Business Strategy Flashcards
1
Q
Why is Planning Important?
A
- Provides directions and basis for coordination for everyone in org
- Minimizes waste and redundancy
- Reduces uncertainty by developing a better understanding of firm’s external environment
- Unstable external environment complicates planning
- Residual Uncertainty - uncertainty that cannot be accounted for
- Establishes goals from broad objectives
- Makes it possible to measure performance
- Involves/engages all levels of organization
- Improves levels of job satisfactions
2
Q
Functional Structure
A
- Typically more efficient
- Split into groups by functions; marketing, R & D, engineering, etc.
3
Q
Divisional Structure
A
- Used if there are multiple business units
- Divided up into groups by divisions (i.e., men’s clothing, footwear, etc.)
4
Q
Functional Plans
A
- Aligned to Business Unit level planning
- Highly interrelated across SBUs
- Shorter planning horizons than corporate and SBU plans
- Examples: Marketing plans, production plans, capacity plans
5
Q
Tactical (Operational) Plans
A
- Narrow, specific impact to firm
- Allocation of specific resources for specific tasks/operations
- Short planning horizons
- Developed at lower levels of management
6
Q
Strategy
A
Goal-directed actions a firm takes to gain/sustain performance
7
Q
Good Strategy
A
- Diagnose the competitive challenge
- Create guiding policy to address challenge
- Develop set of coherent actions to implement guiding policy
8
Q
Cost Leadership
A
- Being lowest cost producer in industry
- Usually through experience and efficiency
- Pricing at or below industry average
- Attract price sensitive customers
9
Q
Differentiation
A
- Competitive advantage achieved as long as economic value is greater than competitors
- Being unique in industry with broad market
- Uniqueness allows firm to charge a premium price
10
Q
Focus Strategy
A
- Gaining competitive advantage by focusing on narrow market segment to develop cost focus/differentiation strategy (typically differentiation)
- Niche markets provide greater opportunities for differentiation
11
Q
Vision Statement
A
- Stretches capabilities of organization and creates meaningful long-term goals
- Vision statements are typically public facing
12
Q
Mission Statement
A
- What does organization do
- What are core values
- Typically have product or customer focus
13
Q
Traditional Top-Down Approach
A
- Best for stable sectors
- External: Opportunities and threats
- Internal: Strengths and Weaknesses
- Constantly communicated throughout the organization
- Funding and other resources approved and mobilized
- Performance is measured and reviewed, corrective action taken if needed
13
Q
Core Values
A
- Guiding principles of the firm
- Support company’s vision, shape culture, and reflect company’s identity and personality
14
Q
Strategic Planning Under Uncertainty
A
- Level 1: Clear enough future
- Level 2: Alternative but well defined futures
- Level 3: Range of possible futures
- Level 4: True ambiguity
15
Q
Scenario-Based Approaches
A
- Set planning score
- Identify/confirm environmental factors that will shape firm’s future
- Select 2-3 key variables and develop range of possible outcomes
- Create teams to map out plausible futures and identify likely opportunities and threats
- Chose preferred/dominant scenario and continue planning process
- Develop trigger points for alternative scenarios and develop contingency plans
16
Q
External Environment
A
- General Environment - Difficult for firm to have control over this
- Industry
- Market
- Firm
17
Q
PESTEL Framework
A
- Political - Firms have only slight control over this (i.e., lobbying)
- Economic
- Socio-Cultural (Demographic)
- Technological
- Ecological
18
Q
Structure-Conduct-Performance Model
A
- Structure - Number of direct competitors
- Conduct - Branding/Product differentiation
- Performance - Profits, Value Creation
19
Q
Five Forces Model
A
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of new entrants
- Threat of substitute products or services
- Rivalry among existing competitors
20
Q
Industry Concentration
5 Forces
A
- Ratio = combined market shares of given number of firms to whole market size
- Used to assess if market is oligopolistic
- Oligopoly when top 5 account for 60% of market share
- Higher concentration ratio = higher bargaining power
- Impacts: competitive rivalry, buyer/supplier bargaining power
21
Q
Switching Costs
5 Forces
A
- Cost consumer incurs as result of switching brands, suppliers, or products
- Impacts: All five forces
22
Q
Forward/Backward Integration
5 Forces
