive environment resources
The Three Hierarchies of Strategy

Normative Vision
Management Mission
Values

Corporate strategy
Strategic
Management Business strategies

Functional strategies

Quantifying the strategies

Operational Operational budget

Management Continuous comparison target/actual values
 How to gain competitive advantage?

1980s 1990s 2000s

Market-based Resource-based
Relational view
view view
Stock of internal
Attractiveness of Internal and external
Focus resources and
external industry stakeholder relations
capabilities

Favorable positioning Superior stock of

Competitive Non-reproducible
within a profitable internal resources and
advantage stakeholder relations
industry core competencies

Five Forces VRIO-framework

Instrument Network analysis
PESTEL framework Value chain

G. Hamel, C.K.
Representatives M. Porter J.H. Dyer, H. Singh
Prahalad, J. Barney
Porter’s Five Forces

A framework that identifies five forces which determine the profit

potential of an industry and shape a firms competitive strategy

The stronger
the forces
are, the lower
is the profit
potential
within an
industry!

Source: Porter (1980)

 Creating Strategic Fit to Leverage Internal
Strengths

Source: Rothaermel (2021)

 Value Chain Analysis

The value chain is an instrument which helps to identify resources and capabilities in a firm’s activities.
Managers see how competitive advantage flows from a system of activities

Primary Activities Support Activities

▪ Add value directly in transforming ▪ Indirectly add value

inputs into outputs ▪ Provide support to the primary
▪ Input factors through production to activities
customers ▪ Information systems, Accounting…
Research and
Development

Adapted from: Rothaermel (2021)

 The VRIO Framework

A framework that explains and predicts firm level competitive advantage. A firm can gain a competitive
advantage if it has resources that are valuable (V), rare (R), and costly to imitate (I); the firm must also be
organized (O) to capture the value of the resources

Is the resource or capability… and is the firm…

Yes Yes Yes Yes

Organized
Sustained
Costly to to
Valuable? Rare? Competitive
Imitate? Capture
Value? Advantage

No No No No

Temporary Temporary
Competitive Competitive
Competitive Competitive
Disadvantage Parity
Advantage Advantage
Source: Rothaermel (2021)
 Shareholder Value: Apple and Microsoft

Development of Market Capitalization

Stock Market Valuations of Apple and Microsoft, 1990-2015

Source: Rothaermel (2021)

 Economic Value Creation

Economic Value Creation Concept

▪ Value (V) denotes the amount an average
(V-P) = consumer is willing to pay for a good or service

(V-C) = Consumer ▪ The difference between (V) and the firm’s cost to
V= Surplus produce (C) the product is the economic value
created (V-C)
Economic ▪ If the price (P) charged to the consumer is higher

P = Price
(P-C) = than (C) the firm makes a profit
Consumer’s Value Firm’s
Created ▪ If (V) exceeds (P) a consumer surplus is gained
maximum Profit
willingness-
to-pay
Drawbacks
▪ Determining the value of a good in the eyes of a
C= C= customer is challenging
▪ The value of a good may change based on
Firm’s Firm’s
income, preferences, time etc.
Cost Cost
▪ Economic value created needs to be defined for
all products and services offered by a firm

Only if a firm’s economic value created is superior than that of its competitors,
a competitive advantage is achieved.
Source: Rothaermel (2021)
Agenda

Basics of Strategic Management & Strategy Analysis

Lecture 1

Business Strategy

Leading Change and Innovation

2+3
Lect

Corporate Strategy
ure

Strategy Implementation
Lect. 4

Strategic Leadership in Organizations

 Industry and Firm Effects

To formulate business strategy, one has to keep in mind that competitive

advantage is always determined jointly by industry as well as firm effects

Focus of ISM II

Source: Rothaermel (2021)

 What is Business Strategy?

Levels of Strategy Managerial Questions

▪ Who – which customer

segments will we serve?

▪ What customer needs,

whishes and desires will we
satisfy?

▪ Why do we want to satisfy

them?

▪ How will we satisfy our

customers’ needs?

