Lecture 9 (Busines Strategy I) Flashcards
Strategy meaning
choice of a future for the company and of a way to reach that future
Corportate strategy meaning
long-term strategy on overall direction and scope of organization
What is business strategy concerned with
concerned with how the firm competes within a particular industry or market
Functional strategy meaning
Detailed deployment of resources at the operational level
Competetive advantage meaning
Being able to create more economic value than rival firms
Sustainable competitive advantage meaning
Value creating processes and
positions cannot be duplicated or imitated by other firms and that lead to the consistent
production of above average returns
Above average returns meaning
making profits in excess of the
firm’s cost of capital
Two classes of measures of competitive advantage:
Account measures and Economic measures
Account measures
Return on Equity/ROE, Return On Assets/ROA, Return on Sales/ROS
Economic measures
Earning a return in excess of the cost of capital (above average returns)
Return on Equity meaning
Measure of how well a company used reinvested earnings to generate additional
earnings
Return on Assets meaning
“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
Return on Sales meaning
Firm’s operating profit margin, detects operational efficiency
External environment composition
General, Industry
and Competitor environment
General environment meaning
Elements in the broader society that can influence an industry and the firms within it
General environment composition groups
-Demographic
-Economic
-Political/legal
-Sociocultural
-Technological
-Global
M. Porter’s five forces model
- Threat of new entrants
- Suppliers
- Buyers
- Product substitutes
- Intensity of competition among rivals
Competitor analysis
gathering and interpreting info about competitors
When is there a threat of new entrants
Firms want to enter if they can gain above-normal economic profits, and if there is an absence of any
barriers to entry
Barriers to enter:
-Economies of scale
-Product differenciation
-Capital requirements
-Access to distribution channels
-Cost disadvantages independent of scale
-Government policy
-Expectation retaliation
When suppliers have high bargaining power?
-Purchase large portion of the industry’s total output
-Could easily switch to another product
-Possibility of backward vertical integration
When suppliers have high bargaining power?
-few of them
-they sell unique products
-not threatened by substitutes
-can
integrate forward
How can buyers threaten with power?
-forcing down prices
-demanding higher quality or more service
-playing competitors off against each other
How can suppliers threaten with power?
-increasing the price of their supplies
-reducing the quality of supplies
Why substitutes are a threat
They place a price ceiling
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
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
Main paradigm on industry analysis
Structure–conduct–performance (or S–C–P) paradigm
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
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)
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)
dynamic capability meaning
the capacity of an organization to ‘purposefully create, extend, or modify its resource base
Factors and circumstances
that contribute to dynamic capabilities being valuable, rare and/or inimitable:
-Co-specialization
-Asset orchestration
-Tacit knowledge
-Firm specificy
-Isolating mechanisms
Co-specialization meaning
uniquely valuable only when used in combination
Assets orchestration meaning
in an optimal configuration of assets, the whole is more valuable than the sum of its parts
Isolating mechanisms meaning
Mechanisms preventing other firms competing away the profit that a firm earns from its capability
