Chapter 1: What is Strategy?

Question 1

Define “Strategic Management.”

Answer 1

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

Question 2

Define “Strategy.”

Answer 2

a set of goal directed actions firms used to gain an advantage over their competitors.

Question 3

New Venture companies compete for…?

Answer 3

financial and human capital.

Question 4

Existing companies compete for…?

Answer 4

profitable growth.

Question 5

Charities compete for…?

Answer 5

donations

Question 6

Universities compete for…?

Answer 6

the best students and professors.

Question 7

A good strategy consists of what 3 elements?

Answer 7

A diagnosis of the competitive challenge, a guiding policy to address the competitive challenge, and a set of coherent actions to implement the firms guiding policy.

Question 8

How is the competitive challenge analyzed? What is Twitter’s competitive challenge?

Answer 8

The first step of a firm’s strategy is to diagnose the competitive challenge. The firm analyzes its internal and external environment. For example, Twitter’s competitive challenge is to grow its online user base.

Question 9

What could Twitter’s guiding policy be?

Answer 9

Make it easier to sign up, more broadly define its user base, etc.

Question 10

Define “Competitive Challenge.”

Answer 10

Superior performance relative to other company’s in the same industry.

Question 11

Define “Sustainable Competitive Advantage.”

Answer 11

Outperforming competitors or the industry average over a long period of time.

Question 12

Define “Competitive Disadvantage.”

Answer 12

Under-performance relative to other company’s in the same industry.

Question 13

Define “Competitive Parity.”

Answer 13

Performance of 2 or more firms at the same level.

Question 14

What is “strategic positioning?”

Answer 14

This is the method managers use to create superior value while containing costs. It involves staking out a unique position in the industry.

Question 15

The size of a firm’s economic contribution is determined by…

Answer 15

The difference between value creation and cost- the larger the difference, the greater the firm’s economic contribution, and the more likely it will be to gain a competitive advantage,

Question 16

Strategic positioning requires…?

Answer 16

Trade-offs.

Question 17

What is the key to a successful strategy

Answer 17

Unique positioning. A firm should combine its activities to gain a unique position in the industry. For example, Walmart uses big stores in rural area, low corporate overhead, and low base wages to retain its position as cost leader in its industry.

Question 18

Competitive advantage comes from performing…?

Answer 18

different activities than rivals, or performing the same activities differently than rivals.

Question 19

What strategy is NOT (3)

Answer 19

1. ) Grandiose statements: “our goal is to win.”
2. ) A failure to face competitive challenges: managers must know if they are making progress.
3. ) Operational effectiveness, competitive benchmarking, or other tactical tools: these support competitive advantage but are not enough to sustain it. Strategies must gain AND retain competitive advantage.

Question 20

Define “Industry Effects.”

Answer 20

Firm performance attributed to the structure of the industry in which it competes. This explains 20% of a firm’s profitability.

Question 21

Define “Firm Effects.”

Answer 21

Firm performance attributed to the actions managers take. This explains about 55% of performance.

Question 22

How do firms create value?

Answer 22

By competing in their own self-interest while obeying the law and acting ethically. This way, they can provide goods to consumers at prices they can afford while still making a profit.

Question 23

Define “Black Swan Events.”

Answer 23

Incidents that describe highly-improbable but highly-impactful events. e.g., global financial crisis, 9/11 attacks, fall of Berlin Wall, etc.

Question 24

Define “stakeholders.”

Answer 24

Organizations, groups, and individuals that can affect or are affected by a firm’s actions.

Question 25

A company with a good strategy… ?(4 positives)

Answer 25

1. ) provide goods to consumers at prices they can afford.
2. ) Makes a profit.
3. ) Benefits both parties.
4. ) Makes society better.

Question 26

Black Swan Event’s impact on trust between firms and society?

Answer 26

Events like Enron and the 2008 Real Estate Bubble have caused trust to deteriorate.

Question 27

Most black swan events result from…?

Answer 27

Managerial actions or inaction.

Question 28

Define “Stakeholder Strategy.”

Answer 28

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

Question 29

Who is considered an internal stakeholder? (3)

Answer 29

Employees, stockholders, and board members.

Question 30

Who is considered an external stakeholder? (8)

Answer 30

Customers, suppliers, alliance partners, creditors, unions, communities, government, media.

Question 31

How can effective stakeholder management benefit a firm’s performance? (5)

Answer 31

1. ) Satisfied stakeholders cooperate more and may reveal helpful info to the firm.
2. ) Increased trust can lower the cost of business transactions.
3. ) Greater organizational adaptability and flexibility.
4. ) More stability/ fewer negative outcomes.
5. ) Better public perception.

Question 32

Define “stakeholder impact analysis.”

Answer 32

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 33

What 3 attributes must a manager pay attention to when conducting a stakeholder impact analysis?

Answer 33

1. ) power. a stakeholder has power over a firm when it can get it to do something it would not otherwise do.
2. ) Legitimacy: a stakeholder has a legitimate claim when in it legally valid.
3. ) Urgency: a stakeholder has an urgent claim when it requires an immediate response.

Question 34

What are the 5 steps of the stakeholder impact analysis?

Answer 34

1. ) Identify stakeholders.
2. ) Identify stakeholders’ interests.
3. ) Identify opportunities and threats.
4. ) Identify social responsibilities.
5. ) Address stakeholder concerns

Question 35

Shareholders as stakeholders

Answer 35

they are legal owners who have a legitimate claim on a firm’s profits.

Question 36

What do shareholder activists do?

Answer 36

Put pressure on a company to change its strategy.

Question 37

In the best case scenario, how do managers handle stakeholder threats?

Answer 37

by turning them into opportunities.
e.g., The Dutch blocked Sony from delivering a holiday shipment due to a small amount of toxins found. Sony launched an investigation and was able to develop new, cutting-edge technology in the process.

Question 38

Define “corporate social responsibility” (CSR).

Answer 38

a framework to recognize and address economic, legal, social, and philanthropic expectations.

Question 39

What is the pyramid of corporate social responsibility?

Answer 39

a conceptual model that more completely describes a society’s expectations and can guide strategic decision making more effectively. Bottom to top: economic, legal, ethical, philanthropic.

Question 40

What is the AFI stratefy framework?

Answer 40

a model that links 3 interdependent strategic management tasks- analyze, formulate, and implement, that, together, help managers plan and implement a strategy that can improve performance and result in competitive advantage.

Question 41

What are the 3 components of the AFI strategy framework?

Answer 41

Analyze, formulate, implement.

Question 42

The strategist makes decisions under conditions of …)

Answer 42

uncertainty and complexity.