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MGMT 4800 > MGMT 4800 > Flashcards

MGMT 4800 Flashcards

1
Q

List the steps of the Strategic Management Process

A
  1. Mission
  2. Objectives
  3. External Analysis
  4. Internal Analysis
  5. Strategic Choice
  6. Strategy Implementation
  7. Competitive Advantage
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2
Q

Defining Strategy

A

theory about how to gain “competitive advantages”. → A good strategy is a strategy that actually generates such advantages

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3
Q

What is the Strategic Management Process?

A

The Strategic Management Process: A sequential set of analyses and
choices that can increase the likelihood that a firm will choose a good
strategy (a strategy that generates a competitive advantage).

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4
Q

Define a mission

A

A firm’s long-term purpose, defining both what a firm
aspires to be in the long run and what it wants to avoid in the meantime.
→ A broad statement of a firm’s purpose and values

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5
Q

What is an objective? What are the types of objectives?

A

Objectives: Specific “measurable (quantifiable)” targets a firm can
use to evaluate the extent to which it is realizing its mission.

There are two different types of objectives: Financial and Strategic 
objectives
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6
Q

High-quality objectives

A

tightly connected to elements of a firm’s
mission and are relatively easy to measure and track over time.

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7
Q

Low-quality objectives

A

do not exist or are not connected to
elements of a firm’s mission, are not quantitative, or difficult to
measure or difficult to track over time

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8
Q

What is external analysis

A

helps a firm identifies the critical threats and
opportunities in its environment. → It also examines how competition
in this environment is likely to evolve and what implications that
evolution has for the threats and opportunities a firm is facing.

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9
Q

What is internal analysis

A

helps a firm identify its organizational strengths
and weaknesses. → It also helps a firm understand which of its resources
and capabilities are likely to be sources of competitive advantages
(strengths). → It also helps firms identify those areas of its organization
that require improvement and change (weaknesses).

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10
Q

SWOT analysis

A

Strengths (internal)
Weaknesses (internal)
Opportunities (external)
Threats (external)

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11
Q

What are the six components of the macro-environment

A
  1. Political
  2. Economic
  3. Sociocultural
  4. Technological
  5. Environmental
  6. Legal and Regulatory
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12
Q

Porters Five Forces

A
  1. Buyers
  2. Rivalry
  3. Substitutes
  4. Suppliers
  5. Barriers to Entry
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13
Q

What are the types of company resources

A

Tangible and Intangible

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14
Q

Define Strategic Choice

A

A firm is ready to choose its theory of how to gain competitive advantage

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15
Q

Levels of strategies

A

(A) Business-level strategies: Actions firms take to gain competitive advantages
in a single market or industry (e.g. Cost leadership, Product differentiation).
(B) Corporate-level strategies: Actions firms take to gain competitive advantages
in multiple markets or industries simultaneously (e.g. Vertical integration,
Diversification, Strategic alliance, Merger & Acquisition, Global strategies).

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16
Q

How to choose a strategy

A

(a) supports the firm’s mission; (b) is consistent with
objectives; (c) exploits opportunities with strengths; and (d) neutralizes threats
while avoiding weaknesses. → A strategy that is a source of competitive
advantage for a firm.

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17
Q

When does strategy implementation occur?

A

when a firm adopts organizational
policies and practices that are consistent with its strategy

 (a) an (formal) organizational structure, (b) (formal and informal) 
 management control systems, (c) employee compensation policies that are consistent with and reinforce its strategies (business-level and corporate-level strategies) is more likely to be able to implement those strategies.
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18
Q

What is competitive advantage?

A

A firm has a competitive advantage when it is able to create more economic value than rival firms

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19
Q

What is economic value?

A

the difference between the ‘perceived’ benefits gained by a customer that purchases a firm’s products or services and the full economic cost of these products or services

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20
Q

How to determine the size of competitive advantage

A

is the difference between the
economic value a firm is able to create and the economic value its rivals are
able to create.

