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54 Cards in this Set
- Front
- Back
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Strategic Management
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The integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage.
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Competitive Advantage?
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A firm that formulates and implements a strategy that leads to superior performance relative to other competitors in the same industry
• Provides superior value to customers at a competitive price or acceptable value at a lower price |
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Sustainable competitive advantage
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A firm that is able to outperform its competitors or the industry average over a prolonged period of time
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What is Strategy
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o The goal directed actions a firm intends to take in its quest to gain and sustain competitive advantage.
o The managers theories about how to gain and sustain comp. adv. o Being different from your rivals o Creating value while containing cost o Deciding what to do, and what not to do o Combines a set of activities to stake out a unique position o Requires long-term commitments that are often not easily reversable |
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Co-opetition
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Cooperation by competitors to achieve a strategic objective
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Strategic Positioning
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o Staking out a unique position in an industry that allows the firm to provide value to customers, while controlling costs.
o Requires trade-offs |
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Strategy as a theory of how to compete
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o Provides managers with a roadmap to navigate the competitive territory. The more accurate the map, the better strategic decisions managers can make. Test theories in the marketplace
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Industry vs. Firm Effects in Determining Performance
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Firm effects: the results of managers actions to influence firm performance
Industry effects: the results attributed to the choice of industry in which to compete The industry a firm is in determines about 20% of a firms profitability, while the firms strategy within a given industry explains b/w 30-45% of its performance |
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business model
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organizational plan that details the firms competitive tactics and initiatives; in short, how the firm intends to make money
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Razor Blade Model
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• Idea is to give away or sell for a small fee the product and make money on the replacement part needed.
• Invented by gilette (gave away razors and sold blades @ high price) |
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Subscription-based business model
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• First introduced by magazines and newspapers—they recoup the subsidy provided for the smartphone by requiring customers to sign up for lengthy service plans
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Accelerating technological change
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• The speed of technology diffusion has increased significantly over the past years
• Ex: it took 19 years for PC to reach 50% ownership but only 6 years for MP3 players to |
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Global World
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• A truly global marketplace would be when goods, services, capital, knowledge, ideas and people move freely across geographic boundaries in search of greater opportunities.
• Ex: combining 27 member states and more than 500 million people, the European union is the worlds largest economy. 16 EU countries have same economic and monetary policies and use the EURO |
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Future Industries
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• Tomorrow’s winners are the ones that focus today on making investments to build a position in up-and-coming industries. Given current trends, several industries promise significant potential for value creation…Health care, the green economy and Web 2.0.
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Bottom of the pyramid
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the largest but poorest socioeconomic group of the worlds population. (4 billion people on the planet live on less than $2000 a year
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externalities
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side effects of production and consumption that are not reflected in the price of a product
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Crowdsourcing
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a process in which a group of people voluntarily performs tasks that were traditionally completed by a firm’s employees.
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Stakeholders
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Individuals or groups who can affect or are affected by the actions of a firm
• Internal: Stockholders, employees and board members • External: Customers, suppliers, alliance partners, creditors, unions, communities and government |
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Strategic Management Process
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The method by which managers conceive of and implement a strategy that can lead to sustainable comp. adv.
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Vision
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o A statement about what an organization ultimately wants to accomplish. Captures the company’s aspiration. Effective one pervades the org with a sense of winning and motivates employees at all levels to aim for the target, while leaving room for individual and team contributions
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Strategic Intent
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The staking out of desired leadership position in the long term that far exceeds a company’s current resources and capabilities
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Mission
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o Description of what an organization actually does—what its business is—and why it does it; can be….
• Customer-oriented: defines a business in terms of providing solutions to customers needs • Product-oriented: defines a business in terms of a good/service provided rather than in terms of the customer need to be met |
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Mission statement and competitive advantage
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oPositive association—visionary companies (those whose stated missions clearly capture the company’s aspirations) financially outperformed their peers by a wide margin.
oNegative association—hurts financial performance. |
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Strategic Commitment
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Actions that are costly, long-term oriented, and difficult to reverse.
