4490 Exam 1 Flashcards Quizlet PDF

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Key Vocabulary for this course. Covers Chapter 1, 2,3,4 and 5...

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4490 Exam 1 Terms in this set (122)

Strategic Management

strategy

an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage

the set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors

1. Failure to face the problem The hallmarks of bad strategy

2. Mistaking goals for strategy 3. Bad "fuzzy" strategic objectives 4. Fluff (i.e., superficial abstraction)

Why so much bad strategy?

analysis

The inability to choose and Template-style strategy

Diagnosis of the competitive challenge. This is accomplished through the analysis of the firm's external and internal environments.

Guiding policy to address the competitive challenge. This element is accomplished formulation

through strategy formulation, resulting in the firm's corporate, business and functional strategies.

Implementation

strategy is...

A set of coherent actions to implement the firm's guiding policy. This element is accomplished through strategy implementation.

The firm's theory on how to attain competitive advantage.'

A model that links three interdependent strategic management tasks—analyze, AFI Framework

formulate, and implement—that, together, help managers plan and implement a strategy that can improve performance and result in competitive advantage.

Superior performance relative to other competitors in the same industry or competetive advantage

industry average. Always relative, not absolute (compare performance to a benchmark such as an industry average, or other firms).

competitive parity

competitive disadvantage

sustainable competitive advantage

performance of two or more firms at the same level

underperformance relative to other competitors in the same industry or the industry average

outperforming competitors or the industry average over a prolonged period of time

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Stake out a unique position within an industry to provide value to customers, while What firms you know of have been able to sustain competitive advantage?

controlling costs. The greater the difference between value creation and cost: The greater the firm's economic contribution The more likely it will gain competitive advantage

The key to successful strategy

Seek out a competitive position within an industry

firm performance attributed to the structure of the industry in which the firm competes. Determined by elements common to all industries Industry Effects

Examples: Entry and exit barriers Number and size of companies Types of products and services offered

Firm Effects

Stakeholders

Stakeholder Strategy

firm performance attributed to the actions managers take. More important factor in determining firm performance than external environment forces

organizations, groups, and individuals that can affect or are affected by a firm's actions

an integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage

a decision tool with which managers can recognize, prioritize, and address the Stakeholder Impact Analysis

needs of different stakeholders, enabling the firm to achieve competitive advantage while acting as a good corporate citizen

Managers must note three stakeholder attributes:

A stakeholder has power over a company when

power, legitimacy, urgency

it can get the company to do something that it would not otherwise do.

A stakeholder has a legitimate claim when

it is perceived to be legally valid or otherwise appropriate

A stakeholder has an urgent claim when

it requires a company's immediate attention and response

1. Who are our stakeholders? 2. What are our stakeholders' interests and claims? 5 steps of stakeholder impact analysis

3. What opportunities and threats do our stakeholders present? 4. What economic, legal, ethical, and philanthropic responsibilities do we have to our stakeholders? 5. What should we do to effectively address the stakeholder concerns?

a framework that helps firms recognize and address the economic, legal, social, Corporate Social Responsibility

and philanthropic expectations that society has of the business enterprise at a given point in time

Strategy is the art and science of

Success and Failure

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Small start-ups and large, multi-national companies For-profit and nonprofit organizations Strategists work in:

Private and public sectors Developed and emerging economies

What roles do strategic leaders play? What are the firm's vision, mission, and Strategic leadership and the strategy process:

values? What is the firm's process for creating strategy and how does strategy come about?

External Analysis:

What effects do forces in the external environment have on the firm's potential to gain and sustain a competitive advantage? How should the firm deal with them?

What effects do internal resources, capabilities, and core competencies have on Internal Analysis

the firm's potential to gain and sustain a competitive advantage? How should the firm leverage them for competitive advantage?

Competitive advantage, firm performance, and business models:

How does the firm make money? How can one assess and measure competitive advantage? What is the relationship between competitive advantage and firm performance?

Analysis (AFI)

Strategic leadership and the strategy process, External and Internal Analysis, Competitive advantage, firm performance, and business models

Formulation (AFI)

Business, Corporate and Global Strategy

Business Strategy

How should the firm compete: cost leadership, differentiation, or integration?

