Lecture 9 (Busines Strategy I) Flashcards

1
Q

Strategy meaning

A

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

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2
Q

Corportate strategy meaning

A

long-term strategy on overall direction and scope of organization

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3
Q

What is business strategy concerned with

A

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

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4
Q

Functional strategy meaning

A

Detailed deployment of resources at the operational level

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5
Q

Competetive advantage meaning

A

Being able to create more economic value than rival firms

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6
Q

Sustainable competitive advantage meaning

A

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

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7
Q

Above average returns meaning

A

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

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8
Q

Two classes of measures of competitive advantage:

A

Account measures and Economic measures

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9
Q

Account measures

A

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

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9
Q

Economic measures

A

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

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9
Q

Return on Equity meaning

A

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

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10
Q

Return on Assets meaning

A

“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

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11
Q

Return on Sales meaning

A

Firm’s operating profit margin, detects operational efficiency

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12
Q

External environment composition

A

General, Industry
and Competitor environment

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13
Q

General environment meaning

A

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

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14
Q

General environment composition groups

A

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

15
Q

M. Porter’s five forces model

A
  1. Threat of new entrants
  2. Suppliers
  3. Buyers
  4. Product substitutes
  5. Intensity of competition among rivals
16
Q

Competitor analysis

A

gathering and interpreting info about competitors

17
Q

When is there a threat of new entrants

A

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

18
Q

Barriers to enter:

A

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

19
Q

When suppliers have high bargaining power?

A

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

20
Q

When suppliers have high bargaining power?

A

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

21
Q

How can buyers threaten with power?

A

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

22
Q

How can suppliers threaten with power?

A

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

23
Why substitutes are a threat
They place a price ceiling
24
When there is a high threat of substitutes?
-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
25
Intensity of rivalry is stronger when competitors:
-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
26
Main paradigm on industry analysis
Structure–conduct–performance (or S–C–P) paradigm
27
Structure–conduct–performance paradigm
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
28
resource-based view of the firm (RBV)
A resource can be the basis of a competitive advantage only if that resource has certain properties (the VRIN-network)
29
VRIN network
-Valuable (enables a firm to operate efficiently) -Rare (difficult to acquire the same resource) -Inimitable (difficult to replicate) -Non-substitutable (no substitute resources available)
30
dynamic capability meaning
the capacity of an organization to ‘purposefully create, extend, or modify its resource base
31
Factors and circumstances that contribute to dynamic capabilities being valuable, rare and/or inimitable:
-Co-specialization -Asset orchestration -Tacit knowledge -Firm specificy -Isolating mechanisms
32
Co-specialization meaning
uniquely valuable only when used in combination
33
Assets orchestration meaning
in an optimal configuration of assets, the whole is more valuable than the sum of its parts
34
Isolating mechanisms meaning
Mechanisms preventing other firms competing away the profit that a firm earns from its capability