Midterm Flashcards
What is strategy analysis?
Strategy is the link between the Firm and its Environment
Define Strategy
Strategy: a plan, method, or series of actions designed to achieve a specific goal or effect
Types of Strategies & why Do Firms Need them?
Strategy as Decision Support -> Improves the quality of decision making
Strategy as Coordination & Communication -> Creates consistency and unity
Strategy as Target -> Improves performance by setting high aspirations
What’s the difference between Business Strategies & Corporate Strategies?
Business Strategies // the firm should compete to achieve its GOALS; the ultimate one is to achieve COMPETITIVE ADVANTAGE
Corporate Strategies // a firm competes. The scope of its activities
What Makes a Successful Strategy?
understanding…
- Long-term, simple and agreed objectives
- Profound understanding of the competitive environment
- Objective appraisal of resources
What are the 2 success factors of a Competitive Strategy?
Analysis of demand & Analysis of competition
What’s the premise of Industry Competition & Firm Strategy?
The firm‘s strategy depends on the
competitiveness in an industry. The firm should choose a strategy that minimizes the competitive threats of an industry
Industry based competition -> (leds to) ->
Competitive Strategy -> (leds to) -> Performance
Define Industry & the theory of Industry competition ( Industry competition )
Industry: A group of firms producing products (goods and/or services) that are similar or related to each other
Theory of Industry Competition: Industrial organization (IO) economics model (late 1930s). The industry’s structure determines strategy and firm performance
What’s the Goal of SCP model? What was the original goal & how did strategists use this?
Industry-based view of strategy helps policymakers understand how firms compete to properly regulate them, and helps firms to better compete.
– Original goal to help regulators minimize firm’s excess profits, reduce monopoly, duopoly, oligopoly
– Strategists use the IO model to try to earn excess profits
What is the Five Forces Framework?
Is an ideology that is “translated” and extended from the SCP model in 1980 by Michael Porter
A key proposition:
* The local firm’s performance critically depends on the degree of competitiveness of the five forces within an industry
* The stronger and more competitive these forces are, the less likely the local firm is able to earn above-average return, and vice versa
What are Porter’s Five Forces of Industry Competition?
- INDUSTRY RIVALRY
- BUYER POWER
- SUBSTITUTE COMPETITION
- THREAT OF ENTRY
- SUPPLIER POWER
Define Rivalry among competitors. What are some indications? ( 5 forces )
- A large number of competing firms
- Rivals are similar in size, market influence, and product offerings
- High-price, low-frequency purchases
- Capacity is added in large increments
- High exit costs
- Industry slow growth or decline
Indications:
• Frequent price wars
• Proliferation of new products
• Intense advertising campaigns
• High cost competitive actions and reactions
Define Entry Barriers?
( 5 forces )
Incumbents create entry barriers or industry structures that increase the costs of entry to keep potential new entrants out
- Little scale-based advantages
- Little non-scale-based advantages
- Inadequate product proliferation, little unmet
demand - Product differentiation (brand loyalty, switching costs)
- Little fear of retaliation
- Government policy banning or discouraging entry
Define Bargaining Power of suppliers ( 5 forces )
The ability of suppliers to raise prices and/or reduce the quality of goods & services
- A small number of suppliers
- Suppliers provide unique, differentiated products with no substitutes
- Focal firm is not an important customer of suppliers
- Suppliers are willing and able to vertically integrate forward
Define Threat of Substitution. ( 5 forces )
Products of different industries that satisfy customer needs currently met by the local industry
- Buyer’s propensity to substitutes: Substitutes superior to existing products in quality and function, e.g., music
downloads vs. CD sales, online media vs. print media - Price-performance characteristics of substitutes: Switching costs to use substitutes are low, e.g., sugar vs. sweetener
define Bargaining Power of buyers.
( 5 forces )
The ability of buyers to reduce prices and/or enhance the quality of goods & services
- A small number of buyers
- Buyers purchase standard, undifferentiated products from
focal firm, price sensitivity - Products provide little cost savings or quality of life enhancement, no switching costs
- Buyers are willing and able to vertically integrate backward
What are the 3 main things to keep in mind when using Industry Analysis to Develop Strategy?
- Forecasting Industry Profitability
- Strategies to Improve Industry Profitability
- Strategic Positioning
Explain Rationale for the Resource-based Approach to Strategy
When the industry environment is volatile, internal resources and capabilities offer a more stable basis for strategy than an external market focus.
aka: “Core competence of the corporation”
What are the primary sources of competitive advantage?
Resources and capabilities
When discussing Resources and Capabilities, what is the difference between tangible & intangible?
Tangible resources and capabilities that are observable and easily quantified.
EX: Financial, Physical, Technological
Intangible resources and capabilities not easily observed or difficult (or impossible) to quantify.
