Test 1 Flashcards
A.Profound understanding of the competitive environment
B.Objective appraisal of resources
Strategic Choice
A.External analysis
B. Internal analysis
A set of integrated and coherent choices and actions that allow firms to provide unique value that is superior to the competition
Strategy Statement
The expectation that businesses or individuals will strive to improve the overall welfare of society
Social Responsibility
Make a number of possible paths about a future and assign their likliehood
Scenario Planning
PESTEL
General Environment
Political Economic Social Technological Environment Legal
Book says
General Environment
Demographic Sociocultural Political/legal Technological Economic Global
Encompass the broad environmental context in which a company’s industry is situated
Macro-environment
- High capital requirement
- Economies of Scale
Cost disadvantage of new entrants
Limit the potential returns of an industry by placing a ceiling on the prices that firms can profitably charge
Substitute products/services
- small # of firms
- unique/highly differentiated products
- Threaten “forward vertical integration”
Supplier Bargaining power
Profit
- ability to do backward vertical integration
- product sold are undifferentiated and price transparent
- switching costs to competing sellers
Powerful Buyers bargaining power
The degree to which a seller can steal buyers from other sellers
cost involved if buyers wants to
switch to different firms
Switching costs
Group of firms producing products or services that are perceived by customers as meeting the same needs
Industry
Strategies as building defenses against the competitive forces or finding a position where the forces are weakest
Positioning the company
Technology, regulation, social trend may change the bases of industry structure
(shifting threats of five forces)
Exploiting Industry change
Leaders guide their industries toward a new ways of competing that alter the five forces for the better
Shape Industry structure
The value net
Remedy of the problem in the Five Force Model
Clusters of firms that share similar strategies:
Price/quality
Degree of vertical integration
type of distribution
Strategic Grpups
Involves surveillance of a firm’s external environment
- predicts changes to come
- allows firm to be procactive
Environmental Scanning
tracks evolution of environmental trends
hard- measurable facts
soft- estimated, probable events
Environmental monitoring
Helps firm define and understand their industry
-identify rivals strengths/weaknesses
Competitive intelligence
predicts change
Environmental forecasting
involves detailed assessments of the ways trends may affect an issue and development of alternative futures based on these assessments
Scenario analysis
Forces managers to consider both internal and external factors
Makes firms act proactively
Raises awareness about role of strategy
SWOT Analysis
forces influence the values, beliefs, and lifestyles of a society
-more women in workforce
Sociocultural
processes and legislation influence environmental regulations with which industries must comply
- ADA (disabilities)
- Deregulation of utilities
- increase min wage
Political/legal
Developments lead to new products and services; can create new industries and alter existing ones
- Genetic engineering
- wireless commmunication
Technological
Affect all industries
- interest rate
- unemployment
- consumer price index
Economic Forces
offer both opportunities and risks
- currency exchange rates
- trade agreements
Global
consists of factors in the task or industry environment that are particularly relevant to a firm’s strategy
Competitive environment
Looks at the sequential process of value-creating activities
-how is value created within organization?
Value-chain analysis
contribute to the physical creation of the product or service; the sale and transfer to the buyer; and service after the sale
Value-chain PRIMARY activities
- Inbound logistics
- operations
- outbound logistics
- marketing and sales
Either add value by themselves or add value through important relationships with both primary activities and ___ activities
Value-chain SUPPORT activities
- procurement
- tech development
- human resource mgmt
- general admin
-Expand value chain by exchanging resources
Interrelationships among value-chain activities
Combines internal and external analysis of the industry and its competitive environment
Resource-based view of firm
RBV
-Physical assets - plant, machinery and equip
Financial Assets - cash
Tech assets - patents, copyrights
Organizational resources - effective planning processes and control sytems
Tangible resources
easy to identify
- Human resources - trust, capabilities of employees
- Innovation resources - technical and scientific expertise and ideas
- Reputation resources - brand names
Intangible resources
difficult for competitors to account for or imitate - embedded in unique culture
Competencies or skills that a firm employs to transform inputs into outputs; the capacity to combine tangible and intangible resources to attain desired ends
Organizational capabilities
- Valuable
- Rare
- Difficult to imitate
- Difficult to substitute
Strategic resources 4 attritubutes
- Balance sheet
- income statement
- market valuation
- Historical compensation
- comparison with key competitors
Financial Ratio Analysis
evaluating firm performance
- Short term solvency or liquidity
- long-term solvency measures
- Asset management or turnover
- Profitability
- Market Value
Meaningful ____ must include
- How rations change over time
- how ratios are interrelated
5 types of financial ratios
- Employees
- owners
- customer satisfaction
- internal processes
- Innovation, learning, and improvement activities
Balanced scorecard
evaluating firm performance
A meaningful integration of many issues that come into evaluating performance
- how do customers see us?
- how do we look to shareholders?
