Exam

Question 1

What is strategy?

Answer 1

Goal-directed actions a firm takes to gain and sustain superior performance

Question 2

Know the specific stages in the strategic management process and what each stage is. Know the list and component in each stage.

Answer 2

Analysis: Assessing the external factors that may impact the organization.
Internal Analysis: Evaluating the organization’s strengths, weaknesses, resources, and capabilities.

Formulation: Developing a strategy based on the analysis.

Implementation: Putting the formulated strategy into action.
Evaluation and Control: Monitoring and adjusting the strategy as needed.

Question 3

If a company wants to gain competitive advantage in a competitive industry, what should it do? What’s the first step in gaining a competitive advantage?

Answer 3

The first step to gain and sustain a competitive advantage is to define an organization’s vision, mission, and values. Vision. What do we want to accomplish ultimately? Mission. How do we accomplish our goals? Values. What commitments do we make, and what guardrails do we put in place, to act
both legally and ethically as we pursue our vision and mission?

Question 4

What are strategic commitments?

Answer 4

Strategic commitments are big changes that are costly, long-term oriented, and difficult to reverse.

Question 5

Why is it better for firms to keep their vision statement customer oriented rather than product oriented?

Answer 5

A customer focus made finding a solution much easier.Product-oriented vision statements focus
employees on improving existing products and services without consideration of underlying
customer problems to be solved. Companies with customer-oriented visions can more easily adapt to changing environments.

Question 6

How do strong ethical values benefit a firm?

Answer 6

First, ethical standards and norms underlay the vision statement and provide stability to the strategy, thus laying the groundwork for long-term success. Second, once
the company is pursuing its vision and mission in its quest for competitive advantage, they serve as guardrails to keep the company on track.

Question 7

What is strategic leadership? Know an example of strategic leadership.(Application)

Answer 7

Strategic leadership pertains to executives’ use of POWER and INFLUENCE to direct the activities of others when pursuing an organization’s goals.

Ex.As chief operating officer, Sandberg has tremendous position power because
she is the second in command at Facebook and reports only to CEO Mark Zuckerberg. Sandberg’s business development skills are legend: She transformed a money-losing outfit
into a titan of online advertising, with some $30 billion in annual revenues. She designed and implemented Facebook’s business model (how it makes money). In particular, Sandberg has attracted high-profile advertisers by demonstrating how Facebook.

Question 8

What’s a level 5 manager?

Answer 8

A strategic leader who builds enduring greatness by combining willpower and humility.Sandberg is a Level-5 executive: She builds enduring greatness at
Facebook through a combination of skill, willpower, and humility.

Question 9

What’s the different between corporate strategy and business strategy? Know what corporate strategy is?

Answer 9

Corporate strategy concerns questions relating to WHERE to compete as to industry, markets, and geography.

Business strategy concerns the question of HOW to compete. Three generic business strategies are available: cost leadership, differentiation, or value innovation.

Question 10

What is corporate strategy?

Answer 10

Decisions that senior
management makes
and the goal-directed
actions it takes to gain
and sustain competitive
advantage in several
industries and markets
simultaneously.

Question 11

What are the different functions that general managers in strategic business units perform?

Answer 11

Within each strategic business unit are various business functions: accounting, finance, human resources, product development, operations, manufacturing, marketing, and customer
service. Each functional manager is responsible for decisions and actions within a single functional area. These decisions aid in the implementation of the business-level strategy

Question 12

Know the different kinds of strategy intended, emergent, unrealized, realized- (Application)

Answer 12

Intended Strategy: The outcome of a rational and structured top-down
strategic plan. A firm’s intended strategy can likely to fall by the wayside because of unpredictable events and turn into unrealized strategy.

An emergent strategy describes any unplanned strategic initiative bubbling up from deep within the organization. If
successful, emergent strategies have the potential to influence and
shape a firm’s overall strategy.

