General Management 1

1. 3 Reasons for Growth of the Firm
   1. Transaction Cost Theory: Ronald Coase 1930s: Why Do Firms Exist

      Annotations:

      • 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.  
      1. Search Costs, Negotiation Costs, Monitoring Costs
      2. Market - No perfect information & Costs to transaction
      3. Long Term Contracts are Prefered
      4. Note: Economics: Coase
      5. Oliver Williamson 1975 & 1985
         1. Transactional cost Approach
            1. Bounded rationality
            2. Transactions Types
               1. Uncertainty
               2. Frequency of transaction
               3. Degree of transaction specific investment
               4. Asset Specificity*

                  Annotations:

                  •    : 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.   
            3. only if Cost of External Tranasctions > Internal cost of monitoring
   2. Contracting Theory
   3. Environment
      1. Alfred Chandler's Framework strategy + structure + systems = shape corporate capacity.

         Annotations:

         • Chandler A.D(1961) Strategy and Structure: Chapters in the History of Industrial Enterprise Technical advance & Organisational innovation 
         1. (External) Environment Factors
            1. Technology
            2. Market Conditions
            3. Government Regulation
            4. Rivals

               Annotations:

               • added in by Hannah 1995, john 1997, boyce 1995a
            5. Cultures/ Social Forces

               Annotations:

               • added in externally
         2. Corporate Capacity

            Annotations:

            •  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  
            1. Strategic Capacity

               Annotations:

               • expertise in shifting resources (personnel, capital and plant) from business fields that expand slowly to others that offered high growth opportunities 
            2. Functional Capactiy

               Annotations:

               •  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)   
            3. Operating Capacity

               Annotations:

               • skills used in each functional area
            4. (refinement) incentives , culture and reputation
         3. Rise of Managerial Capitalsim

            Annotations:

            • Scale and Scope- Alfred Chandler    
            1. firms grew in size

               Annotations:

               • NOTE: Reasons for Integration also falls under transaction cost theory
               1. First Industrial Revolution

                  Annotations:

                  • 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)
                  1. Spurred By Technology
                     1. Railroad/Steam engine

                        Annotations:

                        • On Schedule also is one of the impacts of the railroad. and is vital for business **Dependable transportation
                        1. New Markets-Distribution- Branding -Marketing
                           1. Coordination- managers*

                              Annotations:

                              •    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).   
                           2. Economies of scope

                              Annotations:

                              • Arising form marketing and advertising
                     2. Communications - The Telegraph
                     3. Production Methods
                        1. Economies Of Scale
                     4. Lower Costs:
                        1. Consumer Culture
               2. Mergers
                  1. Forward integration

                     Annotations:

                     • own sales networks to demonstrate their product functions, provide after-sales services and formulate instalment plans for customers. 
                     1. Reasons:
                        1. Lower costs - administrative coordination
                        2. existing markets cannot keep up -Overproduction

                           Annotations:

                           • intermediaries, e.g. independent retailers and wholesalers, to distribute and sell their products to customers
                           1. MArketing
                           2. Mass production & Continuous Production

                              Annotations:

                              • Industries adopting Continuous-process machinery. –American tobacco, Diamond Match, Quaker Oats, Pillsbury flour, Campbell soup, Heinz. Borden, Carnation , Libby, Proctor & Gamble, Eastman Kodak 
                        3. Specialised products

                           Annotations:

                           • sewing machines, elevators and automobiles
                           1. Independent retailers do not posses technical knowledge
                              1. Repair
                                 1. MAintain
                              2. Demo
                              3. Unwilling to extend credit (instalment plans)
                  2. Backward integration
                     1. Assured of parts
               3. Learning Curve-Economies of scale

                  Annotations:

                  •    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.   
                  1. STANDARDISED PARTS
                     1. Assembly Line
            2. Financial Development
               1. Limited Liability

                  Annotations:

                  • 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.
               2. Stock Market Development
                  1. Expansion requires Large Capital
                     1. separation of ownership and management
            3. Different in Different Countries

               Annotations:

               • Contexts matter to the institutions The Social, Political, Economic and Legal
               1. America
                  1. competitive managerial capitalism model
                     1. separation of management and ownership
                     2. More Confrontational than Germany & UK
                        1. More price wars & Undercutting
                           1. incentive to keep lowering Cost of production
                        2. No cartels : Laws

                           Annotations:

                           • 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.  
                           1. Instead growth thorough: Mergers & Acquisitions

                              Annotations:

