Chapter 1

Question 1

Strategic management

Answer 1

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

Question 2

What is strategy

Answer 2

A set of goal directed actions a firm takes to gain insisting superior performance relative to competitors

Question 3

A good strategy consists of which three elements?

Answer 3

1) analysis: diagnosis of the competitive challenge
- accomplished through strategy analysis of the firms internal and external environments

2) formulation: guiding policy to address the competitive challenge
3) Implementation: a set of coherent actions to implement the firms guiding policy

Question 4

What is competitive advantage?

Answer 4

A firm that achieves superior performance relative to other competitors in the same industry or the industry average

Question 5

What is sustainable competitive advantage

Answer 5

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

Question 6

What is competitive disadvantage

Answer 6

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

Question 7

Competitive parity

Answer 7

Performance of two or more firms at the same level

Question 8

To gain competitive advantage, what does a firm need to provide? What are the rewards of superior value creation and capture?

Answer 8

To gain competitive advantage a firm needs to supply either goods or services consumers value highly than those of its competitors, or goods and services similar to competitors at a lower price.

The rewards of superior value creation and capture are profitability and market share

Question 9

What is strategic positioning

Answer 9

Stake out a unique position within an industry to provide value to customers, while controlling costs

• -> the greater the difference between value creation and cost
• the greater the firms economic contribution
• the more likely it will gain competitive advantage

Question 10

What types of trade offs did Walmart and Nordstrom make to pursue different strategies ?

Answer 10

Managers must make conscious trade offs –>enables competitive advantage

• Walmart: everyday low prices
• Nordstrom: professional sales people in an upscale/professional setting

Question 11

What is the key to successful strategy (to gain competitive advantage)?

Answer 11

–> combine activities for a unique position in an industry

Competitive advantage has to come from:

• performing different activities
• performing the same activities differently than rivals

Question 12

What are the three hallmarks of what strategy is not?

Answer 12

1) grandiose statements: statements of desire (“our strategy is to win”)

2) a failure to face a competitive advantage
- -> managers must know whether they are making progress in addressing the challenge

3) operational effectiveness, competitive benchmarking, or other tactical tools
- ->support competitive strategy, not able to sustain it

Question 13

What are the two factors that primarily determine firm performance? Each factor explains what percent of a firms profitability?

Answer 13

Industry effects: describe the underlying economic structure of the industry

• determined by elements common to all industries (entry/exit barriers, number and size of companies, types of products and services offered)
• about 20% of a firms profitability depends on the industry it is in

Firm effects: firm performance is attributed to a managers actions

• more important factor in determining firm performance than external environment forces
• a firms strategy can explain up to 55% of its performance

Question 14

What is a black swan event? What are some examples of business related black swan events?

Answer 14

• describes the high impact of a highly improbable event
• trust between corporations and society have deteriorated because of black swans
• most black swan events result from executive actions

Ex: accounting scandals– Enron, Arthur Andersen, worldcom, tyco, adelphia, and pArmalat

Question 15

What are stakeholders? What types of internal and external stakeholders exists

Answer 15

• organizations, groups, and individuals
• they can affect or are affected by a firms actions
• have a vested claim or interest in the performance and continued survival of the firm

Internal: stockholders, employees, board members
External: customers, suppliers, alliance partners, creditors, unions, communities, media, and governments at various levels

Question 16

What is stakeholder strategy? What is a core tenet of stakeholder strategy?

Answer 16

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

Core tenet: that a single minded focus on shareholders alone exposes a firm to undue risks

Question 17

In what ways can effective stakeholder management benefit firm performance?

Answer 17

• cooperation and information availability
• lowered costs
• greater organizational adaptability and flexibility
• more predictable and stable returns
• stronger reputation

Question 18

What is stakeholder impact analysis?

Answer 18

A decision tool with which managers can recognize, prioritize, and address the needs of different stakeholders, enabling the firm to achieve competitive advantage while acting as a good corporate citizen

Question 19

What are three important stakeholder attributes

Answer 19

Power, legitimacy, and urgency

Question 20

What are the five steps and stakeholder impact analysis?

Answer 20

1) identify stakeholders:
- focus on stakeholders that the firm has, or potentially can have
- identify powerful internal and external stakeholders and their needs

2) identify stakeholder interests:
- specify and assess the interest and claims of stakeholders (use power, legitimacy, and urgency criteria)
- shareholders: have legal owners. Have a legitimate claim on a company’s profits
- employees can be turned into shareholders
- shareholder activists put public pressure on a company to change its strategy

3) identify opportunities and threats:
- opportunities and threats are two sides of the same coin
- managers should try to transform threats into opportunities

4) identify societal responsibilities
- what economic, legal, ethical, and philanthropic responsibilities do we have to our stakeholders?
- corporate social responsibility

5) address stakeholder concerns
- managers decide the appropriate course of action
- the attributes of power, legitimacy, and urgency help to prioritize legitimate claims

Question 21

What is corporate social responsibility

Answer 21

A framework that helps firms recognize and address the economic, legal, social, and philanthropic expectations that society has of the business enterprise at a given point in time

Question 22

What are the four components of of CSR?

Answer 22

• economic responsibilities
• legal responsibilities
• ethical responsibilities
• philanthropic responsibilities
• –> giving back to the society

Question 23

What is the AFI strategy framework? What does the framework explain and predict? How does the framework help managers ?

Answer 23

AFI strategy framework: a model that links three interdependent strategic management task– analyze, formulate, and implement– that together, help managers plan and implement a strategy that can improve performance and result in competitive advantage.

A-analysis: strategic leadership, external analysis, internal analysis, competitive advantage

F- formulation: business strategy, corporate strategy, global strategy

I- implementation: organizational design, corporate governance and business ethics