Business Strategy Flashcards
T/F Planning eliminates uncertainty
False
What are 3 functions of planning?
- Define the organization’s objectives/goals
- Establish an overall strategy for achieving the organizational goals/objectives
- Develop a hierarchy of plans to integrate and coordinate activities
T/F A Functional strategy is one that determines how capital will be allocated across various businesses (or SBUs)
False
T/F Operational plans address the “what ifs” of a business - incorrect strategic planning assumptions and realization of unknown risk
True
Developing a marketing strategy based on product, price, place and promotional considerations is an example of what kind of plan?
Functional
What are approaches can be used to obtain a strategic, sustainable, competitive advantage?
- Have consistent lower prices than competition (Price Leadership)
- Develop and patent new technology
- Leverage exclusive partnerships with famous people
- Create processes that lower manufacturing costs relative to the competition (Cost Leadership)
T/F Competitive advantage is always judges relative to other competitors or to the industry average
True
T/F a firm that under performs relative to other competitors in the same industry is said to have a temporary competitive advantage
False
From an economic value creation perspective, what does a firm need to do to achieve a competitive advantage
Create and capture more economic value than its rivals
What is something a firm using a cost leadership strategy would NOT have in its business model?
Large marketing expenses to promote product differentiation
Define a Business Model
A business model is the end result of decisions and tradeoffs made by management in formulating strategy.
What are the 3 parts of a Business Model?
Value creation
Value capture
Value Delivery
What are the 3 critical factors used to evaluate economic value creation and competitive advantage
Value
Price
Cost
What does it mean to be using a Cost Leadership Strategy
Cost leadership is about becoming the lowest COST producer in an industry. This puts them in a good position to charge the lowest price, but doesn’t mean they will
What is Scenario Planning?
Scenario planning is a strategic planning methodology that is used to develop plans in uncertain environments. Typically managers begin by identifying variables that can interact to significantly impact firm performance, then management develops alternative strategies for the mort plausible future environments
What provides a statement of how the organization intends to achieve its vision and the organization’s responsibilities to its key stakeholders.
Mission Statement
Describe traditional top-down strategic planning
A rational data driven process in which top management attempts to program future success
T/F Traditional approaches to strategic management (top-down) work best in dynamic environments where the future is highly uncertain
False
What is an example Strategy as Planned emergence?
The IKEA “flat boxes”
What is a strategic group?
direct competitors with similar business models and strategies
What industry characteristics would likely lead to fierce competitive rivalry?
- Very high fixed costs required for business infrastructure
- Industry products that are highly perishable
- Very high barriers to exit
- Low brand loyalty
What are tools for analyzing INTERNAL performance for a company?
Benchmarking
Ratio Analysis
SWOT analysis
What is part of a PESTEL analysis?
Political
Economic
Socio-Culture ( and Demographic)
Technological
Ecological
Legal (and Ethical)
What are some Political variables in a PESTEL analysis?
Subsidies
Tax policies
price controls
regulated access
grants
trade controls/import restrictions
tariffs
What are the impacts of political factors?
Underwrites emerging technologies and encourages R&D
Opens or restricts access to markets by creating or eliminating barriers to entry
What are some of the Economic variables in a PESTEL analysis?
Growth Rates
Interest Rates
Inflation Rates
Cost of Capital
Employment levels
Price stability
Currency exchange rates
Disposable and discretionary income
What are some Socio-Cultural variables in a PESTEL analysis?
Culture norms and values
life expectancies
aging population
immigration
work force diversity
rising affluence
increasing lifestyle changes
societal values
attitudes toward products, safety and the environment
What are the primary impacts of Socio-cultural variables?
Impacts what consumers want to buy
impacts market sizes
increasing management complexity of a diverse workforce
What are some Technological variables in a PESTEL analysis?
IP Protections
industrial spending on R&D
digital communications
emerging industries
technology transfer
innovations in product
technology
What are the primary impacts of technological variables
It’s an enabler of new business models, business processes, new products and services
can be efficiently driven, product sustainable or disruptive in character
What are some Ecological variables in a PESTEL analysis?
Carbon footprint
climate change
air and water polution
toxins in food and consumer products
alternative energies
society’s changing views toward business responsibility
What are the primary impacts of Ecological variables?
Can affect buyer’s choice of procurement partners-accountable sourcing- and brand image
Potential for increased government regulation of operations and transportation processes
Employee engagement
Can create business opportunities
What are Legal/Ethical variables in a PESTEL analysis?
Laws, mandates, regulations, and court decisions
Hiring and promotion laws
anti-trust regulations
Environmental protection
industry regulation and deregulation
data security
ethical behavior
What are the primary impacts of Legal/Ethical variables?
Typically creates limitations in business marketing and operational practices
Increased operational costs
Can create entrepreneurial opportunities for new and existing firms
What is the SCP model?
Structure, conduct, performance
What is Structure in the SCP model?
Number of competitors and product diversity
Value Chain and extent of vertical integration
Economics of supply and demand
cost of entry/exit
What is Conduct in the SCP model?
Branding, product differentiation and price setting
capacity
innovation
operating efficiencies
collusion
What is Performance in the SCP model?
Profits
value creation
technological progress
shareholder returns
industry performance
What is the concentration ratio?
the ratio of combined market share given to a number of firms to the whole market size.
