Game Theory and Strategic Management - W2

Game Theory and Strategic
Management
Week 2
The main theories
• Industrial Organization Model
• Resource-Based View
• Strategic Group Theory
• Transaction Cost Theory
• SWOT
• Game Theory
Resource-Based View
In strategic management, it is used to analyse the success of a company's success
depends on the unique resources and competencies that the company possesses.
In other words, if a company has something special that is hard to copy or imitate, it
has a better chance of being successful in the long run.
Resources can include anything that a company uses to operate:

1) Money
2) Technology
3) Employee knowledge
4) Expertise
Method for analyzing a company using theory
Resource-Based View
1) Identification of key resources:
Identify the key resources that the company possesses. These could be financial resources,
technology, brand, intellectual property, employee expertise, etc.
2) Assess the uniqueness of resources:
Determine how unique and hard to copy these resources are. This may include analysing patents,
features of manufacturing processes, exclusive agreements, etc.
3) Assess the value of the resources:
Work out exactly what value these resources create for the company. Can they improve product
quality, reduce costs, provide competitive pricing, or create a unique experience for customers
4) Determine the heterogeneity of resources:
Determine how different the company's resources are from those of competitors. The more unique
and distinctive they are, the more competitive advantage can be created.
Method for analyzing a company using theory
Resource-Based View
5) Assess the level of security of the resources:
Consider how easily competitors can copy or imitate the resources. This may include analysing the
market, the competitive environment and possible barriers to entry.
6) Formulate a strategy based on the analysis:
Use the results of the analysis to formulate a strategy. Determine which resources can be
maximised to achieve competitive advantage and how they interact with the environment.
7) Continuous monitoring and adaptation:
Conduct periodic monitoring of resources and the competitive environment. Closely monitor
changes in the industry and adapt the strategy to meet new challenges and opportunities.
Resource-Based View - Boeing
1) Identification of key resources:
• Technology resources: Boeing has advanced technologies in aerospace
engineering, including the design and manufacture of a wide range of
aircraft and space systems.
• Brand and reputation: Boeing is one of the world's most recognisable and
respected brands in the aviation and aerospace industries.
• Intellectual Resources: The company has more than a century of
experience and a significant portfolio of patents and intellectual property.
2) Assess the uniqueness of resources:
• Technological innovation: Boeing often introduces innovative technologies
in its products, making them unique and difficult for competitors to copy.
• Complexity of manufacturing processes: Boeing's aircraft manufacturing
processes are very complex and require a high degree of skill and
expertise, which creates barriers to entry into the industry
Resource-Based View - Boeing
3) Assess the value of the resources:
• Product Quality: Boeing produces high quality products, which gives it an
outstanding reputation and customer loyalty.
• Service Systems: The company provides high-quality maintenance systems
for its products, which adds value for customers.
4) Determine the heterogeneity of resources:
• Unique technologies: Boeing technologies differentiate Boeing from
competitors, creating unique product features and capabilities.
• Reputation and Brand: Boeing has a unique reputation and brand that is
associated with innovation and reliability.
5) Assess the level of security of the resources:
• Patents and Licences: Boeing actively owns patents and licences, which
creates legal barriers to competitors.
• Complexity of Reproduction: Boeing's aircraft production requires high
investment and sophisticated skills, making their resources difficult to
replicate.
Strategic Group Theory
The theory focuses on how companies in a particular industry can

divide into groups of similar strategies and compete with each other.
This theory is based on the assumption that companies of similar

strategies and characteristics can compete more successfully with
each other than with companies in other strategic groups.
Strategic group theory provides a framework for managers to analyze

