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MGT 8803 > Business Strategy Week 2 > Flashcards

Business Strategy Week 2 Flashcards

1
Q

external market (from out to in)

A

general environment-political economic socio cultural demographic technological ecological and legal/ethical
industry-markets and strategic groups
market - customer competitors business partners and community
firm

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2
Q

pestel analysis components

A

political
economic
socio-cultural (and demographic)
technological
ecological
legal and ethical

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3
Q

michael porter general idea

A

strategy should be formulated on the basis of analysis

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4
Q

Henry Mintzberg general idea

A

strategy as planned emergence

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5
Q

external environment

A

refers to the factors, forces, situations, and events outside the organization that affects its performance

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6
Q

strategic group

A

direct competitors w/ similar business models and strategies

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7
Q

pestel - political

A

-can potentially be influenced through lobbying ( one of few areas a firm can actually influence)
examples of impacts of political
-tax policy
-subsidies or grants
-tariffs
-political action to drive legislation

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8
Q

pestel - economic

A

-influence spending and types of purchases for businesses and consumers
-economic business cycle
-cost of capital

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9
Q

pestel - socio-cultural (demographic)

A

-impact market sizes and types of products customers want to buy
-demographics like hispanic people buying power or age related buying can have an impact

-socio cultural - values and beliefs
-going green
-health concious

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10
Q

pestel - technological

A

new technology can change the other factors

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11
Q

pestel - ecological

A

can impact a frims reptutation and attractiveness to customers

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12
Q

pestel - legal/ethical

A
  • employment and labor laws and regulations;
  • consumer and privacy laws;
  • health and safety in the work place;
  • packaging and labeling; and
  • interstate and international trade regulation.
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13
Q

what is pestel analysis? what are the steps?

A

external analysis tool to identify key macro-econmoic forces

-identify external factors that most directly impact the firm
-research and analyze how relevant forces are trending so you can make predictions about the future
-from predicted futures identify opportunities and threats

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14
Q

pestel analysis- prioritization approach

A

you want to prioritize high impact things that have a high probability of occurence and deprioritize low impact things with a low probability of occurance. closer to high you build strategy, somewhere in the middle you monitor

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15
Q

the structure conduct performance model key assumption (SCP)

A

assumes industry structure determines firm conduct which in turn determines firm performance

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16
Q

structure conduct performance model components (SCP)

A

-structure - # of competitors and product diversity, extent of vertical integration and value chain, economics of supply and demand, cost of entry/ exit
-conduct - specific firm actions like branding, differentiation, and price setting, capacity, innovation, operating efficiencies, collusion
-performance - performance of individual firms and the industry as a whole.
profits, value creation, technological progress, returns for shareholders,performance in industry

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17
Q

Perfect competition

A
  • many small firms
    -firms are price takers - a company has little or no control over the price of its products or services
    -commodity product
    -low entry barriers
    -most fragmented ( low profitability)
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18
Q

monopolistic competition

A

-many firms
-some pricing power
-differentiated
-medium entry barriers

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19
Q

oligopoly

A

-few large firms
-some pricing power
-differentiated
-high entry barriers
-either homogeneous or heterogeneous products

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20
Q

monopoly

A

-one firm
-considerable pricing power
-unique product
-very high entry barriers
-most consolidated (high profitability)

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21
Q

when is A firm is a price taker

A

when it responds to changes in industry supply and demand by adjusting prices, rather than attempting to influence the level of supply or demand

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22
Q

porter five force model reason for existing

A

The closer that competitive conditions of an Industry approximate perfect competition the more unattractive the industry becomes

therefore

The Porter Five Forces Model is focused on Industry structure and how factors that drive structure impacts firm profitability

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23
Q

porter five forces model

A

competitve rivalry ( main driver) among existing competitors and the other drivers:
-threat of new entrants
-bargaining power of buyers
-bargaining power of supplies
-threat of substitute product or services

-provide the industry structure in which the various firms compete.

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24
Q

concentration ratio (industry concentration)

A

ratio of combined markets shares of a given number of top firms to whole market size
-An economic metric that can measure fragmentation
-used to asses the extent to which a market is oligopolistic
-most common is top 4

impacts:
competitive rivalry
buyer bargaining power
supplier bargaining power

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25
Q

switching costs

A

costs incurred as a result of changing brands suppliers or products
-costs can be monetary but also psychological, effort and time based
impacts - all five forces

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26
Q

forward integration

A

a form of vertical integration moves down the supply chain to expand business activities to control direct distribution or supply of companies products. when a firm purchases or builds it’s own retail or distribution centers
impacts

-buying bargaining power

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27
Q

backward integration

A

up the supply chain by controlling supply before the company. a firm purchases or becomes it’s own supplier

-supplier bargaining power

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28
Q

porter five forces - power of suppliers: when is bargaining power of suppliers high?

