Zusammenfassung der Ressource
General Management 1
- The Growth of Managerial Capitalism
- 3 Reasons for Growth of the Firm
- Transaction Cost
Theory: Ronald Coase 1930s:
Why Do Firms Exist
Anmerkungen:
- Oliver
Williamson 1975 & 1985
·
Transaction Costs: ppl are afflicted with
bounded rationality due to information asymmetry (Oliver Williamson 1975 &
1985) + Ppl will act in opportunistically ways. = arranging transactions are
fraught with uncertaintyà
E.g Transaction Specific Asset. (few alternative uses) will lock a party into a specific transaction. Small
prospective bargainers increasing search and negotiation costs.
+ Risk : After dedicated investment, will hold ransom (ex post opportunism)
Therefore Solution: vertical integration/ internalising exchange so to lower
transaction costs.
- Search Costs, Negotiation Costs, Monitoring Costs
- Market - No perfect information & Costs
to transaction
- Long Term Contracts are Prefered
- Note: Economics: Coase
- Oliver Williamson
1975 & 1985
- Transactional cost Approach
- Bounded rationality
- Transactions Types
- Uncertainty
- Frequency of transaction
- Degree of
transaction specific
investment
- Asset Specificity*
Anmerkungen:
-
: This is in part because actors
are assumed to be opportunistic, and a transaction regarding a specific asset
puts people in both sides in a vulnerable position. In the case of one
supplier, for example, a buyer can be forced to pay a higher price and if there
is only one seller, the opposite situation is in play. In Williamson's terms,
under high asset specificity, "buyer and seller are effectively operating
in a bilateral (or at least quasi-bilateral) exchange relation for a
considerable period thereafter." (p555) In general, Williamson claims that
high specificity will drive transaction costs up.
- only if Cost of External Tranasctions > Internal cost of monitoring
- Contracting Theory
- Environment
- Alfred Chandler's Framework
strategy + structure + systems =
shape corporate capacity.
Anmerkungen:
- Chandler
A.D(1961) Strategy and Structure: Chapters in the History of Industrial
Enterprise
Technical advance & Organisational innovation
- (External) Environment Factors
- Technology
- Market Conditions
- Government Regulation
- Rivals
Anmerkungen:
- added
in by Hannah 1995, john 1997, boyce 1995a
- Cultures/ Social Forces
Anmerkungen:
- Corporate Capacity
Anmerkungen:
- the skills & resources that enable firms to
carry out their tasks and do better than other firms :
Managerial talent, mass marketing techniques,
mass manufacturing facilities + appropriate organisational structure &
intercommunications systems
- Strategic Capacity
Anmerkungen:
- expertise in shifting resources (personnel, capital and plant) from business fields that
expand slowly to others that offered high growth opportunities
- Functional Capactiy
Anmerkungen:
- Coordination of markets and manufacturing, procurement functions with each other –internal systems : E.g AIS (Accounting Information Systems) , MIS(Management information systems) , DSS ( Decision Support Systems)
- Operating Capacity
Anmerkungen:
- skills used in each functional area
- (refinement) incentives ,
culture and reputation
- Rise of Managerial Capitalsim
Anmerkungen:
- Scale and Scope- Alfred Chandler
- firms grew in
size
Anmerkungen:
- NOTE: Reasons for Integration also falls under transaction cost theory
- First Industrial Revolution
Anmerkungen:
- 1st industrial Revolution: 1760-1830 (UK US France and German States)
2nd Industrial Revolution - 1840- 1930 (US UK Germany and Japan)
3rd Industrial -- 1960s to present (Info tec, computers etc)
- Spurred By Technology
- Railroad/Steam engine
Anmerkungen:
- On Schedule also is one of the impacts of the railroad. and is vital for business
**Dependable transportation
- New Markets-Distribution-
Branding -Marketing
- Coordination- managers*
Anmerkungen:
-
The managerial hierarchy sustained itself,
thereby ensuring the smooth operations in the firm even when the individual
managers left (Chandler, 1977). There was always
someone ready to step up and coordinate the firm’s activities. The role of the
manager also became more technical and professional, so the firms became more
professionally run. These salaried managers had a personal interest in ensuring
the survival of the firm to guarantee job security. Hence, they favoured
long-term stability to short-term distribution of profits. They concentrated on
re-investing the firm’s earnings in more capital to increase the economies of
scale and scope. The permanence of the managerial hierarchy is a key factor why
many large industrial enterprises have survived for a significantly long period
of time (Chandler, 1977).
- Economies of scope
Anmerkungen:
- Arising form marketing and advertising
- Communications
- The Telegraph
- Production Methods
- Economies Of Scale
- Lower Costs:
- Consumer Culture
- Mergers
- Forward integration
Anmerkungen:
- own sales networks to demonstrate their product
functions, provide after-sales services and formulate instalment plans for
customers.
- Reasons:
- Lower costs - administrative coordination
- existing markets cannot
keep up -Overproduction
Anmerkungen:
- intermediaries, e.g. independent retailers and
wholesalers, to distribute and sell their products to customers
- MArketing
- Mass production & Continuous Production
Anmerkungen:
- Industries
adopting Continuous-process machinery.
–American tobacco, Diamond Match, Quaker Oats, Pillsbury flour, Campbell soup,
Heinz. Borden, Carnation , Libby, Proctor & Gamble, Eastman Kodak
- Specialised products
Anmerkungen:
- sewing machines, elevators and automobiles
- Independent retailers do not posses technical knowledge
- Repair
- MAintain
- Demo
- Unwilling to extend credit (instalment plans)
- Backward integration
- Assured of parts
- Learning Curve-Economies of scale
Anmerkungen:
-
incumbents had time to learn the necessary
operational processes e.g. accounting and stock-keeping processes, but the new
entrants had to already possess this knowledge before entering the industry. High
barriers to entry were evident. The domination of large enterprises eventually
led to an oligopolistic market structure (Teece, 1993).
Teece, D., 1993. The Dynamics of Industrial Capitalism. Journal
of Economic Literature, 31(1), pp. 199-225.
- STANDARDISED PARTS
- Assembly Line
- Financial Development
- Limited Liability
Anmerkungen:
- By the 15th century, English law had awarded limited liability to monastic communities and trade guilds with commonly held property. In the 17th century, joint stock charters were awarded by the crown to monopolies such as the East India Company.[3] The world's first modern limited liability law was enacted by the state of New York in 1811.[4] In England it became more straightforward to incorporate a joint stock company following the Joint Stock Companies Act 1844, although investors in such companies carried unlimited liability until the Limited Liability Act 1855.
- Stock Market Development
- Expansion requires Large Capital
- separation of
ownership and
management
- Different in Different Countries
Anmerkungen:
- Contexts matter to the institutions
The Social, Political, Economic and Legal
- America
- competitive managerial capitalism model
- separation of management and ownership
- More Confrontational than Germany & UK
- More price wars & Undercutting
- incentive to keep lowering Cost of production
- No cartels : Laws
Anmerkungen:
- Interstate Commerce Act in 1887 which sought to
prevent railway companies from fixing prices and schedules of trains after
complaints by shippers (Teece, 1993)
Teece, D., 1993. The Dynamics of Industrial Capitalism. Journalof Economic Literature, 31(1), pp. 199-225.
- Instead growth thorough: Mergers & Acquisitions
Anmerkungen:
-
The passing of the Sherman Act started an
unprecedented period of Mergers & Acquisitions activity in the US. For
example, Carnegie Steel acquired the Henry C. Frick Coke Company and Oliver
Mining Company to secure supplies of iron ore. In 1901, most of the American
producers of cans and canning machinery had merged to form American Can,
producing 91% of the cans in the US (Chandler, 1990). The initial mergers
in an industry sparked a snowball effect of more mergers and acquisitions
within the industry, as the smaller firms started to rationalise their business
operations to remain competitive (Teece, 1993). Illinois Steel
reacted to acquisitions by Carnegie Steel by merging with other companies like
Minnesota Iron Company and Lorain Steel Company to form Federal Steel Company
with integrated mining, refining, and sales infrastructure. The independent
canning companies not under American Can also consolidated into Continental Can
in 1904 (Chandler, 1990). Hence, antitrust
legislation in the US prodded American firms to grow quickly through M&A. The
American firms pursued an extensive rationalisation of production and
consolidation within the industry, shutting down unproductive plants, building
new efficient continuous process plants, and combining several factories into
one (Chandler, 1990). They were able to
gain extensive economies of scale from this.
- Note: Population
Anmerkungen:
-
On the other hand, the US firms had a large
population base which was becoming rapidly affluent. From the 1870s to the
Great Depression, the US achieved high population growth together with high per
capita income. The estimated growth in GDP per capita was 2.4 times in the US
compared to 1.5 times in UK and 2 times in Germany (Chandler,
1990).
Hence, the US firms could depend on the American consumer base for sales and
revenue.
