final exam prep Flashcards
competitive success factors
1) market/customer needs oriented
2) make effective use of valuable competencies
3) new products/services + innovative
4) entrepenarial/opportunisitic mindset
why is a strategy important ?
1) define the org
2) focus effort
3) consistency (efficiency + focus, be careful of too much consistency)
4) position or set the direction within the firm’s environment
key strategic questions + process
1) strat formulation : analyze the current context
2) analysis : evaluate capabilities + distinctive competence
3) Strat implementation : formulate strategy and implement
4) Performance : control/monitor along the way
when rivalry intensifies
numerous equally balanced competitors
slow industry growth
high fixed costs/high storage costs
lack of diff. /low switching costs
high strategic stakes
high exit barriers
buyer powers intense
high buyer concentration
available substitute products
buyer well- informed
industry’s products are standardized
buyer is a significant customer
buyer is sensitive to price
low switching costs
supplier’s brand identity is more important
supplier power is powerful
high supplier concentration
satisfactory substitute products not available
suppliers products are critical to buyers
high switching costs
buyer is not a significant customer
industrial environment analysis
1) understanding key competitive forces that shape competition
2) identify key success factors
3) predict future industrial profitability
4) find strategy
threat of new entrants are affected by
econ of scales
product differentiation
capital requirements
access to distribution channels
cost disadvantages independent of scale
gov policy
threat of substitutes strong
customers face low switching costs
substitutes price is lower
susbstitutes perf/quality =better
service after sale
location
attractive industry
moderate/weak rivalry
high entry barriers
few threat of substitutes
suppliers/buyers weak
tangible ressources
financial
organizational
technological
physical
untangible ressources
human
reputational
innovation
core competencies arise from
1) collective learning/expertise within the business
2) ability to integrate skills and technologies
3) ability to deliver superior products and services
4) ways business is differentiated
4 criteria of sustainable advantage
VRIO
for value chain to be competitive advantage need
1) perform activity that provides value superior to competitors
2) perform value creating activities competitors cant
outsourcing benefits
higher flexibility, reduce capital investment, mitigate risks
outsourcing rational
improve business focus
sharing risks
freeing resources for other purposes
performing fewer capabilities
classification of stakeholder
1) capital market shareholder
shareholders + major suppliers
2) product-market stakeholder
primary customers, unions, host communities ,suppliers
3) organizational stakeholder
employees, leaders
social responsability 2 sides
milton friedman : as much money
Byron : profit is a means not and end, should focus on legal, econ, ethical, discretiionary org
corporate gov
set of mechanisms to manage the relationship among stakeholders
4 mechanisms to mitigate risks of seperation ownership/man control
1) ownership concentration
diffuse : weak monitoring
high degree ownership
instutional owners
2) boards of directors
insiders, related outsiders, outsiders
3) executive compensation
4) market for corporate control
drivers of competitive behavior
awareness, motivation, ability
competitive rivalry
ongoing sets of actions and responses ocurring between competitors and influences an individual firm’s ability to gain and sustain competitive advantages
competitive behavior
set of comp action and responses the firms takes to build or defend its competitive advantage and improve its market position
competitive dynamics
total set of action and responses taken by all firms competing withing a market
how to know the type of competition ?
market commonality (multimarket competition)
ressource similarity
1st mover benefits
loyalty of customers, market share, proprietary technology
must : invest in r&d, rapidly successfully market a stream of innovative products
2nd mover benefits
studies customers reaction + get feedback
more efficient and need to find additional value
slow cycle market
markets in which competitors lack the ability to imitate the focal firm’s comp advantage
fast cycle market
markets in which competitors can imitate the focal firm’s capabilities that contribute to its comp advantage
business level strategy
Integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets
types of business model
franchise model
freemium model
advertising model
subscription model
peer-to-peer model
types of business level strategy
1) cost leadership
2) differentiation strategy
3) focus strategy
4) integrated cost/differentiation strategy
cost leadership strategy
commonly standardized goods
process innovations critical
provide some protection against powerful customers
oprates with greater margin then competitors (absorb supplier’s price)
profit margins high so barriers to entry
cost leader has more flexibility than its competitors with product substitution
risks:
loss of comp advantage to newer technology,fail to assess change in customers’ needs, ability to imitate cost leader
process engineering is emphasize, formalized procedure guide actions, structure is mechanical, jobs roles are highly structures, operations is the main function
differentiation strategy
non standardized products, when value differentiated products more than costs
customer more loyal and less price sensitive, able to charge higher prices, differentiatior is insulated it is not affected by suppliers power, customer loyalty + uniqueness makes it difficult to enter, less switching subsitute
risk : when uniqueness of product does not justify price, competitors can reporduce it and sell at lower price, failure of a firm to meet expectation
marketing is the main function, new product R&D is empahsize, functions are decentralized, formalization is limited, structure is organic
focus strategies
must complete various primary and support activities in a competitively superior manner
opportunities:
large firms may overlook a niche market
firm may lack the resources needed to compete in the broader market
focusing allows the firms to direct its resources to a certain value chain activities to build a com advantage
firm is able to serve a narrow market segment more effectively
risks:
competitors ability to use its core competencies to outfocus
an industry wide company might decide the market segment is attractive
reduction in differences of the needs between customers in a narrow market segment and the indsutry wide market over time
integrated cost leadership/differentiation strategy
increase the number of primary value chain activity and support functions (flexibility is required)
sources of flexibility :
flexible manufacturing systems
information networks
total quality management systems
but often not best nor lowest
corporate level strategy
Specifies action a firm takes to gain a competitive advantage by selecting and managing a group od different business competing in different product markets
corporate level strategy concerned with 2 key issues
in what product markets and business the firm compete ?