Corporate Strategy

Global Strategy

implementation (AFI)

Organizational Design

Corporate governance and business ethics:

Where should the firm compete: industry, markets, and geography?

How and where should the firm compete: local, regional, national, or international?

Organization design and Corporate governance and business ethics

How should the firm organize to turn the formulated strategy into action?

What type of corporate governance is most effective? How does the firm anchor strategic decisions in business ethics

A framework that categorizes and analyzes an important set of external factors that PESTELFramework

might impinge upon a firm. These factors can create both opportunities and threats for the firm.

Political Economic PESTEL

Sociocultural Technological Ecological Legal

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result from the processes and actions of government bodies that can influence the decisions and behavior of firms. Political Factors

Firms can shape this factor through nonmarket strategies—that is, through lobbying, public relations, contributions, litigation—in ways favorable to the firm.

a firm's external environment are largely macroeconomic, affecting economy-wide phenomena. Managers need to consider how the following five macroeconomic factors can affect firm strategy: Economic Factors

Growth rates. Levels of employment. Interest rates. Price stability (inflation and deflation). Currency exchange rates.

capture a society's cultures, norms, and values. sociocultural factors

Demographic trends are also important sociocultural factors. These trends capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.

Technological Factors

ecological factors

capture the application of knowledge to create new processes and products.

involve broad environmental issues such as the natural environment, climate change, and sustainable economic growth.

include the official outcomes of political processes as manifested in laws, legal factors

mandates, regulations, and court decisions—all of which can have a direct bearing on a firm's profit potential.

5 forces framework

Strategic Position

A framework that identifies five forces that determine the profit potential of an industry that shape a firm's competitive strategy.

a firm's strategic profile based on the difference between value creation and cost (V-C)

a group of incumbent companies that face more or less the same set of suppliers Industry

and buyers. Firms competing in the same industry offer similar products and services to meet specific customer needs.

Industry Analysis

Porter's Five Forces

A method to (1) identify an industry's profit potential and (2) derive implications for a firm's strategic position within an industry.

threat of entry, threat of substitute, supplier power, buyer power, and competitive rivalry

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Competition describes the struggle among the forces to capture as much of the value created as possible. The stronger the five forces, the lower the industry's profit potential—making the Competition in the 5 Forces Model

industry less attractive for competitors. The reverse is also true: the weaker the five forces, the greater the industry's profit potential—making the industry more attractive.

the risk that potential competitors will enter an industry. Potential new entry depresses industry profit in two major ways: Threat of Entry

Incumbent firms may lower prices to make entry appear less attractive. This lowers profit potential: (P*Q=TR) Threat of new entry may force incumbent firms to spend more to satisfy existing customers (e.g., Starbucks vis-à-vis Caribou Coffee).

obstacles that determine how easily a firm can enter an industry and often significantly predict industry profit potential. Economies of scale. Entry Barriers

Network effects. Customer switching costs. Capital requirements. Advantages independent. Government policy. Credible threat of retaliation.

cost advantages that accrue to firms with larger output because they can spread economies of scale

fixed costs over more units, employ technology more efficiently, benefit from more specialized division of labor, and demand better terms from their suppliers.

the value of a product or service for an individual user increases with the number network effects

of total users. When present, value increases with number of users Reduced when network effects present

incurred by moving from one supplier to another. customer switching costs

Changing vendors may require the buyer to alter product specifications, retrain employees, and/or modify existing processes.

describe the price of the entry ticket into a new industry. How much capital is capital requirement

required to compete in this industry, and which companies are willing and able to make such investments?

Incumbent firms often possess cost and quality advantages that are independent of size. -brand loyalty advantages independent of size

-proprietary technology -preferential access to raw materials and distribution channels -favorable geographic locations -cumulative learning and experience effects

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Frequently government policies restrict or prevent new entrants. government policy

-Threat of entry is high when restrictive government policies do not exist or when industries become deregulated.