- Large and dispersed
- 1st
- Germany
- cooperative managerial capitalism model
- Separation of management and ownership
- Managers Invested in 3 prong approach
Anmerkungen:
- large ranks of managers, pursued the three-pronged
investment strategy because these salaried managers’ job security was dependent
upon the survival of their firms. The managers were willing to forgo short-term
profits and re-invest them into long-term growth of the firm (Chandler, 1977). As US and German firms made larger
investments into high-volume production technology and facilities and supply
chain integration, they were able to reap more economies of scale and scope and
grow more quickly than the UK firms
- More long term profits
- More collaboration btw Firms than the US
Anmerkungen:
-
As the British and Germans did not have such strong
objections against anti-competitive behaviour, the rate of M&A and industry
consolidations was slower and the British and German firms did not grow as fast
in such a short period of time.
- UK
- Law : “combinations of restraint of trade illegal”
Anmerkungen:
- this precedent was not used to bring action by
consumers or competitors who resented market power
- contractual agreements and collusive behaviour between firms difficult to enforce
Anmerkungen:
-
. There were many informal agreements between
British firms but these were rather weak and ineffective as firms had no legal
disincentive to break agreements. Instead, the British used holding companies
as a tool to “maintain contractual cooperation” (Chandler, 1990). The holding companies were usually a
collection of small single-function family enterprises e.g. Imperial Tobacco
which was an umbrella body of 13 British tobacco firms. There was little
rationalisation of business activities as each subsidiary remained largely
autonomous and controlled by the original family. Hence, British firms did not
gain much economies of scale from the mergers into holding companies (Chandler, 1991).
- Note: Population
- Dense and small
Anmerkungen:
- In the 1880s, the US population was 1.5 times
more than the UK and by 1900, the US population was twice that of UK (Chandler,
1990)Hence, entrepreneurs had less incentive to build
many plants throughout the UK as they could not utilise the excess capacity and
produce at the minimum efficient scale. However, the UK firms did invest extensively
in an international sales network because Britain was a colonial power and the
firms could export their goods to the various British colonies. Like Germany,
the UK exported most of its goods with the ratio of UK foreign trade to
national income ranging from 26.9% to 29.9% between 1860 and 1913 (Chandler, 1990).
- Germany
- no anti-monopoly legislation
Anmerkungen:
-
The German High Court ruled that that contracts
regarding price, output and allocated markets were entirely enforceable. It was
in the interest of the contract signatories and also in public interest that
the contract were upheld (Chandler, 1990).
- Strong incentive btw firms to coorporate
Anmerkungen:
- a strong incentive to cooperate in their home
market because they were rapidly expanding into foreign markets in continental
Europe
- Strong competition from foreign firms abroad
Anmerkungen:
-
As they were facing competition abroad from the
local firms in the overseas markets, it made economic sense to cooperate
domestically in Germany so that they could concentrate on dominating the other
European markets. The Germans had to depend on foreign markets for most of
their revenue as they had a relatively smaller and less wealthy population than
the US and UK. Without this natural economic hinterland, they had to venture
overseas to sell the large volume of goods from created from continuous
production processes. Germany’s export values was GBP 505 million in 1913 (Chandler,
1990).
Thus, the German firms grew by exporting most of their finished goods.
- 2nd
- UK
Anmerkungen:
- British firms were mostly family-owned. They had
a paternalistic culture, where the owners “distrust outsiders and closely
supervise the employees” (Dyer, 1988)
Dyer, in his research into family-owned firms,
discovered that these firms are focused on the past and are determined to
maintain the founding family’s legacy (Dyer, 1988). This culture made
the British firms more reluctant to invest in new technology and rationalise
business processes, resulting in British firms growing more slowly than the
American and German firms..
Dyer, W., 1988. Culture and Continuity in Family Firms. Family
Business Review, 1(1).
- a personal capitalism model
- family-owned and family-controlled
Anmerkungen:
- Culture?
The British entrepreneurs wanted to retain
family control over their enterprises because of their distrust of outsiders
and their dislike of losing control of the firm which they first created (Chandler,
1990).
They wanted to maintain the status quo of 19th century British class structure, where the business elites obtained high social status and power.
- constraint on the growth of British firms.
Anmerkungen:
- A person can only supervise and monitor a
limited number of subordinates and processes (Hannah, 1974)
family-run nature of British firms, their main
aim was to ensure a steady cash flow back to the family, a profit-satisficing
approach. Hence, they focused on maximising current profits and were slow to invest in the three-pronged strategy to improve production technology and
pursue vertical integration (Teece, 1993)
Teece, D., 1993. The Dynamics of Industrial Capitalism. Journal
of Economic Literature, 31(1), pp. 199-225.
- sights on more stable profits
- More Collaboration
- lagged
far
behind
- Japan
- According to Chandler (1990)
Anmerkungen:
-
Chandler, A., 1990. Scale and Scope: The Dynamics of Industrial
Capitalism. Cambridge, MA: Harvard University Press.
- Effect of the Railroad & Communication
- UK
- already had reliably transport system + small country
Anmerkungen:
-
As the British had already industrialised from an
agrarian economy during the First Industrial Revolution, the benefits of the
railroad was less substantial and less obvious. British firm did expand their
output with the more efficient rail transportation network (Chandler,
1990),
but did not expand as extensively as the US and Germany.
- US & Germany
- Geographically huge
- big effect in distribution channels
Anmerkungen:
-
, Gustavus F. Swift, the meatpacker, could automate
his abattoirs because he could transport his meat over long distances to sell
at another city. He financed the developed of refrigerated train cars to ensure
that the meat could remain fresh. Soon, he had a national distribution network
to supply fresh meat to consumers across the US (Chandler,
1990).
- firms invest in large scale production
- easily sell off in the many markets
- Railroad Companies first large enterprise
Anmerkungen:
-
The railway companies which constructed and managed
the railroads were also one of the first large enterprises to develop (Chandler, 1990). By building more
railway tracks and scheduling more trains, they expanded their transportation
services to many areas of the country. The Pennsylvania Railroad Company and
the Association of Germany Railway Administrations – made up of 10 leading
Prussian railways –developed many operating and organizational procedures which
were later adopted by other large firms. The first managerial hierarchies were
developed in railway companies. The railway companies also created accounting
and informational systems which analysed the profit and loss figures for each
business unit and coordinated the movement of trains and traffic respectively (Chandler,
1990).
Hence, the US and German enterprises benefited greatly from the diffusion of
business management knowledge from the railway companies. The British enterprises
did not receive such diffusion of knowledge as the railway companies in UK,
unlike in US and Germany, did not pioneer novel processes of organisation and
structure (Chandler, 1990).
- diffusion of managerial knowledge
- Educational Institutes
(Business Schools)
Anmerkungen:
- Providing trained managers so that firms can continue growing
- US
Anmerkungen:
- Massachusetts Institute of Technology, Stevens
Institute of Technology, University of Pennsylvania’s Wharton School of
Business and University of Chicago’s undergraduate school of commerce,
developed engineering and business courses aimed at providing firms with a
talented pool of executives (Chandler, 1990)
- equal of both producer & consumer industry
Anmerkungen:
-
Union Carbide, Standard Oil Trust and Carnegie
Steel in the producer goods industry; and American Tobacco, Singer Sewing Machine
Company and Eastman Kodak Company in the consumer goods industry.
- Germany
Anmerkungen:
- Germany, there was a more formalised ecosystem
of education with the Technische Hochschulen to train men for industrial
appointments and Handelshochschulen to provide business education
- Invested heavily into R n D
Anmerkungen:
- Germany set up many research institutes like the
National Physical Technical Institute and the Kaiser-Wilhelm-Gesellschaft (Chandler,
1990).
These institutes invented new technology which German firms could commercialise
or use to improve their operations. For example, Werner Von Siemens’ electrical
equipment plant was sited close to the National Physical Technical Institute (Chandler,
1990)
so that economies of concentration could be reaped from synergies created
between scientific research and scalable commercial applications.
- More than US and UK
- Explains why mainly Producer Goods
Anmerkungen:
- This emphasis on R&D in Germany explains why
many large Germany enterprises are found in the producer goods industry, such
as electric battery maker Accumulatoren-Fabrik AG, chemicals manufacturer Nobel
Dynamite Trust and electrical machinery giant Siemens. The producer goods industry
requires a lot of technical R&D which the Germans invested in.
- UK
- roughly only 100 years after US
Anmerkungen:
- The British educational system was the most outdated[RP1] ,
and it did not transform quickly to meet the industry demands of a skilled
workforce in engineering and business (Chandler, 1990)
[RP1]Cf the start date for univerity based business schools in the US
a& UK the former being about 100 years earlier roughly speaking.
- Mainly Consumer goods (not requiring R and D)
Anmerkungen:
- Conversely, large British enterprises were
mostly clustered in the consumer goods industry, such as Cadbury Brothers,
Imperial Tobacco and English Sewing Cotton, since the British did not pursue as
much innovation after the First Industrial Revolution.
- FUNDING
Anmerkungen:
-
Lastly, there were differences in the sources of
funding the US, UK and German firms’ growth. In the US and UK, the capital
investments were mostly funded by retained earnings or by banks (Chandler,
1990).