                              •    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.   
                     3. Note: Population

                        Annotations:

                        •    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.   
                        1. Large and dispersed
                  2. 1st
               2. Germany
                  1. cooperative managerial capitalism model
                     1. Separation of management and ownership
                        1. Managers Invested in 3 prong approach

                           Annotations:

                           • 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
                        2. More long term profits
                     2. More collaboration btw Firms than the US

                        Annotations:

                        •    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.   
                        1. UK
                           1. Law : “combinations of restraint of trade illegal”

                              Annotations:

                              • this precedent was not used to bring action by consumers or competitors who resented market power
                              1. contractual agreements and collusive behaviour between firms difficult to enforce

                                 Annotations:

                                 •    . 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).   
                           2. Note: Population
                              1. Dense and small

                                 Annotations:

                                 • 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). 
                        2. Germany
                           1. no anti-monopoly legislation

                              Annotations:

                              •    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).   
                           2. Strong incentive btw firms to coorporate

                              Annotations:

                              • a strong incentive to cooperate in their home market because they were rapidly expanding into foreign markets in continental Europe
                              1. Strong competition from foreign firms abroad

                                 Annotations:

                                 •    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.   
                  2. 2nd
               3. UK

                  Annotations:

                  • 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).  
                  1. a personal capitalism model
                     1. family-owned and family-controlled

                        Annotations:

                        • 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.   
                        1. constraint on the growth of British firms.

                           Annotations:

                           • 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.  
                        2. sights on more stable profits
                     2. More Collaboration
                  2. lagged far behind
               4. Japan
               5. According to Chandler (1990)

                  Annotations:

                  •    Chandler, A., 1990. Scale and Scope: The Dynamics of Industrial Capitalism. Cambridge, MA: Harvard University Press.   
               6. Effect of the Railroad & Communication
                  1. UK
                     1. already had reliably transport system + small country

                        Annotations:

                        •    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.   
                  2. US & Germany
                     1. Geographically huge
                        1. big effect in distribution channels

                           Annotations:

                           •    , 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).   
                           1. firms invest in large scale production
                              1. easily sell off in the many markets
                     2. Railroad Companies first large enterprise

                        Annotations:

                        •    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).   
                        1. diffusion of managerial knowledge
               7. Educational Institutes (Business Schools)

                  Annotations:

                  • Providing trained managers so that firms can continue growing
                  1. US

                     Annotations:

                     • 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)
                     1. equal of both producer & consumer industry

                        Annotations:

                        •    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.   
                  2. Germany

                     Annotations:

                     • 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
                     1. Invested heavily into R n D

                        Annotations:

                        • 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. 
                        1. More than US and UK
                        2. Explains why mainly Producer Goods

                           Annotations:

                           • 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. 
                  3. UK
                     1. roughly only 100 years after US

                        Annotations:

                        • 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.     
                     2. Mainly Consumer goods (not requiring R and D)

                        Annotations:

                        • 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. 
               8. FUNDING

                  Annotations:

                  •    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.   
            4. 3 pronged investment - Distribution, Management & Production
            5. Laws - antirust laws

Annotations:

• “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)

1. Definition: Corporate Governance

   Annotations:

   • The control Mechanisms to prevent self-interested managers from taking actions detrimental to shareholders and stakeholders
   1. Internal

      Annotations:

      • Board of Directors, Empolyees etc
   2. External

      Annotations:

      • State Regulation. Investors
   3. Cultural Values

      Annotations:

      • Media, customers, unions 
2. PRINCIPLE/AGENT PROBLEM

   Annotations:

   • First person to term the principle agent problem is  Stephen Ross (1973) paper- The economic theory of agency:  a Principal's problem
   1. Ownership around the world

      Annotations:

      • U.S -    widely held Germany -   Family pyramids, corporate Japan -   Corporate UK- widely held institutions-pension funds and asset managers.
      1. Anglo-american outsider system

         Annotations:

         • outsider system:  stock market flotations, dispersed ownership, weak relations with banks and other parties
      2. Continental Europe Insider system

         Annotations:

         • Concentrated ownership, fewer flotations, stronger relations with banks and other parties
   2. Purpose of Executive Compensation
      1. Attract & Retain skills
      2. Motivate, consistent with strategy & risk profile of organisation
      3. Discourage Self interested behaviour
      4. Possbile Compensations

         Annotations:

         • 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)
         1. Stock options
            1. problems

               Annotations:

               • 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
            2. Benefits

               Annotations:

               • encourage investment in "risky" positive projects, Defer income(vesting) Options increase in value with stock price
         2. How to measure performance of Executives
            1. who sets the pay?