A

-concentrated or limited supplier industry
-suppliers not dependent on industry for majority of revenue
-industry competitors firms face supplier switching costs
-suppliers hold scarce resources
-suppliers offer differentiated products
-no or few suppliers substitutes
-suppliers can forward integrate into the industry

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29
Q

porter five forces -bargaining power of buyers: when is bargaining power of buyers high?

A

-few buyers and each buyer purchase large quantities
-industries products are standardized or undifferentiated commodities
-buyer has many substitutes
-buyers have low or no switching costs
-buyers are price sensitive
-buyers can backwardly integrate into the industry

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30
Q

porter five forces -threat of substitutes: when is the threat of substitutes high?

A

-substitute has attractive price-performance tradeoff
-buyers switching cost to substitute is low
-buyer are not loyal to any of the industry competitors

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31
Q

what is the primary impact of substitutes (porter 5 forces)

A

the limit placed on the pricing flexibility of the industry competitors

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32
Q

porter five forces -threat of new entrants: when is the threat of new entrants high? What barriers to entry are there?

A

-when there are now or low barriers of entry and the industry avg profitability is high

barriers to entry
-economies of scale
-network effects
-customer switching costs
-capital requirements
-advantages independent of size
-government policy
-credible threat of retailation

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33
Q

porter five forces -competitive rivalry

A

the amount of competition for market share and profitability
-other 4 forces put pressure on rivalry
-the stronger the forces the stronger the intensity

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34
Q

when do firms have less rivalry ( porters 5 forces)

A

-high buyer switching costs
-low exit barriers
-economies of scale
-more industry concentration
-more product differentiation (the herogenous or dissimilar products are the more attractive the industry)

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35
Q

are industries static or dynamic (porter)

A

industryies are dynamic. porters 5 forces analysis is a snapshot as of a point in time and needs to be revisited periodically

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36
Q

how are industries dynamic?

A

-barriers to entry can be made more or less difficult (patents, buyer loyalty, technology)
-supplier power can change ( vertical integration)
-technology ( new products or leapfrog product lines, capacity)
-competitor rivalry intensifies as industries mature
-sociocultural, demographic, technological, etc changes impact buyer preferences

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37
Q

what is a complement? benefits?

A

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

tends to result in higher margins and profits for industry competitors. they stimulate demand

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38
Q

How can companies eliminate obstacles to firm profitability?

A

-increase product differentiation
-diversify product lines
-introduce or increase switching costs
-innvoate to increase product value
-alter bargaining relationships between industry competitors buyers and suppliers
-build barriers to entry to keep new competition out
-develop complement or build strategic partnerships w/ complement providers

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39
Q

internal analysis

A

analyze and assess the internal capabilities and resources of the organization and to evaluate the firm’s ability to leverage its strengths or mitigate its weaknesses when pursuing external opportunities or protecting the firm against external threats.

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40
Q

Sources of Competitive Advantage

A

-core competencies
-resources
-capabilites
-activites

41
Q

Sources of Competitive Advantage - core competencies

A

–unique strengths that drive competitive advantage

42
Q

Sources of Competitive Advantage - resources

A

–tangible and intangible assets of the firm

43
Q

Sources of Competitive Advantage - capabilities

A

organizational and managerial skills, what a firm can do

44
Q

Sources of Competitive Advantage - activities

A

transform inputs into outputs (goods or services). business processes

45
Q

resource-based view

A

relies on resources
tangible and intangibles
that must be
heterogenous and immobile
and have vrio attributes to become
vrio resources
that provide
competitive advantage

46
Q

Resource-Based View - tangible

A

-easiest to identify
-physical assets (land,buildings, equipment
-financial resources
-need to understand their potential for creating competitive advantage
-dont provide as much advantage because other companies can just buy them

47
Q

Resource-Based View - intangible

A

-more likely than tangible to create a sustainable competitive advanatage
-difficult to measure (especially on balance sheets)
-large market to book disparities
important ex: brands technology / intellectual property
-other companies can’t buy this
- more likely to create a competitive advantage than tangible resources

