Strategy Exam Flashcards
What is Strategy?
The set of goal-directed and integrated actions a firm takes to gain and sustain superior performance relative to competitors.
Good Strategy Entails:
- A diagnosis of the competitive advantage
- A guiding policy to address the competitive challenge
- A set of coherent actions to implement the firm’s guiding policy
Strategic Management
An integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage.
Strategic Management Process
Method put in place by strategic leaders to formulate and implement a strategy, which can lay the foundation for a sustainable competitive advantage.
Stages of Strategic Management Progress
- Top-down strategic planning
- Scenario planning
- Strategy as a planned emergence
Top Down Strategic Planning
A rational, data-driven strategy process through which top management attempts to program future success using analysis, formulation, and implementation.
Analyze, Formulate, Implement
- Analyze the external and internal environments
- Formulate an appropriate business and corporate strategy
- Implement the formulated strategy through structure, culture, and controls.
Scenario Planning
Strategy planning activity in which top management envisions different what-if scenarios to anticipate plausible futures in order to derive strategic responses.
Strategy as Planned Emergence
Strategy process in which organizational structure and systems allow bottom-up strategic initiatives to emerge and be evaluated and coordinated by top management. Strategic initiatives can bubble up from deep within the organization through autonomous actions, serendipity, and resource allocation process.
Competitive Advantage
Superior performance relative to other competitors in the same industry or the industry average.
Sustainable Competitive Advantage
Outperforming competitors or the industry average over a prolonged period of time.
- Effective corporate strategy helps to gain and sustain a competitive advantage.
- Be able to adjust to demographic changes
- To gain a competitive advantage, a firm needs to provide either goods or services consumers value more highly than those of its competitors, or goods or services similar to the competitors at a lower price.
Steps to Gaining Competitive Advantage
- Diagnosis
- Guiding policy
- Coherent actions (need to value more and have lower cost)
What are Strategic Commitments?
Significant investments resulting in fundamental changes to the organization’s structure. Difficult and costly to reverse.
Why is it better for firms to keep their vision statements customer oriented rather than product oriented?
- Customer-oriented vision statements allow companies to adapt to changing environments because they focus on thinking about how to best solve problems for consumers (ex: we are in energy business) and providing solutions to customer needs (ex: making more smoothies than milkshakes if customers want to order in the morning)
- Product-oriented vision statements often constrain this ability and define a business in terms of a good or service it provides (ex: we are in typewriter business)
- Identifies a critical need but now how to meet as it may change, vision needs to be flexible and and allow for change and adaptation
How do Strong Ethical Values Benefit a Firm?
- Underline vision statement and provide stability to strategy, laying groundwork for long-term success
- When company is pursuing mission and vision in quest for competitive advantage serve as guardrails to keep company on track
What is Strategic Leadership?
Executives’ use of power and influence to direct the activities of others when pursuing an organization’s goals
Level-5 Leadership Pyramid
A conceptual framework of leadership progression with five distinct, sequential levels. Level 5= executive who builds enduring greatness through a combo of willpower and humility Ex: Sheryl Sandberg at Meta
Corporate Strategy
concerns the question of where to compete in industry, markets, and geography.
The decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industries and markets simultaneously.
Business Strategy
Concerns the question of how to compete – cost leadership, differentiation, and value innovation
Functional Strategy
concerns the question of how to implement a chosen business strategy. Different corporate and business strategies require different activities across the various functions
Strategic Business Units
Standalone divisions of a larger conglomerate, each with their own profit-and-loss responsibility.
General Managers in SBUs must:
1. answer business strategy questions relating to how to compete to achieve superior performance.
2. Formulate an appropriate generic business strategy—cost leadership, differentiation, or value innovation—in their quest for competitive advantage.
Intended Strategy
The outcome of a rational and structured top-down strategic plan.
Realized Strategy
Combination of intended and emergent strategy, formulated by top-down and and bottom-up emergent strategy
Emergent Strategy
Any unplanned strategic initiative bubbling up from the bottom of the organization.
Unrealized Strategy
unpredictable events may change intended strategies
Deliberate Strategy
Arise when actions are taken to put intended strategies in place
Critical Challenge in the Pursuit of a Stakeholder Strategy
Effectively balancing the needs of various stakeholders.
Stakeholder Impact Analysis
A decision tool with which managers can recognize, prioritize, and address the needs of different stakeholders, enabling the firm to achieve competitive advantage while acting as a good corporate citizen.
