Summary Towards a dynamic theory of strategy

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This is the summary of the book "Towards a dynamic theory of strategy". The author(s) of the book is/are Porter. This summary is written by students who study efficient with the Study Tool of Study Smart With Chris.

Summary - Towards a dynamic theory of strategy

  • 1 Introduction

  • Our understanding of the dynamic processes by which firms perceive and ultimately attain superior market positions is far less developed.

  • 1.1 Determinants of firm succes

  • The discussion on firms' success need a definition of success. What does Porter use?

    Firm success is manifested in attaining a competitive position or series of competitive posistions (relative) that lead to tsuperior and sustainable financial performance.

  • Early literature defined three conditions for succes. What are those?

    1. A company developed and omplemented an internally consistent set of goals and functional policies that collectively defined its position in the market. Startegy is also a solution to the agency problem.

    2. These internally set of goals and policies align the firm's strengths and weaknesses with the external opportunities and threaths. Maintain a dynamic balance.

    3. The concern of creating and exploiting its so called distinctive competences.

  • 1.2 The challenges for a theory of strategy

  • early research only did not incorporate the complexity and situation specificit and chaning nature of the firm and its environment.

  • 1.2.1 Approach to theory building

  • The significance of each model depends on its assumptions and applicability (fit) to reality.

  • Frameworks instead of models came to life. They ID the relevant variables and the questions to which the user must answer in order to develop conclusions tailored to a particular industry and company.


  • 1.2.2 Chain of causality

  • When youc reate theory, wehre do you focus the chain of causality. You can continiously ask the ask the why question . So, where do you draw the boundary between exogenous and endogenous variables.

  • 1.2.3 Time Horizon

  • What time period do you pick for your analysis?


    Because times are changing there might be different factors applying to the same company depending on the period of time they are situated. MAny externall and internal factors play a part in this.

  • 2 Towards a theory of strategy

  • A theory of strategy needs to link environmental circumstances and firm behavior to market outcomes.


    The basic unit of analysis in a theory is a strategically distinct business or industry.


    At the boradest level firm uccess is a function of two areas: the attractiveness of the industry in which the firm competes and its relative position in that industry.

  • 2.1 Industry structure

  • First Porter presented a a framework for diagnosing industry structure, built around 5 competitive forces that erode long-term industry average profitability.


    It can be applied of up to the individual firm level. Ultimately it explains the sustainability of profits against bargaining and against (in)direct competition.

  • 2.2 Relative position

  • Succes depends on the attractiveness of your position within the industry assuming constant industry structure.

  • There are two basic types of comp. adv.: - lower costs - ability to differentiate - What baout serving a niche market?


    Competitive adv. is influenced by a comp. scope. Scope can be a number of dimensions:

    - the array of products & buyer segments served

    - the geographic location of the company where it competes

    - degree of vertical integration

    - extend of related bussinesses in which the firm has a coordinated strategy


    The competitive adv. is attained within some scope.


  • 2.3 Acitivities

  • A firm is collection of discrete, but interrelated economic activities. Strategy is the configuration of those activities.


    Comp. adv. gained from within a certain scope can result in an attractive relative position. But what is the basis for it? Why?


    These dsicrete activities are linked with one another. They influence each others cost and manner in which they are performed. These linkages can even extent to outside the firm.


    This is where the noition of internal consisitency starts. The activiteis can perform assets to the firm. also outside of it ( contracts, networks). Liabilities are also an outcome. Note that the activiteis together generate the value (assets) and not the activities individually. External forces can of coursre nullify the assets ( think about technological developments).


    It can result from the firm's ability to perform the required activities at a collectively lower cost or is able to attain a higher value for the product for which the consumer is willing to pay a premium.


    The required mix and configuration of activities is in turn altered by the competitive scope.


    Going back: the basic unit of comp. adv. is the discrete activity.

  • The value chain provides a template for understanding cost position , because activities  are the elemental unit of cost behavoir.  It provides a means to systmetically understand the sources of buyer value and differentation.



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Example questions in this summary

The discussion on firms' success need a definition of success. What does Porter use?
Early literature defined three conditions for succes. What are those?
What are the most important drivers of comp. adv. in an activity?
Four important issues to why firms choose and implement a certain strategy and internal activiteis and assets are what they are.
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