48
Q

Resource-Based View - tangible / intangible: human capital

A

-have characteristics that are both intangible and tangible
-skills, knowledge, knowhow
-most important resource for many firms is human capital
-differ from intangible resources because firms don’t own humans

49
Q

Resource-Based View - heterogenous

A

-skills, capabilities, and other resources that organizations’ possess differ from one firm to another

50
Q

Resource-Based View - immobile

A

they cannot be easily transferred to a different organization

51
Q

vrio acronym

A

for a resource to provide competitive advantage it must be vrio resource
valuable
rare
costly to Imitate
organize to capture value

52
Q

VRIO Analysis steps

A

if a resource is
not valuable then eliminator or outsource ( be cost effective)
-competitive disadvantage

if a resource is
valuable but not rare then keep it but focus on being cost effective
-competitive parity

if a resources is
valuable, rare, but not costly to imitate then find ways to protect it or innovate to stay ahead of competition
-temporary competitive advantage

if a resource is rare, costly to imitate, but not organized to capture value then it’s probably not contributing to competitive advantage or parity. license if possible or modify org. to exploit it
-temporary competitive advantage

if a resource is
valuable, rare, costly to immitate, AND the firm is organized to capture it’s value
then sustained competitive advantage

53
Q

according to vrio, when can a firm get a sustained competitive advantage

A

a firm can only gain a sustained competitive advantage if it has the resources and capabilities that satisfy VRIO requirements

54
Q

why would a resource be costly to imitate?

A

-historical condition- resources developed over a long period of time (brand reputation)
-causal ambiguity- competitiors don’t know what is giving you an advantage
-social complexity - resources and capabilities are interwoven in the fabric of a frim’s culture and interpersonal relationships. two or more things combine to create a resource

55
Q

competitive conformity ( vrio)

A

the firm is not worse than its competitors, but it’s not better either

happens when a resource is valuable but not rare

56
Q

value chain analysis (value chain framework)

A

supporting activities and primary activities create margin

supporting activities
r + d
information systems
hr
firm infrastructure
accounting finance and planning

primary activities
inbound logisitics
manufacturing and assembly
distribution
marketing and sales
post-sales support

57
Q

inbound logistics (value chain framework)

A

supply chain management or transportation. anything involved in order planning, placement, receiving storing, or distributing raw material.

commonly outsourced ( not a competitive advantage)

58
Q

manufacturing and assembly (value chain framework)

A

the stage where raw materials and other inputs are turned into product

manufacturing for industrial companies and for service related companies a process that supports value creation (claims processing)

59
Q

distribution (value chain framework)

A

distribution of final product to customers

the value created is place value

60
Q

marketing and sales (value chain framework)

A

advertising, promotion, sales force organization, selecting distribution channels, pricing and managing customer relationships and post sales support

61
Q

post-sales support (value chain framework)

A

-activities such as installation, training, maintenance, repair, warranty, and other after sales services.

62
Q

what does (value chain analysis do?

A

helps you understand how the firm create value for it’s customers

63
Q

what is a value chain?

A

the full range of activities a firm performs to bring a product from conception to delivery. the full range of activities a firm performs to bring a product from conception to delivery.

64
Q

r&d (support) (value chain framework)

A

researching the firms market and customer needs and developing new and improved products and services to fit these needs

65
Q

information systems (support) (value chain framework)

A

technology can be used to develop a prodcut

66
Q

hr (support) (value chain framework)

A

activities involving hiring and retaining employees and ensuring employees are placed in the right jobs

67
Q

firm infrastructure (support) (value chain framework)

A

refers mainly to the management of the firms physical infrastructure including the assets of the firm

68
Q

accounting, finance, and planning (support) (value chain framework)

A

adminstrative functions that support many of the planning and control functions of the organization

69
Q

(Ratio Analysis and Benchmarking)

A
70
Q

what is the primary objective of porters 5 forces? add to assessment page

A
71
Q

asset specificity add to assessment page

A
72
Q

what 3 (+ one extra) financial documents are used for developing ratios?

A

-bs
-is
-statement of cash flows
-+ operational metrics and cost accounting data

73
Q

what are the 4 basic types of ratios?