Source: Rothaermel (2021)

 Generic Business Strategies by M. Porter

Source: Rothaermel (2021) adapted from Porter (1980), Competitive Strategy. Techniques for Analyzing
Industries and Competitors (New York: Free Press).
 Differentiation Strategy

How to Gain Competitive Advantage?

▪ Adding unique features and attributes that will increase the perceived value of goods and services
so that customers are willing to pay a higher price (→ focus on value not on cost)
▪ BUT: Higher value tends to go along with higher costs!
▪ Competitive advantage = Economic value created (V-C) > competitors
▪ Example: Marriott line of hotels

Source: Rothaermel (2015)

 Value Drivers (1)

Value drivers are levers which enable firms to pursue a differentiation strategy by
increasing the perceived value of goods and services

Value Drivers

Product Customer
Complements Customization
Features Service

Source: Rothaermel (2015)

 Value Drivers (2)

Product Features Customer Service

▪ Adding unique product features allows ▪ Firms may increase the perceived value of
firms to turn commodity products into their products and services by focusing on
differentiated products customer service and responsiveness
▪ Product features and other attributes may ▪ Services may comprise sales, marketing,
substantially increase the value of a product general and technical support
in the eyes of customers
▪ Customer services enable customers to buy
▪ Strong R&D capabilities are often required to not only a product but rather a
deliver superior features comprehensive solution to a problem
‒ Example: BMW’s M3, a sports coupé, ‒ Example: Online retailer Zappos’ free
comes with many more performance shipping to the customer and return
features than a Toyota Prius

Source: Rothaermel (2013)

 Value Drivers (3)

Complements Customization

▪ A complement adds value to the original ▪ Customization allows firms to go beyond

product or service if they are used in merely adding differentiating features to
tandem tailoring products and services for
specific customers
▪ A complementor is a company that provides a
good or service that leads customers to value ▪ Advances in manufacturing and information
your firm’s offering more when the two are technology have even made mass
combined customization feasible
▪ Finding appropriate complements is an ▪ Manufacturing of a large variety of
important task for managers customized products or services done at a
relatively low cost
‒ Example: AT&T U-verse bundles high-
speed internet, TV services and phone ▪ Customization and low costs were once
→ Digital video recording capability opposing goals
adds value to the product
‒ Example: Design own T-shirts at
threadless.com

Source: Rothaermel (2021)

In-Class Group Assignment

Analyzing Differentiation Strategy

▪ Come together in teams of 4-5 students (i.e. your team)

▪ Choose one company of your choice that pursues a differentiation strategy
▪ Analyze how the company can generate high value for the customer
▪ Elaborate on the value drivers
▪ You have 15 minutes time for this task
▪ Be able to present your findings to the class
 Cost Leadership Strategy

How to Gain Competitive Advantage?

▪ The goal of a cost leader strategy is to reduce a firm’s cost below that of its competitors and to be
able to charge lower prices to customers
▪ A cost leader focuses on reducing the cost at which it is able to offer a product or service at an
acceptable value (→ focus on cost not on value)
▪ Cost leaders attempt to optimize all value chain activities to achieve a low-cost position
▪ Competitive advantage = Economic value created (V-C) > competitors
▪ Examples: Ryanair, Walmart

Source: Rothaermel (2021)

 Cost Drivers (1)

Cost drivers are levers which enable firms to pursue a cost leadership strategy by
decreasing the cost of products and services

Cost Drivers

Cost of Input Economies of Learning- Experience-

Factors Scale curve Effects curve Effects

Source: Rothaermel (2021)

 Cost Drivers (2)

Costs of Input Factors Example: Labor Costs

▪ One basic advantage a firm might have over

its rivals is access to lower-cost input
factors such as
‒ Raw materials
‒ Capital
‒ Labor
‒ IT services
‒ Facilities
▪ Outsourcing business activities to emerging
countries is often used to cut down costs
▪ Example: Apple’s iPhone is produced in China
by Foxconn to benefit from lower-cost input
factors

Source: Rothaermel (2015), The Conference Board (2018)

 Cost Drivers (3)