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Organizational Values
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Ethical standards and norms that govern the behavior of individuals within a firm or org
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Strategizing for competitive advantage: How is strategy “Made”?
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o Strategic planning (long-range)
• A rational, top-down process trough which management can program future success; typically concentrates strategic intelligence and decision-making responsibilities in the office of the CEO o Scenario planning • Strategy-planning activity in which managers envision different what-if scenarios to anticipate plausible futures o Dominant strategic plan • The strategic option that managers think most closely matches reality at a given point in time |
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Strategic initiative
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Any activity a firm pursues to explore and develop new products and processes, new markets, or new ventures
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Emergent Strategy
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Any unplanned strategic initiative undertaken by mid-level employees of their own volition
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Mintzbergs Planning Framework
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o Intended: The outcome of a rational and structured top-down strategic plan
o Unrealized: Part or all of a firms strategic plan that falls by the wayside due to unexpected events o Emergent: Any unplanned strategic initiative undertaken by mid-level employees of their own volition o Realized: Combination of intended and emergent strategy |
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Implications for the strategist
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When new ideas emerge, managers can go beyond standard evaluation metrics like net present value (NPV) and apply real options perspective. Both provide critical info when a firm is making strategic decisions.
• NPV- not good for highly uncertain strategic initiatives bc it applies a high discount rate on the NPV of future cash flows • Real options perspective- breaks down a large investment decision into a set of smaller decisions that are staged sequentially over time |
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Structure-Conduct-Performace (SCP model)
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A theoretical framework, developed in industrial organization economics, that explains differences in industry performance. The underlying industry structure determines firm conduct, which concerns the firms ability to differentiate its goods and services and thus to influence the price it can charge.
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Perfect Competition
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o Industry that is characterized as fragmented and has many small firms, a commodity product, ease of entry, and little or no ability for each individual firm to raise its prices. Firms are similar in size and resources
o Consumers make decisions based on price because the commodity product offerings are more or less identical o Difficult to attain a competitive advantage, only competitive parity o Very rare except for commodities like natural gas, copper and iron |
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Monopolistic Competition
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o Characterized by many firms, a differential product, some obstacle to entry, and the basis for raising prices for a relatively unique product while retaining customers.
o Key to understanding this industry structure is that the firms now offer products/services that have unique features(apple, dell, HP) all have less than 20% market share o Ex: computer hardware industry |
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Oligopoly
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o This type of industry is becoming more consolidated with few (large) firms, differentiated products, high barriers to entry, and some degree of pricing power
o Degree of pricing power depends, just as in monopolistic competition, on the degree of product differentiation. o Competing firms are interdependent o Few competitors means the action of one firm influence the behavior of another o Each firm in this structure must consider the strategic actions of other firms o “Game theory”-predict strategic behaviors by assuming that the moves and reactions of competitors can be anticipated. o Have more pricing power if they are able to differentiate their product o Ex: FedEX and UPS |
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Monopoly
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o When there is only one large firm supplying the market. The only seller
o The firm may offer a unique product and the challenges to moving into the industry tend to be high o The monopolist has considerable pricing power o Firm/industry profitability tends to be high o In some cases, the govt will grant one firm the right to be the sole supplier of a product/service. This is done to incentivize a company to engage in a venture that would not be profitable if there was more than one supplier |
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threat of entry is high when:
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o Customer switching costs are low
o Capital requirements are low o Incumbents do not possess • Proprietary technology • Established brand equity o New entrants expect that incumbents will not or cannot retaliate |
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power of suppliers is high when:
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o Incumbent firms face significant switching costs when changing supplier
o Suppliers offer products that are differentiated o There are no readily available substitutes for the products or services that the suppliers offer o suppliers can credibly threaten to forward-integrate into the industry |
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the power of buyers is high when:
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o There are a few large buyers
o Each buyer purchases large quantities relative to the size of a single seller o The industry’s products are standardized or undifferentiated commodities o Buyers face little or no switching costs o Buyers can credibly threaten to backward-integrate into the industry |
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the threat of substitutes is high when:
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o The substitute offers an attractive price-performance trade-off
o The buyers cost of switching to the substitute is low |
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rivalry among existing competitors is high when:
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o There are many competitors in the industry
o The competitors are roughly of equal size o Industry growth is slow, zero, or even negative o Exit barrier are high o Products and services are direct substitutes |
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sixth force: the strategic role of compliments
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o Compliments
• A product, service, or competency that adds value to the original product offering when the two are used in tandem • Increase demand for the primary product, thereby enhancing the profit potential for the industry and the firm • A company is a complementor to your company if customers value your product/service offering more when they are able to combine it with the other company’s product/service |
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changes over time
-industry dynamics and convergence |
o industry dynamics: industry’s are not stable over time, they are dynamic. Since a consolidated industry tends to be more profitable than a fragmented one, firms have a tendency to change the industry structure in their favor, making it more consolidated through horizontal mergers and acquisitions. Fewer competitors= high profitsIndustry incumbents have an incentive to reduce the number of competitors in the industry.
