MGCR 423 Midterm Flashcards
What is Strategy?
An integrated and coordinated set of commitments & actions designed to exploit core competencies and gain a competitive advantage.
When does a firm have a Competitive Advantage?
When a firm creates value for customers by implementing a chosen strategy, and when competitors can’t imitate the value of the products/services or find it too costly to imitate.
Formula for the TOTAL value created
Willingness to Pay of Buyers - Opportunity Cost of Suppliers
What is operational effectiveness?
Performing similar activities better than competitors - efficiency.
What is Competitive Rivalry?
The ongoing set of competitive actions/responses that occur among firms as they maneuver for an advantageous market position
What makes firms competitors?
When they operate in the same market, offer similar products, and target similar customers.
2 Things Competitive Rivalry influences:
- Ability to develop/sustain competitive advantage
- Level of financial returns (avg, below avg, above avg)
What is Competitive Behaviour?
The set of competitive actions and responses a firm takes to build or defend its competitive advantages and to improve its market position.
What are Competitive Dynamics?
The total set of competitive actions/responses taken by all firms competing within a market
Why do competitors engage in competitive rivalry?
To gain an advantageous market position
How do competitors engage in competitive rivalry?
Through competitive behaviour (competitive actions and responses)
What results from competitive rivalry?
Competitive dynamics (competitive actions/responses taken by all firms competing in a market)
Why is the competitor important when deciding a competitive strategy?
competitors actions and responses affect the firm: marketplace success is a function of both individual strategies and their CONSEQUENCES
What is a competitive action?
a strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position
What is a competitive response?
A strategic or tactical action the firm takes to counter the effects of a competitor’s competitive action
What is a strategic response/action (competitive rivalry)
A market-based move that involves a SIGNIFICANT COMMITMENT of organizational resources and is DIFFICULT to implement and reverse
What is a tactical response/action (competitive rivalry)
A market-based move that firms take to FINE-TUNE a strategy. These actions and responses involve FEWER RESOURCES and are RELATIVELY EASY to implement and reverse
3 drivers of competitive behavior
awareness
motivation
ability
What positively increases the likelihood of attack
- first mover benefits
- organizational size
- quality
Higher market commonality and higher similarity with a competitor ______ drivers of competitive behaviour
increases
Likelihood of response is affected by (competitive strategy)
- type of competitive action
- actor’s reputation
- market dependence
The state of best practice (productivity frontier) shows the trade off between:
Value for customers and relative cost position
2 models of above-average returns
Industrial Organization (IO) and Resource-Based (RB)
T/F: A firm can still earn above average returns if it doesn’t compete in an attractive industry and doesn’t have a competitive advantage
F -> can earn at best average
What are above average returns?
returns in excess of what an investor expects to earn from other investments with a similar amount of risk
What is the industrial organization (IO) model
says that returns are influenced by external factors (external environment determines strategy that results in above avg returns)
4 assumptions of IO model
- external environment determines strategy that results in above avg returns
- most firms competing within an industry are assumed to control similar strategically relevant resources
- firms resources are assumed to be highly mobile
- decisionmakers are rational (profit-maximizers)
Goal of the IO model
find the most attractive industry in which to compete
4 RB model assumptions
- differences in firms performance is due to unique resources and capabilities
- firms acquire different resources and develop unique capabilities are the basis of competitive advantage
- firms resources aren’t mobile across firms
- differences in resources and capabilities are the basis of competitive advantage
What is a capability?
the capacity for a set of resources to perform a task in an integrative manner - MUST NOT BE EASILY IMITATED
What are core competencies?
capabilities that serve as a source of competitive advantage of a firm over its rivals
What is a vision?
a picture of what the firm wants to be and what it wants to achieve (I.e. McDonald’s vision is to be the world’s best quick service restaurant)
what is a mission?