However, the banks merely extended credit to the firms and did not influence
any of the firms’ decision making. In the case of Germany, the banks had a
significant influence on the growth of large firms. The Grossbanken, made of up
the largest Kreditbanken in Germany, first financed the development of the rail
network. They then concentrated on providing capital to German industrial
enterprises and were an essential source of venture capital to fund the three-pronged
investment (Chandler, 1990). The German banks
regularly had representatives on the German enterprise’s board of directors and
participated actively in high-level decision-making. This was because the
German banks had specialist staff who had the necessary expertise in the
various industries to make informed decisions (Chandler, 1990). Therefore, the
German banks played a key role in growing German firms, as compared to the US
and UK banks.
- 3 pronged investment - Distribution,
Management & Production
- Laws - antirust laws
- Corporate Governance & Executive Compensation
Anmerkungen:
- “the
whole set of legal, cultural, and institutional arrangements that determine
what corporations can do, who controls them, how that control is exercised, and
how the risks and returns from the activities they undertake are allocated” (Davis, 2005)
- Definition: Corporate Governance
Anmerkungen:
- The control Mechanisms to prevent self-interested managers from taking actions detrimental to shareholders and stakeholders
- Internal
Anmerkungen:
- Board of Directors, Empolyees etc
- External
Anmerkungen:
- State Regulation.
Investors
- Cultural Values
Anmerkungen:
- PRINCIPLE/AGENT PROBLEM
Anmerkungen:
- First person to term the principle agent problem is
Stephen Ross (1973) paper- The economic theory of agency: a Principal's problem
- Ownership around the
world
Anmerkungen:
- U.S - widely held
Germany - Family pyramids, corporate
Japan - Corporate
UK- widely held institutions-pension funds and asset managers.
- Anglo-american outsider system
Anmerkungen:
- outsider system: stock market flotations, dispersed ownership, weak relations with banks and other parties
- Continental Europe Insider system
Anmerkungen:
- Concentrated ownership, fewer flotations, stronger relations with banks and other parties
- Purpose of Executive Compensation
- Attract & Retain skills
- Motivate, consistent with strategy & risk profile of organisation
- Discourage Self interested behaviour
- Possbile Compensations
Anmerkungen:
- fixed Salary(Guaranteed)
Annual Bonus(G + Performance)
Stock Options (Set Time & Price)
Restricted stock(Set Time)
Perquisites (car,home,plane)
Contractual Agreements-Golden parachutes
Benefits(insurance, pension, healthcare)
- Stock options
- problems
Anmerkungen:
- uncertain rewards in uncertain markets - when stock market is rising, is it because of executives.
- 1987, share prices rose almost continuously for
13 years : “Shareholder value” became hard to separate from the general market
rise + Share and stock options granted to top executives proves a lot more
generous than initially expected
Encourage excessive risk-seeking behaviour
- Benefits
Anmerkungen:
- encourage investment in "risky" positive projects,
Defer income(vesting)
Options increase in value with stock price
- How to measure performance of Executives
- who sets the pay?
Anmerkungen:
- Pay
is set by board committees comprised of other chief executives or friendly
directors dependent on the chairman
– Successful Lobbying-- body of big-firm chief
executives lobbied the Senate to rule that options should not be treated as
costs. The Senate obliged by 88 votes to nine.
- problem with Pay
Anmerkungen:
-
o
Frank (1985)asserted that since pay is a
positional good, large difference in pay confer higher status and prestige as
well as greater economic benefits people near the top should respond favourably to hierarchical pay distributions
Conversely, when reward distributions are unequal, the disadvantaged will feel
deprived and react negatively( Martin 1981)
- Pay Distribution
- inequality and
jealously
Anmerkungen:
-
o
pay distributions create disincentives for
cooperation, instil feelings of inequity, promote dissatisfaction and diminish
performance (Kohn, 1993; Pfeffer 1994) – some research suggests that more
dispersed pay distributions are associated with greater dissatisfaction,
poorer-quality workm and increased propensity to leave an organiation (Cappelli&
Sherer, 1990;Cowherd & Levine, 1992, Pfeffer & Langton 1993)
- coorporative
Anmerkungen:
-
o
Compressed pay distributions, conversely are
said to inculcate feelings of fairness, foster notions of a common fate, and
reduce interpersonal competition (Kochan & Osterman, 1994 Milgrom & Roberts
1988)
- brain drain
- overconfidence
Anmerkungen:
-
Highly paid ceos may become overconfident/ overconfident ceos
may seek out high pay – either way highly paid overconfident CEOs may engage in
sub-optimal behaviour from the standpoint of share of shareholders, such as
wasteful capital expenditures and empire building (Ben-David, Graham and
Harvey, 2008, Malmendier and Tate, 2005,2008,2009)
- Averages increases over the years
Anmerkungen:
- pay setters: just set above average pay, assuming CEO is above average. Over time, averages rises
- Monitoring in Public Companies- Public good
Anmerkungen:
-
·
Monitoring is a public good ànon excludable and
knowledge would not decrease – monitoring is costly and free rider problem.
Therefore almost no monitoring would occur
Danger of managers – vested interests at the
expense of shareholders
- Mechanisms
Anmerkungen:
- Hart. O (1995) “Corporate governance: Some theory and implications”
Economics Journal Vol 105,No. 430 pp 678-698
- Board of directors
- Executive and non-executive
- Effectiveness?
Anmerkungen:
- executive
directors (members of management) and Nonexecutive directors (outsiders)
Non executives may not do a good job- may not
have significant financial interest, & too busy to think of company affairs
& collect info over and above what is provided by management Non-executive directors may owe their positions
to management Executives to monitor themselves? Really
- principle/agent in itself - govern itself?
- Owing positions
- non-executive have time?
- Proxy fights
Anmerkungen:
- replacement of board members - dissident shareholder puts up a slate of
candidates to stand against management slate, and tries to persuade other
shareholders to vote.
- Effectiveness?
- Information: freerider problem
- voting turnout : some believe their vote doesn't matter
- Hostile Takeovers
Anmerkungen:
- Reap gains from underperforming company with the
implementation of new management
- problem attached
Anmerkungen:
-
o
Effectiveness – freeride problem – not
shareholders who believe that their decisions are unlikely to affect success of
bids, hold on to their shares to get capital gain. To expropriate minority
shareholders, successful bid has to be higher than what is offered at market
price now – may incur a lost + bidding cost (cost of identifying and research
etc) OR Competition from other bidders ( signal that company is
undervalued) -- bidding war Or
Resistence from incumbent management – reduce slack once bid is announced to
deter raider from bidding
- Financial Structure
- Choice of debt
Anmerkungen:
-
Debt serves as a bonding or commitment device.
(credibility) – limits on how inefficient management can be if it wants to
repay debt. Debt may be put inplace by owner before company goes public, or
active shareholder who intervenes, or in response to threat of hostile takeover
Credibility – backed by insolvency procedure
(Penalty)
May be argued better than reward
- Managerial Discretion
- Straight out expropriation
Anmerkungen:
- Russian
Oil industry sale of oil to manager-owned trading companies , Korean Chaebol
sell subsidiaries to relatives of founders at low prices. Zingales(1994) state
controlled Italian firm sell assets to another at excessive high price
- Pet Projects/entrenchment
Anmerkungen:
- expanding
beyond what is rational—Or even entrenching themselves and staying on the job
even if they are no longer competent/qualified
to run the firm (Shleifer and Vishny 1989)
managers have an incentive to abscond with the
founders’ funds or pursue worthless vanity projects for the managers’ own
enjoyment (Shleifer, 1997).
- Solutions
- incentives/ mechanism design
- Legal Protection
- Large shareholders: incentive to monitor
Anmerkungen:
- (shleifer
and Vishny (1986)
- may have interest conflicts again
- Legal protection of investors and some form of concentrated ownership are essential elements
Anmerkungen:
-
many “stealth compensations” such as “golden parachutes,”
“golden Hellos”, generous severance packages, company-provided perks, and
bonuses that are unrelated to firm performance. There should also be a focus on
closing accounting loopholes that currently allow highly paid executives to use
offshore tax schemes to avoid taxation, as well as an increase in policies
which force the transparency of corporate compensations and also grant power to
shareholders to render and advisory vote on executive compensation.
- Monitors:
- Auditors:
- problem;:
- must be independent
- Independent - must really be independent
- German Model:
Anmerkungen:
-
“German Model” : Equity ownership, lucrative fee-based
client relationships, strong bank presence on supervisory board and extensive
use of proxy voting” ---
Edwards J 7 Nibler M (2000) “Corporate governance in
Germany: The role of banks and ownership concentration” Economic Policy, Vol 15
No.231 pp 237-260.
- Corporate Governance around the world
- US
- Confrontational Appraoch
Anmerkungen:
-
the firm’s management
stands to be fired should the takeover be successful, the managers will avoid
becoming an easy target by working hard to maintain or boost the share price of
the firm (Hart, 1995). [RP1]
[RP1]You might add something about UK CG – including the current Coty
Code and its predecessors
- Key : hostile takeover action.
Anmerkungen:
- A criticism of this
is that these takeovers may be a poor method of exercising corporate control
for they are expensive and distract from normal management functions. At the
same time, they are not good at identifying poorly performing firms, with there
often being no obvious improvements in performance through indicators such as a
massive change in the ex ante and ex post share prices (Jenkinson
& Mayer 1992).
