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The concept of value is central to economics and to the understanding of competitive advantage. The theory of value in economics deals with the determination of final market prices (as opposed to factor prices which are determined by the theory of distribution). If you buy a car for $15000 but it is worth top you in terms of the services it renders $20000, then you are better off by $5000. This is known as the consumer surplus. [ABSTRACT FROM AUTHOR]

Competitive advantage is about creating value both for the customer and for the firm. The first task is to define what this means in practice. Thus value to the customer can be crystallised as 1. firm's ability to position a product better/different than competitors 2. firm's ability to persuade customers to recognise, purchase and value the difference. Value to the firm can be defined as 1. firm's ability to create and sustain capabilities that underpin the positioning at manageable cost premiums 2. firm's ability to run (the rest of) the business efficiently and at best practice levels. These definitions can be operationalised according the schema shown in Figure 1. The four elements of valued are coded as Positioning, Customer Persuasion, Capability, and Efficiency. [ABSTRACT FROM AUTHOR]

In the long-running argument about the sources of profit economists have argued over the role of management (Alfred Marshall), risk-bearing (the Victorian classical economists), and change (J.B. Clark). The American economist Frank Knight argued that the cause of profit was uncertainty: profit arises not from change itself but from the unpredictability of change. In the absence of risk every factor of production would have some minimum price at which it could be induced to supply. In the presence of uncertainty these minimum supply prices are increased by a "risk premium". In Knight's view profits are earned by entrepreneurs (and firms) for bearing the brunt of uncertainty i.e. from unpredictability and from imperfect foresight. [ABSTRACT FROM AUTHOR]

Hofer's (1976) classic article on turnarounds draws the distinction between operating and strategic forms. Operating turnarounds are about 'doing things differently', so that the firm's efficiency can be improved. This may be achieved by a fundamental change in a firm's operations, by using advanced manufacturing technology, for instance. Strategic turnarounds are about 'doing different things'. [ABSTRACT FROM AUTHOR]

The significance of the economics of information is attributed to two key factors: the continuing reduction in cost of information technology hardware products and the scale effect of global standards. Gordon Moore, founder of Intel Corporation, created a corporate empire on his eponymous Moore's Law that states that every year and a half processing power doubles while costs hold constant. Moore's foresight proved prophetic and his Law is expected to remain valid for the foreseeable future. Computer memory, storage capacity and telecommunications bandwidth are all going through a similar pattern of cost reduction. [ABSTRACT FROM AUTHOR]

Sustainability refers to the extent to which competitive advantage can be maintained over time. It may be regarded as normal that competitive forces will serve to erode competitive advantage over time through imitation and /or innovation. When the sources of competitive advantage resist competition then the competitive advantage is said to be sustainable. Positional advantage arises from the ability of a firm to locate itself in a position within an industry where it can resists the forces of competition and erect firm-specific entry barriers from which it can deliver a superior value proposition to customers and make above-average profits. [ABSTRACT FROM AUTHOR]

How do strategies come about in practice? Strategy is essentially a practical subject and strategic decisions can be very individual in character. But we have also seen that the direction and purpose of the organization is very much the province of the general management team. But, on the other hand the general managers cannot know everything. [ABSTRACT FROM AUTHOR]

Strategy is concerned with fashioning success in the long term, hence there is a performance dimension to the market-based view and the resource-based view. This is demonstrated in figure 1 which shows how the real economy of the firm (the creation of resources and capabilities and the positioning within product markets) interacts with the financial economy of the firm. The top line shows schematically the transformation of 'raw' assets (people, knowledge, and money) into resources and capabilities customised to create goods and services for the chosen product markets. The 'output' of the real economy is cash flow conditioned by the scale of the competitive advantage achieved. [ABSTRACT FROM AUTHOR]

The study of the processes of strategic management (often summarised as strategy process analysis) is descriptive rather than prescriptive. - it contains no suggestion that because such processes exist, therefore this is how they should be managed. Conversely, however, the prolonged survival of some types of strategic process implies a sustainable value and a reality of strategic development that has to be taken into account in any strategy-making endeavour. Some of the key facets of strategy processes are described in this entry and other entries can be consulted for more detailed explanations. It is important to distinguish between intended strategy and realised strategy. This is particularly important in considering the fit between the external environment and strategy - it is likely that the fit with realised strategy is the more powerful. [ABSTRACT FROM AUTHOR]

