Exam 1

Question 1

definition of strategy

Answer 1

a set of goal-directed and integrated actions a firm takes to gain and sustain superior performance relative to competitors

identify a goal, take action with a plan, and achieve the goal

Question 2

in broad terms, strategy can be conceptualized as a _____, _______ quest for superior performance in the context of the firm’s ____ constraints and _____ abilities

Answer 2

in broad terms, strategy can be conceptualized as a conscous, planned quest for superior performance in the context of the firm’s external constraints and internal abilities

Question 3

corporate strategy
___ should we compete?

Answer 3

where

Question 4

business strategy
____ should we compete

Answer 4

how

Question 5

corporate strategy vs. business strategy

Answer 5

corporate: firm’s selection of industries and markets in which it competes. where should we compete?
business: how the firm competes in a particular industry or market. achieving competitive advantage over industry rivals. how should we compete?

Question 6

deliberate vs emergent strategy

Answer 6

deliberate: gathering information, planning, executing
emergent:
doing something to try it out, if it works keep doing it

Question 7

proactive vs reactive strategy

Answer 7

proactive: before environment requires change
reactive: reacting to environmental actions

Question 8

to achieve for superior performance, organizations compete for _____

Answer 8

to achieve superior performance, organizations compete for scarce resources

Question 9

3 elements of a good strategy

Answer 9

1. DIAGNOSIS OF COMPETITIVE CHALLENGE
   analysis of a firm’s internal and external environments. properly identifying problem is essential first step in a good strategy. often, companies try to solve the wrong problems
2. GUIDING POLICY TO ADDRESS COMPETITIVE CHALLENGE
   formulation of corporate, business, and function

AFI framework: analysis, formulation, implementation

Question 10

why is effective strategy so difficult?

Answer 10

• conflicting voices/ideas
• balancing things you can and can’t control
• dynamic environments, strategies can quickly become obsolete
• causal ambiguity (hard to specifically identify what’s leading to current success, cause and effect relationships between strategies and company outcomes)
• bounded rationality (as humans, we can’t possibly have possible information to make a decision)
• managerial bias (people getting stuck in ways of thinking, once mgrs experience successful strateiges, its difficult to unlearn that strategy)

Question 11

intended, emergent, realized strategy

Answer 11

• intended strategy: everyone starts with a plan, the outcome of a rational and structured top-down strategic plan
• emergent strategy: but as time goes on, unanticipated things emerge, unplanned initiatives bubble up from lower levels of the organization
• realized strategy: combination of intended and emergent strategy, don’t look at successful companies written strategies, but look at what they actually do

Question 12

strategy is all about ____

Answer 12

tradeoffs

Question 13

causal ambiguity

Answer 13

the factors that drive success in a particular situation may be unclear, or unique to a specific context

Question 14

bounded rationality

Answer 14

people (managers) have cognitive limits on the amount of information they can acquire, process, and analyze in a given situation

Question 15

managerial bias

Answer 15

established mental shortcuts. over time, executive may develop biases in their thought process (avoiding losses, over-commitment to a specific market or strategy)

Question 16

mission

Answer 16

what do we do, and how do we accomplish our goals?

Question 17

vision

Answer 17

what do we want to accomplish ultimately? what is our overarching intent?

forward looking, fundamental gap that we are looking to fill in society

Question 18

values

Answer 18

what do we believe, what is our purpose? what commitments do we make? how do we act legally and ethically as we pursue our vision and mission?