- Japan
- lifetime employment
- problem
Anmerkungen:
- The
policy of lifetime employment is a major roadblock to increasing innovation and
creativity as employees are entrenched in one firm for their entire career (Dore, 2000)
Dore, R., 2000. Stock Market Capitalism: Welfare Capitalism
Japan and Germany versus the Anglo Saxons. New York: Oxford University
Press.
- Amakudari,
Anmerkungen:
- ‘descent
from heaven’, is the common practice of government officials joining companies
as directors after retiring from government service (Charkham,
2005)
Principle agent
This has been criticised
for creating a conflict of interest between government regulators and
corporations as government officials have no incentive of pursuing
investigations into corporate malpractices lest they lose their lucrative
post-retirement directorships.
Charkham, J., 2005. Keeping Better Company: Corporate
Governance Ten Years On. s.l.:Oxford University Press.
- gov. officials join private companies after retirement
- Germany
- shareholder but also others
- Workers
- Worker representatives on boards
- just a figure head? Do they have the skills
- if they do learn the trade, Are they 'management conversions then?'
- BAnks
- Large institutional Shareholders
Anmerkungen:
- .
The German Corporate Governance Code explicitly states how firms should be
structured at the top. Each firm must have a Management Board (the Vorstand)
and a Supervisory Board (the Aufsichtsrat). The Management Board is responsible
for running the company while the Supervisory Board appoints, supervises and
advises the members of the Management Board.
- Cross sharing of major German Companies
Anmerkungen:
- There
are many instances of cross-shareholding between major German companies,
forming a “web of interlocking shareholdings and directorates amongst
companies” (Dore, 1999)
- cooperative model, where there is a collegiate relationship between the
Management Board and the Supervisory Board
Anmerkungen:
-
For example, the managers
can tap on the bank’s logistic support in research and analysis and also
financial advice. Due to many opportunities for informal interactions, members
of the Boards can exchange information, leading to greater accountability and
transparency. Firms also solve their problems internally. A consensus amongst the
different stakeholders, banks, shareholders, employees and managers, is usually
reached on critical company issues. If the company is underperforming, banks
can provide advice to “nudge the company back on track or in extreme cases, put
it under other company’s wing” (Edwards, 2000).
The insider system, with
multiple cross-shareholdings and employee representation on the Supervisory
Board, discourages hostile takeovers. Jenkinson found that up to 1992, there
were only 4 hostile takeovers in post-World War Two Germany (Jenkinson,
1992).
- discourages hostile takeovers
Anmerkungen:
-
Jenkinson found that up to
1992, there were only 4 hostile takeovers in post-World War Two Germany (Jenkinson,
1992).
- Able to Get advice from stakeholders
- Financial advice from banks etc
- Leverage on institutional reputations also
Anmerkungen:
- to
gain cheaper access to capital or expand into new markets through the board
members’ network.
- STRATEGY
- Definition
Anmerkungen:
- "the Determination of the basic long-term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals"
Alfred Chandler, Strategy and Structure
- Long term
- Industry structure analysis
- Porter's 5 forces Model
Anmerkungen:
- Nature and degree of competition in industry
1) Threat of new entrants
2) Bargaining power of customers
3) Bargaining power of suppliers
4) Threat of substitute products or services
5) jockeying among current contestants
Porter’s “How Competitive forces shape strategy” – 5 forces model (1979)
- Porter was an economist
Anmerkungen:
- porter draws from Industrial Organisation - developed by bain and maison and chamberlin
- Monopoly power
- Focus on industries where 5 forces are favourable
- influence forces
- Consolidating competition
- Investing in entry barriers
- Differentiating your products
- Position
- Anticipate change
- 5 forces
Anmerkungen:
-
At the most fundamental level, firms create
competitive advantage by perceiving or discovering new and better ways to
compete in an industry and bringing them to market, which is ultimately an act
of innovation. Innovations shift
competitive advantage when rivals either fail to perceive the new way of
competing or are unwilling or unable to respond. There can be significant advantages to early
movers responding to innovations, particularly in industries with significant
economies of scale or when customers are more concerned about switching
suppliers. The most typical causes of
innovations that shift competitive advantage are the following:
·
new technologies
·
new or shifting buyer needs
·
the emergence of a new industry
segment
·
shifting input costs or
availability
·
changes in government
regulations
- Threat of Entry
Anmerkungen:
-
Seriousness depend on Barriers present and on reaction from
existing competitors.
Major sources of barriers to entry
1)
Economies of Scale
2)
Product differentiation (branding)
3)
Capital requirements
4)
Cost disadvantages independent of size (stem
from e.g the learning curve/experience curve, proprietary technology, access to
the best raw materials sources, assets purchased preinflation prices, gov
subsidies, favourable locations.
5)
Access to distribution channels
6)
GOV Policies
Potential rival’s expectations from existing competitors:
o
Incumbents possess substantial resources to
fight back, excess cash unused borrowing power, productive capacity, clout with
distribution channels and customers
o
Incumbents seem likely to cut prices because of
a desire to keep market shares or because of industry wide excess capacity
o
Industry growth is slow, affecting ability to
absorb new arrival and probably cause financial performance of all parties
involved to decline
- Bargaining power
- Customers
Anmerkungen:
-
(more elastic)
o
Is concentrated or purchases in large volumes
:
esp high fixed costs à
raise stakes to keep capacity filled
o
The products it purchases form industry are
standard or undifferentiated
o
Products it purchases from the industry form a
component of its product and represent a significant fraction of its costs(
more price sensitive)
o
Earns low profits – greater
o
The industry product is unimportant to the
quality of the buyers’ products or services.
o
The industry’s product does not save the buyer
money
o
Buyers pose a credible threat of integrating
backwards to make industry product
- Suppliers
Anmerkungen:
-
(inelastic demand)
o
It is dominated by few companies and is more
concentrated than the industry it sells to
o
Its product is unique or at least differentiated
or if it has build up switching costs. (e.g buyers product specifications.
Invested heavily in specialized ancillary equipment or in learning how to
operate a supplier’s equipment (e.g software) or production lines are connected
to suppliers manufacturing facility
o
Not obliged to contend with other products for
sale to the industry
o
Poses a credible threat of integrating forward
into industy business (limits ability to improve terms of purchase)
o
Industry is not an important customer of the
supplier group
- Substitute products
- Jockeying for position (mature)
Anmerkungen:
-
price competition, product introduction, advertising etc
Intensity
Ø
Competitors are numbers or roughly equal in size
and power
Ø
Industry growth is slow, precipitating fights
for market share that involve expansion minded members
Ø
The product or service lacks differentiation or
switching costs.
Ø
Fixed costs are high or the product is perishable,
creating strong temptation to cut prices
Ø
Capacity is normally augmented in large
increments. (over capacity and price cutting)
Ø
Exit barriers are high
Ø
Rivals are diverse in strategies, origin and
“personalities”
- Strategic Positioning
Anmerkungen:
- Porter (1996) What is Strategy
- argues Competitive Advantage
Anmerkungen:
- Porter argues: There are but two "basic types of competitive advantage a firm can possess: low cost or differentiation" . These combine with the "scope" of the particular business- the range of market segments targeted to produce "Three generic strategies competitive advantage.
Porter, M.E. (1980) Competitive Strategy, Free Press, New York, 1980
Porter, M.E. (1985) Competitive Advantage, Free Press, New York, 1985.
- Porter's Generic Strategy
- low cost/cost leadership
Anmerkungen:
- low-cost producer in the industry. Realised through gaining experience, investing in large-scale production facilities, using economics of scale and careful monitoring overall operating costs.
- Differentiation
Anmerkungen:
- Involves the development of unique products or services, relying on brand/customer loyalty. A firm can offer higher quality, better performance or unique features, any of which can justify higher prices
- focus(Scope)
Anmerkungen:
- narrow market segments-- concentration of knowledge and competences -- offerings are differentiated in focal market or overall cost leadership focused
- fail-caught in the middle
Anmerkungen:
- If a firm engages in each generic strategy but fails to achieve any of them is 'stuck in the middle'
- criticisms
Anmerkungen:
- Miller(1992) question porter's notion of having to pursue one strategy or else be caught 'in the middle'
there are enormous rewards for those who can resolve the 'dilemas of opposites'
Gilbert and strebel(1988) discuss 'outpacing' strategies - firms (toyota) enter market as a low cost producer and then differentiate to capture even more market share
- More specific:
Anmerkungen:
- What is strategy (1996) - Michael Porter
- Variety Based Positioning
Anmerkungen:
- producing
a subset of an industry’s products or service—based on choice of product or
service variety :rather than customer segments- -when companies can best
product particular products or services using distinctive sets of activities
- Needs based positioning
Anmerkungen:
-
v
targeting a segment of customers – group of
customers with differing needs and when a tailored set of activies can serve
those needs best. –variant arises when
same customer different needs on different occasions ** à Differences in needs will not
translate into meaningful positions unless the best set of activities to
satisfy them also differs.
