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 corporate merger or acquisition producing a new product or service entering a different geographical market selling to different customer group identifiable public aspects noticed by customers,

competitors and suppliers consequences internal to company – long term

planning processes militaristic metaphors 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

draw upon strategies – plans or orientations assumptions, bounds and coherence for

operations not easily reviewed against objective reference

standards perpetuate feelings of cohesion and security choices are real and irreversible cannot be recreated for the purposes of some

later review do not determine operational decision-making

strategy, firms & market structures collapses strategic & operational, or strategic

outwith model oligopoly – monopoly power, interdependence,

particular outcome unknown game theory collaborative or coordinated outcome incentive to cheat one shot, or repeated self-interest, tit-for-tat, altruism

One-off prisoner’s dilemma

7

7

0

0

10

10 1

1

confess don’t confess

con

fess

don

’t c

onfe

ss

player two

play

er o

ne

Source, Kay, J. 1995, p. 37

Repeated prisoner’s dilemma

7

7

5

5

10

10 1

1

confess don’t confess

con

fess

don

’t c

onfe

ss

player two

play

er o

ne

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 perception affected by what agents know from

personal and shared experiences accumulated in one corporate and industrial

setting, or across different corporate and industrial settings

interpret ‘objective’ opportunities differently access to different types of resources supplied

through that company’s historical development, resources not fixed to a market-industry setting

aligning resources

managerial skills and knowledge (resources) tend towards routine free up managerial resources for further

initiatives distinct from cost focus of learning-by-doing freed-up resources almost free resources resources not values in themselves 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 imprecisely-specified goals – difficult to review providing shared assumptions and bounds meaningful decision-making – uncertainty does not determine other decisions neoclassical theory of the firm limited exception oligopolistic market structure transaction cost economics – constraining

framework resource-base theory of the firm – learning

organisation