Question 19

product vs customer oriented visions

Answer 19

product: define a business in terms of a good or service provided
customer: defines a business in terms of identifying and providing solutions to customer needes

Question 20

strategic management process

Answer 20

external/internal environment -> strategic intent -> strategy formulation -> strategy implementation -> performance

Question 21

the external environment definition

Answer 21

factors in a broader market/society that influence an industry and the firms within it (e.g. competition, demographics, economics, socio-cultural issues, global events, technology, political and legal issues)

why’s it important?
because even a good strategy or business model could be rendered obsolete by changing external environment

Question 22

internal environment definition

Answer 22

the resources and capabilities of a firm that allows the firm to achieve competitive advantage. the resources can be tangible (financial resources, organizational resources, physical resources, technological resources) or intangible (human, innovation, reputational resources)

Question 23

strategy formulation definition

Answer 23

the strategic choices a firm makes when deciding how to compete in the market. it comprises of an integrated and coordinated set of commitments and action the firm uses to gain competitive advantage by exploiting its core competencies

Question 24

strategy implementation definition

Answer 24

the alignment of the firms actions via leadership, structure and control, planning, and communication that supports the realization of the firms strategy and goals

Question 25

the business model asks ...?

Answer 25

what is the basis on which profit is made in this business? 1. sources of revenue 2. generic strategy--how are you different?

Question 26

sources of revenue

Answer 26

- volume based sales - ad-based - subscription - freemium - transaction fees - licensing/franchising/syndication

Question 27

what are the two typical unique value propositions (how do you make yourself different in a way that others can't immitate?

Answer 27

differentiation: better product, higher quality, but more expensive (but,,there is danger of over differentiation, you have to stay along the dimension that people are willing to pay for) cost leadership: the same product, but cheaper you can either do it cheaper or better

Question 28

differentiation works best when - customer needs are ____ - ____ matters - there are ___ ways to differentiate

Answer 28

- customer needs are diverse - preference matters - there are many ways to differentiate cars, clothes, technology, schools

Question 29

cost leadership works best when - products are _____ - when price ___ is ____

Answer 29

- products are commodities - when price competition is strong

Question 30

what is a company's generic strategy? (4 answers)

Answer 30

1. cost leadership 2. differentiation 3. focused cost leadership 4. focused differentiation

Question 31

economies of scale

Answer 31

an increase in the quantity of goods produced results in lower average (unit) costs - b/c fixed costs are spread out over more units

Question 32

economies of scope

Answer 32

extra savings are achieved when a firm produces two outputs at lower costs via shared resources or technology ex. GE makes both plane and train engines

Question 33

sources of cost reduction

Answer 33

- economies of scale (and scope) - learning curve

Question 34

learning curve

Answer 34

the greater the cumulative production experience, the lower the cost per unit advantage that stems from accumulating experience, learning, and know-how when companies double output, cost per unit becomes 80% of original

Question 35

value chain

Answer 35

- a visual way of seeing activities that create value for customers - identifies primary activities and support activities - show how product moves from raw-material stage to final customer - allows the firm to understand what parts of its operations create value and what don't to get a competitive advantage a firm needs to figure out how to do one of the activities in the value chain in a way that other companies can't

Question 36

profitability paradox

Answer 36

profit is not created by pursuing profit but by pursuing the factors that create profit - having a clear mission and strong, consistent values

Question 37

what explains performance?

Answer 37

1. firm/corporate parent (internal analysis) 2. industry (external analysis) 3. other (random noise/luck)

Question 38

macro environment

Answer 38

generally, the factors that impact more than one industry PESTEL

Question 39

macro environment vs competitive environment

Answer 39

macro environment: factors that impact more than one industry (PESTEL) competitive environment: specific to the company's industry (5-forces model)

Question 40

PESTEL

Answer 40

political: influence government bodies can have on firms economic: growth rates, interest rates, level of employment, price stability (inflation/deflation), and currency exchange rates sociocultral: society's culture, norms, and values technological: factors that capture the application of knowledge to create new processes and products ecological: and environmental issues such as the natural environment, global warming, and sustainable economic growth legal: outcomes of political processes that manifest themselves in laws, mandates, and court decisions

Question 41

perfect competition

Answer 41

if industries had perfect competition, strategy would be obsolete - many small firms - firms are price takers - commodity product (same as everyone else) - low entry barriers (frequent new competitors)

Question 42

monopolistic competition

Answer 42

what industries actually are - many firms - some pricing power - differentiated product - medium entry barriers

Question 43

oligopoly

Answer 43

what industries actually are - few (large) firms - some pricing power - differentiated product - high entry barriers