specified the business in which the firm intends to compete and the customers it intends to serve (more specific than a vision statement, specifies a firms individuality)
2 parts of a core ideology
core values and a core purpose
t or f: you can create a core ideology
F -> a core ideology is not to be created but discovered
What are core values
the guiding principles of an organization
what is a core purpose
a firm’s reason for being
what are the 2 parts of an envisioned future
BHAG and vivid description
What are stakeholders
Individuals, groups, and organizations that can affect a firms vision and mission, are affected by the strategic outcomes achieved, and have enforcible claims on the firms performance
What are the 3 types of stakeholders
Capital market stakeholders, product market stakeholders, organizational stakeholders
More _____ on an organization -> greater influence by stakeholder
dependence
what are capital market stakeholders?
Shareholders and lenders. Expect a firm to preserve and enhance their wealth.
What are product market stakeholders?
Customers, suppliers, host communities, unions
when are product market stakeholders satisfied?
Product market stakeholders are generally satisfied when a firms profit margin reflects at least a balance between the returns to Capital Market stakeholders and the returns in which they share
what are organizational stakeholders
employees and leaders
why would stakeholders want above average returns?
more resources to satisfy their interests
what is the trade offs rationale
basically means that in below/avg returns, firm meets minimum stakeholder expectations to minimize support lost from unsatisfied stakeholders
what are the 7 dimensions of the general environment?
economic
sustainable physical
sociological
global
technological
political/legal
demographic
what is the general environment
composed of dimensions in the broader society that influence an industry and the firms within it
what does the general environment analysis seek to capture?
general environment analysis seeks to capture opportunities
What is the industry environment?
the set of factors that directly influences a firm and its competitive actions and responses
what does the industry environment find?
the overall profitability of the industry
what is a competitor analysis?
understanding the firm’s competitor environment which complements industry and general analysis
what are the 4 parts of general environment analysis?
scanning
monitoring
forecasting
assessing
what is scanning (gen. env. analysis)
identifying early signals of environmental changes and trends
what is monitoring (gen. env. analysis)
detecting meaning through observation of environmental trends
what is forecasting (gen. env. analysis)
projecting anticipated outcomes based on monitored trends and changes
what is assessing (gen. env. analysis)
determining their timing and importance of changes and trends for firms strategies and their management
segment: inflation rates
economic
segment: trade deficit
economic
segment: income distribution
demographic
segment: women in the workforce
sociocultural
segment: important political events
global
what is the economic segment of the general environment
nature and direction of the economy in which a firm competes
what kind of economy does a firm want to compete in?
stable and growing
what is the political/legal segment of the general environment?
organizations and interest groups compete for attention, resources, and a voice
- how organizations try to influence governments
- how they try to understand the current and projected influences of those governments on their competitive actions and responses
what is the global segment of the general environment?
relevant global markets and their critical cultural and institutional characteristics, existing markets that are changing and important international political events
5 industry environment segments (porters 5 forces)
threat of new entrants
bargaining power of suppliers
bargaining power of buyers
substitute products
rivalry intensity
examples of barriers to entry
economies of scale
differentiation
capital requirements
switching costs
access to distribution channels
cost disadvantages independent of scale
government policy
2 factors that affect the threat of new entrants
barriers to entry
retaliation from current participants
how can suppliers exert power
- increasing prices
- reducing the quality of their products
a supplier group is more powerful when (4)
- dominated by a few large companies
- industry firms aren’t a significant customer
- criticality of suppliers’ goods
- credible threat to integrate into buyers industry
customers are powerful when (2)
- they purchase a large portion of an industry’s total output
- can easily switch to another product
how can a firm reduce a substitute’s attractiveness
through post-sale service, quality, and location
competitive rivalry intensifies when
- a firm is challenged by competitors actions
- company finds opportunities to improve market position
- there is slow industry growth, many competitors, high fixed costs, no differentiation
competitive rivalry intensifies when
- a firm is challenged by competitors actions
- company finds opportunities to improve market position
- there is slow industry growth, many competitors, high fixed costs, no differentiation
what are strategic groups?