A firm’s realized strategy is generally formulated through a
combination of its top-down strategic intentions and bottom-up
emergent strategy.

Question 13

What does a good stakeholder strategy looks like?

Answer 13

Allows firms to analyze and manage how various external and internal stakeholders interact to jointly create and trade value. The key challenge of stakeholder strategy is to effectively balance the needs of various
stakeholders. The firm needs to ensure that its primary stakeholders—the firm’s shareholders and other investors—achieve their objectives.

Question 14

What are the different economic responsibilities of a firm?

Answer 14

Investors expect an adequate return for their risk capital.

Creditors expect the
firm to repay its debts.

Consumers expect safe products and services at appropriate prices and quality. Suppliers expect to be paid in full and on time.

Governments expect the firm
to pay taxes and to manage natural resources such as air and water under a decent stewardship.

To accomplish all this, firms must obey the law and act ethically in their quest to gain and sustain competitive advantage.

Question 15

What are the external forces in a firm’s task environment. Know PESTEL framework.

Answer 15

The composition of their
strategic groups (a set of close rivals) or the structure of the industry.
Political
Economic
Sociocultural
Technological
Ecological
Legal

Question 16

How is the task environment different from the general environment?

Answer 16

External factors in the firm’s TASK environment are ones that managers do have some influence over, such as the composition of their strategic groups (a set of close rivals) or the structure of the industry. It includes entities such as customers, suppliers, competitors, regulators, and other stakeholders with whom the firm has direct interactions and exchanges has immediate impact on firm.

External factors in the firm’s GENERAL environment are ones that managers have little direct influence over, such as macroeconomic factors (e.g.,
interest or currency exchange rates).he general environment encompasses a broader set of external forces that might not have an immediate or direct impact on the firm’s

Question 17

Economies of scale?

Answer 17

Economies of scale denote decreases in cost per unit as output increases (more in the next section when we discuss cost-leadership strategy).

Question 18

How are cumulative learning and experiences effects of a company most likely to affect Michael porter 5 forces?
(Competition in the industry,
,Potential of new entrants into the industry, Power of suppliers, Power of customers, Threat of substitute products

Answer 18

Incumbent firms often benefit from cumulative learning and experience effects accrued over long periods of time.

Attempting to obtain such deep knowledge within a shorter time frame is often costly, if not impossible, which in turn constitutes a formidable barrier to entry.

Companies with significant learning and experience might have loyal customer bases or innovative offerings, reducing the bargaining power of buyers.umulative learning can lead to strong relationships with suppliers, efficient supply chain management, or proprietary technologies.

Question 19

What are the drawbacks if what Porters 5 forces model?

Answer 19

It may oversimplify complex industries and not consider dynamic factors.

Question 20

What’s true of strategic groups? COME BACK

Answer 20

A strategic group, a set of companies that pursue a similar strategy within a specific industry in their quest for competitive advantage.

Firms in the same strategic group tend to follow a similar strategy. Companies in the same strategic group, therefore, are direct competitors.

Rivalry among firms within the same strategic group is generally more intense.

Question 21

Difference between tangible and intangible resources?

Answer 21

Tangible resources have physical attributes and are visible. Ex. labor, capital, land, buildings, plant, equipment, and
supplies.

Intangible resources have no physical attributes and thus are invisible. Ex. firm’s culture, its knowledge, brand equity, reputation, and intellectual property.

Question 22

Different types of resource characteristics- resource homogeneity, resource cost substitution, immobility,

Answer 22

Resource Heterogeneity: Bundles of
resources, capabilities, and competencies differ across firms.

Resource Homogeneity: Bundles of
resources, capabilities, and competencies differ across firms.

Immobility: Describes the insight that resources tend to be “sticky” and don’t move easily from firm to firm.

Resource Cost substitution: If resources can be interchanged without significant impact on the end product or outcome, they are considered substitutable. Different materials might be substituted if one becomes too expensive or scarce.

