Chapter 3 Flashcards
What is competitive advantage
When a company’s profitability is greater than the average profitability of all companies in the industry
What does it mean when the company has a sustained competitive advantage
When the company is able to maintain an above average profitability years
What is the primary objective of strategy
Achieve a sustained competitive advantage which will result to a superior profitability and profit growth
What are distinctive competencies
Firm specific strengths which allow a company to differentiate its products from rivals and achieve a lower costs to the rivals
What are the two complementary sources of distinctive competencies
- Resources
- Capabilities
What are resources
Assets of the company
What is process knowledge
Knowledge of internal rules, routines and procedures of an organization that managers can leverage to achieve organizational objectives
What is social complex
Something that is characterized by or is the outcome of the interaction of multiple individuals
What is tacit
A characteristic of knowledge or skills that cannot be documented or codified
What is organizational architecture
Combination of the organizational structure of a company, its control systems, its incentive systems and its organizational culture and human capital strategy
What is intellectual property
Knowledge, research, and information that is owned by an individual or organization
What are the two types of resources
- Tangible
- Intangible
What does it mean to have tangible resources
Physical entities
What does it mean to have intangible resources
Non physical entities that are created by employees
What are examples of intangible assets
Companys reputation, knowledge, experience, intellectual properties
What is the VRIO Framework
Allows managers to think about the quality of resources
What are the acronyms of VRIO
- Value → Resources valuable to exploit opportunities and counter threat
- Rarity → resources valuable to exploit opportunities and counter threats
- Inimitability → Are the resources easy or hard to copy
- Organization → Is the company organized and managed where it enables to exploit its resources and capture the value they produce
What are capabilities
Resource coordinating skills and productive use that reside with the company’s rules, routines and procedures
What are companies capabilities
Product of its organizational structure, process, control systems and hiring strategies
What are distinctive competiencies
Shape strategies that the company pursues which lead to a competitive advantage and superior profitability
What are three things that the company’s profitability depend on
- Value
- Price
- Costs
What is a company’s value
Value place on the products (utility)
What is the price
What is being charged for the product
What are costs
Price of creating products
What is value creation
Value customers place on a product reflect the utility being derived from it, it is based off of price and function of the product
What are the basic factors of production
Resources such as land, labour, management, plants and equipment
What are advanced factors of production
Resources such as process knowledge, organizational architecture and intellectual property that contribute to a company’s competitive advantage
Why is a company’s barriers to imitation high?
Prices knowledge is often tacit, hides from view within the firm and socially complex and implementing new rules from outside to within is bhard to do
What is causal ambiguity
The way that one thing will lead to an outcome that is not understand
What is the value chain consist of
- Production
- Marketing
- Product Development
- Service
- Information Systems
- Material Management
- Human Resources
What are primary activities
Include the design, creation and delivery of the product, the products marketing and support
What are the primary activities that are broken down into four functions
- Research and development
- Production
- Marketing and sales
- Customer Service
What are support activities
Value chain that provides inputs that allow primary activities to take place
What are the four functions of the support activities
- Materials Management
- Human Resources
- Information Systems
- Company Infrastructure
What are the four factors that help a company build and sustain a competitive advantage
- Superior Innovation
- Superior Quality
- Superior Customer Responsiveness
- Superior Efficiency
What does innovation mean
Act of creating new products or processes
What are the two types of innovation
- Product innovation
- Process innovation
What is product innovation
Developing products that are new to the world and have superior attributes to existing products which enable customers to perceive the product as having more value and increasing companies price option
What is process innovation
Developing a new process of producing products and delivering them to customers which allow a company to create more value by lowering production costs
What is quality
Product that can be thought of as a bundle of attributes
What are attributes
Physical product including its form, features, performance, durability, reliability, style and design
What does it mean when the product is to have superior quality
Customers perceive that its attributes provide them with higher utility than sold by rivals
What are the two attributes that customers measure product against
- Related to quality as excellence
- Relates quality as reliability
How do companies achieve responsiveness to customers
Achieving superior quality and innovation
What is customer response time
Critical aspect of responsiveness and its the time it takes for a good to be delivered or a services to be performed
How do you measure efficiency
Outputs/Inputs
How do you measure efficiency
Employee productivity
How to analyze financial performance
Looking at their profitability sows the return that a company is generating on its investments
What is Return on Invested Capital
Best measurement because it focuses on the true operating performance of the company
What is net profit
What is left over after the government takes its share in taxes
What is invested capital
Amount that is invested in the operations of a company: Property, Plant, Equipment, Inventories and other assets
What are the two main sources of invested capital
Interest bearing debt and shareholders equity
What are the three factors to consider regarding the durability of a competitive advantage
- Barriers to Imitation
- The capability of competitors
- The general dynamism of the industry environment
What are barriers to imitation
- When a company with competitive advantage will earn higher than average profits
- Profits = make the company valuable, distinctive and create superior value
What is absorptive capacity
The ability of a company to identify, value, assimilate and use new knowledge
What is a dynamic industry environment have
- A high rate of product innovation
- Shorter product life cycles
Why do companies fail
When they lose their competitive advantage and profitability falls
What happens to a failing company
When the profitability is substantially lower than the average profitability of its competitors: it has lost the ability to attract and generate resources and its profit margins and invested capital
What are 3 reasons why companies fail
- Inertia
- Prior strategic commitments
- Icarus paradox
What is inertia
Company is finding it difficult to adapt to a new environmental condition
What are organizational capabilities
The way a company makes decision and manages it processes which are difficult to change
What happens to the company’s prior strategic commitment when it fails?
May cause a loss of competitive advantage because its resources are not suited for the new industry
What is the icarus paradox
When companies become so dazzled by their early success and believe more of the same type of effort as a to future success
What are primary activities
Design, creation and delivery of the product
What is research and development
Design of products and production processes
What is production
Production refers to the creation of a good or service
What is marketing and sales
Brand position and advertising of the market companies product
What is customer service
Role of the service function of an enterprise to provide after sales service and support
What is support activities
Provides inputs that allow the primary activities to take place
What are materials management
Controls the transmission of physical materials through the value chain from procurement through production and into distribution
What are Human Resources
Helps ensure that the company has a right combination of skilled people to perform its value creation activities effectively
What are information systems
Digital systems for managing inventory, tracking sales, pricing products, selling products, dealing with customer service inquiries
What are company infrastructure
Includes organizational structure, control systems, incentive systems and organizational culture
What is benchmarking
Requires a company to measure how well its performing against other enterprises using strategically relevant data
What is capital productivity
Sales produced by a dollar of capital invested in the business