a set of firms emphasizing similar strategic dimensions and using a similar strategy -> BOEING and AIRBUS
what does competitor analysis do?
focuses on each company against which a firm competes directly
- what drives competitor, what they’re doing, what their capabilities are, what they believe about the industry
4 parts of competitor analysis
future objectives
current strategy
assumption
capabilities
what is competitor intelligence
the set of data and information the firm gathers to better understand and anticipate competitors objectives, capabilities, and assumptions
who are complementors?
companies/networks of companies that sell complementary goods/services
4 criteria of sustainable advantage
valuable, rare, costly to imitate, non-substitutable/organizational
why does competitive advantage have a limited life
eventually competitors will duplicate them
competitive advantage sustainability is based on 3 factors…
- Rate of core competency obsolescence due to environmental changes
- availability of substitutes for core competency
- imitability of core competence
creating ___ is the source of above average returns for a firm
value
why is making decisions about the firms assets difficult for managers
increasingly internationalized
need for judgement
t or f: by themselves resources can allow firms to earn above avg returns
f
tangible resources
assets that can be observed and quantified
4 types of tangible resources
financial
organizational
physical
technological
intangible resources
assets rooted deeply in firm’s history, accumulate over time, relatively difficult for competitors to analyze and imitate
4 types of intangible resources
human resources
innovation resources
reputational resources
why are intangible resources stronger than tangible resources
- you can leverage them (easy to derive additional business)
- harder to imitate
2 tools that help firm find their core competencies
4 criteria of sustainable comp advantage
value chain analysis
3 Imitatability factors
-historical: brand name and reputation
-causal ambiguity: unclear how the firm got there
-social complexity: interpersonal relationships
outsourcing pros
more flexibility
less risk
fully concentrate in those areas where it has the potential to create value
outsourcing cons
potential loss in a firm’s ability to innovate
loss of jobs in focal firm (human capital)
what determines how much value each player will appropriate in a value chain
bargaining
4 strategies against competition
increase your buyers WTP (I.e. marketing)
decrease buyers WTP for rivals (I.e. airmails)
decrease your opportunity cost (become more efficient w suppliers)
increase competitors opportunity cost (switching costs for suppliers)
business level strategy
an integrated/coordinated set of actions firm uses by exploiting core competencies in a specific product market
____ are the foundation for successful business strategies
customers
business model
part of a business level strat
describes what a firm does to create, deliver and capture value for its stakeholders
i.e. franchise, freemium
5 types of business level strategy
cost leadership
differentiation
focused cost leadership
focused differentiation
integrated cost leadership/differentiation
commonly selling standardized goods with competitive levels of differentiation, with the lowest possible cost is the _______ strategy
cost leadership
process innovations are needed for a successful _____ strategy
cost leadership
benefits of having a lower finished cost than competitors
creates entry barrier
retains customers against substitutes
absorbs suppliers price increases
product innovations are needed for a successful _______ strategy
differentiation
making products (at an acceptable price) that customers perceive as being different in an important way (strategy)
differentiation strategy
an integrated set of actions taken to produce products that serve the needs of a particular set of customers
a focus strategy
what does a focus strategy lead to success
serves a segment w very unique needs that other competitors don’t serve
creates more value for a segment than anyone else
this strategy finds a firm doing value chain activities and support functions that have low cost and differentiated products
integrated cost leadership/differentiation strategy
risks of low-cost strategy
- loss of competitive advantage to newer technologies
- failure to detect changes in customers needs
risks of differentiation strategy
- obsolescence of value of differentiated product
- if competitors imitate them at a lower cost
risks of focus strategy
- competitor can out-focus by serving an even narrower group
- less difference between focus group and general public over time
risk of integrated strategy
firm might get stuck in the middle
why do competitors engage in competitive rivalry?
to gain an advantageous market position
first mover advantage - smaller firms move ___
faster
first mover advantage - larger firms make _____ moves
bigger
