Strategic Management Flashcards
Strategy
An integrated and coordinated set of commitments Nd actions designed to exploit core competencies and gain a competitive advantage
- decides how well or poor a firm will perform
Strategic competitiveness
Achieved when a firm successfully formulates and implements a value creating strategy.
Exploits core competences
Strategic management process
1) analyze internal and external environments- to understand capabilities and competencies ( strategic inputs)
2) using the analysis above firms develops vision/mission statements and their competitive strategy
3) achieve above average returns and change strategy inputs to keep up with market evolution
Strategic management process defined
A full set of commitments, decision , and actions required to achieve strategic advantage to earn above average returns
Global economy
When goods, services, people , skills, and ideas move freely across geographic boarders.
- relatively un fretted by constraints like tariffs
- always expanding and becoming more complicated
Globalization
Increasing economic interdependencies among countries and their organizations as reflected in the flow of goods,services,capital, and knowledge.
- product of large firms competing against each other
- increases range of opportunities and performance standards
Core competencies
Resources and capabilities that serve as a source for competitive advantage over rivals.
Visible in a firms organizational function.
(R&d in apple)
Vision
A picture of what the firm wants to be and ultimately achieve.
The ideal description of an organizations intended future
The foundation of the mission statement
Mission
Specifies the business in which the firm tends to compete and the customers they intend to serve.
Vision vs mission
- Mission statement is more concrete than the vision
- vision states ethical standards and who it will become
- mission states how’s it’s going to serve individuals and groups
- -Mission deals more with product markets and customers
- Vision statements are more vague than missions which can change at any time
- Vision is usually short and easily remembered p
Stakeholder vs stockholder
Stakeholders- individuals, groups, or organizations that can affect a firms mission/vision and are affected by strategic outcomes
Stockholders- individuals or groups that have invested capital in a firm and expect a positive return
- stockholders always want to maximize returns on investments while stakeholders want to max. Quality and reliability
Capital market stakeholders
Shareholders and suppliers of capital
Want large returns
Product market stakeholders
Primary customers Suppliers Host communities Unions Reliable products at low prices Very important
Organizational stakeholders
Employees
Managers
Non managers
Provide rewarding work environment
Strategic leader
Are people located in different areas and levels of the firm using strategic management process to select strategic actions to help firm achieve mission and vision
-no matter what position they have are decisive, committed and nurturing to those around them
CEO most important and prominent
Organizational culture
Refers to the complex set of ideologies, symbols, and vote values that are shared throughout the firm and that influence how the firm conducts business
–social energy drives or fails a business.
Important for strategic leaders to understand org. Culture
Purpose of external environment analysis
- creates opportunities and threats
- influences firms as they seek strategic competitiveness and above average returns.
- foundation for forming vision and mission and implementing strategic action
Components of external environment analysis
Scanning- identifying signals of environmental changes and trends
Monitoring- detecting meaning through ongoing observations of environmental changes
Forecasting- developing projections of anticipated outcomes based on monitored changes and trends
Assessing- determining the timing and importance of environmental changes and trends for firms strategies and environments
Scanning
Identify potential changes in external environment
- often reveals ambiguous, incomplete, and unconnected data or information
- use special software to ID events
Monitoring
Observation of external environmental changes and see is an important change is emerging.
- it is critical to be able to detect the meaning of environmental changes and trends
- important to ID important stakeholders
Forecasting in external environment
Develop feasible projections of what might happen and how quickly
- challenging to be accurate results in economic downturns
Assessing in external environment
Determine timing and significance of the environmental changes and trends that have been ID’ed
- specify implications and intent. Without assessing their is an unknown competitive relevance
Industry define
A group of firms producing products that are close substitutes.
