Midterm Review Flashcards
Strategic Management is…
an ongoing process that evaluates and evolves a firm’s direction to create/sustain a competitive advantage.
How is the strategic management process conducted?
- Assessing competitive environment and setting goals (ASSESS)
- Determining and choosing between strategic alternatives (SELECT)
- Regularly re-assessing implementation (REASSESS)
- Evaluating changing/newly emerging circumstances (EVALUATE)
What are the three “Big Picture Questions” in strategic management?
- Where do we compete?
- How do we compete?
- How do we execute on it?
What are the five elements of the Diamond-E Framework?
- Strategy
- Environment
- Resources
- Organization
- Management Preferences
Operating Performance
Quantitative measures of financial and market performance.
Organizational Health
Qualitative and quantitative measures of operating performance.
What are the four quadrants in the Organizational Health/Operating Performance matrix?
Quadrant 1: Desired State (+ OH, + OP)
Quadrant 2: Complacent Organization (+ OH, - OP)
Quadrant 3: Troubled Organization (- OH, + OP)
Quadrant 4: Crisis (- OH, - OP)
What are the four basic questions asked through a Balanced Scorecard?
- Can we continue to improve and create value? (Innovation and Learning)
- What must we excel at? (Internal)
- How do customers see us? (Customer)
- How do we look to shareholders? (Financial)
Strategic Vision vs. Mission
Vision: concerns a firm’s future business path - “where are we going?”
Mission: focuses on present business purpose - “who are we and what do we do?”
What is the definition of “industry”?
Firm or group of firms that produce and/or sell the same or similar products/services to the same market.
What are the five objectives in industry analysis?
- Understand where value is being derived in industry.
- Understand drivers of profitability
- Understand why some industries are more attractive than others.
- Understand macro-economic influences/trends.
- Understand key success factors.
What is an industry value system?
A chain of activities/steps that links raw materials through to the final product being delivered.
Forward vertical integration vs. Backward vertical integration
Forward: Integration with distributors
Backward: Integration with suppliers
What are Porter’s Five Forces?
- Threat of Entry
- Buyer Power
- Supplier Power
- Substitutes
- Rivalry
Threat of Entry
Brings in new capacity an desire to take market share –> caps profits
Based on:
- Height of barriers of entry
- Potential response by incumbent
Examples of potential barriers to entry:
- Supply side economies of scale
- Demand side economies of scale (network effects)
- Customer switching costs
- Access to distribution channels
- Capital requirements
- Government policy
Advantages of being an incumbent in an industry:
- Proprietary technology
- Cost or quality advantage not available to potential entrants
- Access to raw materials
- Brand
- Learning/experience
What factors lead to high threat of substitutes?
- Substitute offers an attractive price-performance trade-off compared to the industry.
- Switching costs are low
- Be aware of changes in other industries that may impact your industry.
What influences supplier power?
- Concentration relative to industry it sells into
- Switching costs
- Importance of industry to supplier
- Suppliers’ products are differentiated
- Possibility of forward integration
What influences buyer power?
- Concentration - large or small volumes
- Level of product standardization
- Product represents significant portion of final product cost (more sensitive)
- Buyers earn low profits (more sensitive)
- Product unimportant to final product quality
- Credible threat of backward integration
What influences rivalry in an industry?
- Number of competitors
- Industry growth
- Switching costs
- Exit barriers
- Rival commitment
When is competing on cost more likely?
- Fixed costs are high
- Capacity can only be extended in large increments
- Product is perishable
What are some necessary considerations in addition to industry analysis?
Future structure/outlook and profitability potential
What are the four elements of a PEST analysis?
Political
Economic
Social
Technological
What are Key Success Factors?
Critical factors that determine a firm’s success or failure within an industry.
What are some examples of KSFs for a firm competing in the airline industry?
- Gate access
- Airplanes
- Pilots
- Meeting safety standards
- Ticketing
- On-board personnel
Two questions to identify an industry’s Key Success Factors:
- What do customers want? How do they choose between alternatives?
- How does the firm survive competition?
What are the two roles of company resources?
- “Fuel”: Assets required for business to function
- Potential sources of strategic competitive advantage
Three types of resources:
- Tangible (ex. Marketing, Operations, R&D, Human, Manufacturing)
- Intangible (ex. Brand, Reputation)
- Organization Capabilities (ex. Routines, Processes, Abilities, Culture)
What are strategic resources?
Non-tradable assets which develop and accumulate within the firm (and which are valuable in the industry). Such assets defy imitation because they have a strong tacit dimension and are socially complex.
How can a company develop superior competitive performance?
By developing a competitively distinct set of resources and deploying them in a well-conceived strategy.
What are the key tasks of managers in resources management?
- Finding/investing in resources
- Upgrading resources
- Leveraging resources
What is a resource-based strategy?
- Attempts to exploit company resources to offer value to customers in ways rivals cannot match.
- Can focus on eroding the competitive potency of a rival by developing different resources that effectively substitute for the strengths of rivals.
Why is the Resource-Based View (RBV) useful?
- Internal perspective of firm (industry analysis only tells so much)
- Explains profitability disparity among competitors
- Suggests how to put idea of core competencies into practice
- Develops strategies that are feasible based on what you already have/can get
What are the 4 tests a “resource” must pass to be the basis for a sustainable competitive advantage?
- Value: context or industry dependent
- Rarity: common resources are at best an entry ticket, but not a source of competitive advantage.
- Inimitability: may arise as a result of history, many small decisions, or because of social complexity.
- Organized to Exploit: if organization does not exploit the resource - no value!
VRIO Framework
What are some characteristics of a strategically valuable resource?
- Hard to imitate
- Depreciates slowly
- Company controls its value (not employees, suppliers, or customers)
- Not easily substituted
- Better than competitors’ similar resources
What makes a resource hard to copy?
- Physical uniqueness (ex. mineral rights, great locations)
- Path dependency (ex. Gerber baby products)
- Causal ambiguity (unclear what is actually creating the advantage)
- Economic deterrence (sizeable investment in asset)
- Socially complex
What are the elements that shape management preferences?
- Personal attributes
- Beliefs
- Character
- Job context/situation
- Career trajectory
How to address governance shortcomings?
- Expert board members
- Meetings focus on the future
- Informed board members
- Committed board members
- Incentivized board members (in the right way)
What are the 3 organizational levers to support strategy?
- Organizational Structure
- Management Processes (decision making, operating, performance assessment)
- Leadership Behaviour
What are the benefits and issues of a functional org. structure?
Benefits:
- Standard product; efficiencies in functional areas
Issues:
- Limited sensitivity to local markets
- Slow decision making
What are the benefits and issues of a product/divisional org. structure?
Benefits:
- Increased product focus; each product line
Issues:
- Lose efficiencies
- Multiple contact points for customers
What are the benefits and issues of a geographical org. structure?
Benefits:
- Good at tailoring to local markets
Issues:
- Lose efficiencies
What is Theory X vs. Theory Y?
Theories of Motivation
Theory X: Organizational objectives can be reached best by control, coercion, direction, threat, and financial rewards.
- People dislike work and prefer to avoid it.
- Humans prefer to be directed over having responsibility.
Theory Y: Putting effort in work is as natural as playing or resting.
- People will direct themselves when they are committed to the objective of the organization.
- Satisfaction with a job will result in commitment to the organization.
Behaviour vs. Culture
Behaviour:
- Observable;
- How much energy employees put into job
- How they manage subordinates
- How employees relate to each other
Culture:
- Shared values, beliefs, and core basic assumptions
- Organizational way to “think and act”
- Widely shared and strongly felt