Economies of Scale
▪ Firms with greater production volumes can attain
economies of scale → decreases in cost per unit as
output increases
▪ Spread their fixed cost over larger output
‒ Large volumes is critical to drive down per-unit
cost
‒ Example: Microsoft’s $25 billion R&D cost for
Windows 7 but marginal cost was zero
▪ Employ specialized systems and equipment
‒ Larger output allows firms to invest in specialized
systems which lower costs again
‒ Example: ERP Software
▪ Take advantage of certain physical properties
‒ Cube-square rule: The volume of a body
increases disproportionally more than its surface
‒ Example: Big-box retail stores such as Walmart
‒ Due to complexity, costs increase again at some
point → diseconomies of scale
Source: Rothaermel (2021)
 Cost Drivers (4)

Learning Curve
▪ Learning by doing also drives down costs
▪ As output increases
‒ Managers learn how to optimize the
production process
‒ Workers improve their performance
through repetition
▪ The more complex the process, the more
learnings can be expected
▪ Learning curves were first documented in
aircraft manufacturing in 1930s
▪ Graph: Different colors denote different levels of
learning curves
‒ As learning occurs you move down a
given learning curve
‒ The steeper the curve the more learning
takes place

Source: Rothaermel (2021)

 Cost Drivers (5)

Experience Curve
▪ Experience curves captures both learning
effects and process innovations
▪ Economies of learning allow for moving down a
given learning curve
→ Firm B is further down the blue learning curve
than firm A
▪ A new method or technology for an existing
product may initiate a new and steeper
learning curve
→ Firm C jumps down to the green learning
curve and has a competitive advantage over
firm B
→ By capturing experience-curve effects firm D
can switch to another steeper learning curve
and pursue a cost leadership strategy
▪ Companies like Walmart very successful

Source: Rothaermel (2021)

In-Class Group Assignment

Analyzing Cost-leadership Strategy

▪ Come together in teams of 4-5 students (i.e. your team)

▪ Choose one company of your choice that pursues a cost-leadership strategy
▪ Analyze how the company manages to cut down its cost
▪ Elaborate on the cost drivers
▪ You have 15 minutes time for this task
▪ Be able to present your findings to the class
 Integration Strategy

How to Gain Competitive Advantage?

▪ Integration strategy as a combination of cost-leadership and differentiation
▪ Since either increased perceived value or lowering production costs can create a competitive advantage, managers
should focus on both effects
▪ Integration allows a firm to offer a differentiated product or service at low cost
▪ BUT: Very complex strategy that requires the trade-off between differentiation and low cost to be reconciled → danger
of being “stuck in the middle”

Source: Rothaermel (2015 & 2017)

 Value and Cost Driver of Integration Strategy (1)

Quality, economies of scope, customization, innovation, structure, culture and routines are
levers to overcome the trade-off between differentiation and low cost

Source: Rothaermel (2015)

 Value and Cost Driver of Integration Strategy (2)

▪ Quality implies durability and reliability of a product

Quality ▪ It can also lower a products cost through techniques such as total quality
management

Economies of ▪ Savings that come from producing two (or more) outputs at less cost than
Scope producing each output individually

▪ Going beyond merely adding differentiating features to tailoring products

Customization and services for specific customers
▪ Mass-customization feasible at low cost

▪ Innovation describes any new product or process or modification of existing

Innovation
ones

▪ Structure, cultures and routines are critical for integration strategy since
Structure, Cultures
differentiation and low cost are needed
and Routines
▪ The goal is to build an ambidextrous organization

Source: Rothaermel (2015)

 Value and Cost Driver of Integration Strategy (3)

The Ambidextrous Organization

▪ Managers face the challenge to structure their organizations in order to control costs and allow for
creativity that serves as a basis for differentiation
▪ Achieving low-cost production requires a structure that relies on strict budget controls
▪ Differentiation requires a structure that allows for creativity
▪ → Conflicts and tension may arise between these strategic directions
▪ An ambidextrous organization should enable managers to balance and harness the trade-off between
low-cost and differentiation
▪ Ambidexterity encourages managers to balance exploitation (applying current knowledge) and
exploration (searching for new knowledge)

Source: Rothaermel (2015), O‘Reilly and Tushman (2004)