Question 23

What are high entry barriers and what do they look like?- Application talk about Pestel analysis (Application question dealing with PESTEL Analysis)

Answer 23

An oligopolistic industry is characterized by few (large) firms, a differentiated product, high entry barriers, and some degree of pricing power.

A monopoly exists when there is only one (large) firm supplying the market. In such instances, the firm may offer a unique product, the barriers to entry may be high, and the monopolist usually has
considerable pricing power.

Incremental innovations strengthens the incumbent firm’s position and thus maintains high entry barriers.

Question 24

How are the assumptions of resource-based view different from perfect competition? Know the components of the resource-based view VRIO framework.

Answer 24

In the resource-based view, a firm is assumed to be a UNIQUE bundle of resources, capabilities, and competencies. Valuable, Rare, imitating is difficult, organized to capture value of resource.

Perfectly competitive industry (no uniqueness) Is fragmented and has many small
firms, a commodity product, ease of entry, and little or no ability for each individual firm
to raise its prices. The resulting performance of the industry shows low profitability. Under these conditions, firms in have difficulty achieving competitive advantage

Question 25

Know where different characteristics come from- causal ambiguity, past dependence, social complexity, intellectual property- (Application)

Answer 25

Causal Ambiguity: Causal ambiguity describes a situation in which the cause and
effect of a phenomenon are not readily apparent.
Everyone can see that Apple has had several hugely successful innovative products such as the iMac, iPod,iPhone, and iPad, combined with its hugely popular iTunes services, leading to a decade of
a sustainable competitive advantage.

Path Dependence: Often, early events—
sometimes even random ones—have a significant effect on final outcomes.

Social Complexity: Social complexity, however, emerges when two or more such systems are combined.

Intellectual property (IP) protection: The intent of IP protection is to prevent others from copying legally protected products or services.
Patents, Designs, Copyrights, Trademarks, Trade secrets

Question 26

What is true for resource stock? What makes a valuable resource hard to imitate?

Answer 26

Resource stock is the firm’s current level of intangible resources.Intangible resource stocks are built through investments over time.

Question 27

How do you use the value chain to think about competitive advantage.

Answer 27

Analyzing and optimizing internal processes to create value. Activities are DISTINCT ACTIONS that enable firms to add incremental value at
each step by transforming inputs into goods and services. When a firm’s distinct activities generate value greater than the costs to create them, the firm obtains a profit margin.

Question 28

Know the SWOT analysis and how to identify whether something is a strength, weakness, opportunity, threat.

Answer 28

Strengths and Weakenesses are internal in the task envrionment and concern resources, capabilities, and competencies.

Opportunities and threats are external and are in the firm’s general environment and can be captured by PESTEL and Porter’s five forces analyses

Question 29

What is core rigidity?

Answer 29

A former core competency that turned into a liability because the firm failed to upgrade the competency as the environment changed.

Question 30

Know ALL financial ratios and where they show up.

Answer 30

Return on Revenue (ROR): Return on revenue (ROR) indicates how much of the firm’s sales is converted into profits. Income statement

Cost of Goods Sold (COGS)/Revenue: Indicates how efficiently a company can produce a good.-Income statement

Research & Development Expense/Revenue: Indicates
how much of each dollar that the firm earns in sales is invested to conduct research and development. A higher percentage is generally an indicator of a stronger focus on innovation
to improve current products and services, and to come up with new ones.- Income statement

return on invested capital (ROIC)
ROIC=(Net profits / Invested capital).
The ratio measures how effectively a company uses its total invested capital.

Question 31

What’s true of accounting data?

Answer 31

All accounting data are historical and thus backward-looking. Show us only the outcomes from past decisions. There is also a significant time delay before accounting data become publicly available. While financial strength certainly helps, past performance is no guarantee that a company is prepared for market
disruption.

Accounting data do not consider off–balance sheet items.

This limitation of accounting data is nicely captured in the adage: Not everything that can be counted counts. Not everything that counts can be counted.