- Access Based Positing
Anmerkungen:
-
v
Segmenting customers who are accessible in
different ways – although their needs are similar to those of other customers, the best
configuration of activities tp reach them is different. –access can be a fn of
customer geography or customer scale or anything that requires a different set
of activities to reach customers in the best way (e.g rural v.s urban
customers)
- Sustainability
- Trade-offs
Anmerkungen:
-
Strategic position is not sustainable unless there are
trade-offs with other positions (prevent imitation)
Trade- offs arise through : ü
Inconsistencies in image or reputation
ü
Activities themselves (different tailoured
activies require different product configurations, different equipment,
different employee behabiour, different skills, and different management
systems / machines people systems) ü
Limits on internal coordination and control
(decision framework/priorities)
Note: without trade-offs, companies will never
achieve a sustainable advantage. à
Strategy is making trade-offs in
competing
- note- porter then combines this
with Fit and Hierarchy of
Sources, Number of distinct
sources & constant improvement
Anmerkungen:
-
Porter (1990) outlines three conditions for
the sustainability of competitive advantage:
·
Hierarchy of source (durability and imitability) - lower-order advantages such
as low labor cost may be easily imitated, while higher order advantages like
proprietary technology, brand reputation, or customer relationships require
sustained and cumulative investment and are more difficult to imitate.
·
Number of distinct sources - many are
harder to imitate than few.
·
Constant improvement and upgrading - a
firm must be "running scared," creating new advantages at least as
fast as competitors replicate old ones.
- Value chain
Anmerkungen:
- 1985 best-seller,Competitive Advantage: Creating and Sustaining Superior Performance
The valuechain is a systematic way of examining all the activities a firm performsand how they interact. It scrutinizeseach of the activities of the firm (e.g. development, marketing, sales,operations, etc.) as a potential source of advantage. The value chain maps a firm into itsstrategically relevant activities in order to understand the behavior of costs and the existing and potentialsources of differentiation. Differentiation results, fundamentally, fromthe way a firm's product, associated services, and other activities affect itsbuyer's activities. All the activitiesin the value chain contribute to buyer value, and the cumulative costs in thechain will determine the difference between the buyer value and producer cost. A firm gains competitive advantage byperforming these strategically important activities more cheaply or better thanits competitors. One of the reasons the value chain framework is helpful isbecause it emphasizes that competitive advantage can come not just from greatproducts or services, but from anywhere along the value chain. It's alsoimportant to understand how a firm fits into the overall value system, which includes the value chains of its suppliers,channels, and buyers.
- 3 types of Fit
Anmerkungen:
-
·
simple consistency - first
order fit between each activity and the overall strategy
·
reinforcing - second order fit
in which distinct activities reinforce each other
optimization of effort - coordination and information exchange across activities to eliminate redundancy and wasted effort.
- major contribution
Anmerkungen:
-
Porter's major contribution with
"activity mapping" is to help explain how different strategies, or
positions, can be implemented in
practice. The key to successful
implementation of strategy, he says, is in combining
activities into a consistent fit with each other. A company's strategic position, then, is
contained within a set of tailored activities designed to deliver it. The activities are tightly linked to each
other, as shown by a relevance diagram of sorts. Fit locks out competitors by creating a
"chain that is as strong as its strongest link." If competitive advantage grows out of the
entire system of activities, then competitors must match each activity to get
the benefit of the whole system.
- CRITICISMS of PORTER 5 Forces
Anmerkungen:
- Somu Subramaniam have stated that
three dubious assumptions underlie the five forces:
That buyers, competitors, and suppliers are unrelated and do not interact and collude.That the source of value is structural advantage (creating barriers to entry).That uncertainty is low, allowing participants in a market to plan for and respond to competitive behavior.
- Difficulties
- Technical
- Industry definition
- Different
evaluations
of key factors
- Philosophical
- Zero-Sum- Arm Wrestling
- Position, not management
- How much does industry matter -Rumelt (1991)
Anmerkungen:
- Hypothesis -- if industry is truly the most important aspect of strategy formation, then differences in the performance of business units across industries should far exceed performance differences among business units within the same industry. What he found was the opposite.
- rebuttle
- McGahan and Porter (1997) How much does industry matter, Really?
Anmerkungen:
- concluded that being in a particular industry contributes substantially to performance, while admitting that differences among firms within the same industry may still be more important than differences among industries.
- 1992 Bader-Fuller and Stopford’s research “Maturity is a state of mind”
- static view of industries
Anmerkungen:
-
Porter’s ideas
became more and more subject of critique under the impression of the developing
Internet economy during the last decade. Critics point out that economic
conditions have changed fundamentally since that time. The rise of the Internet
and of various e-business applications has strongly influenced nearly all
industries.
In fact,
Porters theories base on the economic situation in the eighties. This period
was characterized by strong competition, cyclical developments and relatively
stable market structures. Porter’s models focus on the analysis of the actual
situation (customers, suppliers, competitors etc) and on predictable
developments (new entrants, substitutes etc). Competitive advantages develop
from strengthening the own position within this Five-Forces-Framework. Hence,
these models cannot explain or analyze today’s dynamic changes that have the
power to transform whole industries.
Note: in the world where customer preference are
volatile, the identity of customers is changing and the technologies for
serving customer requirements are continually evolving, an externally focused
orientation does not provide a secure foundation for formulating long term
strategy àThink also the concept of creating something
that the consumer foes not know he/she wants yet (think apple
- note the historical timeframe:
Anmerkungen:
- On view of some views of
strategy is that ideas about it have developed in line with the state of the
economic and business environment. So the stable world of growth from the 50s
to the early 70s gave rise to one form
of strategy and that from the late 70s onwards emphasised another.
- porter's assumptions
Anmerkungen:
-
1)
Environmental models of competitive advantage
have assumed that firms within an industry (or firms within a strategic group)
are identical in terms of the strategically relevant resources they control and
the strategies they pursue
2)
These models assume that should resource
heterogeneity develop in an industry group (perhaps through new entry, that
this heterogeneity will be very short lived because the resources that firms
use to implement their strategies are highly mobile (resources are mobile)
- unit of analysis
- inward
looking
out
- Different Concepts of
competitive advantage
Anmerkungen:
- above average earnings over long calender time
–porter 1985,
RBV: equilibrium definition that cannot be copied and is sustainedonly if it continues to exist after efforts to duplicate that advantage has ceased (Hirshleifer 1982) (barney 1991)( Rumelt 984)
- monopoly rent
- reality
- Assumptions
Anmerkungen:
- industry structure
works only when markets, regions, products, and customer needs are well defined
and durable.
1)
Environmental models of competitive advantage
have assumed that firms within an industry (or firms within a strategic group)
are identical in terms of the strategically relevant resources they control and
the strategies they pursue
2)
These models assume that should resource
heterogeneity develop in an industry group (perhaps through new entry, that
this heterogeneity will be very short lived because the resources that firms
use to implement their strategies are highly mobile (resources are mobile)
- Resource Based View
Anmerkungen:
- The RBV framework
combines the internal (core competence) and external (industry structure)
perspectives on strategy
- Core Competence
Anmerkungen:
- The core competence of the corporation – C,k prahalad & gary hamel (1990)
Core competencies are the collective learning in
the organization, especially how to coordinate diverse production skills and
integrate multiple streams of technologies,
- Identification
Anmerkungen:
-
1)
Core competence provides potential access to a
wide variety of markets
2)
Core competence should make a significant
contribution to the perceived customer benefits of the end product
3)
Core competence should be difficult for competitors
to imitate (it should be. A rival may acquire some of the technologies that
comprise the core competence, but will find it more difficult to duplicate the
more or less comprehensive pattern of internal coordination and learning.
- specific set of skills/ production
techniques-- deliver additional
value to the customer-- enable
organization to access a wide
variety of markets.
- developed through continuous improvements
- Not imitable
- portfolio of competencies
- Products based on them
- Valuable Resource
Anmerkungen:
- firms have very
different collections of physical and intangible assets and capabilities...
. Resources are more broadly defined to be
physical (e.g. property rights, capital), intangible (e.g. brand names,
technological know how), or organizational (e.g. routines or processes like
lean manufacturing). No two companies
have the same resources because no two companies have had the same set of
experience, acquired the same assets and skills, or built the same
organizational culture. And unlike the
core competence and capabilities frameworks, though, the value of the
broadly-defined resources is determined in the interplay with market
forces. Enter Porter's 5 Forces. For a resource to be the basis of an
effective strategy, it must pass a number of external market tests of its value.
- Competitive
advantage
Anmerkungen:
- Barney 1991 : firms resources and sustained competitive advantage
link with Barney 1986- organisational culture: can it be a source of competitive advantage
- Rare among Competition
- Imperfectly immitable
Anmerkungen:
- If a valuable resource is controlled by only one firm it could be a source of a competitive advantage (:[3] p107). This advantage could be sustainable if competitors are not able to duplicate this strategic asset perfectly (Peteraf, 1993, p183; Barney, 1986b, p658). The term isolating mechanism was introduced by Rumelt (1984, p567) to explain why firms might not be able to imitate a resource to the degree that they are able to compete with the firm having the valuable resource (Peteraf, 1993, p182-183; Mahoney and Pandian, 1992, p371). An important underlying factor of inimitability is causal ambiguity, which occurs if the source from which a firm’s competitive advantage stems is unknown (Peteraf, 1993, p182; Lippman and Rumelt, 1982, p420). If the resource in question is knowledge-based or socially complex, causal ambiguity is more likely to occur as these types of resources are more likely to be idiosyncratic to the firm in which it resides (Peteraf, 1993, p183; Mahoney and Pandian, 1992, p365;:[3] p110). Conner and Prahalad go so far as to say knowledge-based resources are “…the essence of the resource-based perspective” (1996, p477).