Why Effective Stakeholder Management Can Increase Firm Performance
- Satisfied stakeholders are more cooperative and more likely to reveal information that can further increase the firms value creation or lower its costs
- Increased trust lowers the cost of firm’s business transactions
- Effective management of the complex web of stakeholders can lead to greater organizational adaptability and flexibility
- The likelihood of adverse outcomes can be reduced creating more predictable and stable returns
- Firms can build strong reputations that are rewarded by business partners, employees, and customers; most strategic leaders care about the firm’s public perception, and they celebrate and publicize their inclusion in high profile rankings such as fortunes world’s most admired companies
Three Crucial Stakeholder Attributes
Power, Legitimacy, and Urgency
Corporate Social Responsibility
A framework that helps firms recognize and address the economic, legal, social, and philanthropic expectations that society has of the business enterprise at a given point in time.
Economic Responsibilities
The foundational building block, followed by legal, ethical, and philanthropic responsiblities.
Economic responsibilities:
- Provide adequate return for the risks investors take
- Repay creditors
- Produce safe products and services at reasonable prices and acceptable quality
- Pay suppliers in full and on time
- Pay taxes
- Manage natural resources (i.e. air and water)
External Forces in a Firm’s Task Environment
- Industry structure, composition of their strategic groups (a set of close rivals)
- Strategic leaders have more influence over external factors in task environment compared to those in the general environment
PESTEL Framework
PESTEL - A framework that categorizes and analyzes an important set of external factors that might impinge upon a frim. These factors can create both opportunities and threats for the firm
- Political - government bodis, nongovernmental organizations, and social movements
-Economic - growth rates, employment level, interest rates, price stability, currency exchange rates
- Sociocultural - society’s cultures, norms and values
- Technological - application of knowledge to create new processes and products
- Ecological - broad environmental issues such as the natural environment, climate change, and sustainable economic growth
- Legal - the official outcomes of political processes as manifested in laws, mandates, regulations, and court decisions
Task Environment
The industry’s structure and the composition of their strategic groups (a set of close rivals)
Strategic leaders DO have some influence over external factors in the firm’s task environment.
General Environment
The macroeconomic factors such as interest rates and currency exchange rates
In contrast, strategic leaders have little direct influence over external factors in the firm’s general environment.
Economies of scale are cost advantages that accrue to firms with _____?
Larger output because they can spread fixed costs over more units
Economies of Scale
Decreases in cost per unit as output increases.
- Reduces costs
- Cost advantages that accrue to firms with larger output because they can:
spread fixed costs over more units
employ technology more efficiently
benefit from a more specialized division on labor
demand better terms from their suppliers
Economies of Scope
Savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology.
Increases value
Learning Curve
underlying technology remained constant, while only cumulative output increased
Variable costs go down as a function of the volume produced
I.e. the firm learns how to be productive as more are produced
Experience Curve
underlying technology is changed while holding cumulative output constant
- Combines economy of scale & learning curves.
- Scale comes down a given learning curve.
- Technology allows movement to steeper curve.
- Combination can leapfrog in competitive advantage.
Bargaining Power of Suppliers
Cumulative learning and experience effects can lead to improved relationships with suppliers. As a company gains experience and expertise, it may be better equipped to negotiate favorable terms and prices with its buyers. This can reduce the bargaining power of buyers.
Bargaining Powers of Buyers
When their bargaining power is high, buyers gain negotiating power for lower prices, better quality, and better terms for their purchases when dealing with suppliers. When the bargaining power of buyers is low, sellers have more negotiating power.
Threat of New Entrants
A company that has accumulated significant knowledge and experience in its industry may have established barriers to entry for new competitors. This could be in the form of proprietary technology, economies of scale, or strong customer relationships, making it more challenging for new entrants to compete effectively.
Threat of Substitutes
Cumulative learning and experience effects can result in product or service differentiation and improvements, making it less likely for customers to switch to substitutes. This can reduce the threat of substitutes to the industry.
High when rivals or even companies outside the industry offer more attractive and/or lower cost products.
Competitive Rivarlry
Companies that have accumulated knowledge and experience in their industry may have a competitive advantage over their rivals. This can lead to stronger competitive rivalry as experienced companies are better equipped to compete effectively and defend their market positions.
What are the drawbacks of the 5 forces model?
A key drawback is that it simply provides a list of factors that can be advantageous or disadvantageous to an organization. Similar to other analytical frameworks (SWOT, for example), this tool only serves as a starting point for a deeper investigation of organizational performance.
Simplicity and Rigidity, Static Nature
Provides only a point-in-time snapshot of a moving target, cannot determine changing speed of industry or rate of innovation
Industry Convergence
A process whereby formerly unrelated industries begin to satisfy the same customer need
Strategic Group
The set of companies that pursue a similar strategy within a specific industry.