               Annotations:

               • 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.   
            2. problem with Pay

               Annotations:

               •    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)   
               1. Pay Distribution
                  1. inequality and jealously

                     Annotations:

                     •    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)   
                  2. coorporative

                     Annotations:

                     •    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)   
               2. brain drain
               3. overconfidence

                  Annotations:

                  •    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)   
            3. Averages increases over the years

               Annotations:

               • pay setters: just set above average pay, assuming CEO is above average. Over time, averages rises
   3. Monitoring in Public Companies- Public good

      Annotations:

      •    ·        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  
   4. Mechanisms

      Annotations:

      •   Hart. O (1995) “Corporate governance: Some theory and implications” Economics Journal Vol 105,No. 430 pp 678-698  
      1. Board of directors
         1. Executive and non-executive
            1. Effectiveness?

               Annotations:

               • 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  
               1. principle/agent in itself - govern itself?
               2. Owing positions
               3. non-executive have time?
      2. Proxy fights

         Annotations:

         • 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.   
         1. Effectiveness?
            1. Information: freerider problem
            2. voting turnout : some believe their vote doesn't matter
      3. Hostile Takeovers

         Annotations:

         • Reap gains from underperforming company with the implementation of new management   
         1. problem attached

            Annotations:

            •    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   
      4. Financial Structure
         1. Choice of debt

            Annotations:

            •     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   
   5. Managerial Discretion
      1. Straight out expropriation

         Annotations:

         • 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
      2. Pet Projects/entrenchment

         Annotations:

         • 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). 
   6. Solutions
      1. incentives/ mechanism design
      2. Legal Protection
      3. Large shareholders: incentive to monitor

         Annotations:

         • (shleifer and Vishny (1986) 
         1. may have interest conflicts again
      4. Legal protection of investors and some form of concentrated ownership are essential elements

         Annotations:

         •    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.   
      5. Monitors:
         1. Auditors:
            1. problem;:
               1. must be independent
         2. Independent - must really be independent
      6. German Model:

         Annotations:

         •    “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.   
3. Corporate Governance around the world
   1. US
      1. Confrontational Appraoch

         Annotations:

         •    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   
      2. Key : hostile takeover action.

         Annotations:

         • 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).
   2. Japan
      1. lifetime employment
         1. problem

            Annotations:

            • 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.  
      2. Amakudari,

         Annotations:

         • ‘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.  
         1. gov. officials join private companies after retirement
   3. Germany
      1. shareholder but also others
         1. Workers
            1. Worker representatives on boards
               1. just a figure head? Do they have the skills
                  1. if they do learn the trade, Are they 'management conversions then?'
         2. BAnks
      2. Large institutional Shareholders

         Annotations:

         • . 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. 
      3. Cross sharing of major German Companies

         Annotations:

         • There are many instances of cross-shareholding between major German companies, forming a “web of interlocking shareholdings and directorates amongst companies” (Dore, 1999)
      4. cooperative model, where there is a collegiate relationship between the Management Board and the Supervisory Board

         Annotations:

         •    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).   
         1. discourages hostile takeovers

            Annotations:

            •    Jenkinson found that up to 1992, there were only 4 hostile takeovers in post-World War Two Germany (Jenkinson, 1992).   
         2. Able to Get advice from stakeholders
            1. Financial advice from banks etc
         3. Leverage on institutional reputations also

            Annotations:

            • to gain cheaper access to capital or expand into new markets through the board members’ network.

1. Definition

   Annotations:

   • "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
   1. Long term
2. Industry structure analysis
   1. Porter's 5 forces Model

      Annotations:

      •   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)
      1. Porter was an economist

         Annotations:

         • porter draws from Industrial Organisation - developed by bain and maison and chamberlin
         1. Monopoly power
            1. Focus on industries where 5 forces are favourable
            2. influence forces
               1. Consolidating competition
               2. Investing in entry barriers
               3. Differentiating your products
            3. Position
            4. Anticipate change
      2. 5 forces

         Annotations:

         •    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   
         1. Threat of Entry

            Annotations:

            •    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   
         2. Bargaining power
            1. Customers

               Annotations:

               •     (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   
            2. Suppliers

               Annotations:

               •     (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   
         3. Substitute products
         4. Jockeying for position (mature)

            Annotations:

            •    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”   
      3. Strategic Positioning

