Strategic Position Flashcards
Explain economic rents and identify the key points (3 statements).
- Economic rents refers to returns that are above the opportuntity
costs of the use of resources in an industry without attracting new
competitors. - They are created when firms discover more valuable ways of using
their resources and capabilites than was expected. - The chain of economic rent can be identified as follows:
Advantages»Strategy»Superior Performance»Above average
returns
State how to use the PESTEL framework. (7 methods)
- Mega-trends (large-scale long-term changes)
- Inflexion Points (sharp shift in trends upwards or down)
- Selective Application (Identifying specific factors of note)
- Weak Signals (advanced signs of potential inflexion points)
- Identify factors (select which are important now and later)
- Data collection (using data to support and analyse trends)
- Identifying Opportunities and Threats (main goal)
Explain the PESTEL framework. What are the different key factors?
(6 Types)
PESTEL helps provide a list of potentially important issues influencing strategy in order to assess their impact.
- Political (e.g. government policies)
- Economic (e.g. interest rates)
- Social (e.g. income distribution)
- Technological (e.g. nano-technology)
- Ecological (e.g. global warming)
- Legal (e.g. competition law)
What types of economic rent are there? (4 types)
- Ricardian rent - If it owns and exploits scarce resources that
competitors do not or only limitedly own - Quasi rent - The difference between optimal and the second best
use of a resource (Efficient use of resources) - Schumpeterian rent - Innovation with available resources that
leads to profit - Monopoly rent - Result from superior market power and
advantageous product-market-positions
What are scenarios and how are they represented in strategic management?
Scenarios are plausible and internally consistent views of how an organization’s environment might develop in the future, based on key drivers of change with high uncertainty.
They are depicted in a scenario funnel, which shows different alternative pictures of the future.
What are the steps in carrying out scenario analysis? (6 steps)
- Identify the study’s scope: product/market and time span.
- Identify key drivers of change using PESTEL factors.
- Choose opposing outcomes for each driver.
- Develop scenario ‘stories’ of the future environment.
- Assess the impact of each scenario and adjust strategies.
- Set up early warning systems to monitor changes.
What is Porter’s Five Forces Framework and how does it assess industry attractiveness?
Rivalry Among Competitors: Increases when competitors are similar in size, aggressive, in a mature/declining market, have high fixed costs, high exit barriers, or low differentiation.
Threat of Entry: Low when barriers to entry are high, such as economies of scale, experience, access to channels, differentiation costs, regulation, and expected retaliation.
Threat of Substitutes: High when substitutes offer a better price/performance ratio or innovation that enhances satisfaction.
Bargaining Power of Buyers: High when buyers are concentrated, have low switching costs, or can integrate backwards.
Bargaining Power of Suppliers: High when suppliers are few, provide specialized inputs, have high switching costs, or can integrate forwards
What are key issues to consider in Porter’s Five Forces analysis? (3 statements)
Defining the ‘right’ industry: Ensuring the analysis applies to the correct industry context.
Converging Industries: Recognizing industries merging or overlapping.
Complementary Organizations:
- Customers value your product more when combined with another (e.g., sausages and mustard).
- Suppliers find it attractive to supply both your organization and another (e.g., Boeing and airlines).
What are Blue and Red Ocean Strategies, and how do they differ?
Blue Ocean Strategy:
- Create uncontested market space.
- Make competition irrelevant.
- Capture new demand.
- Break the value-cost trade-off.
- Align activities for both differentiation and low cost.
- Value Innovation: Simultaneously enhances buyer value and reduces costs by changing industry norms.
Red Ocean Strategy:
- Compete in existing markets.
- Beat the competition.
- Exploit existing demand.
- Make the value-cost trade-off.
- Align activities with either differentiation or low cost.
What are the Six Principles to maximize opportunities for Blue Oceans?
Formulation Principles:
1. Reconstruct market boundaries: Identify new market spaces.
2. Focus on the big picture, not the numbers: Emphasize strategic vision over detailed metrics.
3. Reach beyond existing demand: Target untapped customers.
4. Get the strategic sequence right: Develop strategy in a logical order.
Execution Principles:
5. Overcome key organizational hurdles: Address internal barriers to change.
6. Build execution into strategy: Integrate implementation directly into the strategic plan.
What are the Strategy Canvas and Value Curve in Blue Ocean Strategy?
Strategy Canvas: A tool to compare competitors and highlight differentiation.
Functions:
- Diagnostic: Captures the current market state to understand competition and industry factors.
- Action Framework: Shifts focus from competitors to alternatives and from customers to noncustomers.
Value Curve: The main component of the strategy canvas, showing the company’s relative performance on key factors compared to competitors.
What is the Four Actions Framework, and how is it used in strategic management?
Purpose: To redefine buyer value elements and create a new value curve.
Method:
- Challenge industry norms by asking four key questions (Reduce, Eliminate, Raise, Create).
- Break the trade-off between differentiation and low cost.
- Create a unique strategic logic and business model.