 Dynamics of Competitive Positioning

Changing Strategic Positioning

▪ Companies seek to achieve the so called
productivity frontier which is a value-cost
relationship
▪ It captures the result of performing best
practices at any given time
▪ Firms that exhibit effectiveness and efficiency
reach the productivity frontier
▪ A firm’s business strategy determines which
strategic position it aspires to along the
productivity frontier
▪ Strategic positions are not fixed and static
▪ Firms need to change their strategic positions
due to environmental changes
▪ Example: Lenovo’s change to a differentiation
strategy

Source: Rothaermel (2015)

Agenda

Basics of Strategic Management & Strategy Analysis

Lecture 1

Business Strategy

Leading Change and Innovation

2+3
Lect

Corporate Strategy
ure

Strategy Implementation
Lect. 4

Strategic Leadership in Organizations

 50
Types of Change in Teams and Organizations
The following five factors are interconnected drivers of change

Role-centered
vs.
attitude-
centered

Developmental, Technology
Transitional, or (e.g. ERP or
Transforma- CRM-Systems,
tional Change etc.)

Economies or
Strategy
People
 51
Reasons for rejecting change

▪ The Proposed Change Is Not Necessary

▪ The Proposed Change Is Not Feasible
▪ The Proposed Change Is Not Cost Effective
▪ The Proposed Change Would Cause Personal Losses
▪ The Proposed Change Is Inconsistent with Values
▪ The Leaders Are Not Trusted
▪ Organizational Cynicism About Change
▪ Alternative Reasons for Resistance
 52
Implementing change

Responsibility
Determining Understanding The Pace and
for
What to Systems Sequencing of
Implementing
Change Dynamics Changes
Major Change

- Be clear about the - Change dynamics - Large-scale change is - Limited amount of

nature of the involve complex unlikely to be longitudinal research
problem and the relationships, multiple successful without the (no clear answers
objectives to be causes and outcomes, support of the top about the optimal
achieved delayed effects, and management team pace and sequencing
cyclical causality of desired changes
- An incorrect 1. Formulate a vision available yet)
diagnosis or an - Understanding the and general strategy
inappropriate complex 2. Build a coalition of - It seems beneficial to
change program interdependencies supporters who change interdepend-
will not provide the among processes and endorse the strategy dent subunits of the
desired benefits the implications of 3. Guide and coordinate organization
changes requires the implementation simultaneously
cognitive skills and process (effects will be
“systems thinking” mutually supporting)
 53
Guidelines for implementing change (2)
John P. Kotter‘s 8 steps of change

Source: Kotter, J. P. (2012). Leading change. Harvard business press.

Guidelines for developing a vision

▪ Involve key stakeholders

▪ Identify shared values and ideals
▪ Identify strategic objectives with wide
appeal
▪ Identify relevant elements in the old
ideology
▪ Link the vision to core competencies
and prior achievements
▪ Continually assess and refine the vision
 55
Guidelines for enhancing learning and
innovation

Recruit talented, creative people and empower them to be innovative.

Encourage appreciation for flexibility and set innovation goals.

Encourage and facilitate learning by individuals and teams.

Help people improve their mental models.

Evaluate new ideas with small scale experiments.

Leverage learning from surprises and failures.

Encourage and facilitate sharing of knowledge and ideas.

Outlook
Semester Schedule
Unit Content
Introduction
Review of ISM I: Basics of Strategic Management & Strategy Analysis
1
Rothaermel (RA) Chapter 6: Business Strategy: Differentiation, Cost Leadership and Integration
Yukl & Gardner (YG) Chapter 5: Leading Change and Innovation
Reading Assignment RA Chapter 6, 8 + 9 and YG Chapter 5 + 12

RA Chapter 8: Corporate Strategy - Vertical Integration and Diversification

2
RA Chapter 9: Corporate Strategy: Acquisitions, Alliances, and Networks

Case Preparation Facebook, Reading Assignment RA Chapter 10

Case Presentation Facebook

3
RA Chapter 10: Global Strategy: Competing Around the World

Case Preparation Ringier, Reading Assignment RA Chapter 11+12

Case Discussion Ringier
RA Chapter 11+12: Strategy Implementation
4
YG Chapter 12: Strategic Leadership in Organizations
Review for the Exam
Study for the final exam
5 Final Exam