         Annotations:

         • Porter (1996) What is Strategy 
         1. argues Competitive Advantage

            Annotations:

            • 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.
            1. Porter's Generic Strategy
               1. low cost/cost leadership

                  Annotations:

                  • 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. 
               2. Differentiation

                  Annotations:

                  • 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
               3. focus(Scope)

                  Annotations:

                  • narrow market segments-- concentration of knowledge and competences -- offerings are differentiated in focal market or overall cost leadership focused
               4. fail-caught in the middle

                  Annotations:

                  • If a firm engages in each generic strategy but fails to achieve any of them is 'stuck in the middle'
               5. criticisms

                  Annotations:

                  • 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
               6. More specific:

                  Annotations:

                  • What is strategy (1996) - Michael Porter
                  1. Variety Based Positioning

                     Annotations:

                     • 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 
                  2. Needs based positioning

                     Annotations:

                     •    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.    
                  3. Access Based Positing

                     Annotations:

                     •    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)   
                  4. Sustainability
                     1. Trade-offs

                        Annotations:

                        •    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 
                  5. note- porter then combines this with Fit and Hierarchy of Sources, Number of distinct sources & constant improvement

                     Annotations:

                     •    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.    
                     1. Value chain

                        Annotations:

                        • 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.  
                     2. 3 types of Fit

                        Annotations:

                        •    ·        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.
                        1. major contribution

                           Annotations:

                           •    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.    
      4. CRITICISMS of PORTER 5 Forces

         Annotations:

         • 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.
         1. Difficulties
            1. Technical
               1. Industry definition
               2. Different evaluations of key factors
            2. Philosophical
               1. Zero-Sum- Arm Wrestling
               2. Position, not management
         2. How much does industry matter -Rumelt (1991)

            Annotations:

            • 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.
            1. rebuttle
               1. McGahan and Porter (1997) How much does industry matter, Really?

                  Annotations:

                  • 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.
         3. 1992 Bader-Fuller and Stopford’s research “Maturity is a state of mind”
         4. static view of industries

            Annotations:

            •    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 
            1. note the historical timeframe:

               Annotations:

               • 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.    
         5. porter's assumptions

            Annotations:

            •    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)   
         6. unit of analysis
         7. inward looking out
         8. Different Concepts of competitive advantage

            Annotations:

            • 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)
         9. monopoly rent
         10. reality
   2. Assumptions

      Annotations:

      • 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)   
3. Resource Based View

   Annotations:

   • The RBV framework combines the internal (core competence) and external (industry structure) perspectives on strategy
   1. Core Competence

      Annotations:

      •   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,   
      1. Identification

         Annotations:

         •    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.   
      2. specific set of skills/ production techniques-- deliver additional value to the customer-- enable organization to access a wide variety of markets.
         1. developed through continuous improvements
         2. Not imitable
      3. portfolio of competencies
         1. Products based on them
   2. Valuable Resource

      Annotations:

      • 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.   
      1. Competitive advantage

         Annotations:

         •   Barney 1991 : firms resources and sustained competitive advantage   link with Barney 1986- organisational culture: can it be a source of competitive advantage
         1. Rare among Competition
         2. Imperfectly immitable

            Annotations:

            • 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).
            1. Isolating Mechanism

               Annotations:

               • 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.
               1. means: barriers to imitation
            2. Casual Ambiguity of Competitive Advantage

               Annotations:

               • which occurs if the source from which a firm’s competitive advantage stems is unknown (Peteraf, 1993, p182; Lippman and Rumelt, 1982, p420). 
         3. No substitutes

            Annotations:

            •  Cannot be strategically equivalent substitutes for this resource that are valuable but neither rare or imperfectly imitable  
         4. Paradox

            Annotations:

            •  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)   
      2. test

         Annotations:

         •    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?   
      3. hetrogeneity of resources
      4. CRITICISMS of RBV

         Annotations:

         • 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]

         1. Annotations:

            •    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)   
         2. unit of analysis

            Annotations:

            • . The industrial analysis model considers the industry as a unit, while the resource-based view takes the firm as the fundamental unit of analysis
         3. outward looking in
         4. ricadian rents
         5. tautological

            Annotations:

            • 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.
         6. Reality-managers

            Annotations:

            • 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.
      5. resource & capability distinction

         Annotations:

         •  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.   
   3. Strategy implications

      Annotations:

      •    ·        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).   
   4. origins

      Annotations:

      • 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
      1. note

         Annotations:

         • 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 . 
4. Emergent

   Annotations:

   •  Minztberg definition of Perfectly Emergent Strategy  ·        Consistency in action over time – in the absence of intentions about it   
   1. opportunistic

      Annotations:

      •    ·        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)   
   2. adaptive

      Annotations:

      • :  “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; 
   3. reality of organisation decision

      Annotations:

      •    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                  
      1. Mintzberg:

         Annotations:

         •    “ 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)   
         1. describes types of strategies

            Annotations:

            •   Henry Mintzberg and James A. Walters – On strategies, Deliberate and Emergent (1985)  
            1. planned

               Annotations:

               • 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.
            2. entrepreneurial

               Annotations:

               • 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
            3. ideological

               Annotations:

               • 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
            4. umbrella

               Annotations:

               • 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
            5. process

               Annotations:

               • 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
            6. unconnected

               Annotations:

               • 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
            7. consensus

               Annotations:

               • strategies originate in consensus. through mutual adjustment, actors converge on patterns that become pervasive in absence of central or common intentions ; strategies rather emergent
            8. imposed

               Annotations:

               • 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
         2. argues

            Annotations:

            • 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.
      2. gather support

         Annotations:

         • 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)
   4. flexible

      Annotations:

      •    ·        not unnecessarily committing themselves to irreversible actions and investments. (beinhocker 1999, evans 1991) if explicit, it commits, and thus creates inflexibility  
   5. entrepreneurship

      Annotations:

      •    ·        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)   
   6. luck
   7. strategy Incremental

      Annotations:

      •    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)   
   8. unstable environements

      Annotations:

      •    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)    
   9. why not both
      1. learn to plan, plan to learn

         Annotations:

         •    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   
   10. THE HONDA EFFECT
       1. US Motorcylce Market
       2. Richard Pascale VsBCG report
          1. interviews

             Annotations:

             •    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”   
          2. bcg report

             Annotations:

             •    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   
             1. defender

                Annotations:

                •    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   
                1. managerial decision

                   Annotations:

                   •    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   
                   1. out of the many emergent, which do you choose
                      1. story of XEROX

                         Annotations:

                         • , “Fumbling the Future: How Xerox Invented, Then Ignored, the First Personal Computer.”
          3. Debate

             Annotations:

             • mintzberg,michael goold
   11. Recognises : Bounded rationality
5. Deliberate

   Annotations:

   •    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)  
   1. even if future is uncertain: note

      Annotations:

      •    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  
      1. seen doing something
         1. mangers not up to "luck"

            Annotations:

            •  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 
      2. encourages long term thinking & commitment

         Annotations:

         • 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) 
   2. rationalism
   3. Critics
      1. successful firm did not go through deliberate strategy

         Annotations:

         •    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   
      2. Future is uncertain
      3. not suitable for innovation

         Annotations:

         •     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)   
         1. which is inherently subversive

            Annotations:

            •    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   
      4. Strategic problems are Wicked

         Annotations:

         •    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)  
         1. knaggs law

            Annotations:

            •    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   
         2. interactive

            Annotations:

            •    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)   
      5. bypass learning
   4. planned
      1. direction

         Annotations:

         • 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)
      2. commitment

         Annotations:

         •    ·        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)   
      3. programming

         Annotations:

         • - 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) 
   5. calculated
      1. coordination

         Annotations:

         •    ·        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)   
      2. optimisation

         Annotations:

         • 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) 
   6. Ansoff
   8. scenario planning?
   9. simplest: fit btw external possibilites and internal capabilities
   10. history
       1. Phelip Selznick 1957 Leadership in administration
          1. Distinctive competence
          2. internal state with external expectations
       2. alfred chandler's strategy and structure 1962
6. use both I.A and RBV

   Annotations:

   • 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
7. Structure follows strategy
   1. Classical approach
      1. alfred chandler 1962 "structure follows Strategy"
         1. Diversification (Strategy)
            1. Divisionalisation (structure)

               Annotations:

               • From functional structure
               1. Multidivisional ("M-Form")
               2. pros and cons

                  Annotations:

                  • 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
               3. reason
                  1. technical expertise
                     1. power
         2. Why did Dupot diversify after great war:

            Annotations:

            • 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.
8. Strategy follows structure
   1. constrained by structure

      Annotations:

      •    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   
   2. constraint by size of organisation and dynamic its market
9. note: subject to "Managerial Fashions"
10. problem with copycat

    Annotations:

    •    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
11. problem failure
    1. strategy or implementation?