Chapter 5 Flashcards
Strategic Management
Strategic Management reflects what a firm is doing to achieve its mission and vision as seen by its achievement of specific goals and objectives.
(Achieving goals to achieve the mission and vision)
Strategic Management Equation
Strategic Management Process = Strategy Formulation + Strategy Implementation
What Planning/Strategy Formulation Consists of::
- Mission & VIsion
- Strategizing
- Goals and Objectives
Strategy Formulation is concerned with
How Mission and Vision will be achieved and which goals and objectives will put us on the right path to achievement
Strategizing: Corporate Strategy
This where you figure out what strategic business units you want to have, and what kind or relationship they will have to head quarters. In Corporate strategy you ask:
1: What Business or Businesses should we be in?
2. How does being in one business help us compete with our other businesses?
Corporate Strategy Considers:
Synergy and Diversification
Synergy:
The act of combining two or more inputs to make the output greater then the sum of its parts.
1 + 1 > 2
Diversification
Participating in separate entities simultaneously in order to spread out risk and opportunities over a larger set of businesses.
General Goal of Strategic Management **
Sustainable Competitive Advantage
Something you are better at than your competitors, that they can not beat you at. This is your bread and butter, especially from an economic perspective. It helps to think about this in terms of specialization and gains from trade.
Related Diversification
This is what happens when you operate multiple businesses within the same industry. An example of this is
Unrelated Diversification
This is what happens when you operate multiple businesses in industries that lack similarity from one another. Ex: Berkshire Hathaway invests in Geico and Coke.
Strategizing: Business Strategy
This asks the question: How should do we need to compete, in order to be effective?
This part of strategic formation revolves around finding a strategy that satisfies your mission, vision and goals.
If you’re Mcdonalds you might want to keep existing customers, grow your business and enter new markets. As a result, your business strategy should be designed to incorporate those goals in a manner that you should expect success.
Competitive Advantage
Something that you excel at relative to other people that perform the same duty.
Defining Strategy
A purposefully chosen set of activities performed differently from rivals, that carve out a unique position from an organization in an industry that leads to sustainable competitive advantage.
Purposefully Chosen
Involves Tradeoffs, you need to build the understanding that you cannot do everything at once.
Performed Differently
Done so to capitalize on sustainable developement
Carve out a Unique Position
If you miss your exit on the highway, its very difficult to go back to where you missed. That is why you need a unique path that is successful as it takes time to return to the highway.
How do we get to Sustainable Competitive Advantage?
We need to examine our external and internal environments together.
External Analysis - PESTEL
Involves examining and analyzing the political, economic, social, technological, environmental and legal environment.
Internal Analysis - Broken into two sections
- Strengths and Weaknesses (SWOT)
2. Resources and Capabilities
SWOT Analysis
SW = Internal Analysis while OT = External Analysis
SWOT stands for Strengths, Weaknesses, Opportunities and Threats which compose four areas all business can analyze to strategize and understand there businesses position.
Porters Five Forces (External)
Four outputs that play into the relationship that competitors have. These outputs are Bargaining Power of Suppliers, Bargaining Power of Buyers, Threats of New Substitutes and Threats of New Entrants. All of these outputs play into the Rivalry Among Competitors.
Industry Attractiveness (External)
Competitors, Threat of New Entrants, Substitutes, Suppliers, and Customers (Buyers)
Three Generic Strategic Positions to Take
- Low Cost Leadership
- Differentiation
- Focus/Niche
Low Cost Leadership
This involves offering the lowest cost or service for consumers in the market. Typically this is ideal in cases where goods are homogeneous and the consumer is indifferent regarding quality.
Differentiation
This involves offering a unique product or service where the customer is sensitive to the degree of quality that competing products have.
Focus/Niche
Focus on a very specific target market and proceed to offer the Low Cost Leadership or Diversification strategy to that target market.
Zero Sum Competition
This occurs when firms strictly compete on price. Generally it is not the healthiest form of competition as typically many things do not grow in the company.
Positive Sum Compeititon
You compete on more than just price. There is a market offering that you as a firm generate and you may want to compete based on that. Based around elements other than price.
Differentiation
You are offering a unique product to a broad based environment.
Characterized by: Unique Product + Broad Market
Focused Differentiation
You are offering a unique product to a focused and narrow
Characterized by: Unique Product + Unique Market
Porters Value Chain (Internal)
Porter created a value chain that categorized two types of business activities
. The first was Primary activities and the second was Support activities. Primary activities are the ones that add true value to a product. They consist of: Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, Service
The second was support activities. These are business activities that don’t add value specifically to the product itself, but are still equally as important in the business organization process. They consist of: Firm Infrastructure, Human Resource Management, Technological Development, and Procurement.
All of these categories are important in the process to structure a business.
VRIO (Internal) ** add slides about specific results
VRIO is an internal analysis strategy that stands for valuable, rare, inimitable and organization. This strategy asks the question how great are your resources? It is only when firms resources are said to be valuable, rare, inimitable and supported by the organization are they said to bring forward a long term sustainable competitive advantage.
Strategic Implementation
When it comes to actually implementing ones strategy, it is important to remember that Theory =/= Application. You are going to learn and have to adjust an infanancy of things in your management career.