- Isolating Mechanism
Anmerkungen:
- Rumelt, D.P., (1984), Towards a Strategic Theory of the Firm
Resources are the inputs or the factors available to a company which helps to perform its operations or carry out its activities (,[4] Black and Boal 1996, Grant 1995 cited by Ordaz et al.2003, p. 96). Also, these authors state that resources, if considered as isolated factors, do not result in productivity; hence, coordination of resources is important. The ways a firm can create a barrier to imitation are known as “isolating mechanisms”, and are reflected in the aspects of corporate culture, managerial capabilities, information asymmetries and property rights (Hooley and Greenlay 2005, p. 96, Winter 2003,p. 992). Further, they mention that except for legislative restrictions created through property rights, the other three aspects are direct or indirect results of managerial practices.
- means: barriers to imitation
- Casual Ambiguity of Competitive Advantage
Anmerkungen:
- which occurs if the source from which a firm’s competitive advantage stems is unknown (Peteraf, 1993, p182; Lippman and Rumelt, 1982, p420).
- No substitutes
Anmerkungen:
- Cannot be strategically equivalent substitutes
for this resource that are valuable but neither rare or imperfectly imitable
- Paradox
Anmerkungen:
- if formal planning can be imitated, not rare à paradox. It does not
mean however that firms that engage in formal strategic planning will never
obtain sustained competitive advantages à
it may be that the formal planning system in a firm enables them to recognise
and exploit other of its resources and some of these resources might be sources
of sustained competitive advantage àsuch
advantages must be found in the rare, imperfectly imitable and
non-substitutable resources already controlled by a firm (Diericckx & Cool
1989)
- test
Anmerkungen:
-
Collins and Montgomery (1995) offer a
series of five tests for a valuable resource:
1.
Inimitability - how hard is it for
competitors to copy the resource? A
company can stall imitation if the resource is (1) physically unique, (2) a consequence of path dependent development activities, (3) causally ambiguous (competitors don't know what to imitate), or (4)
a costly asset investment for a limited market, resulting in economic deterrence.
2.
Durability - how quickly does the resource depreciate?
3.
Appropriability - who captures the value
that the resource creates: company, customers, distributors, suppliers, or
employees?
4.
Substitutability - can a unique resource
be trumped by a different resource?
5.
Competitive Superiority - is the resource really better relative to
competitors?
- hetrogeneity
of resources
- CRITICISMS of RBV
Anmerkungen:
- Priem and Butler (2001) raised many key points of criticism:
The RBV may be tautological, or self-verifying. Barney has defined a competitive advantage as a value-creating strategy that is based on resources that are, among other characteristics, valuable (1991, p106). This reasoning is circular and therefore operationally invalid (Priem and Butler, 2001a, p31). For more info on the tautology, see also Collis, 1994.According to Priem and Butler (2001a), Barney's perspective does not constitute a theory of the firm. The conditions of lawlike generalizations (Rudner, 1966) of empirical content, nomic necessity and generalized conditionals are not met.Different resource configurations can generate the same value for firms and thus would not be competitive advantage. The role of product markets is underdeveloped in the argument. Limited focus on capabilities Retrospective causality issues: any current success could be attributed to a number of reasons (e.g. unique resources), but the causality is not always clear.The theory has limited prescriptive implications
However, Barney (2001) provided counter-arguments to these points of criticism.[3] For example, he said that any theory could be rephrased to appear tautological. He also stated that his theory applies to static (equilibrium) environments, but not to dynamic environments. As today's business realities are clearly not static but dynamic and characterized by high velocity and rapid change, Barney (2001) thus admitted that his 1991 VRIN theory has little potential for applicability to the real world. It does, however, provide a good way for senior managers to better understand their resource base. Barney (2001) also suggested re-defining the criterion of "value" and pointed to different ways of describing "competitive advantage" as strategic advantage, above-average industry profits and economic rents. The tone of his paper appears defensive at times, showing that Priem and Butler (2001a) have actually raised some important issues.
Priem and Butler (2001a;2001b), however could be criticized for slightly missing the point. This is because they focus on the status of the RBV as a theory, the tautology allegation and sustainable competitive advantage. In business reality, senior managers are often not interested whether or not the RBV constitutes a real theory or not. Instead, they require guidance for achieving competitive survival. As Ludwig and Pemberton (2011) have shown, any firm operating in today's dynamic external business environments needs to focus on competitive survival and their capabilities.
Furthermore, it is not difficult to retrospectively criticise a theory. Priem and Butler (2001a) were arguably ten years too late in their critique of Barney's (1991) framework. In the process, they engaged in and instigated a rather superfluous debate instead of focussing on really important issues facing senior managers.
Further criticisms of the RBV are:
There is insufficient focus on depreciating resource value, i.e. the negative effect of external change on the resource/asset base of the SBU.As described earlier, perhaps the entire focus of the RBV on achievement of sustainable competitive advantage should be re-considered. Competitive survival is more important.It is perhaps difficult (if not impossible) to find a resource which satisfies all of the Barney's VRIN criteria.There is the assumption that a firm can be profitable in a highly competitive market as long as it can exploit advantageous resources, but this may not necessarily be the case. It ignores external factors concerning the industry as a whole; a firm should also consider Porter’s Industry Structure Analysis (Porter's Five Forces).Long-term implications that flow from its premises: A prominent source of sustainable competitive advantages is causal ambiguity (Lippman & Rumelt, 1982, p420). While this is undeniably true, this leaves an awkward possibility: the firm is not able to manage a resource it does not know exists, even if a changing environment requires this (Lippman & Rumelt, 1982, p420). Through such an external change, the initial sustainable competitive advantage could be nullified or even transformed into a weakness (Priem and Butler, 2001a, p33; Peteraf, 1993, p187; Rumelt, 1984, p566).Premise of efficient markets: Much research hinges on the premise that markets in general or factor markets are efficient, and that firms are capable of precisely pricing in the exact future value of any value-creating strategy that could flow from the resource (Barney, 1986a, p1232). Dierickx and Cool argue that purchasable assets cannot be sources of sustained competitive advantage, just because they can be purchased. Either the price of the resource will increase to the point that it equals the future above-average return, or other competitors will purchase the resource as well and use it in a value-increasing strategy that diminishes rents to zero (Peteraf, 1993, p185; Conner, 1991, p137).The concept of rarity is obsolete: Although prominently present in Wernerfelt’s original articulation of the resource-based view (1984) and Barney’s subsequent framework (1991),[3] the concept that resources need to be rare to be able to function as a possible source of a sustained competitive advantage is unnecessary (Hoopes, Madsen and Walker, 2003, p890). Because of the implications of the other concepts (e.g. valuable, inimitable and nonsubstitutability) any resource that follows from the previous characteristics is inherently rare.Sustainable: The lack of an exact definition of sustainability makes its premise difficult to test empirically. Barney’s statement (:[3] p102-103) that the competitive advantage is sustained if current and future rivals have ceased their imitative efforts is versatile from the point of view of developing a theoretical framework, but is a disadvantage from a more practical point of view, as there is no explicit end-goal.
The relational view is an extension of the resource-based view for considering networks and dyads of firms as the unit of analysis to explain relational rents, i.e., superior individual firm performance generated within that network/dyad.[9]
Anmerkungen:
-
Competitive advantage – lasts long period of calendar time
–porter 1985, equilibrium definition that cannot be copied and is sustained
only if it continues to exist after efforts to duplicate that advantage has ceased (Hirshleifer 1982)
- unit of analysis
Anmerkungen:
- . The industrial analysis
model considers the industry as a unit, while the resource-based view takes the
firm as the fundamental unit of analysis
- outward
looking
in
- ricadian rents
- tautological
Anmerkungen:
- Priem and Butler (2001a)
Priem, R.L., Butler, J.E. (2001a), Is the Resource-Based Theory a Useful Perspective for Strategic Management Research? Academy of Management Review; 26, (1), pp. 22–40.Priem, R.L., Butler, J.E. (2001b), Tautology in the Resource-Based View and Implications of Externally Determined Resource Value: Further Comments. Academy of Management Review; 26, (1), pp. 57–66.
- Reality-managers
Anmerkungen:
- n business reality, senior managers are often not interested whether or not the RBV constitutes a real theory or not. Instead, they require guidance for achieving competitive survival. As Ludwig and Pemberton (2011) have shown, any firm operating in today's dynamic external business environments needs to focus on competitive survival and their capabilities.
- resource &
capability
distinction
Anmerkungen:
- Amit & Schoemaker[1] (1993), argues then that "resources"
can be divided into resources and capabilities where resources can be traded
between firms, but capabilities are more firm specific and are used to engage
the resources within the firm.
[1] Amit, R.; Schoemaker, P.J.H. (1993), Strategic
assets and organizational rent. Strategic Management Journal; 14, (1), pp.
33–46.
