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Strategic Management > Chapter 4: Evaluating a Company's Resources, Capabilities, and Competitiveness > Flashcards

Chapter 4: Evaluating a Company's Resources, Capabilities, and Competitiveness Flashcards

1
Q

What are the 3 best indicators of how well a strategy is working?

A
  1. Whether the company is achieving its stated financial and strategic objectives
  2. Whether its financial performance is above the industry average
  3. Whether it’s gaining customers and market share
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2
Q

What are the (7) key profitability ratios?

A
  1. Gross profit margin
  2. Operating profit margin (return on sales)
  3. Net profit margin
  4. Total return on assets
  5. Net return on total assets (ROA)
  6. Return on stockholders’ equity (ROE)
  7. Return on invested capital (ROIC)
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3
Q

What are the (2) liquidity ratios?

A
  1. Current ratio

2. Working capital

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4
Q

What are the (5) leverage ratios?

A
  1. Total debt-to-assets ratio
  2. Long-term debt-to-capital ratio
  3. Debt-to-equity ratio
  4. Long-term debt-to-equity ratio
  5. Times-interest-earned (or coverage) ratio
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5
Q

What are the (3) activity ratios?

A
  1. Days of inventory
  2. Inventory turnover
  3. Average collection period
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6
Q

What are 5 other important measures of financial performance (aside from the stated profitability, liquidity, leverage, and activity ratios)?

A
  1. Dividend yield on common stock
  2. P/E ratio
  3. Dividend payout ratio
  4. Internal cash flow
  5. Free cash flow
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7
Q

What is another name for a SWOT analysis?

A

Situational Analysis.

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8
Q

What does a SWOT analysis do?

A

Help explain why a strategy is working well or not by taking a hard look at a company’s strengths in relation to its weaknesses and strengths and weaknesses of its competitors.

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9
Q

What is an internal strength?

A

Something a company is good at doing or an attribute that enhances its competitiveness in the marketpalce.

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10
Q

What is a competence?

A

An activity that a company has learned to perform with proficiency.

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11
Q

What is a distinctive competence?

A

A capability that enables company to perform a particular set of activities better than its rivals.

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12
Q

What is a core competence?

A

A proficiently performed internal activity that is central to a company’s strategy and is typically distinctive as well.

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13
Q

What is an internal weakness?

A

Something a company lacks or does poorly or a condition that puts it at a disadvantage in the marketplace. (A competitive deficiency).

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14
Q

What is another term for an internal weakness?

A

A competitive deficiency.

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15
Q

What are the 2 aspects that a company’s internal weaknesses can relate to?

A
  1. Inferior or unproven skills, expertise, or intellectual capital
  2. Deficiencies in competitively important physical, organizational, or intangible assets
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16
Q

Which type of markets often present big or “golden” opportunities?

A

Emerging and fast-changing markets.

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17
Q

What happens to opportunities present in emerging/fast-changing markets?

A

Hard for managers to “peer into the fog of the future” and spot opportunities ahead of other managers of other companies. As the fog clears, opportunities are seized rapidly.

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18
Q

What are a company’s competitive assets?

A

Its resources and capabilities.

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19
Q

What are the two steps in the resource and capability analysis process?

A
  1. Identify the company’s resources and capabilities
  2. Examine them more closely to ascertain which are the most competitively important by applying the 4 tests of a resource’s competitive power
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20
Q

What is a resource?

A

A productive input or competitive asset that is owned or controlled by the firm.

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21
Q

What is a capability (competence)?

A

The capacity of a firm to perform some internal activity competently.

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22
Q

How are capabilities developed?

A

Through the deployment of resources.

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23
Q

Which two categories do we divide resources up into?

A

Tangible and intangible resources.

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24
Q

Which category of resources would human resources fall into?

A

Intangible resources.

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25
Q

What are the 4 types of tangible resources?

A
  1. Physical
  2. Financial
  3. Technological
  4. Organizational
26
Q

What are organizational resources?

A

IT and communication systems, other coordination and control systems, the company’s organizational design and reporting structure.

27
Q

What are the 4 types of intangible resources?

A
  1. Human assets and intellectual capital
  2. Brands, company image, and reputational assets
  3. Relationships (alliances, joint ventures, partnerships)
  4. Company culture and incentive system
28
Q

What is the purpose of using categories in identifying a company’s resources?

A

Ensure that none of a company’s resources go unnoticed when sizing up the company’s competitive assets.

29
Q

What are the two approaches to identify a firm’s capabilities?

A
  1. Look over a firm’s resources and consider whether and to what extent the firm has built up any related capabilities
  2. Managers survey the various functions a firm performs to find the different capabilities associated with each function
30
Q

What are cross-functional capabilities?

A

Draw on a number of different kinds of resources and are multidimensional in nature - they spring from the effective collaboration among people with different types of expertise working in different organizational units.

31
Q

What are resource bundles?

A

Cross-functional capabilities involving numerous linked and closely integrated competitive assets.