Question 32

Know what return on risk capital includes?

Answer 32

Stock price appreciation plus dividends received over a specific period.

Question 33

How to compute market capitalization and what is it?

Answer 33

Market capitalization captures the total dollar market value of a company’s total outstanding shares at any given point in time
Market cap = #of outstanding shares × Share price).

Question 34

What are opportunity costs?

Answer 34

The value of the best alternative forgone when a decision is made.

Question 35

What is economic value created?

Answer 35

Value created for a company’s stakeholders, particularly shareholders, through decisions and activities. It’s about generating returns that exceed the cost of capital increasing shareholder’s wealth.

Question 36

What is reservation price?

Answer 36

The highest price you were willing to pay, or your reservation price.

Question 37

Triple bottle line

Answer 37

Three dimensions—economic, social, and
ecological—make up the triple bottom line, which is fundamental to a sustainable strategyor the people, profits, and planet.
These three dimensions are also called the three Ps: profits, people, and planet:

Question 38

Balance score card

Answer 38

Framework to help managers achieve their strategic objectives more effectively. This approach harnesses multiple internal and external performance metrics in order to balance both financial and strategic goals.

Question 39

What are the advantages of a balance scorecard?

Answer 39

• Link the strategic vision to responsible parties within the organization.
• Translate the vision into measurable operational goals.
• Design and plan business processes.
• Implement feedback and organizational learning to modify and adapt goals

Question 40

Different subscription based business models.

Answer 40

Razor–razor-blades. The initial product is often sold at a loss or given away for free to
drive demand for complementary goods. The company makes its money on the replacement
part needed.

Subscription. The subscription model has been traditionally used for print magazines
and newspapers. Users pay for access to a product or service whether they use the
product or service during the payment term or not.

Pay-as-you-go. In the pay-as-you-go business model, users pay for only the services
they consume. The pay-as-you-go model is most widely used by utilities providing
power and water and cell phone service

Freemium. The freemium (free + premium) business model provides the basic features
of a product or service free of charge, but charges the user for premium services such
as advanced features or add-ons.45

Wholesale. The traditional model in retail is called a wholesale model. Let’s look at
the book publishing industry as an example. Under the wholesale model, book publishers
would sell books to retailers at a fixed price

Agency. Relies on an agent or retailer to sell the product, at a predetermined percentage commission.

Bundling. The bundling business model sells products or services for which demand is
negatively correlated at a discount. Demand for two products is negatively correlated
if a user values one product more than another

Question 41

Know the generic business strategy. If a company does x which strategy is this?

Answer 41

Differentiation strategy seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels, allowing the firm to charge higher prices to its customers.

Cost-leadership strategy, in contrast, seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers.

Question 42

What’s a strategic trade off?

Answer 42

Choices between a cost or value position.
Such choices are necessary because
higher value creation tends to generate higher cost.

Question 43

Economies of Scope

Answer 43

Economies of scope describe the savings
that come from producing two (or more) at the same time even though using the same resources and technology.

Question 44

Time Compression

Answer 44

Trying to achieve the same outcome in less time, even with higher investments,
tends to lead to inferior results, due to time compression diseconomies.2

Question 45

Different generic strategies.

Answer 45

NARROW
Focused cost leadership strategy is the
same as the cost leadership strategy except with a narrow focus on a niche market.

Focused differentiation strategy is the same as the differentiation strategy except with a narrow focus on a niche market.

BROAD
Cost-leadership is a generic business strategy that seeks to create the same or similar value
for customers at a lower cost.

Differentiation strategy seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels, allowing the firm to charge higher prices to its customers.

Question 46

What is the integration strategy and what does it do?

Answer 46

Horizontal
integration: The
process of merging with
competitors, leading to
industry consolidation

Vertical integration refers
to the firm’s ownership of its production of needed inputs or of the channels by which it
distributes its outputs.

