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Topic:
Corporate Strategy
Essay Instructions:
Corporate Strategy
Take-away test 16–17 January 2012
DEADLINE: 11.00 a.m. Tuesday 17 January 2012
All questions carry equal marks
Questions asking to look at specific sources/writers aspect on topics. If you choose any questions not giving specific sources/writers try to use John Kays school of thought as your main influence.
The suggested minimum length for your answers is around 750 words for each question.
Accurate citation and referencing in Harvard style is required. Provide one bibliography only for all three questions, at the end of the file.
This paper contains NINE questions
Answer THREE questions only
(1) (i) Explain the following concepts:
(a) tacit knowledge
(b) idiosyncratic knowledge
(c) path dependence.
(ii) Discuss the ways in which writers such as Kay and Penrose combine them to create a theory of competitive advantage.
(2) Prahalad and Hamel's notion of ‘core competence' has been criticised as referring to nothing more than ‘pools of functionally specific technical skills'. To the extent that this critique has force, can consideration of organisational and social capital help to rebut it? Explain your answer.
(3) ‘Despite appearances, Porter's thinking on competitive advantage has not significantly evolved beyond the structure-conduct-performance paradigm.' Evaluate this claim.
(4) Distinguish between the learning curve and the experience curve, and discuss how they may be the source of sustainable competitive advantage.
(5) Show how the existence of L-shaped long-run average cost curves can give rise to entry-deterring strategic behaviour. Discuss whether such curves are pre-requisites for successful deterrence.
(6) Explain and evaluate the claim that while a firm's growth rate is necessarily constrained, its size is not.
(7) Evaluate the portfolio theory of company diversification.
(8) Nonaka and Takeushi (1995) suggest that knowledge creation and conversion can be categorised into four modes; outline their system, and consider which mode or modes are more likely to be sources of sustainable competitive advantage.
9) What is an ‘entrepreneurial' firm? Discuss Michael Best's attempt to explain the success of entrepreneurial firms as the outcome of innovation and technology management.
Essay Sample Content Preview:
Student name
Student number
Tutor`s name
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Question 1 (I)
(a) Tacit Knowledge
This is a term that is used to refer to common knowledge that is possessed by everyone. It is found in the public domain. The mode of transfer of this knowledge is the continuous interaction between individuals. In the business world this refers to common knowledge in a particular market.
The online business dictionary describes tacit knowledge as a vast, hidden and unwritten resource. It is only seen or witnessed during shared activities .The larger part of what one knows s tacit knowledge and its application changes from scenario to scenario. This concept of tacit knowledge was fronted in 1966 by a Hungarian philosopher-chemist called Michael Polanyi. This was in his book entitled "The Tacit Dimension".
An example of tacit knowledge in the mobile phone market is the fact that a mobile phone should enable its owner to make calls, receive calls, send text messages and also receive them. For this reason a customer is aware that all mobile phones in the market have the above mentioned functionalities.
(b) Idiosyncratic knowledge
This refers to knowledge which is restricted to an individual or to a specific select group. Unlike Tacit knowledge, idiosyncratic knowledge is not in the public domain. The select group in which idiosyncratic knowledge may be found might be a company (Andreu et al 2008). In business terms, idiosyncratic knowledge is often replaced interchangeably with the term ‘firm-specific knowledge`. This is to suggest that this kind of knowledge is confined to a firm. For this reason, idiosyncratic knowledge varies from firm to firm.
Again we can draw examples from the mobile phone market. The manufacturers of blackberry handsets have a profound understanding of what a techno-savvy businessman expects in a mobile phone. In the case of apple computers, the people who work for its branding division know how to make a mobile phone attractive to a fashion-conscious person. The kind of knowledge found in these two firms is what is called idiosyncratic knowledge.
(c) Path dependence
This is a theory that states that all the decisions an individual makes are influenced directly by influences (s) he has made in the past. This applies regardless of the relevance of the previous decisions that had been made.
It originated in 1985 when it was suggested that ‘a few minor random shocks along the way could alter the course of history` (Scott 2006). Some people opted to summarize it even further by stating that the whole idea is that history matters.