-In the course of competition these firms influence each other
Purpose of industry environment analysis
Industrial environment has more direct effect on the firms strategic competitiveness
- study other firms to identify their capabilities so they can compete against what they are producing
- recognize that suppliers and buyers can become competition by them producing adequate substitutes
Economies of scale
The cost of producing additional units decreases on a per unit basis as quantity produced increases
- can be developed in most business functions
- make entering your market more difficult for competition
Strategic groups
A set of firms that emphasize similar dimensions and use a similar strategy
- competition in strategic group is greater and more intense
- high mobility and entry barriers and low resources limit the formation on strategic groups
Competitor analysis
-Future objectives( what drives the competitor)
Current strategies(what is the competition doing and can do Assumptions ( what does the competition believe about the industry?
Strengths and weaknesses( what are their capabilities )
All of these lead to a response
Five forces Michael porter
- Threat of new entrants
- bargaining power of suppliers
- bargaining power of buyers
- Threat of substitutes
- Rivalry among competing firms
Internal environment analysis components
-What a firm can do
Matching what a firm can do with what it might do
Turning resources into strategic competitiveness
Characteristics of core competencies
Serve as a source of competitive advantage.
Reflect a companies personality
What makes a sustainable competitive advantage
Capabilities that are
valuable-neutralize external env. Threats/ exploit opportunities
Rare- capabilities that are few if any
Costly to imitate- capabilities firms cannot easily develop
Nonsubstitutable - capabilities that do not have strategic equivalents
Value chain
Allows the firm to understand the parts of operation that create value and those that do not
Analyzes their cost positions of activities
Describe value chain analysis
Support function of finance, hr, and MIS go into value chain activities that create customer value
Customer value in the value chain analysis
Created by Supply chain management Distribution Marketing Operations Follow up sales
Tangible resources
Assets that can be observed and quantified
Intangible resources
Assets rooted deeply in the firms history, accumulated over time,
Relatively difficult for competitors to imitate and analyze
Outsourcing
The purchase of a value creating activity or support function activity from an external supplier
capabilities into core competencies
-Must allow a firm to perform an activity in a manner that provides value superior to their competitors
Or - perform a value creating activity a competitor cannot perform
What are capabilities
A firm combines Individual tangible and intangible resources to create them
- used to complete organizational tasks
- value of human capital in developing and using capabilities
Outsourcing contribution to creating value
Firm recognizes they cannot create value in an activity that activity can be outsourced to create more value
Conditions affecting Managerial decisions about resources capabilities and core comp.
Is it creating value?
Resources and capabilities must be acquired to form a competitive advantage
Not quantity that matters but have the right resources
Take internal and external environment into consideration
Business level strategy
Is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets
How a firm intends to compete in a specific product
Business level strategy determines
Who will be served
What needs those target customers have that the product will satisfy
How will those needs be satisfied
Market segmentation
Is a process used to cluster people with similar needs into individual and identifiable groups
Purpose of business level strategy
To create differences betweens the firms position and those of its competitors
Defines the path which provides the direction of actions to be taken by leaders of the firm
Types of business level strategies
Cost leadership - lowest cost to broad market - kia’s
Differentiation - distinctiveness to broad market - Lexus/ Toyota
Focus cost leadership - narrow market at low cost -ikea
Focused differentiation - narrow market distinctiveness - lunch trucks in the city
Cost leadership vs. focus strategy
Cost leadership is the cheapest product to most people
Focus strategies focus on a particular market segment
People perceive cost leaders to have bad quality
Risks pertaining to cost leadership strategy
Powerful customers can force cost leaders to reduce prices
Cost of production is major factor
Rivals to produce at a lower price
Imitation
Risks pertaining to differentiation strategy
Customers decide price is too high for uniqueness
Differentiation could exceed customers needs
Differentiation may cease to provide value to the customer
Competitors counterfeiting your differentiation strategy
Risks of focus strategy
Same risks as a company using cost leadership or differentiation.