32
Q

Why is it important to identify a company’s resource bundles?

A

Resource bundles can sometimes pass the 4 tests of a resource’s competitive power even when the individual components cannot.

33
Q

When is a company said to have a sustainable competitive advantage?

A

If a company’s competitive advantage proves durable despite the best efforts of competitors to overcome it/

34
Q

Explain the relationship between Total Economic Value and competitive advantage.

A

Competitive advantage means that you can produce more value (V) for the customer than rivals can, or the same value at lower cost (C). In other words, your V-C is greater than your competitors. This is called the Total Economic Value produced by a company.

35
Q

What are the 4 tests of a resource’s competitive power?

A

VRIN tests for sustainable competitive advantage

  1. Is the resource/capability valuable?
  2. Is the resource/capability rare?
  3. Is the resource/capability inimitable? (hard to copy)
  4. Is the resource/capability nonsubstitutable?
36
Q

What does it mean for a resource or capability to be competitively valuable?

A

Must be directly relevant to the company’s strategy, making the company a more effective competitor.

37
Q

When is it difficult for resources/capabilities to be imitated?

A

When they are unique, must be built over time, or when they entail financial outlays or large-scale operations.

38
Q

What is social complexity and causal ambiguity?

A

Two factors that inhibit the ability of rivals to imitate a firm’s most valuable resources and capabilities.

39
Q

How does causal ambiguity make it difficult for other firms to imitate valuable resources and capabilities?

A

Makes it hard to figure out how a complex resource contributes to competitive advantage and therefore what exactly to imitate.

40
Q

What are the 2 elements involved in management’s challenge in managing a firm’s resources and capabilities dynamically?

A
  1. Attending to the ongoing modification of existing competitive assets
  2. Casting a watchful eye for opportunities to develop totally new kinds of capabilities
41
Q

What is a dynamic capability?

A

An ongoing capacity of a company to modify its existing resources and capabilities or create new ones

42
Q

What does the value (V) provided to the customer depend on?

A

How well a customer’s needs are met for the price paid (V - P)

43
Q

What are 2 analytical tools that are particularly useful in determining whether a company’s costs and customer value proposition are competitive?

A

Value chain analysis and benchmarking

44
Q

What forms a value chain?

A

All the various activities that a company performs internally combine to form the value chain.

45
Q

What does a value chain do?

A

Identifies the primary activities and related support activities that create customer value.

46
Q

What are the two broad categories that make up the value chain?

A

Primary activities and support activities

47
Q

What are examples of primary value chain activities?

A

Supply chain management, operations, distribution, sales + marketing, service

48
Q

What are examples of support activities in the value chain?

A

Product R&D, technology, and systems development, HR mgmt, general admin

49
Q

What is used to determine the costs of performing each value chain activity?

A

Activity-based costing

50
Q

What is a vertical chain?

A

Another term for a value chain system

51
Q

What are forward-channel value chains?

A

Activities, costs, and margins of forward-channel allies and strategic partners. Also buyer or end-user value chains.

52
Q

What is benchmarking?

A

Comparing how different companies perform various value chain activities and making cross-company comparisons of the costs and effectiveness of these activities.

53
Q

What is a best practice?

A

A method of performing an activity that consistently delivers superior results compared to other approaches.

54
Q

What qualifies a method as a best practice?

A

It must have been employed by at least 1 enterprise and shown to be consistently more effective in lowering costs, improving quality/performance, enhancing safety, or some other positive outcome.

55
Q

What are the 3 main areas in a company’s total value chain system where company managers can try to improve efficiency and effectiveness?

A
  1. A company’s own internal values
  2. Suppliers’ part of the value chain system
  3. The forward-channel portion of the value chain system
56
Q

How can a company attempt to improve supplier-related value chain activities?

A

Pressuring suppliers for lower prices, switching to lower-priced substitute inputs, collaborating closely with suppliers to identify mutual cost-saving opportunities.

57
Q

What are the 5 steps in doing a competitive strength assessment?

A
  1. List industry’s key success factors and other telling measures
  2. Assign weights to each of the measures of competitive strength
  3. Score each competitor from 1-10 to calculate weighted scores
  4. Sum the weighted strengths
  5. Draw conclusions using the scores
58
Q

What is a net competitive advantage (in terms of a competitive strength assessment)?

A

A positive difference between a company’s overall weighted rating and the scores of lower-rated rivals.

59
Q

What type of concerns does a priority list center on?

A

“How to…”, “what to do about…”, and “whether to…”.

60
Q

What are the 6 key questions in evaluating a company’s ability to compete against rivals?

A
  1. How well is the present strategy working?
  2. What is the company’s overall situation in terms of strengths, weaknesses, opportunities, and external threats? (SWOT analysis)
  3. What are the company’s most important resources and capabilities and can they give the company a sustainable advantage?
  4. Are the company’s cost structure and value prop competitive?
  5. Is the company competitively stronger or weaker than key rivals?
  6. What strategic issues and problems merit managerial attention?

Strategic Management (12 decks)

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