An example that can illustrate this theory is a soccer match. As much as victory and defeat are pegged on the strengths and weaknesses of the teams, chance also plays a major role. An unintended tap on the ball can very easily turn the tide and hand victory to the presumably ‘weaker team`.
(ii) Competitive advantage
In general, this term is used to refer to how well a firm performs in a competitive business environment.
According to Kay (1993) in his book titled "Foundations of Corporate success", a firm`s success is dependent upon its unique identity in the market. This is derived from the distinct ways in which the firm interacts with its employees, its customers and also with its suppliers. He pointed out that for a business to stand out it needed to effectively leverage these elements to add value to its product in the market so as to edge out the competition. Parallels can be drawn between his school of thought and the concept of idiosyncratic knowledge. He further stated that there are three pillars on which the success of a company lie. These pillars are architecture, innovation and reputation.
Architecture is the system of contacts between the firm and its employees, the firm and its customers and also the firm and its suppliers. Innovation stands for proper application of creativity and initiative. Reputation is the amount of confidence a customer or a market has in a particular brand. Reputation is something that is gradually built by customer experience, free trials, guarantees, warranties and also quality of a firm`s product.
Penrose (1959) on the other hand seemed to advocate for a tacit knowledge setup. In her work titled "The theory of growth of the firm", the size of a firm according to her was based on how it utilized the resources that it had access to. She also exhibited agreement with the idiosyncratic approach when she pointed out that firms can also compete in terms of creativity.
One recurring feature of the two approaches to competitive advantage is the fact that both Kay and Penrose suggested that a company`s success in the market is heavily reliant on its history in that market. Past decisions made by the management affected past decisions by the employees, customers and suppliers have a profound impact on how the business performs in the presence as well as in the future. This is a perfect illustration of the path dependence theory.
Question 7- The portfolio theory of company diversification.
Introduction
Harry Markowitz came up with the portfolio diversification theory in the 1950s. This theory then underwent refinement over the years resulting in what is called Modern Portfolio Theory. This theory of diversification advocates for the spreading of risks between two or more less risky assets while investing. The Portfolio theory discourages the practice of investing in only one asset because of the potentially damaging effect it can have on one`s investment portfolio in the event of a loss (Coleman 2009).
For an investor to apply this theory to practice, (s) he needs to subject his potential investments to a series of mathematical operations. The purpose of these operations is to determine the level of risk these investments are subject to in the near future.
These mathematical operations to be carried out work on the premise that the performance of the investments in the market follows a predictable trend over time. This is what is termed as a normally distributed function. The risk on the other hand is calculated as the standard deviation.
In investment terms, the word risk is used to refer to an unknown or unpredictable event. It usually carries negative connotations with it. For this reason the term risk is looked at as the potential of losses to be incurred by the investor. Since the opposite of loss is profit, a prudent investor will do his level best to distance his/her funds from a risky investment.
The portfolio theory brought about several possibilities in the investment world ideally by providing a rational method of effectively measuring and quantifying risk (Coleman 2009).
The formula provide also gave investors a method of predicting returns on portfolios invested as well as a way to predict the measure of risk for the same.
A reliable measure of the portfolio risk can also be measured because of the rate of return that the variance gives.
Invest...
Student number
Tutor`s name
Subject number
Question 1 (I)
(a) Tacit Knowledge
This is a term that is used to refer to common knowledge that is possessed by everyone. It is found in the public domain. The mode of transfer of this knowledge is the continuous interaction between individuals. In the business world this refers to common knowledge in a particular market.
The online business dictionary describes tacit knowledge as a vast, hidden and unwritten resource. It is only seen or witnessed during shared activities .The larger part of what one knows s tacit knowledge and its application changes from scenario to scenario. This concept of tacit knowledge was fronted in 1966 by a Hungarian philosopher-chemist called Michael Polanyi. This was in his book entitled "The Tacit Dimension".
An example of tacit knowledge in the mobile phone market is the fact that a mobile phone should enable its owner to make calls, receive calls, send text messages and also receive them. For this reason a customer is aware that all mobile phones in the market have the above mentioned functionalities.