Balanced scorecard
A company’s value is not derived solely from its physical assets. Rather it is based on knowledge, know-how, and intellectual assets - all embedded in people
Central role of knowledge
Wealth is increasingly created by effective management of knowledge workers instead of by the efficient control of physical and financial assets
Knowledge Economy
measure of value of firm’s intangible assets- the difference between a firms market value and book value
Intellectual capital
- reputation
- employee loyalty
- customer relationships
- company values
includes individual capabilities, knowledge, skills, and experience of company’s employees and managers
Human capital
The friendships and working relationships among talented individuals- helps tie knowledge workers to a given firm
Interaction, sharing, collaboration will help develop firm
Social capital
codified, documented, easily reproduced, widely distributed
Explicit knowledge
in minds of the employees, based on their experiences and backgrounds
Tactic knowledge
- Hiring via personal social networks
- pied piper effect -same job candidates may bring other talent with them
How social capital helps attract and retain talent
Depicts the pattern of interactions among individuals and helps to diagnose effective and ineffective patterns
Social Network
The degree to which all members of the social network have relationships with other group members
Closure relationships
social network
Structural holes
-Connect otherwise disconnected people
Bridging Relationships
social network
Groupthink
- dysfunctional human resource practices
- expensive socialization processes
- individuals distort or selectively use information to favor themselves
Limitations to Social capital
capacity to build and protect a competitive advantage
Dynamic capabilities
Overall cost leadership
Differentiation
Focus
Porters 3 generic strategies
- Creating low-cost position relative to a firm’s peers
- managing relationships throughout the entire value chain to lower costs
Overall cost leadership
McDonalds, Walmart
Products and/or services that are unique and valued
-emphasis on nonprice attributes for which customers will gladly pay premium
Differentiation
Apple
Narrow product lines, buyer segments, or targeted geographic markets
-advantages obtained either through differentiation or cost leadership
Focus
Ikea,Costco
- Vigorous pursuit of cost reductions from experience
- Tight cost reductions from experience
- Lower costs through experience curve
- Competitive parity - “on par” with competitors in low-cost, differentiation, or other strategies
Cost Leadership involves
- Too much focus on one or a few value chain activities
- Increase in the cost of inputs on which the advantage is based
- strategy can be imitated easily
- reduces flexibility
Pitfalls to cost leadership
- prestige or brand image
- technology
- innovation
- features
- customer service
A level of cost parity relative to competitors
- superior material handling
- personal relationships with key customers
Differentiation Strategy
- Creates higher entry barriers due to customers loyalty
- higher margins
- reduces buyer power because buyers lack suitable alternatives
Advantages to Differentiation
- Uniqueness that is not valuable
- too high a price premium
- dilution of brand identification through product line extension
Pitfalls to differentiation
Based on choice of narrow competitive scope within an industry
-firm selects a segment and tailors its strategy to serve them
Cost focus
-creates cost advantage in its target segment
Differentiation focus
- differentiates itself in its target market
- exploits special needs of buyers
Focus Strategy
- Erosion of cost advantages within the narrow segment
- still subject to competition from new entrants and imitation
Pitfalls of Focus
Makes it difficult for competitors to duplicate or imitate strategy
Combination strategy to provide unique value in efficient manner
Combination strategy: low-cost and differentiation
- creates higher entry barriers due to both ___
- Can provide higher margins that enable the firm to deal with supplier power
- reduces buyer power because of fewer competitors
- an overall value proposition reduces threat from substitutes
Integrated overall low cost and differentiated strategy
New technologies, shifting social and demographic trends, and sudden changes in the business environment can create opportunities
- involves value creation and the assumption of risk
- startup ventures
- major corporations
- nonprofit organizations
Entrepreneurial Strategy
- attractive
- achievable
- durable
- value-creating
Viable opportunities
depend on stage of venture development and venture scale
Financial resources
Personal savings, family, and friends
-crowdfunding
Initial start up financing
Bank financing, angel investors
Early stage financing
Commercial banks, venture capitalists equity financing
Later stage financing
An entrepreneur’s most important asset
- requires transformational leadership
Vision
Helps explain why strategies evolve and how to respond:
- New competitive action
- threat analysis
Competitive dynamics
involves an assessment of
- market commonality
- resource similarity
-what is the intent of the competitive response?
Threat Analysis
Strategic actions - entering new markets, new product introductions, changing production capacity, mergers/alliances
Tactical actions - price cutting(or increases), product/service enhancements, increased marketing efforts, new distribution channels
Competitive dynamics types
Market dependence
- competitor’s resources
- the reputation of the firm that initiates the action -actor’s reputation
Likelihood of competitive reaction
Forbearance
co-operation- working together behind the scenes to achieve industrywide efficiencies
Choosing not to respond
Analysis
-vision, mission, internal and external environment
Decisions -formulation
-what industries should we compete in?
Actions - implementation
-allocate necessary resources
Strategic management
Starting point in strategic mgmt process
-involves careful analysis of the overarching goals of the organization
- Establish hierarchy of goals
- vision, mission, objectives
Analyze external environment
-managers must monitor and scan environment as well as competitors
Assessing internal environment
-strengths and relationships
Assessing firms intellectual assets
- knowledge workers and networks and relationship
Strategy analysis
the relationship among various participants in determining the direction and performance of corporations
- shareholders
- mgmt (CEO)
- board of directors
Corporate governance
Zero sum
- stakeholders compete for attention and resources
- gain of one is loss to the other
Symbiosis
- stakeholders are dependent upon each other for success and well being
- receive mutual benefits
2 views of stakeholder management
the expectation that businesses or individuals will strive to improve the overall welfare of society
-firms must create shared value -identify and expand connections between societal and economic progress
Social responsibility
Firms can measure a triple bottom line
-assessing financial, social, and environmental performance
Environmental sustainability