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21
Q

4 Types of Competitive Advantage

A
  1. Sustained competitive advantages – Competitive advantages that last
    a long time.
    1. Temporary competitive advantages – Competitive advantages that
      lasts for a very short period of time.
    2. Competitive parity – When a firm creates the same economic value as
      its rivals.
  2. Competitive disadvantages (Temporary or Sustained) – When a firm
    creates less economic value than its rivals.
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22
Q

What are emergent/realized strategies

A

a strategy that emerges over time or that has been radically reshaped once implemented; the strategy a firm is actually pursuing.

23
Q

What are intended/unrealized strategies?

A

an intended strategy a firm doesn’t actually implement; a strategy a firm thought it was going to pursue.

24
Q

What is a deliberate strategy?

A

an intended strategy a firm actually implements.

25
Q

Emergent versus Intended Strategies

A
  1. Firms begin operations with a well-defined, well-formed strategy (Intended/ Deliberate Strategy) but find it necessary to modify this strategy so much once it is actually implemented in the marketplace that it bears little resemblance to the theory with which the firm started (Emergent Strategy).
  2. Emergent strategies are theories of how to gain competitive advantage in an industry that emerge over time or that have been radically reshaped once they are initially implemented.

In reality, at the time when a firm chooses its strategies, some of the information needed to complete the strategic management process may simply not be available (a firm simply has to make its “best bet”). → A firm’s ability to change its strategies quickly to respond to emergent trends in an industry may be as important a source of competitive advantage as the ability to complete the strategic management process.

26
Q

What is the general external environment

A

broad trends in the context within which a firm operates that can have an impact on a firm’s strategic choices

27
Q

six interrelated elements of the general environment

A

(a) technological
change, (b) demographic trends, (c) cultural trends, (d) the economic climate,
(e) legal and political conditions, and (f) specific international events

28
Q

Macro External Environment: Technological Changes

A

significant impacts
on the ways firms do business and on the products and services they sell (e.g.
digital information, biotechnology, etc.).

Technological change creates both opportunities (as firms begin to explore how 
to use technology to create new products/services) and threats (as technological 
change forces firms to rethink their technological strategies).
29
Q

Macro External Environment: Demographics

A

the distribution of individuals in a society in terms of
age, sex, marital status, income, ethnicity, and other personal attributes
that may determine buying patterns. → Help a firm determine whether its
products/services will appeal to customers and how many potential
customers for these products/services it might have

30
Q

Macro External Environment: Culture

A
  1. Culture is the values, beliefs, and norms that guide behavior in a society,
    defining what is “right or wrong”, “acceptable or unacceptable”, and
    “fashionable or unfashionable” in a society.Failure to understand changes in culture, or differences between
    cultures, can have a very large impact on the ability of a firm to gain a
    competitive advantage.Understanding the cultural context within which a firm operates is
    important in evaluating the ability of a firm to generate competitive
    advantages.
31
Q

Macro External Environment: Economic Climate

A
  1. The economic climate is the overall health of the economic systems
    within which a firm operates.The health of the economy varies over time in a distinct pattern.Business cycle: prosperity followed by recession (depression - a severe
    recession that lasts for several years), followed by prosperity.Although government policy can have a significant impact on the
    frequency and the size of economic downturns, these policies are
    unlikely to be able prevent these downturns altogether.
32
Q

Macro External Environment: Legal and Political Conditions

A
  1. The legal and political conditions refer to the laws and legal system’s impact
    on business, together with the general nature of the relationship between
    government and business.
33
Q

Antitrust Regulation

A

Antitrust laws are regulations that encourage competition by limiting the market power of any particular firm.

This often involves ensuring that mergers and acquisitions don’t overly concentrate market power or form monopolies, as well as breaking up firms that have become monopolies.

34
Q

Macro External Environment: International Events

A

include civil wars, political coups, terrorism,
wars between countries, famines, and country or regional economic
recessions. → All of these can have an enormous impact on the ability of a
firm’s strategies to generate competitive advantages

This general environmental analysis must be accompanied by an analysis of a
firm’s more local environment (Porter’s Five Forces Analysis) if the threats and
opportunities facing a firm are to be fully understood.

35
Q

What is the Porters Five Forces model?

