1: Foundations of Strategy Flashcards
Strategy:
goal
+ how it was
+ then
+ now
- > for managers to position their firms relative to competitors
- Strategy often revealed after the fact – based on (un)successful firms’ strategic moves
- practitioners, consultants, academics have sought to find “rules” to predict success
- Strategy research is based on statistical analysis of many firms + single cases of successful and less successful firms
Strategy research answers 3 key Qs:
- Why do some firms financially outperform for some time?
- How to deal with opportunities n threats in environment?
- How to manage own strengths n weaknesses?
Historical dev. of strategy 50’s to 00’s
17=2+3+3+3+3+3
-
1950’s Financial planning
- Functional control
-
1960’s Long range planning
- Planning for growth
- Resource allocation
-
1970’s Strategic planning
- Response to markets
- Alternative strategies
-
1980’s Strategic Mgmt
- Strategic processes
- Competitive positioning
-
1990’s Quest for Strategic Advantage
- Capabilities
- Resources
-
2000’s New Economy
- Business Models
- Disruptive technologies
current 10=3+3+3+1 forces pushing to radical rethinking of strategic mgmt
- Structural change
- Scarcity of expertise
- Mergers transforming industries
- Environmental concerns
- New industry substitutes
- Rapidly changing customer expectation
- Rate of innovations
- Increased entrepreneurial activity
- Global competition
- Deregulation
Basic 8=2+2+4 radical devs. in strategy
- Knowledge and technology
- Processes and routines
- History and path-dependence
- Cooperation and networks
- Resource-based theory
- Knowledge-based view
- Capabilities-based view
- Entrepreneurial view
Today’s 4 trends
- Corporate social responsibility (CSR) and business ethics
- Global strategies Sustainability / green strategies
- Competing for standards
Competitive Strategy
def
goal
key author
Competitive strategy is concerned with ”Creating and maintaining a competitive advantage in each and every area of business“
–> outperform competitors
by Porter
Porter’s 2 fundamental competitive strategies
- Cost leadership = company prices around the market average, and enjoys superior profits because its costs are lower than those of its rivals
- Differentiation = company adds value in areas of significance for the customer, who then accepts a premium price for distinctiveness of products and services
Backup 3 levels of firm’s economic performance
Below-normal, Normal, Above-normal = with its resources and knowledge, a firm generates economic value below/equal to/above what owners of that resource and knowledge expect
Backup 6=(2+1)+(2+1) Profitability ratios in strategy
each w name, formula, meaning
- Return on total assets (ROA)
- profit after tax
- / total assets*
- =Return on total investment in a firm
- Return on equity (ROE)
- profit after tax
- / total stockholder equity*
- =Return on total equity investment in a firm
- Gross profit margin
- (sales - cost of goods sold)
- /sales*
- =Sales available to cover operating expenses and still generate profit
- Earnings per share (EPS)
- (profits after tax - preferred stock dividends)
- /number of shares of common stock outstanding*
- =Profit available to owners of a common stock
- Cash flow per share
- (after-tax profits + depreciation)
- /no. of common shares outstanding*
- =Funds available to fund activities above current levels of costs
- Price-earning ratio
- current market price per share
- /after-tax earnings per share*
- =Anticipated firm performance
Backup - 5=2+1+2 Liquidity and leverage ratios in strategy name, formula, meaning
- Quick ratio
- (current assets - inventory)
- / current liabilities*
- =Ability to meet short- term obligations without selling current inventory
- Current ratio
- current assets
- / current liabilities*
- =Ability to cover short-term liabilities with short-term assets
- Times interest earned
- profit before interest and tax
- / total interest charged*
- =How much a firm‘s profit can decline and still meet its obligations
- Debt to asset
- total debt
- / total assets*
- =The extent to which debt has been used to finance a firm‘s business
- Debt to equity
- total debt
- / total equity*
- =The use of debt versus equity to finance business activities
Backup - 3=1+2 Activity ratios
- Inventory turnover
- sales
- / inventory*
- =Speed with which a firm‘s inventory is turning over
- Accounts receivable turnover
- annual credit sales
- / accounts receivable*
- =Average time it takes to collect on credit sales
- Average collection period
- accounts receivable
- /average daily sales*
- =Time it takes to receive payment after sale has been made
Competitive advantage:
measurable how,
4 possible situations
from P/E ratio of firm relative to avg. competitor
- disadvantage
- parity
- temporary advantage
- sustainable advantage
Relative Revenue Growth rates segmented by geographic market
Cos based in emerging markets VS dev.ed economies have a 10%+ growth rate advantage, regardless of
home/foreign X dev./em. markets!
Competitive strategy
def
+ 2x2 matrix
“Creating and maintaining a competitive advantage in each and every area of business”
Strategic advantage (perceived uniqueness /Low-cost )
x
Strategic target (industry wide / particular segment only)
=
Product differentiation (+focus) / Cost leadership (+focus)