A

-activity and asset quality
-liquidity
-capital adequacy
-earnings and profitability

74
Q

(internal analysis) Activity and Asset Quality Ratios - days sales outstanding

A

how well a business can issue credit to customers and be paid back on a timely basis

can be an indicator of product quality issues or taking on bad credit risks

75
Q

(internal analysis) Activity and Asset Quality Ratios - inventory turnover

A

the time it takes to sell inventory

low -> too much inventory and risk of it becoming obsolete
high-> could be due to poor planning

76
Q

(internal analysis) Activity and Asset Quality Ratios - asset turnover

A

the value of sales or revenues relative to the value of it’s assets

indicator of the efficiency that the company is using it’s assets to generate revenue. higher is more efficient

77
Q

(internal analysis) Liquidity Ratios - Current Ratio

A

compares current assets to current liabilities

does the business have enough immediate assets to pay back immediate liabilites? ratio less than 2 is liquidity risk

78
Q

(internal analysis) Liquidity Ratios - Quick Ratio

A

measures level o the most liquid current assets availabel to cover current liabilities. excludes inventory and pre-paid expenses which are more difficult to turn into cash

a higher quick ratio means a more liquid position. quick ratios less than 1 are liquidity risk

79
Q

(internal analysis) Capital Adequacy Ratios - debt to equity ratio

A

compares the proportion of debt to equity to see if a business has taken on too much debt. the higher the number the more leverage (and risk)

80
Q

(internal analysis) Earnings and Profitability Ratios - gross margin

A

proportion of earning generated by the sale of goods or services before admin and other non-product expenses

a decline in this could signalpricing pressure, cost control issues or and increasing cost of inputs

81
Q

(internal analysis) Earnings and Profitability Ratios - net profit margin

A

proportion of net profits to sales.

low proportion can indicate a bloated cost structure or pricing pressure

82
Q

(internal analysis) Earnings and Profitability Ratios - return on assets

A

ability of management to efficiently use assets to generate profits

low return indicates a bloated asset base or poor sales

83
Q

(internal analysis) Earnings and Profitability Ratios - return on equity

A

measure of financial performance
-return on net assets (assets - debt = equity)

84
Q

(internal analysis) process benchmarking - types

A
  • Internal (across organizational units)
  • Competitive (often sponsored by Industry Associations or consulting firms)
  • Non-Competitive (functional or capability)
85
Q

(internal analysis) process benchmarking - objectives

A
  • Identify strengths and weaknesses
  • Identify and adopt best practices
86
Q

(internal analysis) common forms of benchmarking

A

process
product
function
financial
performance

87
Q

(internal analysis) common forms of benchmarking - process

A

identify best practices and reduce costs

88
Q

(internal analysis) common forms of benchmarking - product

A

competitive (external analysis)

89
Q

(internal analysis) common forms of benchmarking functionional

A

entire business function (hr for example). decide whether to outsource

90
Q

(internal analysis) common forms of benchmarking - financial

A

financial analysis to assess overall competitiveness

91
Q

(internal analysis) common forms of benchmarking performance

A

assessment of competitive positions ( external analysis)

92
Q

what is the purpose of internal analysis

A

identify firm strengths and weaknesses relative to the opportunities and threats identified in external analysis

93
Q

SWOT framework

A

internal positive - strengths
internal negative - weakness
external positive - opportunities
external negative - threats

94
Q

SWOT strengths

A

positive attributes, tangible and intangible, internal to the firm

core competencies and vrio resources

ex
* brand reputation,
* intellectual property,
* customer relationships,
* and exclusive business partnerships.

95
Q

SWOT weaknesses

A

factors that are within the control of management that detract from the firm’s ability to obtain or maintain a competitive advantage

  • lack of expertise,
  • limited resources,
  • lack of access to skills or technology,
  • inferior service offerings,
  • poor location,
  • poor geographic coverage,
  • poor reputation,
  • negative publicity,
  • the lack of access to distribution channels,
  • inadequate cash flow and other financial weaknesses
96
Q

SWOT opportunities

A

external positives from which the firm hopes to benefit. These opportunities reflect the potential the firm can realize through formulating and implementing strategy

ex
* lifestyle changes,
* resolutions of problems associated with current situations,
* positive market perceptions about the business,
* competitor missteps,
* improving economic conditions,
* or the ability to offer greater value that will create additional demand.

97
Q

SWOT threats

A

factors beyond management’s control that can place the firm’s business strategy or the business itself at risk. A threat is a challenge created by an unfavorable trend or development that may lead to deteriorating revenues or profits. Competition, existing and potential, is always a threat.

98
Q
A

MGT 8803 (11 decks)

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