Strategic Value Management: Stock Value Creation and the Management of the Firm

Chapter 6. Competitive Strategies

As we discussed before, profits are like the lifeblood of the company; this chapter focuses on how to produce such blood.

Classic strategic management relies entirely on Michael Porter's dual approach of low-cost and differentiation strategies. However, as we saw in previous chapters, research and literature show that low-cost strategies lead to perfect competition (when they are based on actions) and destroy stock value, because they generate negative EVAs, normally below −2 percent. Differentiation strategies have a very limited ability to create stock value; their EVAs are on average close to zero, some years above and some years below (also when they are based on actions) because they require capital investments. They also have a short life because they can be imitated by the competition.

Some textbooks are starting to introduce the resource view of the firm (RVF); however, their views are still not integrated and consolidated.

This chapter introduces a new approach to develop competitive strategies by following the goal of stock value creation. It is based on industrial economics (also called industrial organization: IO), game theory, and the resource view of the firm (RVF). This has four critical benefits:

1. Help in visualizing the economic and financial impact of competitive decisions. This has an extraordinary value. For decades strategic management ...