Paul & Elisabeth Merage Foundation | Andre & Katherine Merage Foundation


Steven Postrel

Steven Postrel


Paul Merage School of Business, UC Irvine

Class Overview

The business strategy module is designed to help managers build capabilities for strategic analysis and decision-making.The goal is to broaden your perspective across different business contexts to enable you to understand how firms in general successfully compete (or avoid competition).These insights should be helpful not only in guiding your own firm but in understanding the behavior of customers, suppliers, partners, rivals, and other relevant players. While there are no predictable paths to superior profitability,there are roads that are more or less likely. Avoiding the latter is often more important than finding the former.The approach of the course is practical and problem-oriented. We will introduce a specific framework for assessing business-unit strategy based on the fundamentals of creating and capturing economic surplus (gains from trade) and apply this framework to specific cases.The framework covers both industry-level and firm-level analyses in a unified manner.We will explore questions about how many firms can fit in an industry, how likely they are to dissipate potential profits through rivalry, what firms can do to create competitive advantage, under what circumstances such advantages are sustainable, and what resources and capabilities are necessary to make such strategies feasible.

Tuesday, March 25TH 1:00-5:00
Introduction to Business Strategy

Our objective is to understand what we mean by a business strategy, what a successful strategy looks like, and how to analyze actual or proposed business strategies to see if they are likely to create competitive advantage or disadvantage. We will introduce, define, and apply the concept of economic surplus as a unifying framework for understanding strategy.

Discussion:Wal*Mart Discount Operations
Lecture: Strategy and Surplus Individual exercise: Analyze your company’s strategy in terms of how it tries to create and capture surplus. What are its intended target segments? What, if any, are its sources of competitive advantage? Can you assess or measure whether it is achieving these advantages and whether it is successfully cashing in on them?

Wednesday, March 26TH 8:00-12:00
Industry Analysis

We seek an understanding of the factors causing industries as a whole to prosper or decline, paying particular attention to distinction between the surplus that the incumbent members of the industry create and the surplus that they capture. Key questions include what makes firms behave more or less aggressively in trying to take customers from one another, how many profitable players an industry can support, and whether bargaining power plays a role in
moving profits move up or down the vertical chain. We will look at a number of examples of different industries and assess the dominant forces in each.

Group exercise:
Characterize the industry in which your company participates in terms of its prospects for surplus creation and capture, specifically applying consonance and five-forces analyses.

Wednesday, March 26TH 1:00-5:00
Feasibility, Resources, Capabilities, and Vertical Scope

It’s trivially easy to write down business strategies that would be profitable if one were free to imagine any level of firm capability. Unfortunately, if such capabilities do not exist or cannot be profitably created then the proposed strategy is not feasible. In this session we will study how to assess which resources and capabilities are critical for a given strategy to work and what is the best way of creating and/or accessing them. Specifically, we will consider questions of make versus buy, alliances, and vertical integration (both by acquisition and by organic capacity investment).

Lecturette 1: Feasibility, Resources, and Capabilities
Individual exercise:

Assess the feasibility of your firm’s strategy relative to its resources and capabilities.Then consider how potentially profitable changes to that strategy are constrained by its resources and capabilities.

Lecturette 2: Vertical Relationships
Further reading: Postrel, Vertical Scope

Group exercise:
Is the existing vertical structure of your industry stable? Are there potential gains to be had by integrating or dis-integrating parts of the surplus chain? Is the incentive structure embedded in customary contracting practices good at maximizing the surplus created in the typical transaction?


Case: Wal-Mart Stores’ Discount Operations (9-387-018)
Thought questions:

  1. What are the drivers of cost and value where Wal*Mart has competitive advantage over rivals Quantify where possible.
  2. What strategic choices and functional policies followed by Wal*Mart have led to this superior positioning?
  3. Why didn’t rivals make the same choices as Wal*Mart?
  4. Will Wal*Mart be able to sustain its success in the United States?

Reading:Postrel, Notes on Strategic Advantage (NOSA), Introduction (I-III),Michael E. Porter, "What Is Strategy?"Harvard Business Review, Nov 01,1996. Prod. #: 96608-PDF-ENG

Discussion:Wal*Mart Discount Operations

Lecture:Strategy and Surplus Postrel,Porter’s Five Forces,Industry Analysis.