Lecture 9 (Busines Strategy I)

Question 1

Strategy meaning

Answer 1

choice of a future for the company and of a way to reach that future

Question 2

Corportate strategy meaning

Answer 2

long-term strategy on overall direction and scope of organization

Question 3

What is business strategy concerned with

Answer 3

concerned with how the firm competes within a particular industry or market

Question 4

Functional strategy meaning

Answer 4

Detailed deployment of resources at the operational level

Question 5

Competetive advantage meaning

Answer 5

Being able to create more economic value than rival firms

Question 6

Sustainable competitive advantage meaning

Answer 6

Value creating processes and
positions cannot be duplicated or imitated by other firms and that lead to the consistent
production of above average returns

Question 7

Above average returns meaning

Answer 7

making profits in excess of the
firm’s cost of capital

Question 8

Two classes of measures of competitive advantage:

Answer 8

Account measures and Economic measures

Question 9

Account measures

Answer 9

Return on Equity/ROE, Return On Assets/ROA, Return on Sales/ROS

Question 9

Economic measures

Answer 9

Earning a return in excess of the cost of capital (above average returns)

Question 9

Return on Equity meaning

Answer 9

Measure of how well a company used reinvested earnings to generate additional
earnings

Question 10

Return on Assets meaning

Answer 10

“what the company can do with what it’s got”, an indicator of how profitable a
company is. Used to compare firm’s business’ performance to the industry’s norms

Question 11

Return on Sales meaning

Answer 11

Firm’s operating profit margin, detects operational efficiency

Question 12

External environment composition

Answer 12

General, Industry
and Competitor environment

Question 13

General environment meaning

Answer 13

Elements in the broader society that can influence an industry and the firms within it

Question 14

General environment composition groups

Answer 14

-Demographic
-Economic
-Political/legal
-Sociocultural
-Technological
-Global

Question 15

M. Porter’s five forces model

Answer 15

1. Threat of new entrants
2. Suppliers
3. Buyers
4. Product substitutes
5. Intensity of competition among rivals

Question 16

Competitor analysis

Answer 16

gathering and interpreting info about competitors

Question 17

When is there a threat of new entrants

Answer 17

Firms want to enter if they can gain above-normal economic profits, and if there is an absence of any
barriers to entry

Question 18

Barriers to enter:

Answer 18

-Economies of scale
-Product differenciation
-Capital requirements
-Access to distribution channels
-Cost disadvantages independent of scale
-Government policy
-Expectation retaliation

Question 19

When suppliers have high bargaining power?

Answer 19

-Purchase large portion of the industry’s total output
-Could easily switch to another product
-Possibility of backward vertical integration

Question 20

When suppliers have high bargaining power?

Answer 20

-few of them
-they sell unique products
-not threatened by substitutes
-can
integrate forward

Question 21

How can buyers threaten with power?

Answer 21

-forcing down prices
-demanding higher quality or more service
-playing competitors off against each other

Question 22

How can suppliers threaten with power?

Answer 22

-increasing the price of their supplies
-reducing the quality of supplies

Question 23

Why substitutes are a threat

Answer 23

They place a price ceiling

Question 24

When there is a high threat of substitutes?

Answer 24

-customers
face few switching costs
-substitute product’s price is lower
-substitute product’s quality
and performance capabilities are equal to or greater than those of the competing product

Question 25

Intensity of rivalry is stronger when
competitors:

Answer 25

-are numerous or equally balanced
-experience slow industry growth
-have high fixed
costs or high storage costs
-lack differentiation
-low switching costs
-experience high strategic stakes
-have high exit barriers

Question 26

Main paradigm on industry analysis

Answer 26

Structure–conduct–performance (or S–C–P) paradigm

Question 27

Structure–conduct–performance paradigm

Answer 27

Structure - number, size and
distribution of firms in that industry and the barriers that impede other firms entering it

Conduct -
behaviour (or strategies) of firms in the industry

Performance - profitability, growth in
output and employment

Question 28

resource-based view of the firm (RBV)

Answer 28

A resource can be the basis of a competitive advantage only if that resource has certain properties (the VRIN-network)

Question 29

VRIN network

Answer 29

-Valuable (enables a firm to operate efficiently)

-Rare (difficult to acquire the same resource)

-Inimitable (difficult to replicate)

-Non-substitutable (no substitute resources available)

Question 30

dynamic capability meaning

Answer 30

the capacity of an organization to ‘purposefully create, extend, or modify its resource base

Question 31

Factors and circumstances
that contribute to dynamic capabilities being valuable, rare and/or inimitable:

Answer 31

-Co-specialization
-Asset orchestration
-Tacit knowledge
-Firm specificy
-Isolating mechanisms

Question 32

Co-specialization meaning

Answer 32

uniquely valuable only when used in combination

Question 33

Assets orchestration meaning

Answer 33

in an optimal configuration of assets, the whole is more valuable than the sum of its parts

Question 34

Isolating mechanisms meaning

Answer 34

Mechanisms preventing other firms competing away the profit that a firm earns from its capability