(b) Idiosyncratic knowledge
This refers to knowledge which is restricted to an individual or to a specific select group. Unlike Tacit knowledge, idiosyncratic knowledge is not in the public domain. The select group in which idiosyncratic knowledge may be found might be a company (Andreu et al 2008). In business terms, idiosyncratic knowledge is often replaced interchangeably with the term ‘firm-specific knowledge`. This is to suggest that this kind of knowledge is confined to a firm. For this reason, idiosyncratic knowledge varies from firm to firm.
Again we can draw examples from the mobile phone market. The manufacturers of blackberry handsets have a profound understanding of what a techno-savvy businessman expects in a mobile phone. In the case of apple computers, the people who work for its branding division know how to make a mobile phone attractive to a fashion-conscious person. The kind of knowledge found in these two firms is what is called idiosyncratic knowledge.
(c) Path dependence
This is a theory that states that all the decisions an individual makes are influenced directly by influences (s) he has made in the past. This applies regardless of the relevance of the previous decisions that had been made.
It originated in 1985 when it was suggested that ‘a few minor random shocks along the way could alter the course of history` (Scott 2006). Some people opted to summarize it even further by stating that the whole idea is that history matters.
An example that can illustrate this theory is a soccer match. As much as victory and defeat are pegged on the strengths and weaknesses of the teams, chance also plays a major role. An unintended tap on the ball can very easily turn the tide and hand victory to the presumably ‘weaker team`.
(ii) Competitive advantage
In general, this term is used to refer to how well a firm performs in a competitive business environment.
According to Kay (1993) in his book titled "Foundations of Corporate success", a firm`s success is dependent upon its unique identity in the market. This is derived from the distinct ways in which the firm interacts with its employees, its customers and also with its suppliers. He pointed out that for a business to stand out it needed to effectively leverage these elements to add value to its product in the market so as to edge out the competition. Parallels can be drawn between his school of thought and the concept of idiosyncratic knowledge. He further stated that there are three pillars on which the success of a company lie. These pillars are architecture, innovation and reputation.
Architecture is the system of contacts between the firm and its employees, the firm and its customers and also the firm and its suppliers. Innovation stands for proper application of creativity and initiative. Reputation is the amount of confidence a customer or a market has in a particular brand. Reputation is something that is gradually built by customer experience, free trials, guarantees, warranties and also quality of a firm`s product.
Penrose (1959) on the other hand seemed to advocate for a tacit knowledge setup. In her work titled "The theory of growth of the firm", the size of a firm according to her was based on how it utilized the resources that it had access to. She also exhibited agreement with the idiosyncratic approach when she pointed out that firms can also compete in terms of creativity.
One recurring feature of the two approaches to competitive advantage is the fact that both Kay and Penrose suggested that a company`s success in the market is heavily reliant on its history in that market. Past decisions made by the management affected past decisions by the employees, customers and suppliers have a profound impact on how the business performs in the presence as well as in the future. This is a perfect illustration of the path dependence theory.
Question 7- The portfolio theory of company diversification.
Introduction
Harry Markowitz came up with the portfolio diversification theory in the 1950s. This theory then underwent refinement over the years resulting in what is called Modern Portfolio Theory. This theory of diversification advocates for the spreading of risks between two or more less risky assets while investing. The Portfolio theory discourages the practice of investing in only one asset because of the potentially damaging effect it can have on one`s investment portfolio in the event of a loss (Coleman 2009).
For an investor to apply this theory to practice, (s) he needs to subject his potential investments to a series of mathematical operations. The purpose of these operations is to determine the level of risk these investments are subject to in the near future.
These mathematical operations to be carried out work on the premise that the performance of the investments in the market follows a predictable trend over time. This is what is termed as a normally distributed function. The risk on the other hand is calculated as the standard deviation.
In investment terms, the word risk is used to refer to an unknown or unpredictable event. It usually carries negative connotations with it. For this reason the term risk is looked at as the potential of losses to be incurred by the investor. Since the opposite of loss is profit, a prudent investor will do his level best to distance his/her funds from a risky investment.
The portfolio theory brought about several possibilities in the investment world ideally by providing a rational method of effectively measuring and quantifying risk (Coleman 2009).
The formula provide also gave investors a method of predicting returns on portfolios invested as well as a way to predict the measure of risk for the same.
A reliable measure of the portfolio risk can also be measured because of the rate of return that the variance gives.
Invest...
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