Strategy has always dealt with the future, usually a long-ish term rather uncertain future for which preparations have to be made, plans established, and actions taken together with provision for alternative actions should the future turn out to have unexpected characteristics. The word strategy itself derives from the Greek ("strategos") meaning leader reflecting military roots where strategy is concerned with "the science and art of military command as applied to large scale combat operations"1. Orientation to the future is an essential ingredient in the idea of strategy and we can best explore this by looking at the key characteristics of strategic decisions. [ABSTRACT FROM AUTHOR]

Routines are embedded, sanctioned behaviours. They adjust and evolve over time (Nelson and Winter, 1982). Routines as a concept are a way of expressing the conjunction of structure and process. In practice they are used to progress forward the administrative, operational and strategic activities of an organization. Strategizing routines can be thought of as the natural, organic way in which an organization carries out its strategic thinking, strategic planning and the execution of strategic actions. [ABSTRACT FROM AUTHOR]

Strategising has become a common word in the strategy lexicon although it does not merit an entry in conventional dictionaries of the English language. In its simplest form it means the processes in the firm by which strategy is shaped (see: Strategy and Strategy-making) - thus how are goals decided, what should be the scope of the firm, what competitive advantage should be constructed and how can the logic be turned into practice. Strategising has often been linked with strategic planning and has thus attracted the usual array of criticisms (Mintzberg, 1994 and Starbuck, 1992). Following Starbuck's approach these criticisms can be summarised under four main headings. 1. Planning is typically a formal process but formalisation of planning undercuts its potential contributions. 2. Nearly all managers misperceive both their firms and their market environments. 3. No-one can forecast accurately (enough) over the long term and thus strategy's consequences cannot be anticipated. 4. There is good reason to doubt that most firms will ever gain high profits from formal strategic planning. [ABSTRACT FROM AUTHOR]

It has been argued that US firms seeking strategic fit have often found themselves overtaken by firms, especially the Asian conglomerates, driven by long-term visions of the future, which are then relentlessly and ruthlessly pursued with strategic intent. Companies like CNN, Honda, NEC and Sony have succeeded (according this argument) because of their sustained obsession with achieving global dominance in their industries. This obsession has been labelled strategic intent (Hamel & Prahalad, 1989). The significance of this is that the intent of these companies was out of proportion to their existing resources and capabilities. [ABSTRACT FROM AUTHOR]

There is no doubt that globalisation and internationalisation have, as ideas, fired the imagination, even though the words themselves are cumbersome and awkward. Figure 1 portrays globalisation in a broad economic context. 'Global' refers broadly speaking to an entwined web of economic forces. The world dimension indicates the extent to which there is economic interdependence between countries, as indicated by the cross-border flows of goods, services, capital and knowledge. [ABSTRACT FROM AUTHOR]

Economists see the firm as a bundle of productive resources where resources are defined as inputs into the firm's operations so as to produce goods and services. In this view resources are generic and specific categories are not suggested. But typical examples include patents, capital equipment, and skilled and unskilled human resources. Strategists go further and distinguish capabilities from resources. A capability is the ability to perform a task or activity that involves complex patterns of co-ordination and cooperation between people and other resources. [ABSTRACT FROM AUTHOR]

A network is a set of connections (links) between nodes. A two-way network allows the links to be operated in both directions whereas a one-way network has distinct directionality. Two-way networks include railroads and telephone systems. Figure 1 shows a simple star network where A can communicate with B through a switch S. [ABSTRACT FROM AUTHOR]

"Firms that compete in markets where network externalities are present face unique trade-offs regarding the choice of a technical standard. Adhering to a leading compatibility standard allows a firm's product to capture the value added by a large network. However, simultaneously the firm loses direct control over the market supply of the good and faces (direct) intra-platform competition. Alternatively, adhering to a unique standard allows the firm to face less or no intra-platform competition, but it sacrifices the added value associated with a large network." (Economides and Flyer, 1997) [ABSTRACT FROM AUTHOR]

The entry on Competitive Market Theory outlines the economics of the "old world" economy in which demand and supply are mediated through a market mechanism in which product demand is independent of other products and demand is not time dependent. However, there is a class of markets and industries that do not conform to these assumptions. These are known as network industries1 (see: Networks). Networks are interconnected nodes that enable individual nodes to be linked either in production or in consumption with other nodes. [ABSTRACT FROM AUTHOR]