Question 47

How long does a patent last?

Answer 47

20 years

Question 48

Know different alliances that can exist and the positives and negatives for each. Strategic alliances, joint ventures, cross border alliances.

Answer 48

STRATEGIC ALLIANCES
Voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.

Equity Alliances: a partnership
in which at least one partner takes partial ownership in the other partner.

Joint venture: Two or more partners create and jointly own a new organization.

Cross border: Companies from wealthy countries benefit in cross-border trade with other wealthy countries when their competitive advantage is based on economies of experience, scale, scope, and standardization.

Question 49

How to go about a merger.

Question 50

What is winner’s curse?

Answer 50

Overpaying for an asset in a competitive bidding situation.

Question 51

What is going on when mergers and acquisitions don’t work?

Answer 51

Cultural Clash: Differences in organizational culture between the merging entities can create conflicts

Poor Integration: Failing to integrate systems, processes, and people effectively can result in operational inefficiencies.

Overestimation of Synergies: Sometimes, M&A deals are based on overly optimistic assessments of potential synergies. If the expected cost savings or revenue enhancements fail to materialize, it can lead to financial underperformance and dissatisfaction among stakeholders.

Leadership and Management Issues: M&A deals require strong leadership and effective management to navigate the complexities involved. If there’s a lack of clear direction

Regulatory Challenges: Regulatory hurdles, antitrust issues, or legal complexities can delay or derail the M&A process. Failure to address these challenges adequately can lead to significant setbacks or even deal cancellations.

Market and Industry Changes: External factors such as shifts in market conditions, technological advancements, or changes in consumer behavior

Financial Issues: Overpaying for an acquisition or underestimating the financial risks s.

Question 52

What is organization design?

Answer 52

Organizational design is the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization.

Question 53

What are the different dimensions of org design- structure specialization, formalization, centralization, etc.

Answer 53

Specialization: A task is divided into separate jobs—that is, the division of labor.

Formalization: Employee behavior is steered by explicit and codified rules and procedures.

Centralization: Decision making is concentrated at the top of the organization.

Hierarchy: determines the formal, position-based reporting lines and thus stipulates who reports to whom.

Question 54

Know organic vs. mechanistic organizational structures.

Answer 54

Organic is flexible and adaptable, while mechanistic is more rigid and hierarchical.

Mechanistic organizations are characterized by
a high degree of specialization and formalization and by a tall hierarchy that relies on centralized decision making.

Organic organizations have a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making. Organic structures tend to be correlated with the following: a fluid and flexible information

Question 55

Function organizational structure and its advantages?

Answer 55

Higher Specialization: Allows for deeper expertise in specific functional areas, leading to a greater division of labor and potentially higher productivity.

Efficient Coordination: Centralized coordination by the CEO facilitates effective communication and decision-making between functional departments.

Alignment with Business Strategy: Matches well with narrow product/service offerings and smaller geographic footprints, aligning with strategies like cost leadership, differentiation, and blue ocean.

Support for Cost Leadership Strategy: Enables nurturing core competencies in manufacturing and logistics, fostering process innovation, and leveraging economies of scale.

Fit for Differentiation Strategy: Encourages decentralization, fostering innovation and creativity in R&D, innovation, and marketing, while leveraging economies of scope.

Support for Blue Ocean Strategy:

Ambidextrous Organization: Allows managers to balance trade-offs between cost and differentiation strategies, fostering exploitation of current knowledge and exploration for future performance enhancement.

Question 56

What is organization culture and why it works in different firms?

Answer 56

Organizational culture is the collectively shared values and norms of an organization’s members.

A unique culture that is strategically relevant can also be the basis of a firm’s competitive
advantage.

Zappos established
its unique organizational culture through explicitly stated values that are connected to its reward system.

Organizational culture can help a firm gain and sustain competitive advantage if the culture makes a positive contribution
to the firm’s economic value creation and obeys the VRIO principles.