EX: Human, Innovation, Reputation
Define Benchmarking
Examining whether a firm has resources and capabilities to perform an activity in a manner superior to competitors
Define Innovation through Internal growth
( benchmarking )
Investing in R&D to develop the resources & capabilities in house
It is time and cost intensive, but can create high profits
Define Innovation through External growth
( benchmarking )
strategic alliances and partnerships
It comes with governance costs, and shared control and profits, shared risk and is faster. (strategic alliances)
Define Outsourcing ( benchmarking )
Turning over an activity to an outside supplier/market firm that will perform it on behalf of the focal firm.
It comes with loss of control but less risky
What are the links between Resources, Capabilities, and Competitive Advantage
Companies may acquire the resources, but
this doesn’t guarantee capabilities.
—>
Resources combine to create organizational
capabilities.
—>
An organization’s capabilities are critically
dependent on how effectively these resources are integrated
What are the sources of Competitive Advantage?
COST ADVANTAGE: similar produce at a lower price
DIFFERENTIATION ADVANTAGE: Price premium from a unique produce
Define Cost Leadership Strategy
when the firm sets out to be the low-cost producer in its industry
When talking about a cost leadership strategy, what are the defenses against five forces?
Defense against five forces:
- Charge lower prices, earn higher profits than higher-cost rivals
- Low-cost advantage is an entry barrier
- Bargaining power of supplier is reduced due to high volume purchase
- Less affected by price concessions demanded by powerful buyers
- Challenges substitutes to offer both, better utility and better prices
How to achieve a cost leadership strategy?
- Maximum exploitation of production economies
- Process innovation
- Geographical reorganization of the production
- Product design
- Reconfiguration of the value chain
Define Differentiation Strategy
Sources of uniqueness
” People will always pay for what they think it’s value to them, it’s never a matter of price “
All of these differentiation strategies supports what source? & which point is the core competence?
- Deliver products that customers perceive to be valuable and different
- Target customers in smaller, well-defined segments who are willing to pay premium prices
- Must have unique attributes (actual or perceived)
- Challenge – identify attributes that are valued by customers in each market segment
- Profits through low volume, high margin approach
- Key functional areas are research & development (source of innovation),
marketing/sales, and after-sale services
Differentiation Strategy as Source of Competitive Advantage
Key functional areas are research & development (source of innovation),
marketing/sales, and after-sale services
Keeping Differentiation strategy in mind, define drawbacks? & what is the defense against Porter’s Five Forces?
Drawbacks:
* Difficult to sustain differentiation in the long-run
* Relentless efforts of competitors to duplicate differentiation
Defense against Porter’s five forces:
* Less resemblance to rivals results in greater protection from five forces
* Less affected by bargaining power of suppliers because price increases can be passed on to customers
* Brand loyalty mitigates bargaining power of buyers
In the large, complex form, two main levels of strategy can be distinguished: corporate strategy and business strategy. T/F
True
The main reason for the transition from corporate planning to strategic management during the late 1970s & 1980s was:
A. The increasing costs of corporate planning departments
B. Disappointing outcomes of corporate diversification
C. A more turbulent business environment that was increasingly difficult to predict
C. A more turbulent business environment that was increasingly difficult to predict
Product proliferation is a potential strategy used to reduce the threat of potential entry. T /F
True
Substantial switching costs reduce the treat of potential entry. T / F
True
In the late 1970s & early 1980s, Michael Porter pioneered:
A. The application of industrial organization economics to strategic management
B. Empirical research into the relationship between market share and firm profitability
C. The resource-based view of the firm
D. The application of game theory to competitive analysis
A. The application of industrial organization economics to strategic management
Michael Porter’s 5 forces of competition framework links the structure of an industry to its overall level of profitability.
T /F
True
High exit costs from an industry tend to reduce the intensity of rivalry. T/ F
False
The 2 questions of “where” & “how” to compete define?
A. A firm’s corporate & business strategies
If there are many sellers but only a few buyers, the sellers tend to have the most bargaining power. T/ F
False
There are 2 primary sources of competitive advantages: cost advantage and differentiation advantage. T /F
True
Intangible resources and capabilities are assets that are more quantified. T/ F
False
When a firm’s capabilities are based upon team effort rather than the skills of star employee the returns from those capabilities accrue to employees rather than to shareholders. T/ F
False
Tacit knowledge is probably the most __ resources.
a. Valuable
b. Unique
c. Hard-to-imitate
d. Organizationally complex resource
e. All of the above
e. all of the above
Which of the following tends to reduce the intensity of rivalry?
a. Similarity of firms in terms of size, market influence and produce offerings
b. Products are big ticket items and purchased infrequently
c. New capacity must be added in large increments
d. Slow industry growth or decline in demand
e. none of the above
e. none of the above
According to porter, cost leadership and differentiation are:
A. What leads a firm to “be stuck in the middle”
B. Two names for the same fundamental strategy
C. Distinct generic strategies
D. Strategies that can be pursued simultaneously
A. What leads a firm to “be stuck in the middle”
