Chapter 1: What is Strategy? Flashcards
Define “Strategic Management.”
an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage.
Define “Strategy.”
a set of goal directed actions firms used to gain an advantage over their competitors.
New Venture companies compete for…?
financial and human capital.
Existing companies compete for…?
profitable growth.
Charities compete for…?
donations
Universities compete for…?
the best students and professors.
A good strategy consists of what 3 elements?
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.
How is the competitive challenge analyzed? What is Twitter’s competitive challenge?
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.
What could Twitter’s guiding policy be?
Make it easier to sign up, more broadly define its user base, etc.
Define “Competitive Challenge.”
Superior performance relative to other company’s in the same industry.
Define “Sustainable Competitive Advantage.”
Outperforming competitors or the industry average over a long period of time.
Define “Competitive Disadvantage.”
Under-performance relative to other company’s in the same industry.
Define “Competitive Parity.”
Performance of 2 or more firms at the same level.
What is “strategic positioning?”
This is the method managers use to create superior value while containing costs. It involves staking out a unique position in the industry.
The size of a firm’s economic contribution is determined by…
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,
Strategic positioning requires…?
Trade-offs.
What is the key to a successful strategy
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.
Competitive advantage comes from performing…?
different activities than rivals, or performing the same activities differently than rivals.
What strategy is NOT (3)
- ) Grandiose statements: “our goal is to win.”
- ) A failure to face competitive challenges: managers must know if they are making progress.
- ) 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.
Define “Industry Effects.”
Firm performance attributed to the structure of the industry in which it competes. This explains 20% of a firm’s profitability.
Define “Firm Effects.”
Firm performance attributed to the actions managers take. This explains about 55% of performance.
How do firms create value?
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.
Define “Black Swan Events.”
Incidents that describe highly-improbable but highly-impactful events. e.g., global financial crisis, 9/11 attacks, fall of Berlin Wall, etc.
Define “stakeholders.”
Organizations, groups, and individuals that can affect or are affected by a firm’s actions.
A company with a good strategy… ?(4 positives)
- ) provide goods to consumers at prices they can afford.
- ) Makes a profit.
- ) Benefits both parties.
- ) Makes society better.
Black Swan Event’s impact on trust between firms and society?
Events like Enron and the 2008 Real Estate Bubble have caused trust to deteriorate.
Most black swan events result from…?
Managerial actions or inaction.
Define “Stakeholder Strategy.”
an integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage.
Who is considered an internal stakeholder? (3)
Employees, stockholders, and board members.
Who is considered an external stakeholder? (8)
Customers, suppliers, alliance partners, creditors, unions, communities, government, media.
How can effective stakeholder management benefit a firm’s performance? (5)
- ) Satisfied stakeholders cooperate more and may reveal helpful info to the firm.
- ) Increased trust can lower the cost of business transactions.
- ) Greater organizational adaptability and flexibility.
- ) More stability/ fewer negative outcomes.
- ) Better public perception.
Define “stakeholder impact analysis.”
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.
What 3 attributes must a manager pay attention to when conducting a stakeholder impact analysis?
- ) power. a stakeholder has power over a firm when it can get it to do something it would not otherwise do.
- ) Legitimacy: a stakeholder has a legitimate claim when in it legally valid.
- ) Urgency: a stakeholder has an urgent claim when it requires an immediate response.
What are the 5 steps of the stakeholder impact analysis?
- ) Identify stakeholders.
- ) Identify stakeholders’ interests.
- ) Identify opportunities and threats.
- ) Identify social responsibilities.
- ) Address stakeholder concerns
Shareholders as stakeholders
they are legal owners who have a legitimate claim on a firm’s profits.
What do shareholder activists do?
Put pressure on a company to change its strategy.
In the best case scenario, how do managers handle stakeholder threats?
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.
Define “corporate social responsibility” (CSR).
a framework to recognize and address economic, legal, social, and philanthropic expectations.
What is the pyramid of corporate social responsibility?
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.
What is the AFI stratefy framework?
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.
What are the 3 components of the AFI strategy framework?
Analyze, formulate, implement.
The strategist makes decisions under conditions of …)
uncertainty and complexity.