- Strategy implications
Anmerkungen:
-
·
Managers should build their
strategies on resources that pass the above tests. In determining what are valuable resources,
firms should look both at external industry conditions and at their internal
capabilities. Resources can come from
anywhere in the value chain and can be physical assets, intangibles, or
routines.
·
Continuous improvement and
upgrading of the resources is essential to prospering in a constantly changing
environment. Firms should consider industry
structure and dynamics when deciding which resources to invest in.
·
In corporations with a
divisional structure, it's easy to make the mistake of optimizing divisional
profits and letting investment in resources take a back seat.
·
Good strategy requires
continual rethinking of the company's scope, to make sure it's making the most
of its resources and not getting into markets where it does not have a resource
advantage. RBV can inform about the
risks and benefits of diversification strategies.
·
Collis, David J.; Montgomery,
Cynthia A. "Competing on resources:
strategy in the 1990s", Harvard
Business Review, v73, n4 (July-August, 1995):118 (11 pages).
- origins
Anmerkungen:
- Penrose (1959), (1959), The Theory of the Growth of the Firm, New York: Wiley.
Birger Wernerfelt in his article A Resource-Based View of the Firm (1984),
isolating mechanisms :.Rumelt, D.P., (1984), Towards a Strategic Theory of the Firm
- note
Anmerkungen:
- Which came first the RBV
(Wernerfelt 84) the Core competence of the Corporation article (1990)…… A better way of looking at it may be to say
that both ideas developed in parallel but competences might be thought of as
being made up from or based on underlying resources .
- Emergent
Anmerkungen:
- Minztberg definition of Perfectly Emergent Strategy
·
Consistency in action over time – in the absence
of intentions about it
- opportunistic
Anmerkungen:
-
·
Opportunism
– Future is unknown . Organisations must retain enough mental freedom to
grab unforeseen opportunities as they emerge. Keep an open mind to sense where
positive and negative circumstances are unfolding so that they can respond
rapidly to these new conditions- proactively riding the wave of opportunity,
using the momentum in the environment and/or the organisation to their
advantage. This ability to ‘play the field’ is an important factor in effective
strategy formation (Quinn 2002, Stacey 2001)
- adaptive
Anmerkungen:
- : “strategic learning” – implies learning what
works , taking one action at a time in search for that viable pattern or
consistency – unintended order. Respond to an evolving reality rather than
having to focus on a stable fantasy – enables management that cannot be close
enough to a situation or to know enough about the varied activities of its
organisation to surrender control to those who have the information current and
detailed enough to shape realistic strategies;
- reality of
organisation
decision
Anmerkungen:
-
Lindblon (1959) exposition of ‘the science of muddling
through’ argued that the range of options attainable at any time was
necessarily limited, and contrasted what he called the ‘branch’ method of
‘successive limited comparison’ with the ‘root’ method of comprehensive
optimization. Developed by Simon 1961 and cyert and march 1963-- deny that
organizations can sensibly be viewed as entities with personalities and goals
like individuals. More like Shifting coalitions in which conflicting demands
and objectives are constantly but imperfectly reconciled and all change is
necessarily incremental.-- reality of organizational dynamics
real
world strategies lie along a continumm btw the deliberate and the emergent
(Mintzberg, 1978; Mintzberg
and Walters 1985[kkg1] ).
An Organisation starts out with a strategy(itsintended strategy) from which
certain elements fall along the wayside during the Strategy implementation
(unrealised parts of the strategy), while new elements emerge (Emergent part of
the strategy) ---- regardless of how
well a strategy is planned, says Mintzberg, it will come to include an
unrealised as well as emergent element-à Mirrored by Whittington (2002) noting that strategy is a contested and
imperfectable practice
- Mintzberg:
Anmerkungen:
- “ clear goals do not exist…. The strategy making
process is characterised by the reactive solution to exisiting problems… the
adaptive organization makes its decisions in incremental, serial steps”
(mintzberg 1973) -- note:
In contrast “Planning involves anticipating
decision making….. a system of decisions… a process that is directed towards
producing more future states (Mintzberg 1973)
- describes types of strategies
Anmerkungen:
- Henry Mintzberg and James A. Walters – On strategies, Deliberate and Emergent (1985)
- planned
Anmerkungen:
- strategies- formal plans, precise intentions, formulated and articulate central leadership, backed by formal controls to ensure surprise free- implementation in benign, controllable or predictable environment.
- entrepreneurial
Anmerkungen:
- strategy originates in central vision- intentions exist as personal, unarticulated vision of a single leader---- able to adapt to new opportunities;; organisation under personal control of leader.
strategies relatively deliberate but can emerge
- ideological
Anmerkungen:
- strategies originate in shared beliefs. intentions exist as collective vision of all actors, inspirational form and relatively immutable, controlled normatively through indoctrination.
strategies rather deliberate
- umbrella
Anmerkungen:
- strategies originate in constraints: leadership in partial control of organisational actions-- defines strategic boundaries or targets within which other actors respond to own forces or to complex. perhaps also unpredictable environment.
Strategies partly deliberate, partly emergent,, and Deliberately emergent
- process
Anmerkungen:
- Strategies originate in process: leadership controls process aspect of strategy (hiring, structure etc) and leaves content to other actors :: strategies partly deliberate, partly emergent and delberately emergent
- unconnected
Anmerkungen:
- strategies originate in enclaves: actors loosely coupled to rest of organisation produce patterns in own actions in absence of, in direct contradiction to central or common intentions.
Strategies organisationally emergent == whether individually deliberate is for actors
- consensus
Anmerkungen:
- strategies originate in consensus. through mutual adjustment, actors converge on patterns that become pervasive in absence of central or common intentions ; strategies rather emergent
- imposed
Anmerkungen:
- originate from environment === environment dictates patterns in actions -- through direct imposition or through implicitly pre-empting or bounding organisational choice, strategies most emergent, thought may be internalised by organisation and made deliberate
- argues
Anmerkungen:
- Strategy
formation walks on two feet. One deliberate, the other emergent. Direct in
order to realise intentions while at the same time responding to an unfolding
pattern of action.
- gather support
Anmerkungen:
- Note
that major shifts in political and cultural landscape of an organisation will
incur resistance from people with vested interests. Getting things done in
organisation includes building coalitions , blocking rivals, convincing
wavering parties, confronting opposing ideas and letting things ‘sink in’ ,
while intentionally gradually building enough support to move
forward—Strategizing managers must understand the internal political and
cultural dynamics of their organisations and pragmatically shape strategy
depending on what is feasible, not on what is ideal (Allison 1971, Quinn 1980)
- flexible
Anmerkungen:
-
·
not unnecessarily committing themselves to
irreversible actions and investments. (beinhocker 1999, evans 1991)
if explicit, it commits, and thus creates inflexibility
- entrepreneurship
Anmerkungen:
-
·
diff people will have different strategic ides
and many will feel passionately about proving that their idea’ can ‘fly’à providing
individuals/firms, with autonomy to pursue innovative initiatives using—firms
use the energy of ‘intrapreneurs’ within the organisation instead of forcing
them to conform or start their own (Amabile 1998, Pinchot 1985) firms can
facilitate divergent projects simultaneously, increasing commitment or closing
them down as potential unfolds (Burgelman 1983, 1991, lyon, lumpkin and dess
2000)
- luck
- strategy Incremental
Anmerkungen:
-
sense making, reflecting, learning, envisioning,
experimenting, changing the organisation which cannot be neatly organised and
programmed. It is messy fragmented and piecemeal, much more like the
unstructured and unpredictable process of exploration and invention that like
the orderly process of design and production (Mintzberg 1990a; Quinn 1978,
Reading 3.2)
- unstable environements
Anmerkungen:
-
o
Incrementalism is recommended for unstable,
complex, dynamic contexts with high uncertainty, or environments factoring
discontinuity or change (Fredickson and Iaquinto, 1989, Fredrickson and
Mitchell 1984; Mintzberg 1990a)
- why not both
- learn to plan,
plan to learn
Anmerkungen:
-
o
Sound planning before hand may limit the amount
of incrementalism (and learning a firm faces later, while firms operating
without any specific planning may spend more time in experimentation and trial
and error, thus affecting performance
o
Instead of being Antithesis of Incrementalism,
Formal specific planning may be a necessary precursor to successful
incrementalism à
Stated (Mintzberg 1987) specific plans may represent the “intended” strategy
while inevitable incremental changes that follow as intentions become reality
represent the emergent or realised part of the firm’s deliberate strategy. Both
are necessary and neither is sufficient.
Note:
reject environment as a moderator of the planning/performance relationship – time
and effort is the moderator of importance.