Additionally
Could focus on too narrow of a market
Competitions can differentiate to the same market
Needs of customers within a narrow segment may become more similar over time resulting in reduced advantage
Corporate level strategy
What business should a firm compete in
selecting and managing a group of different businesses competing in different product markets to gain a competitive advantage
Vertical integration
Becoming your own supplier or distributor through acquisition. Vertical movement up or down value chain
Levels of diversification
–Low level diversification -
-Single business- 95% or more of revenue comes from a single business
Dominant business- 70-95% of rev. Comes from single business
- -Moderate to high level -
- Related constrained - less than 70% comes from dominant business and businesses share product/tech/distribution linkages
- related linked - less than 70% from dominant business and only some limited linkages
- -high level diversification -
- unrelated - less than 70% from one business and no linkages
Low level diversification
Single business- 95 or more percent of revenues come from single business
Dominant business- 70-95 percent come from single business area
Moderate to high level diversification
Related constrained diversification - less than 70 percent from dominant business and direct product, tech , or distribution links between firms
Related linked diversification - less than 70 percent from dominant business and share a few links mostly transfer of knowledge and core comps
High level diversification
Unrelated diversification - less than 70% from dominant business and no relationships between businesses
Reasons for diversification
Operational relatedness : sharing activities
Corporate relatedness: transferring skills or corporate core competencies Among units
Value reducing diversification
Div. managerial employment risk- spread the blame for poor performance
Increasing managerial compensation - more duties and responsibilities means more money is required
Economies of scope
Related diversification
The average total cost of production. Decreases as a result of increasing the number of different goods produced
Sharing resources to lower costs
Operational relatedness
Sharing activities
Share primary support activities in value chain to reduce total average costs
Risk and not easy to achieve - synergies not realized and ties create links between outcomes
Corporate relatedness
Sharing core competencies on a corporate level
Intangible resources can be transferred to an acquired business that will not be easily counterfeited by competitors
Financial economy in diversification strategy
- cost savings realized through improved allocations of financial resources based on investments inside or outside firm ( efficient internal capital market allocation)
- restructuring of acquired assets firm buys business to make it better and more profitable then to sell off business at a profit
Merger
Firms agree to integrate their operations on a relatively equal basis
Usually one firm will be more benefitted
Acquisition
One firm buys controlling 100 percent interest in another firm with intent of making the acquired firm a subsidiary business in its portfolio
Take-over
Special type of acquisition strategy wherein the target firm did not solicit the acquiring firms bid
Acquiring firm bought out business that did not want to be bought out
Reason for acquisition.
To try and spread risk in uncertain environment
Increase market power due to competitive threats
Manage industry and regulatory changes
Horizontal acquisition
One company in the same industry acquires a company in the same industry
Must be careful not to violate antitrust laws
Expand your product range and sell more ( economies of scale)
Geography advantages
Vertical acquisition
Enable you to integrate your supply chain as a basis for improving efficiency and costs. Such as acquiring a supplier
Provides indirect method of increasing market share by controlling competitions access to supplies
Problems with acquisitions
Clashing corporate cultures -integration difficulties
Managers more focused on acquisitions than reasons for obtaining new businesses
Inadequate evaluation of target - paid too much for firm , new tax consequences, ineffective due diligence
Inability to achieve synergy
Too much diversification can lead to decline in performance
Large debt - issuing junk bonds
Successful acquisition attributes
Select right target
Avoid paying too much
Integrate operations of the acquiring and target firm effectively
Retain the target firms human capital ( intangible resources)
Downsizing Restructuring strategy
Reduction in firms employees or operating units
Reduce labor costs to increase profitability
Want more efficiency
Down scoping restructuring
Eliminating businesses unrelated to firms core businesses
May accompany downsizing but should avoid key employees
Smaller firm can be better managed by top management team
Leveraged buyout restructuring or LBO’s
One party buys all of a firms assets I’m order to take the firm private
Significant debts may by incurred
Immediate sale of non-core assets to get rid of debt
Can correct managerial mistakes
Types of LBO’s
Management buyouts MBO
Employee buyouts EBO
Whole firm buyouts
EBO and whole-firm buyouts lead to downs coping and increase in strategic focus plus improved performance