how corporate headquarters should manage those businesses
product diversification
deals with the scope of the the industries markets in which the firm will compete (broad/narrow)
how managers buy/create/sell different business to match skills and strengths with opportunities presented to the firm
low -level diversification
single business : 95%
main business: 70-95%
moderate-high level diversification
related constrained: dominant business, product/tech/distribution linkage
related linked: <70%, limited links between businesses
very high diversification level
unrelated: <70%, no common links between businesses
role of diversification
horizontal
vertical : backward/upstream, forward/downward
International expansion
corporate relatedness
Corporate relatedness in transferring skills or corporate core competencies among units.
operational relatedness
Achieved when the firm’s businesses successfully share resources and activities to produce and sell their products
related constrained
high operational relatedness, low corporate relatedness
unrelated diversification
low operational relatedness
low corporate relatedness
operational + corporate relatedness
both high
related linked
low operational relatedness
high corporate relatedness
how to create operational relatedness
sharing:
primary activities
support activities
activity sharing
costly to implement and coordinate
may create unequal benefits for the division involved
can lead to fewer managerial risk-taking behavior
activity sharing
costly to implement and coordinate
may create unequal benefits for the division involved
can lead to fewer managerial risk-taking behavior
corporate-level core competencies
complex set of resources and capabitlies that link deifferent business primarily through man/tech knowledge, experience and expertise
related-linked strategy create value by
transferring core competences
- expense of developing core competencies already incurred
- intangible resources => immediate advantage
simultaneous operational and corporate relatedness
ability to create economies of scope by sharing activities and transferring core competencies
- difficult for competitors to understand/imitate
- expensive to undertake (sometimes benefits do not offset the loss => diseconomies of scales)
- results in discounted assets by investors => :((
unrelated diversification strategy
financials economies : cost savings realized through improved allocation of financial resources based on investments inside/outside the firm
can create value : efficient internal capital market allocation, asset restructuring
corporate headquarter office distributes capital to its businesses to create value for the overall corporation
incentives to diversify
external: antitrust regulations, tax laws
internal: low perf, uncertain future cash flows, pursuit of synergy, reduction of risk for the firm
simple structure
manager makes all decisions
for focus strategies and business level strat
functional structure
chief executive officer and limited corporate staff with functional line managers in dominant org areas such as production, acc, marketing…
for business level strategies and some corporate level strategies (single/dominant with low diversification)
benefits: econ of scale/scope, performance standard are better maintained, specialized training and in depth skill dvp, clear decision making
disadvantages: hard to integrate, lack of common vision
functional structure
chief executive officer and limited corporate staff with functional line managers in dominant org areas such as production, acc, marketing…
for business level strategies and some corporate level strategies (single/dominant with low diversification)
benefits: econ of scale/scope, performance standard are better maintained, specialized training and in depth skill dvp, clear decision making
disadvantages: hard to integrate, lack of common vision
mutlidivisional structure
corporate office and operating division, each op division representing a separate business in which the top corporate officer delegates responsibilities to division manager for day-to-day op
appropriate when firm is highly diverse
benefits: corporate officers are able to more accurately monitor perf of each business (better control) , facilitates comparison between division (improve ressource allocation)
disadvantages: difficult to coordinate across product lines, replication of ressources, pressure to generalize
strategic reason for acquisition
1) increased market power : horizontal, vertical, related acquisition
2) increase diversification
3) overcoming entry barriers
4) reshaping firm’s competitive scope : lessen market dependencies
5) learning + dev capabilities
6) lower risks than dev new products
7) cost of new product dvp + increase speed to market
pbl with acquisitions
1) integration difficulty
2) inadequate evaluation of the target’s value
3) large debts that preclude adequate long-term investment
4) creating a firm that is too diversified
5) managers overly focused on acquisition
6) developing a firm too large (extensive bureaucracy)
integration difficulties challenges
meld unique corporate cultures
link financial and info control system
build effective working relationship (mgmt style differ)
determine leadership structure
joint venture
2 or more firms create a legally independent company to share some of their resources to create a competitive advantage
partners own an equal % and contribute equally to the venture’s operation
often formed to improve a firm’s ability to compete in uncertain environments
transferring tacit knowdlege => long-term relationship
equity strategic alliance
alliance in which one company purchases equity in another business (partial acquisition) or each business purchase equity in each other (cross-equity transaction)
non-equity strategic alliance
Alliance in which 2 or more firms develop a contractual relationship to share some of their resources to create a comp advantage
less formal, less commitment, no intimate relationship, not suitable for complex project
business-level strategy cooperative strategy
strategy through which firms combine some of their ressources to create a competitive advantage by competing in 1 or more product markets
4 business level cooperative strategy
1) complementary strategic alliances
2) competition response strategy
3) uncertainty-reducing strategy
4) competition-reducing strategy
complementary strategic alliances
business-level alliances in which firms share some of their resources in complementary ways to create a competitive advantage
vertical
horizontal
uncertainty-reducing alliances
used to hedge against the risks created by the condition of uncertain competitive environment (such as new product markets)
competitive-reducing strategy
used to avoid excessive competition while the firm marshals its resources to improve its competitiveness
collusion is often used: collusive strategy (explicit, implicit)
competitive risks of cooperative strategies
inadequate contracts
misrepresentation of competencies brought to the partnership
opportunistic behavior ( partner fail its part, 1 more involved)