– argue plan with formally, specifically, yet with flexibility and with
persistence. Learn to plan, plan to learn
- THE HONDA EFFECT
- US Motorcylce Market
- Richard Pascale VsBCG report
- interviews
Anmerkungen:
-
process of experimentation,
adaptation and learning. How organisation deals with miscalculation, mistakes
and serendipitous events outside its field of vision is often crucial to
success over time. – how the original
products of Japanese automotive manufactures badly missed the mark. – the
Japanese don’t use Strategy to describe a crisp business definition or
competitive master plan – they think more “Strategic Accommodation” Or
“Adaptive Persistence” . – belief that corporate directions evolve from
incremental adjustment to unfolding events – rarely in their view that one
leader produces a bold strategy that guides a firm unerringly – usually input
is from below. –“all things necessary
for successful function of organisation as an adaptive mechanism”
- bcg report
Anmerkungen:
-
BCG – says major factors – specialised production systems,
balancing engineering and market requirements, and the cost efficiency and
reliability of suppliers – exploiting economies of scale . Strategy model –
dedicated to being low price producer, utilizing dominant market position in
japan to force entry to US markets, expanding market by redefining a leisure
class, segment and exploit comparative advantage via aggressive pricing and advertisement
- defender
Anmerkungen:
-
Argues that the emergent approach favoured by Pascale and
mintzberg is helpful in emphasing the need to learn and adapt but is silent
about how to choose btw different possible strategies except via trial and
error. Often too time consuming and costly for companies faced with a here and
now struggle for survival. Rumelt approach brings out importance of innovators
who can come up with superior products or services but is less helpful in
showing how to find genuine innovators or how to assess the value of their
ideas
- managerial decision
Anmerkungen:
-
Probable non-starter” – such advice would be unhelpful,
maybe even irritating – “of course we should learn from experience, but we have
neither the time nor the money to experiment with endless fruitless nonstarters”
– states that “managerial view” rather than “historical View” defends himself
as co-author of BCG report
- out of the many emergent, which do you choose
- story of XEROX
Anmerkungen:
- , “Fumbling the Future: How Xerox Invented, Then Ignored, the First Personal Computer.”
- Debate
Anmerkungen:
- Recognises : Bounded rationality
- Deliberate
Anmerkungen:
-
Minztberg definition:
Perfectly Deliberate Strategy: Exited precise intentions in the organization,
articulated in a relatively concrete level of detail (no doubt about what was
desired before any actions were taken Common to virtually all actors – either shared
as their own or accepted from leaders Realised exactly as intended – no external force
(market, technological, political etc)
- even if future is
uncertain: note
Anmerkungen:
-
The business world is
too complex ever to be adequately described by any model .
Typically a model/theory is based on a previous experience or some incompletely
articulated view of competitive behaviour or supplier response. Merit of models
= explicit process of deductive reasoning, spells out assumptions on which it is based,
identifies those features of reality to which conclusion may be sensitiveà reinforce or reject
initial judgement, facilitate a better appreciation of what it involves
- seen doing something
- mangers not up to "luck"
Anmerkungen:
- managers cannot afford to count on their good
fortune or skill at muddling through. à Implementation must be secured by detailing the
activities to be undertaken, assigning responsibilities to managers and holding
them accountable for achieving results
- encourages long term
thinking & commitment
Anmerkungen:
- take
a long term view are stimulated to prepare for, or even create, the future
(Ackoff 1980) Instead of wavering and opportunism, strategic planning commits
the organisation to a course of action and allows for investments to be made at
the present that may only pay off in the long run (Ansoff 1991; Miller and
Cardinal 1994)
- rationalism
- Critics
- successful firm did not go
through deliberate strategy
Anmerkungen:
-
Successful firms often seem to have achieved their position
without going through the process of analysis, formulation and implementation
that the rationalist school implies. à
story of honda’s attack on US cycle market
- Future is uncertain
- not suitable for innovation
Anmerkungen:
-
Believe that planning is less suitable for
non-routine activites – that is for doing new things. Planning is not
appropriate for innovation (Hamel, 1996; kanter 2002)
n
Novel insights and created ideas cannot be
generated on demand, but surface at unexplected moments and places.
n
Therefore managers must move incrementally
letting their novel ideas crystallize over time, and increasing commitment as
ideas gradually prove their viability in practice.
Demands that managers behave not as planners but
as ‘inventors’ – searching, experimenting, learning doubting and avoiding
premature closure and lock-in to one course of action (Stacey 1993 Beinhocker
1999)
- which is inherently subversive
Anmerkungen:
-
innovation is inherently
subversive, rebelling against the status quo and challenging those who are
emotionally, intellectually or politically wedded to the current state of
affairs. Creating new strategies involves confronting people’s cognitive maps,
questioning the distribution of power within organisation (Hamel 1996, Johnson
1988) à
none of these processes can be conduced in an orderly fashion, let alone be
incorporated into a planning system. – move incrementally, gradually moulding
the organisation into a satisfactory form
- Strategic problems are Wicked
Anmerkungen:
-
n
Full analysis of wicked problem is impossible
n
Problems cannot be simply recognised and
analysed but can be interpreted and defined in many ways depending on how the
manger looks at it – managers must search for new ways for understanding old
problems and must be aware of how others are reinterpreting what they see
(Liedtka 2000, Smircich and Stubbart 1985)
- knaggs law
Anmerkungen:
-
n
Knaggs law – the more complex a plan, the larger
chance of failure. Incrementalists argue that it is wise to tackle sub-problems
individually and gradually blend these solutions into a cohesive pattern of
action
- interactive
Anmerkungen:
-
n
Wicked problems are interactive – as soon as
organisation implement a plan, actions will induce counteractions . customer
react, competitors change behaviour, suppliers take different stance ,
regulatory agency comes into the picture
etc etc[kkg1]
[kkg1]Does
this mean that your planning cannot take these into account?
Think game theory
Limited but possibly viable (with its major flaws of
course)
- bypass learning
- planned
- direction
Anmerkungen:
- without
objectives and plans, organisations would be adrift. People in organisations
would not know what they were working towards and therefore would not be able
to judge what constitutes effective behaviour (e.g ANsoff 1965, Chakravarthy
and Lorange 1991)
- commitment
Anmerkungen:
-
·
allow organisations to mobilize themselves and
dare to take actions that are difficult to reverse and have long payback period
(E.g Ghemawat 1991, Marx 1991)
- programming
Anmerkungen:
- - Having
a plan – enables organisations to run with clockwork precision, reliability and
efficiency of a machine. Activities might other be plagued by poor
organisation- inconsistencies, redundant routines, random behaviour, helter
skelter fire fighting and chaos can be programmed and controlled if plans are
drawn up (Grinyer et al.. 1986; steiner , 1979)
- calculated
- coordination
Anmerkungen:
-
·
An organisation-wide master plan can ensure that
differences of opinion are ironed out and one consistent course of action is
followed throughout the entire organisation, avoiding overlapping , conflicting
and contradictory behaviour (Ackoff 1980, Andrews 1987)
- optimisation
Anmerkungen:
- Planning
ahead can consider all available information and consciously evaluate all
options available- This allows managers to choose the optimal course of action
before committing resources + Documented plans permit corporate level managers
to compare courses of action proposed by various business units and allocate
scarce resource to the most promising initiatives (Ansoff and mcdonnel 1990;
bower 1970)
- Ansoff
- scenario planning?
- simplest: fit btw external possibilites and internal capabilities
- history
- Phelip Selznick 1957 Leadership in administration
- Distinctive competence
- internal state with external expectations
- alfred chandler's strategy and structure 1962
- use both I.A and RBV
Anmerkungen:
- perhaps not feasible to evaluate the attractiveness of an industry independent of the resources a firm brings to that industry. It is thus argued (Werner 1984)[6] that this theory be coupled with the Resource-Based View (RBV) in order for the firm to develop a much more sound strategy. It provides a simple perspective for accessing and analyzing the competitive strength and position of a corporation, business or organization.
Werner Felt, B. (1984), A resource-based view of the firm, Strategic Management Journal, Vol. 5, (April–June): pp. 171-180
- Structure follows strategy
- Classical approach
- alfred chandler 1962
"structure follows Strategy"
- Diversification
(Strategy)
- Divisionalisation
(structure)
Anmerkungen:
- From functional structure
- Multidivisional
("M-Form")
- pros and cons
Anmerkungen:
- Functional: Focused business, specialisation of skills, for control, but inflexible, narrow and bureaucratic
Divisional: for diversified business. changing portfolios, for accountability. BUT low synergy, top-down, short-termist
- reason
- technical expertise
- power
- Why did Dupot
diversify after
great war:
Anmerkungen:
- although monopoly in late 19th century, Dupont's business highly variable because of wartime demand. 1912, gov broke up Dupont into 3 separate companies because of public hatred of monopolies. Following end of WW1, Dupont had excess capacity that was not being utilised. Industrial research into explosives led to patents in innovative consumer products like artificial leather and varnishes.
- Strategy follows structure
- constrained by structure
Anmerkungen:
-
Recognise that in reality structure is the result of a
complex play of variables other than strategy ; Culture, values, past and
present functioning of the organisation, its history of success and failure,
the psychological and sociological consequences of technological development,
etc.
The environment conditions strategies and structures whilst
they in their turn shape the environment through the weight of the
organisation’s resources
I.e both feed off each other
- constraint by size of organisation and dynamic its market
- note: subject
to "Managerial
Fashions"
- problem with copycat
Anmerkungen:
-
Causation or correlation – cosmetic/peripheral or
fundamental. Successful strategies are necessarily individual to the particular
firms which adopt them
Link in a chain? conditions contigent on that particular firm. no 2 firms are identical
- problem failure
- strategy or implementation?