A previous entry (Competitive Market Theory) outlined the traditional economic model for the 'Old World' which was driven by economies of scale and scope. The 'New World', characterised by information and communications technology is governed by a different dynamic. Network externalities are the new drivers of the network economy (see Networks; & Network Industries). It is important to recognise that economies of scale/scope and network externalities represent the extreme ends of a spectrum of effects, and that the presence of one does not imply the exclusion of the other. [ABSTRACT FROM AUTHOR]

Why are some firms able to innovate consistently while others cannot? Michael Porter (1990) provided an intriguing answer to this question. He undertook a comprehensive study of 100 industries in 10 countries. It is not simply due to the strength of individual corporate strategies. [ABSTRACT FROM AUTHOR]

Large companies typically provide detailed statements of their strategic intent and their major goals in the form of mission statements. These are often criticized for their vacuity but research (Campbell & Yeung, 1991) suggests that there are two schools of thought about mission statements. One expresses mission in terms of philosophy and ethics thereby widening the band of actors that are relevant to the long-term future of the company and capturing the notion of stakeholders. It also captures those forms of corporate behaviour that have implications for the social good and which are not reflected in the pricing mechanisms in market places. [ABSTRACT FROM AUTHOR]

The foundation for strategic thinking requires an understanding of the nature of markets. Perfectly competitive markets are characterised by free entry, perfect information and identical commodity-like products. The consequence of such 'perfect' competition is that price is the only competitive variable, that firms are essentially identical, and therefore, that there are no super-normal profits to be had. Profit is sufficient to provide a normal return on capital and any profits above this will be transitory, either through random shocks or because competition erodes the profit benefits of new initiatives. [ABSTRACT FROM AUTHOR]

The critical market-level influence on firm performance is the form and intensity of rivalry between the existing firms in a market. The economist's approach to market structure and the form and extent of rivalry is to use a taxonomy based on the number of firms in each industry. Figure 1 illustrates this. At one extreme, we have perfect competition, in which products are not differentiable, rivalry is intense and no firm has the power to alter market prices. [ABSTRACT FROM AUTHOR]

The international company has always had a tendency towards complex organisation structure and difficulties of management control. Figure 1 demonstrates how multinationals tend towards matrix structures. Multinationals historically have moved along the route of increasing product diversity, followed by geographic expansion, or geographic expansion followed by product diversity. A multi-product firm with limited overseas commitment will naturally organise around product divisions. [ABSTRACT FROM AUTHOR]

Fashion can be thought of as vogues, fads, rages and crazes that rise and fall with alacrity but in the process can have direct and substantial effects on everyday life. Theories of fashion focus more narrowly on fashions as aesthetic forms such as clothing or haute couture that gratify our senses and emotional well-being. Abrahamson argues that management fashions are the result of a management fashion-setting process. A management fashion is a relatively transitory collective belief, disseminated by management fashion setters, that a certain management technique leads to rational management progress. [ABSTRACT FROM AUTHOR]

International business is the study of transactions taking place across national borders for the purposes of satisfying the needs of individuals and organisations. These transactions consist of trade (called world trade), which is exporting and importing, and capital transfers - - - foreign direct investment. Over half of all world trade and about 80% of all foreign direct investment is carried out by the 500 largest firms in the world. These companies are called multinational enterprises (MNEs). [ABSTRACT FROM AUTHOR]

Information and know-how are classic examples of public goods. A public good is a commodity or service in which the consumption of one agent (consumer or firm) does not preclude its use by other agents (see Kindleberger,1983 and Varian, 1995). The cost structure of information goods is unusual and distinctive. The basic proposition is that information is costly to produce but cheap to reproduce. [ABSTRACT FROM AUTHOR]

In the entry on Market Structure perfect competition can be seen as the benchmark by which economists and others such as government departments and regulators judge the efficiency of markets. In general markets are seen as efficient if they are perfect in their principal characteristics demonstrating price competition, ease of entry and exit, and wide distribution of relevant knowledge. Conversely individual firms see it as in their own interest to have specific knowledge that enables them to build unique assets and offer distinctive products for which they can charge a price premium. In other words firms have an interest in constructing imperfections that favour them in the market place. [ABSTRACT FROM AUTHOR]

There are four basic strategies that companies use to enter and compete in the international environment. Bartlett and Ghoshal's well-known work (1989) depicts these in Figure 1. Multidomestic strategies are, as we described above, country-centred with extensive customisation for local markets and with an almost full set of value chain activities in each major market. They do transfer skills and products developed at the home base, but high degrees of local discretion are given to meet local conditions. Typically, these strategies cannot realise value from centralised, scale-effective, experience-rich production facilities. [ABSTRACT FROM AUTHOR]