the competitive landscape in an industry and to formulate more
effective strategies within a particular group.
Strategic Group Theory - Boeing
Boeing's main strategy is to produce a wide range of commercial and military aircraft with a
high technological level.
Airbus
Strategy:
Producing a wide range of commercial and military aircraft with advanced technology.
Characteristics:
• Possesses a similar technology level to Boeing.
• Competes in the global aviation and aerospace market.
• Has a wide range of products including passenger and cargo aircraft.
Boeing and Airbus are in the same strategic group because they are in similar businesses,
producing similar products and competing for orders in the global market. Their rivalry drives
innovation, improves product quality and provides choice for consumers.
SWOT
SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) is a
strategic management tool that helps companies to systematise and
analyse their internal strengths and weaknesses, as well as external
opportunities and threats.
Production problems: Recent difficulties and delays in the
Technology leadership: Boeing has advanced technologies in production of models such as the 737 MAX could affect
aeronautical and aerospace engineering, giving it a reputation and financial performance.
competitive advantage in developing innovative products.
High development costs: Investing in research and development
Unique skills and expertise: The company has more than a of new technologies requires significant resources, which can be
century of history, significant experience and skilled people, a financial burden.
which supports the quality and reliability of its products.
Dependence on a few large customers: A few key customers
Global brand and reputation: Boeing is one of the most account for the majority of revenue, which creates risks if orders
recognised and respected brands in the industry, which helps are lost.
attract customers and partners.
SWOT - Boeing
Growth in space exploration: Emerging trends in the space

Intense competition: Strong competition with other major
industry provide opportunities for Boeing to expand its
players in the industry may affect market share and pricing.
business in this sector.
Geopolitical risks: Tensions between countries may affect
Demand for Efficient Aircraft Technologies: Increased
international orders and partnerships.
interest in sustainable and fuel-efficient technologies
provides opportunities for new product development.
Economic Fluctuations: Volatility in the global economy could
reduce demand for aerospace products, impacting Boeing's
International Expansion: Opportunities to increase global
financial results.
market share through the development of international
partnerships and markets.
Transaction Cost Theory
This theory in strategic management considers the firm as a system

that makes strategic decisions on the basis of minimising the costs of
economic transactions.
Transaction is an exchange of economic resources or services between

two or more parties. This may include buying, selling, exchanging or
other forms of transfer of goods, services and etc.
1)Transaction costs:
There are transactions within and between firms such as contracting, bargaining, negotiating.
Transaction costs include costs of information search, contracting, conflict resolution, etc.
2) Hierarchical and market mechanisms:

A firm chooses between internal (hierarchical) and external (market) mechanisms to conduct
transactions.
Hierarchical mechanisms involve internal markets and firm governance, while market mechanisms
involve external contracts with other firms.
3) Choice of structure and coordination:

A firm chooses the optimal structure and coordination mechanism depending on the nature of
transactions.
If transactions are complex and ambiguous, the firm may prefer a hierarchical approach to simplify
coordination.
4) Preventing Agency Problems:
A firm faces an agency problem when different parties have different interests. Transactional theory
tries to reduce the risks of agency problems through internal governance mechanisms.
5) Asset Specificity:
Asset specificity is a key factor influencing the choice between market and hierarchical mechanisms.
If assets are specific (i.e., they are difficult to use in other contexts), a firm may prefer internal
mechanisms. Hierarchical mechanisms involve internal markets and firm governance, while market
mechanisms involve external contracts with other firms.
6) Addressing coordination and motivation:

The firm develops structures and mechanisms to address the coordination and motivation problems
of employees within the firm.
HW
For the next seminar:
You need to analyze the company you have chosen based on these theories:
• Industrial Organization Model (to parse through the model presented in the presentation)
• Resource-Based View (assess internal resources and competences in order to identify
competitive advantages, use the first 5 factors: Identification of key resources, Assess the
uniqueness of resources, Assess the value of the resources, Determine the heterogeneity of
resources, Assess the level of security of the resources)
• Strategic Group Theory (find companies (2-3 examples) with similar strategies and
characteristics that your company can compete with, explain why)
• SWOT (to parse through the model presented in the presentation)
Format: Power Point presentation
I will write to your group leaders by what date you need to present this homework
That’s all for today!

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Game Theory and Strategic

• Industrial Organization Model

• Strategic Group Theory

• Transaction Cost Theory

Resources can include anything that a company uses to operate:

The theory focuses on how companies in a particular industry can

This theory is based on the assumption that companies of similar

Strategic group theory provides a framework for managers to analyze

Growth in space exploration: Emerging trends in the space

This theory in strategic management considers the firm as a system

Transaction is an exchange of economic resources or services between

2) Hierarchical and market mechanisms:

3) Choice of structure and coordination:

6) Addressing coordination and motivation:

Format: Power Point presentation

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