o industry convergence: a process whereby formerly unrelated industries begin to satisfy the same customer need |
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strategic groups
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o The set of companies that pursue a similar strategy within a specific industry (in their quest for competitive advantage)
o They differ from one another in terms of expedentures on R&D, technology, product differentiation, product and service offerings, pricing, market segments, distribution channels, customer service. |
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mapping strategic groups
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o Identify the most important strategic dimensions (R&D, technology, product differentiation, product and service offerings, pricing, market segments, distribution channels, customer service.)
o Choose 2 key dimensions for horiontal and vertical axes which expose important differences among competitors o The dimensions chosen for the axes should not be highly correlated o Position on the graph firms in the strategic group, indicating each firms market share by the size of the bubble by which it is represented. |
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mobility barriers
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Industry-specific factors that separate one strategic group from another
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core competencies
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Unique strengths embedded deep within a firm, that allow a firm to differentiate its products or services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost.
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resource based view
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A model that sees resources as key to superior firm performance. If a resource exhibits VRIO attributes, the resource enable the firm to gain and sustain a competitive advantage.
• Tangible resources: Resources with physical attributes, which are thus visible • Ex: capital, land, buildings, plant, equipment, and supplies • Intangible resources: Resources that do not have physical attributes and thus are invisible • Ex: culture, knowledge, brand equity, reputation, intellectual property |
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2 critical assumptions of resource based view
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• resource heterogeneity: assumption in the resource based view that a firm is a bundle of resources and capabilities differ across firms.
• Resource immobility: Assumption that a firm has resources that tend to be “sticky” and that do not move easily from firm to firm. |
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swot analysis
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• A framework that allows managers to synthesize insights obtained from an internal analysis of the company’s strengths and weaknesses with those from an analysis of external opportunities and threats
• Allows managers to formulate a strategy that is tailored to their company, creating a unique fit between the company’s internal resources and the external environment |
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dynamic capabilities perspective
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: a model that emphasizes a firms ability to modify and leverage its resource base in a way that enables it to gain and sustain comp. adv. In a constantly changing environment
• Resource stocks • The firms current level of intangible resources • Resource flows • The firms level of investments to maintain or build a resource |
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strategic activity system (value chain)
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• The conceptualization of a firm as a network of interconnected activities
• Socially complex • Dynamic:in order for firm to sustain comp/ adv., strategic activity systems need to evolve over time. External environment changes and firm’s competitors get better in developing their own activity systems and capabilities |
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value chain
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describes the internal activities a firm engages in when transforming inputs into outputs. Each activity the firm performs along the chain adds incremental value-raw materials and other inputs are transformed into components that are finally assembled into finished products/services for the end customer.
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primary activities (value chain)
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• Firm activities that add value directly by transforming inputs into outputs as the firm moves a product/service horizontally along the internal value chain
• From raw materials through production phases to sales and marketing and finally customer service |
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support activities (value chain)
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• Activities that add value indirectly, but are necessary to sustain primary activities
• R&D, information systems, operations mgmt, human resources, finance, accounting and general mgmt |