Question 44

monopoly

Answer 44

antitrust violation. illegal - one firm - considerable pricing power - unique product - very high entry barriers

Question 45

profitability of different types of competition (low to high)

Answer 45

low - perfect competition - monopolistic competition - oligopoly - monopoly high

Question 46

what are the 5 forces in the 5 forces model (used in competitive environment)

Answer 46

1. threat of new entrants/barriers to entry 2. bargaining power of buyers 3. bargaining power of suppliers 4. threat of substitute products 5. intensity of rivalry

Question 47

5 forces model threat of new entrants/barriers to entry

Answer 47

threat of new entrants increases when: - low capital requirements and upfront startup costs - low economies of scale - few advantages from early entry/learning - little product differentiation/brand loyalty - limited government regulation/policy - no expected retaliation (ex litigation and lawsuits or pricing) - easy access to distribution channels (getting the product to the consumer/shelf space)

Question 48

5 forces model bargaining power of buyers

Answer 48

are our consumers price takers or negotiators? (better for company when buyers are takers) buyers are price negotiators when: - buyers are large and few in number (concentrated) - firms are more price negotiators than individuals (industries where buyers are individuals instead of firms are more profitable) - buyers can switch to a competing product without incurring high switching costs - buyers pose a threat to integrate backwards into the industry (can they make a step back in the value chain and do what you do? costco raised their own chickens) - buyers are well informed about price, quality of goods (good knowledge of alternatives, quality standards, price expectations. large industry where people would write reviews) (opposite: service industries like mechanic and healthcare. harder to be informed in newer industries where there's no baseline/benchmark yet

Question 49

5 forces model bargaining power of suppliers

Answer 49

you want supplier power to be low supplier power increases when: - suppliers are large/few in number (concentrated) - suppliers pose a threat to integrate forward into buyers industry (could they cut out the middle man and reach the buyer themselves?) - suitable substitite supplies are not available (jet engines need very specific type of steel, hard to get) - firms are not large customers of suppliers, and there are many suppliers - suppliers products create high switching costs (could be psychological--did they get to know your needs and help with a specific product? asset specificity--how specific is the supply to my company needs)

Question 50

5 forces model threat of substitute products

Answer 50

at the industry level--can some other class of product undermine the value of the entire industry? (ex. threat that energy drinks pose to soda, not that coke poses to pepsi) - cross-price elasticity of demand: how much does the demand for A increase/decrease with a unit increase/decrease in the price of B? threat of substitute products increases when: - buyers face few switching costs - the substitute products price is lower (donuts always cheaper than muffins?) - substitutes product quality and performance are equal to or greater than the existing product (does the donut fulfill the same need as the muffin, is it as good?) - differentiated industry products that are valued by customers reduce the threat of substitute products

Question 51

5 forces model intensity of rivalry

Answer 51

rivalry = price competition. if I do something, will my competitor respond? industry rivalry increases when: - there are numerous similar competitors with similar strengths and resources - industry growth is slowing or declining (remaining firms have to compete for remaining sales) - there is a lack of differentiation opportunities (commodity goods--chalk, flour, batteries. only way to provide unique value of these products is to make it cheaper) - high exit barriers prevent competitors from leaving the industry (high sunk costs that would make companies reluctant to sell industry. in reality though high exit barriers are rare) baseline indicators of rivalry: - resource similarity (ex. size/scope/value of company) - market commonality (plane routes focused on the same part of the world) - price competition (when companies change price in response to each other) --if two firms have two of these but not all three, they might make alliances. ex. two similar airlines but they operate in different countries

Question 52

industry convergence

Answer 52

- when unrelated industries begin to satisfy overlapping customer needs ex. smartphones--now are phones, gaming systems, cameras, GPS

Question 53

4 elements of external analysis review

Answer 53

1. qualitative overview of industry 2. brief competitor overview 3. opportunities/threats in the PESTEL or 5 forces (external and competitive environments) 4. summary of industry attractiveness