STRATEGIC PLANNING (MSc)

Assignment Task

Part: A

Introdction

This article explains Researches in to economics study the creation and distribution of scarce
resources among companies, people, and governments. How the economic approach to
strategy as been fruitful and why it differs from some all other approaches. What disciplines
such as economics and sociology offer is a coherent mental model of the world that permits
structured 'strategic thinking' about difficult questions. Many strategy researchers seek to
understand a subset of this area - the process by which individual companies create and retain
profits (meaning the monetary return to a resource, for example capital, land, over and above
the competitive level, rather than accounting profit).

A good model deliberately leaves out the interesting and important features of the world that
are not critical to the study at hand. A crucial part of the economic approach to strategy is the
notion of equilibrium. The intuitive explanation of equilibrium is that ex post, if an actor able
to play the game again, he would not choose a different action, each actor is doing his best,
given all are else's choices and the options available to him. Economists focus their research
on strategic interactions where all parties are achieving the most they can, and use the notion
of equilibrium to avoid extolling mistakes or good luck. It is important to understand that no
model will ever be as rich as the business world, There is a trade off between the complexity,
and therefore reality, of the model and correctly interpreting and using the results.
Definitions:

Nobel prize winner Ronald Coase, in his 1937 work “The nature of the firm”, discusses how
markets very in their ability to handle particular transactions efficiently.

Garth Saloner, in a 1987, “Predation, mergers, and incomplete information”.

Iain Cockburn, author of the 1999 research, “Balancing incentives: the tension between
applied analyse basic research”.

Harlod Hotelling’s 1929, “Stability in competition sets out the famous model of a “line” of
consumers.

Kirk Monteverde and David Teece in their 1982, Supplier Switching Costs and Vertical
Integration in the Automobile Industry,

Explanation:

How markets vary in their ability to handle particular transactions efficiently. If a free market
functions well, there is less need to locate a transaction from that market inside of the
organization. His theory implies that an inefficient market for a necessary transaction will
cause the company vertically to integrate that function into the company. Stability in
competition that shows that when two companies can choose where to locate along the line
they both want to locate in the middle nicely reflecting the location in the centre by
candidates for political posts seeking to capture votes from those standing between
themselves and the extreme of their parties. This article describes a merger situation where a
buyer engages in predatory pricing against its rival and target in order to convince the target
that the buyer is a very efficient company.

Part: B

a)Positive and Normative aspects of strategy:

In this article two strategies are there

One is positive and second one is normative

Positive side, understanding how and why profits are captured by certain parties, is Straight
forwardly a part of economics. And very natural that economists should make substantial
contributions to strategy. On the positive side we can ask the question, why are some
companies successful? Answering this inherently involves telling a story. How can a story-
teller, or modeller, create a story that is both convincing and true? Economists create good
stories by being simple, explicit, and plausible about three things: the actors involved, their
goals, and the choices available to them. Strategy is unusually normative for a social science
field; the idea is not only to analyse how the world works, but to offer strategic
recommendations to managers.

For example, we might want to set up a situation with both companies, one with higher
variable costs than the other, where each can choose whether or not to differentiate its
product for a new niche market.

The normative side is a less natural part of economics, and generates some tension between
different types of research. The normative side of strategy applies researchers urging
companies to follow their advice in order to earn higher profits, something which is also true
of other academic disciplines like sociology and psychology when these have been used in
studying management and strategy.

Business models comes from two opposing sides:

 Established companies have to find new and innovative business models to compete
against growing competition and to fend off insurgents.
 Entrepreneurs want to find new and innovative business models to carve out their
space in the marketplace.

b) The business model is simply a working description that includes the general details about
the operations of a business. Business models have coming to much more sophisticated. The
most known and most first business model is the shopkeeper model. This involves setting up
a store in all location where potential customers are likely to be and displaying a product or
service. Today, the type of business models might on the how technology is used. For
example, entrepreneurs on the internet have also created entirely new models that depend
entirely on existing or emergent technology. Using technology, businesses can reach a high
number of customers with minimal costs.
Business models are converting to new innovation economy those are

1) Value proposition

2) Market segments

3) Value chain structure

4) Renewal model

5) Competitive strategy

6) Growth strategies

Business operations, sales and marketing concerns and forecasts, labour costs, and
organizational structure are all essential components of the business model. Operating with a
comprehensive model helps a organization to maintain focus on a core mission, while some
time reviews and updates help to keep the business model relevant to current economic
conditions and consumer demands.

The most of and basic business model is the shopkeeper model. Business model address all
functions of a business, implementing including factors as the expenses, revenues, operating
strategies, corporate structure, and sales and marketing proceducing products .A business
model is nothing else than a explanation of how an organization makes (or intends to make)
money or profit. The business model topic is very popular among business people today
because in various industries we can see a proliferation of new and innovative business
models (i.e. new ways of making money). In several organizations new business models are
threatening or even replacing established companies and conventional ways of doing
business. Just have a look at the music or airline industry.

The Entrepreneurs are opens the business for the first (second or third time) every business
looks different. A business model is nothing else than a representation of how an organization
makes (or intends to make) money. This can be nicely described through the 9 building
blocks illustrated in the graphic below, which we call “business model canvas”.
C) A manager can and should use them to find the best strategy for his or her particular
situation. They assume most companies will benefit by following the advice, whereas
economists tend to advice a company may have a good reason why it is not already following
the advice. The researcher can understand the world better by finding out why one strategy
was better than another for a company, not by determining which strategy was best and
depicting the alternatives as a mistake. Characteristics such as physical assets, culture, brand
image, and capabilities that distinguish your company from others also determine that the
best strategy for your company is, again, different from that of others. The cookie-cutler
approach will not work because finding a successful strategy is complex.

There is no "best" strategy because a strategy must be applied to a previously existing

company, market, or product. However, although "best" will be something different in each
case, the strategy is not view from economic principles. Instead, those principles allow a
manager accurately to tailor the strategy to fit his or her company. Perhaps the right choice
for one company is the not right one for another. This part of strategy has a tense relationship
with an economics discipline that believes in differences between two companies, efficient
markets, and few wasted opportunities. Economists in the strategy area attempt to increase
our knowledge of the principles underlying the success of companies because that is the
fundamental source of Profit.
Reference:
Financial Times, 04/10/1999, Why Economics has been fruitful for Strategy
http://www.pdfqueen.com/html/aHR0cDovL2hvbWVwYWdlLnVpYmsuYWMuYXQvfmM
0MDk1NS9lbi9lY29ub21pY3Nfc3RyYXRlZ3kucGRm [accessed 14 march 2010].
Written by Malcolm Tatum Last Modified: 01 December 2009, internet
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march 2010].

http://en.wikipedia.org/wiki/Business_model [accessed16 march 2010].

Vadim Kotelnikov, business evaluation and business design, Founder, Ten3 Business e-
Coach – Inspiration and Innovation Unlimited, internet surfing
http://www.1000ventures.com/business_guide/business_model.html [accessed18 march
2010].

http://www.businessmodelalchemist.com/2005/11/what-is-business-model.html [accessed 20
march 2010].