Business Economics and Finance Business Economics & Strategy

outline  Strategy as a distinct type of thinking  Examples & characteristics  Strategy & neoclassical economics  Transaction cost economics perspectives  Resource-based approach  Revision of course so far

examples u corporate merger or acquisition u producing a new product or service u entering a different geographical market u selling to different customer group u identifiable public aspects noticed by customers, competitors and suppliers u consequences internal to company – long term planning processes u militaristic metaphors u sociological element – power, consensus and legitimacy

strategy as a type of thinking activity of strategy hierarchy of decision and activity exists “strategic” – “operational” or “strategic” – “within strategy.” if markets worked efficiently – two aspects collapse into one companies as zones of administration and planning, alongside markets, ushers in dual approach

characteristics  exercise of power, subject to social pressures of legitimacy  one party making credible threats to use its resources as sanctions or rewards to get another part to do something that they would otherwise not do  Implicit, usually multi-directional  exercised legitimately, illegitimately  objectives uncertain, imprecise

u draw upon strategies – plans or orientations u assumptions, bounds and coherence for operations u not easily reviewed against objective reference standards u perpetuate feelings of cohesion and security u choices are real and irreversible u cannot be recreated for the purposes of some later review u do not determine operational decision-making

strategy, firms & market structures u collapses strategic & operational, or strategic outwith model u oligopoly – monopoly power, interdependence, particular outcome unknown u game theory u collaborative or coordinated outcome u incentive to cheat u one shot, or repeated u self-interest, tit-for-tat, altruism

One-off prisoner’s dilemma confessdon’t confess confess don’t confess player two player one Source, Kay, J. 1995, p. 37

Repeated prisoner’s dilemma confessdon’t confess confess don’t confess player two player one Source, Kay, J. 1995, p. 39

strategy and transaction cost economics strictly interpreted – limited strategic freedom undersocialised market oversocialised company market competition – selection creating dependence

resource-based approach capabilities or competencies activities requiring complementary similar & dis-similar capabilities on-going relations between companies strategy affected by company’s learned, accumulated experience history shapes resources available to decision-makers within analytical framework – behavioural

identify opportunities u perception affected by what agents know from personal and shared experiences u accumulated in one corporate and industrial setting, or across different corporate and industrial settings u interpret ‘objective’ opportunities differently u access to different types of resources supplied through that company’s historical development, u resources not fixed to a market-industry setting

aligning resources u managerial skills and knowledge (resources) u tend towards routine u free up managerial resources for further initiatives u distinct from cost focus of learning-by-doing u freed-up resources almost free resources u resources not values in themselves u only in context of being applied in activities

managerial discretion inevitable  experimental  process of knowledge accumulation  absorbed within a company  experience not easily available – no markets  absorbed as tacit, local, personal  require codification or articulation systems and incentives.  Managerialism will not do

Concluding remarks u imprecisely-specified goals – difficult to review u providing shared assumptions and bounds u meaningful decision-making – uncertainty u does not determine other decisions u neoclassical theory of the firm limited u exception oligopolistic market structure u transaction cost economics – constraining framework u resource-base theory of the firm – learning organisation