Used to assess oligopolistic markets
IMPACTS: Competitive rivalry, buyer bargaining power, supplier bragaining power
What are switching costs?
The costs that a consumer incurs as a result of changing brands/suppliers/products
IMPACT: All 5 forces
what is Forward/Backward integration?
Vertical integration that is either farther down/up the supply chain
IMPACTS: buyer bargaining power, supplier bargaining power
What are Porter’s 5 forces?
- Threats of new entrants
- bargaining power of buyers
- Bargaining power of suppliers
- Threat of substitute services/products
- Rivalry among existing competitors
When is bargaining power of suppliers high?
-concentrated or limited supplier industry
-suppliers not dependent on industry for majority of revenue
-industry competitors firm face supplier switching costs
-suppliers hold scare resources
-suppliers offer differentiated products
-there are no or few supplier substitutes
-suppliers can forward integrate into the industry
When is the bargaining power of buyers high?
-There are a few buyers and each buyer purchases large quantities
-the industry’s products are standardized or undifferentiated commoditites
-the buyer has many substitute options
-buyers are price-sensitive
-buyers face low or no switching costs
-buyers can backwardly integrate into the industry
When is the threat of substitutes high?
-the substitutes offer an attractive price-performance trade-off
-the buyer’s cost of switching to the sub is low
-buyers are not loyal to any of the industry competitors
What is the primary impact of substitutes from the Porter’s 5 forces?
The limits placed on the pricing flexiblility of the industry competitors
When is the threat of new entrants high?
When there are low or no barriers to entry and the industry average profitability is high
What are some barriers to entry?
-economies of scale
network effects
customer switching costs
capital requirements
advantages independent of size
government policy
credible threat of retaliation
What is competitive rivalry in the Porter’s 5 forces model
the intensity with which companies in the same industry jockey for market share and profitability
The stronger the forces the higher the intensity
When is there less rivalry in the Porter’s 5 forces model?
high buyer switching costs
low exit barriers
economies of scale are not a competitive factor
more industry concentration
more product differentiation
What is a complement?
A product service or competency that adds value to the original product offering when the two are used in tandem.
Usually result in higher margins and profits for industry competitors
What are some ways companies can mitigate structural impediments to firm profitability?
-increase product differentiation
-diversify product lines
-continually innovate to increase product value
-alter bargaining relationships between the industry competitors and buyers and suppliers
-build barriers to entry to keep new competition out
develop complements or build strategic partnerships with complement providers
What are 4 sources of competitive advantage?
Core competencies
resources (tangible & intangible)
capabilities (organizational and managerial skills, things the org does)
activities (transform inputs to outputs)
What it the resource based view?
Tangible vs Intangible assets, can use VRIO analysis
What is VRIO?
Valuable
Rare
Costly to Imitate
Organized to capture value
What are the primary activities of Value Chain Analysis?
Inbound logistics
mfg & assy
distro
marketing and sales
post product support
what are supporting activities of Value Chain Analysis?
R&D
Information systems
HR
Firm infrastructure
accounting, finance, planning
Is process benchmarking used for internal or external analysis?
both
What is SWOT?
Strengths
Weaknesses
Opportunities
Threats
What are the 3 types of strategy talked about?
Corporate
Business Unit
Functional
What kind of planning is done at the corporate level?
Strategic plans
-broadly impact the firm
-determine new markets to enter or exit (firm scope)
-identifies initiative to create and sustian competitive advantage
driven by mgmt vision, mission , values
covers extended planning horizons
what kind of planning is done at the SBU level?
Functional plans
-aligned to business unit level planning
-highly interrelated across the sbu
-shorter planning horizons than corporate but longer than a year
-drive budget dev and staffing
examples: marketing plans, production plans, capacity plans
What kind of planning is done at the functional level
Tactical/operational
-narrow specific impact to the firm
allocation of specific resources to specific tasks or operations
-short planning horizons
Examples: financial budgets, production schedules, staffing schedules, project work plans
What is a business strategy?
the goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.
What are elements of a good business strategy?
competitive challenge
guiding policy
coherent actions
What is differentiation as a competitive advantage?
attempting to be unique in an industry within a broad market, allows you to charge a premium price
What is a focus strategy?
cost or differentiation but focus on niche markets
what is the difference between Vision and Mission?
vision is what will the org look like?/goals
mission is what the org does and how it does it - core values
What are core values?
the guiding principles of the firm. suppor thte vision, shape the culture, and reflect company identity/personality
what are the 3 business models covered?
cost leadership
differentiation
focus
what are 4 corporate growth strategies
Concentration
vertical integration
horizontal integration
diversification
What is the scope of a business level strategy?
single product market
Focus: competitive advantage
what is the scope of corporate level strategy
multiple industries and markets simultaneously
FOCUS: firm scope and resource allocation
What are 3 grand strategies
Growth, Stability, Renewal
What are 4 growth strategies?
concentration
vertical integration
horizontal integration
diversification
What is the concentration growth strategy?
focuses on a single market or product. invests more resources in production and marketing in one area
risk of losses in event of a drop in demand or increase in the level of competition
what is the GE-McKinsey 9-box matrix
Axes are market attractiveness and comparative business strength to determine how to invest capital