A
  1. The model (Porter’s Five Forces Model) identify the five most common
    “threats” faced by firms in their local competitive environments ([a] threat
    from new competition; [b] threat from competition among existing
    competitors; [c] threat from superior or low-cost substitutes; [d] threat of
    supply leverage; and [e] threat from buyers’ influence) and the conditions
    under which these threats are more or less likely to be present.
36
Q

What is an environmental threat?

A

is any
individual, group, or organization outside a firm that seeks to reduce the level
of that firm’s performance.

37
Q

What are threats?

A

increase a firm’s costs, decrease a firm’s revenues, or reduce a
firm’s performance.

38
Q

The threat of new competition (entry)

A

New competitors are firms that have either recently started operating in an
industry or that threaten to begin operations in an industry soon.

  1. New competitors are motivated to enter into an industry by the superior profits
    that some incumbent firms in that industry may be earning. → Thereby
    increasing the level of industry competition and reducing the performance of
    incumbent firms
39
Q

Define cost of entry

A

The extent to which new competitors act as a threat to an incumbent firm’s
performance, If the cost of entry into an
industry is greater than the potential profits a new competitor could obtain
by entering, then entry will not forthcoming

40
Q

Define barriers to entry

A

attributes of an industry’s structure that increase the cost of entry.

When there are significant barriers to entry, potential new competitors will not enter into an industry even if incumbent firms are earning competitive advantages.

41
Q

What are four important barriers to entry

A

(1) Economies of scale; (2) Product
differentiation; (3) Cost advantages independent of scale; and (4)
Government regulation of entry.

42
Q

Define economies of scale

A

exist in an industry when a firm’s costs fall as a function of its volume of production.

A firm that can’t produce the minimum efficient scale will be at a disadvantage.

Potential new competitors have other options besides (1) entering at the efficient scale and losing money or (2) entering at an inefficient scale and losing money.

For example: (1) attempting to expand the total size of the market, (2) attempting to develop new production technology, and (3) trying to make their products seem very special to their customers to charge higher prices.

But, if the cost of engaging in these “barrier-busting” activities is greater than the return from entry, entry will not occur, even if incumbent firms are earning positive profits.

43
Q

Define diseconomies of scale

A

exist when a firm’s costs rise as a function of its volume of production.

44
Q

Define Production Differentiation as a Barrier to Entry

A

Incumbent firms possess brand identification and customer loyalty that potential new competitors do not

  1. New competitors not only have to absorb the standard costs associated with overcoming starting production in a new industry; they also have to absorb the costs associated with overcoming incumbent firms’ differentiation advantages (i.e. brand identification and customer loyalty).

If the cost of overcoming these advantages is greater than the potential return from entering an industry, entry will not occur, even if incumbent firms are earning positive profits.

45
Q

Define Cost Advantages Independent of Scale as Barriers to Entry

A

Incumbent firms may have a whole range of cost advantages, independent of
economies of scale, compared to new competitors.

New competitors can engage in activities to overcome the cost advantages of 
incumbent firms, but as the cost of overcoming them increases, the economic 
profit potential from entry is reduced (overcoming those advantages can be 
prohibitive).
  1. When incumbent firms have Proprietary (secret or patented) Technology
    that reduces their costs below the costs of potential entrants, (1) potential new competitors must develop their own substitute technologies to compete (the
    cost of developing new technology can act as a barrier to entry) or (2) run the risks of copying another firm’s patented technologies (substantial economic costs - patent infringement lawsuits).
  2. When incumbent firms have Managerial Know-How (the often-taken–for-
    granted knowledge, skills, and information that are needed to compete in an
    industry on a day-to-day basis and that takes years to develop) that is not
    possessed by potential new competitors, the cost of developing this know-how
    can act as a barrier to entry.
  3. When incumbent firms have low-cost access to critical raw materials not
    enjoyed by potential competitors (Favorable Access to Raw Materials), the
    cost of gaining similar access can act as a barrier to entry.
  4. When the cumulative volume of production of incumbent firms gives them
    cost advantages (Learning-Curve Cost Advantages) not enjoyed by potential
    competitors, these cost disadvantages of potential entrants can act as a barrier
    to entry (e.g. airplane manufacturing).
46
Q

Define Government Policy as a Barrier to Entry

A

Governments may decide to increase the cost of entry into an industry and
this occurs most frequently when a firm operates as a government-
regulated monopoly.

