Chapter 1 Notes Flashcards
strategy
theory about how to gain competitive advantages
strategic management process
a sequential set of analyses and choices that can increase the likelihood that a firm will choose a good strategy
mission
long term purpose, usually written in a mission statement
visionary firms
firms whose mission is central to all they do
objectives
specific measurable targets a firm can use to evaluate the extent to which it is realizing its mission
external analysis
firm identifies the critical threats and opportunities in its competitive environment
internal analysis
helps a firm identify its organizations strengths and weaknesses
business level strategies
actions firms take to gain competitive advantages in a single market or industry
corporate level strategies
actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously
strategy implementation
occurs when a firm adopts organizational policies and practices that are consistent with its strategy
competitive advantage
a firm has this when it is able to create more economic value than rival firms
economic value
the difference between the perceived benefits gained by a customer that purchases a firm’s products or services and the full economic cost of these products or services
temporary competitive advantage
a competitive advantage that lasts for a very short period of time
sustained competitive advantage
lasts much longer than a temporary competitive advantage
competitive parity
firms that create the same economic value as their rivals experience this
competitive disadvantage
firms that generate less economic value than their rivals have this
accounting performance
measure of its competitive advantage calculated by using info from published financial statements
ratios?
pg 14 Revisit if required by teacher
accounting ratios
numbers taken from a firms financial statements that describe company performance
profitability ratios
ratios with some measure of profit in the numerator and some measure of firm size or assets in the deonominator
liquidity ratios
ratios that focus on the ability of a firm to meet its short term obligations
leverage ratios
ratios that focus on the level of a firms flexibility, including the ability to obtain more debt
activity ratios
ratios that focus on the level of activity of a firm’s business
above average accounting performance
when its performance is above the industry average
average accounting performance
when a firm operates at the industry average
below average accounting performance
when a firm operates at below the industry average
cost of capital
rate of return that a firm promises to pay it suppliers of capital
economic measures of competitive advantage
compares a firm’s level of return to its cost of capital
two types of capital
debt and equity
cost of debt
interest that a firm pays its creditors
cost of equity
interest that a firm promises its equity holders
weighted average cost of capital(WACC)
the percentage of a firm’s total capital
above normal economic performance
when a firm earns more than its cost of capital
normal economic performance
when a firm earns its cost of capital
below normal economic performance
when a firm earns less than its cost of capital
emergent strategies
theories of how to gain competitive advantage in an industry