A
- Business strategy that involves a form of vertical integration to control distribution/supply by moving down (forward) or up (backward) the supply chain
- Impacts: Buyer/Supplier Bargaining power
23
Q
5 ForcesHigh Supplier Bargaining Power
A
- Concentrated/limited supplier industry
- Suppliers not dependent on industry for majority of revenue
- Suppliers hold scarce resources
- There are no/few supplier substitutes
24
High Buyer Bargaining Power
| 5 Forces
* Few buyers and each purchases large quantities
* Products are standardized/undifferentiated commodities
* Buyers face low/no switching costs
* Buyers are price-sensitive
* Buyers can backward integrate into industry
25
High Threat of Substitutes
| 5 Forces
* Substitute offers attractive price-performance tradeoff
* Buyers cost of switching to substitute is low
* Buyers are not loyal to any of industry competitors
26
High Threat of New Entrants
| 5 Forces
* There are no/low barriers of entry
* Economies of scale
* Network effects
* Capital requirements
* Government policy
27
Rivalry among existing competitors
* Less rivalry when
* High buyer switching costs
* Low exit barriers
* Economies of scale no competitive a factor
* More industry concentration
28
Ways to Shape Strategy
* Increase product differentiation
* Diversify product lines
* Introduce or strengthen switching costs (i.e., loyalty programs)
* Continually innovate to increase product value
* Alter bargaining relation ships
29
VRIO Analysis
* Valuable
* Rare
* Costly to Imitate
* Organized to capture value
30
Liquidity (Ratio Analysis)
* Current Ratio - Compares current assets to current liabilities (< 2 is risky)
* Quick Ratio - Only looks at most liquid assets
31
Activity and Asset Quality (Ratio Analysis)
* Days Sales Outstanding - Ability to issue credit and be paid back on time
* Inventory Turnover - Time it takes to sell off inventory
* Asset Turnover - Value of sales to assets
32
Liquidity (Ratio Analysis)
* Current Ratio - Compares current assets to current liabilities (< 2 is risky)
* Quick Ratio - Only looks at most liquid assets
33
Capital Adequacy (Ratio Analysis)
Debt to equity ratio
34
Earnings and Profitability (Ratio Analysis)
* Gross margin
* Net profit margin
* Return on assets
* Return on equity
35
Stability Strategy
* Absence of significant change
* Maintain competitive advantage/parity
* Modest growth targets
* Not usually the only strategy used by multi-business firms
36
Renewal Strategy (Retrentchment)
* Do not involve bankruptcy
* Turnaround - More extreme than retrenchment
* Chapter 11 - Reorganization
* Used to keep business alive
* Divestiture - Rid self of underperforming asset
37
Renewal Strategy (Liquidation)
* Chapter 7 Liquidation
* Characterized by absence of significant change
* Used by companies that are downsizing/environment of decline
* Goal to emerge with sustainable competitive advantage
38
Growth Strategies
* Expands industries or markets
* Expands product offerings
* Higher firm profits and greater returns
* Drives more economies of scale
* Signals firm as industry leader
* Can mask weakness in other areas
39
Concentration (Growth Strategy)
* Concentration - Focus on single market/product
* Significant risk of losses due to drop in demand
40
Vertical Integration (Growth Strategy)
* Acquire business operations within same production chain; manufacturing, distribution, retail
* More control over business
* May result in lower costs
* Facilitates additional cost controls
* May increase costs due to upstream capacity issues
* Requires large amounts of capital
41
Horizontal Integration (Growth Strategy)
* Merger of companies at same stage of production
* Merger -Two competitors joining together to create new combined form
* Acquisitions - Typically larger firms buys a smaller firms
42
Diversification (Growth Strategy)
* Firm enters different market from core business
* Unrelated Diversification - Adding new unrelated products or services lines (Berkshire Hathaway)
* Related Diversification - Expanding into related products and service lines related
* Geographic Diversification - Expanding into new geographic area
* Leverage existing capabilities to potentially increase economies of scale
* Pursue new growth and profit opportunities
* Spread financial risks over different products and markets
* Cross-subsidize products or operations
43
Blue Ocean Strategy
* Create an uncontested market space
* Make competition irrelevant
* Create and capture new demand
* Value innovation to break the tradeoff
* Align a new system in pursuit of low cost and differentiation