The government conclude that it is in a better position to ensure that specific
products or services are made available to population at reasonable prices
than competitive market forces.

Electric power generation and elementary/secondary education have been
protected from new competitors by government restrictions on entry.

47
Q

Threats of Existing Competitors

A
  1. This environmental threat comes from the intensity of competition among a
    firm’s “current direct” competitors.
  2. Direct competition threatens firms by reducing their economic profits (e.g.
    frequent price cutting, frequent introduction of new products, intense
    advertising campaigns, rapid competitive actions and reactions – such as,
    competing airlines quickly matching the discounts of other airlines).
  3. Attributes of an industry that increase the threat of direct competition:
    (1) Large number of competing firms that are roughly the same size
    (2) Slow industry growth:
    When industry growth is slow, firms must often acquire market share from
    established competitors to increase their sales (e.g. Intense price rivalry
    emerged in the U.S. fast food industry).

(3) Lack of product differentiation:
When product differentiation is not a viable strategic option, firms are often
forced to compete only on the basis of price (e.g. Intense competition on
longer routes in the U.S. in the airline industry).

(4) Production capacity added in a large increments:
If production capacity must be added in large increments (to obtain economies
of scale), an industry is likely to experience periods of oversupply, leading to
price cuts

48
Q

Threats of Substitute Products

A
  1. Substitutes meet approximately the same customer needs, but do so in
    different ways (The products/services from a firm’s direct competitors meet
    approximately the same customer needs in the same ways as the products
    /services by the firm itself).
  2. Substitutes place a ceiling on the prices firms in an industry can charge and on
    the profits firms in an industry can earn.
  3. In the extreme, substitutes can ultimately replace an industry’s products and
    services
  4. Substitutes are playing an important role in reducing the profit potential
    in a variety of industries.
49
Q

Threats of Supplier Leverage

A
  1. Suppliers make a wide variety of raw materials, labor, and other critical
    assets available to firms.
  2. Suppliers can threaten the performance of firms in an industry by increasing the price of their supplies or by reducing the quality of those supplies.
  3. Indicators of the threat of supplier leverage in an industry:
    (1) Supplier’s industry is dominated by small number of firms
    (2) Suppliers sell unique or highly differentiated products
    (3) Suppliers are not threatened by substitutes
    (4) Suppliers threaten Forward Vertical Integration
    (5) Firms are not important customers for suppliers
49
Q

What is Forward Vertical Integration

A

Suppliers cease to be supplier only and become both suppliers and rivals

50
Q

Threat of Buyers’ Influence

A
  1. Buyers purchase a firm’s products or services and powerful buyers act to decrease a firm’s revenues (Powerful suppliers act to increase a firm’s costs).
  2. Indicators of the threat of buyers’ influence in an industry:
    (1) Number of buyers is small
    (2) Products sold to buyers are undifferentiated and standard
    (3) Products sold to buyers are a significant percentage of a buyer’s final costs (Buyers are likely to be very concerned about the costs of their supplies and constantly on the lookout for cheaper alternatives)
    (4) Buyers threaten Backward Vertical Integration (buyers become both buyers and rivals, locking in a certain percentage of an industry’s sales).
51
Q

What is Backward Vertical Integration

A

buyers become both buyers and rivals, locking in a certain percentage of an industry’s sales

52
Q

Overall level of threat

A
  1. The overall level of threat in an industry can be used to anticipate the
    average level of performance of firms in an industry.
  2. The real question to ask in anticipating the average performance of firms in
    an industry is: “Are one or more threats in this industry powerful enough to
    appropriate most of the profits that firms in this industry might generate?”Yes – the anticipated the average level of performance will be low
    No - the anticipated the average level of performance will be high
  3. But, this is acceptable if a firm’s industry is the primary determinant of its
    overall performance (The industry might not be the only determinant of a
    firm’s performance).
53
Q

Estimating the Level of Average Performance in an Industry

A

If all threats are high, expect normal profits
If all threats are low, expect above normal profits

MGMT 4800 (2 decks)

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