•Price war (industry profit may fall below cost of capital) credible threat of retaliation

•Increased product and service innovation •Advertising and sales promotions •Litigation

This force reduces a firm's ability to obtain superior performance for two reasons: 1. Powerful suppliers can raise the cost of production by demanding higher prices Power of Suppliers

for their inputs or by reducing the quality of input or service level delivered 2. Powerful suppliers are a threat to firms because they reduce the industry's profit potential by capturing part of the economic value created

Suppliers' industry more concentrated than industry it sells to. Suppliers to not depend heavily on the industry for large portion of revenues. The power of suppliers is high when

Incumbent firms face significant switching costs when changing suppliers. Suppliers offer products that are differentiated. There are no readily available substitutes. Suppliers can credibly threaten forward integration into the industry.

Power of Buyers

pressure an industry's customers can put on producer's margins in the industry by demanding a lower price or higher product quality

-Few buyers, and each purchases large quantities relative to single seller Power of buyers is high when:

-Industry's products are standardized or undifferentiated commodities --Buyers face low or no switching costs -Buyers can credibly threaten backward integration (buyer moves upstream)

Companies need to be aware when buyers are price sensitive:

Buyer's purchase represents significant fraction of cost structure or budget Buyers earn low profits or are strapped for cash The quality (cost) of buyers' products and services not affected by cost of inputs

Substitutes meet same basic customer needs as industry product but in different way. Idea that products or services available from outside the given industry will come Threat of Substitutes

close Many software products substitutes for professional services The threat is high when: Substitute offers attractive price-performance trade-off Buyer's cost of switching to substitute is relatively low

Rivalry among existing competitors

describes the intensity with which companies within the same industry jockey for market share and profitability.

Competitive industry structure. The intensity of rivalry among existing competitors

Industry growth.

is determined largely by the following factors:

Strategic commitments. Exit barriers.

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refers to elements and features common to all industries. The structure of an industry is largely captured by: competitive industry structure

The number and size of its competitors. The firms' degree of pricing power. The type of product or service (commodity or differentiated product). The height of entry barriers.

Consumer demand rises During periods of positive growth:

Price competition among firms decreases They focus on capturing new customers They are not focused on taking profitability away from each other

During periods of negative growth:

strategic commitments

Rivalry is fierce Rivals can only gain at the expense of one another

firm actions that are costly, long-term oriented, and difficult to reverse. Strategic commitments to a specific industry can stem from large, fixed cost requirements.

obstacles that determine how easily a firm can leave an industry. Are comprised of both economic and social factors. exit barriers

Economic factors such as fixed costs that must be paid (contracts with suppliers) Social factors such as emotional attachments to certain geographic locations (autos

Complement

Complementor

co-opetition

Static

Dynamic

strategic group

strategic group model

mobility barriers

a product, service, or competency that adds value to the original product offering when the two are used in tandem

a company that provides a good or service that leads customers to value your firm's offering more when the two are combined

cooperation by competitors to achieve a strategic objective

With ______ models, one cannot determine changing speed or rate of innovation.

Industry structures are not stable over time, they are ___________

the set of companies that pursue a similar strategy within a specific industry

a framework that explains differences in firm performance within the same industry

industry-specific factors that separate one strategic group from another

First step: PESTEL Analysis (How external factors affect the industry) Analysis of external environment is key to strategic

Next step: Porter's Five Forces (The overall industry environment)

management...

Final step: Draw a Strategic Group Map (Explains performance differences in an industry)

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1. Define the relevant industry. 2. Identify the key players in each of the five forces and attempt to group these into different categories. Follow these steps to apply the five forces model...

3. Identify the underlying drivers of each force. 4. Assess the overall industry structure.

Strategy

core competencies

Resources

Capabilities

activities

Resource bases view (RBV)

A firm can shape an industry's structure in its favor through its ____

unique strengths, embedded deep within a firm, that are critical to gaining and sustaining competitive advantage

any assets that a firm can draw on when formulating and implementing a strategy

organizational and managerial skills necessary to orchestrate a diverse set of resources and deploy them strategically

distinct and fine-grained business processes that enable firms to add incremental value by transforming inputs into goods and services

A model that sees certain types of resources as key to superior firm performance.

Tangible Resources

labor, capital, land, buildings, plant, equipment, supplies

intangible resources

culture, knowledge, brand equity, reputation, intellectual property

resource heterogeneity

resource immobility