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U1 Integrated Management INTG 202 > What is Strategy lecture 8 > Flashcards

What is Strategy lecture 8 Flashcards

1
Q

what are the Fundamental Questions of Strategy

A

How will we create value?
How will we capture value?
How will we deliver value?

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2
Q

Economic profits (excess returns) exist when:

A

– Revenues – Costs (including cost of capital) > 0 – Financial statements don’t reflect cost of capital

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3
Q

What affects cost of capital?

A

– Risk of future returns

– Risk increases required returns

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4
Q

give a summary

A
  • Firm - decision rights over bundle of resources
  • Financial capital used to build & buy resources
  • There is a cost of financial capital – WACC
  • Economic sustainability = ALL costs paid – Including cost of capital
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5
Q

What undermines economic sustainability?

A

Insights from Competitive Markets

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6
Q

how does Competition drives ROCE to WACC (or lower)

A

Profitable situations don’t last long

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7
Q

Necessary conditions for competitive markets:

A
  • Easy to enter

* Easy to imitate or substitute

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8
Q

Competitive markets make economic profits difficult or simple?

A

difficult

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9
Q

Why are some firms more successful than others?

A

competitive advantage

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10
Q

what is competitive advantage the basis for

A

economic sustainability– this requires competitive advantage

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11
Q

explain competitive advantage

A

Must create and capture more economic value than rivals

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12
Q

Capital providers want ______ competitive advantage

A

sustained

Ability to cover costs of capital over time

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13
Q

Strategy identifies:

A

How a firm can develop & sustain competitive advantage

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14
Q

what are the Two Perspectives on Economic Profits

A

industrial organization and resource-based view

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15
Q

explain Industrial Organization

A

External factors drive profits
Industry structure: entry barriers, substitutes and compliments, bargaining power

STRUCTURE AFFECTS COMPETITION

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16
Q

explain the resource-based view

A

Internal factors drive profits
Resources & capabilities that create value are hard to imitate and difficult to acquire

SCARCITY DRIVES VALUE CAPTURE

17
Q

explain Arenas: Where a firm will compete

A

The customers, geographies, products & value chain stages pursued

18
Q

explain vehicles

A

The means by which a firm enters arenas of choice (build, buy or borrow)

19
Q

explain how a firm will compete in its arenas

A

economic logic

20
Q

what is economic logic

A

The creation of a
unique value-creating position

•Focused on increasing WTP,
reducing costs or both
• For a particular set of customers, relative to a set of rivals

21
Q

what are the parts to Competitive Advantage

A 
V= Max. willingness to pay P= Market Price
C= Cost of Production (including capital cost)
V-P= Consumer Surplus (Value proposition) 
P-C= Profit Margin 
V-C= Value Created (surplus + profit)
22
Q

what are the 3 challenges associated with competitive advantage

A

Challenge 1: Maximize value created (V-C) relative to rivals
Challenge 2: Provide more consumer surplus than rivals Challenge 3: Capture more of value created

23
Q

With a convincing customer value proposition does wha

A
  • Incentive to buy = greater consumer surplus

* WTP – (price + user costs)

24
Q

Strategy involves performing…

A

different activities or similar activities differently that fit the external competitive environment

25
Q

explain how Strategy involves trade-offs in how & where to compete

A
  • Costs vs. WTP; market segments

* Choosing what not to do is strategic

26
Q

Decisions involving trade-offs are strategic since they require what

A

commitment

Commitments make imitation difficult

27
Q

explain Internal fit:

A

Integrative pattern of internally-consistent decisions, resources & activities

to sustain the creation & capture of more value than rivals (competitive advantage)

28
Q

Competitive advantage rests in system of what

A

complementary activities & resources

• Systemic nature makes imitation difficult

29
Q

explain Sustainable advantage requires barriers to imitation

A

Trade-offs, complexity, causal ambiguity, preemption

30
Q

In sum, a strategy is what

A

a theory about how to create and capture economic value

Reflected in an
integrated set of choices about where and how to compete

31
Q

give a Sample strategy statement format

A

• In the ___________ business, our strategy is to…
[strategic objective]…
• …by offering [description of offering] to [target
customers] in [target geographic location]…
• …through [unique value proposition]…
• …using [unique activities/resources/capabilities]

U1 Integrated Management INTG 202 (9 decks)

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