BA 453 Midterm + iClicker

Net Present Value Rule

Consider the time value of money from the benefits and the costs first and the timing of the cash flows second

Porter's Generic Competitive Strategies (4 Areas)

Cost Leadership Cost Focus Differentiation Focused Differentiation

The "Big Box" Retailers' Advantage

Cube-Square Rule -each dimension increases 50% -each volume increases 237.5%

Industry structures are not stable over time. The U.S. banking industry has seen major consolidation in recent years. We would expect the result of this dynamic change to be what? A. Generally lower industry profits. B. It will have no effect on profitability. C. Further erosion in business. D. Generally higher industry profits.

D

John Connelly went to the grocery store to buy some butter. As he was looking at the butter offerings, he noticed that Pam cooking spray was advertised as $1.00 less for the same amount of product. John purchased the spray. The spray is considered to be a what? A. A complement B. A mobility product C. A replacement D. A substitute

D

Non-price competition such as today's rivalry between Coca-Cola and Pepsi refers to: A. When one firm cuts prices to gain market share, the competition will do the same. B. When a firm is driving costs down in order to gain competitive advantages through lower prices. C. When a firm has no pricing power that leads to a competitive disadvantage. D. When a firm is offering unique products and services as opposed to competing on price.

D

Planned emergence in strategy-making is when: A. An organization plans to emerge into a new market using current initiatives. B. An organization has a succession plan when the current CEO is preparing to retire. C. An organization communicates its strategy to the lower levels during a planned event. D. An organization allows bottom-up initiatives to emerge and be considered by the top.

D

Strategic planning differs from scenario planning in that: A. Strategic planning is long-term planning; scenario planning is not. B. Strategic planning is bottom-up from the employees, and scenario planning is top-down from the CEO. C. Strategic planning is performed by many layers in the organization, while scenario planning is limited to top executives. D. Strategic planning assumes that future success can be predicted; scenario planning allows for more unforeseen events.

D

The competitive threat of potential entry is NOT strong when _____________. A.there will be expected competitive retaliation B.there are sizable economies of scale C.there are strong brand preferences and customers are loyal D.All of these

D

The factors that are important to focus on when mapping strategic groups include: A. Identifying the top competitive factors in your market, such as expenditures on research and development, pricing, distribution channels, and customers. B. Choosing two key dimensions from these factors for the horizontal and vertical axes, plotting your rivals along these axes, and looking for differences among the competition. C. Analyzing the firms that are closest to your organization on the map, because they will give your firm the strongest rivalry. D. All of these.

D

When a firm is able to successfully employ an integration strategy, it will create a competitive advantage by: A. Combining high quality and product features to provide service that customers truly value. B. Using a first-mover advantage to be the lowest price in the market. C. Winning market share with a highly differentiated product. D. Beating rivals on product attributes while offering a better price.

D

Key Success Factors (KSF)

Economic and technological characteristics of the industry and competitive weapons used -price -quality/reliability/durability -dealer service -safety -fuel economy, cost of ownership -manufacturer's reputation -finance options

Organized to Capture

Exploit competitive potential -structure -coordinating systems

Examples of Disruptive Innovations: Established Businesses -disruptive innovation

Full service brokerage -online brokerage Credit decisions done by credit officers in banks -automated credit decisons based on scoring systems Printed greeting cards -free downloadable cards Multi line department stores -discount stores

Buyer Bargaining Power Factors & How It Works

High Concentration of buyers -each buyer will have more power Lack of Differentiation -if few unique product features, then buyer will be more likely to compare alternatives, giving them more power Price Sensitivity -if buyers are more price sensitive, they will try to exert more power Switching Costs -the lower the buyer's cost to switch, the more power the buyer has Threat of Backward Integration -if probable and credible, buyers have more power Buyer Knowledge -if buyer more knowledge, will have more power

Supplier Bargaining Power Factors & How It Works

High concentration of suppliers -each supplier will have more power Low differentiation -if few unique input features, then firm will be more likely to compare alternatives, giving suppliers less power Input Critical to Success -if inputs are essential to your downstream products, then suppliers have more power Switching Costs -the higher the cost to switch suppliers, the more the power the supplier has Threat of Forward Integration -if probable and credible, supplier have more power Proportion of sales to target industry -if success of supplier is closely linked to your success, then they have less power

Rivalry Among Competitors Factors & How It Works

Number of competitors -if high, will be more rivalry Industry growth prospects -if mature/slow growth, increases rivalry Overcapacity and fixed costs -high fixed costs may cause price competition, especially if capacity is added in large "chunks" Exit costs and barriers -high exit costs will increase rivalry to stay alive Switching costs for buyers, brand strength -if switching costs are low, then rivalry will increase Diversity of Competitors -may increase rivalry since more difficult to collude

Intangible Resources

Organizational assets that are difficult to identify and account for and are typically embedded in unique routines and practices, including human resources, innovation resources, and reputation resources. -culture -knowledge -brand equity -reputation -Intellectual property

Tangible Resources

Organizational assets that are relatively easy to identify, including physical assets, financial resources, organizational resources, and technological resources

PESTEL Framework

Political, Economic, Socio-cultural, Technological, Environmental, Legal

Threat of Substitutes Factors & How It Works

Price/Performance -good trade off, this can threaten a whole industry (generics) Switching Costs -low switching costs makes substitutes more likely Brand Loyalty -low brand loyalty will make substitutes more attractive

Value Chain Analysis

Primary Activities Support Activities

Resource immobility

Resources tend to be "sticky" and don't move easily

Drivers of Competitive Rivalry

Rivalry Factors: -market commonality (strategic groups) -market dynamics (size, growth, structure) Firm-Specific Factors: -resource similarity -awareness -motivation/reputation -ability

Strategy as Planned Emergence

Strategy can come from top or bottom -some intended strategies drop off in the process -allows for new emerging ideas to become realized -resource allocation process (RAP) -serendipity can have dramatic effects Know model Includes: Intended strategy, unrealized strategy, bottom-up emergent strategy and realized strategy

Valuation principle

The value of a commodity or an asset to the firm or its investors is determined by its competitive market price. The benefits and cost of a decision should be evaluated using those market prices. When the value of the benefits exceeds the value of the costs, the decision will increase the market value of the firm.

VRIO Framework

Valuable Rare Costly to Imitate Organized to Capture

Competitive Advantage & Economic Value Graph

Value Creation vs Value Captured

Vision Mission Values

Vision - what to ultimately accomplish? Mission - what is the firm about? Values - how to accomplish goals?

Why and How Competitive Analysis

Why: -better understand rivals -better understand your own position How: -constant vigilance -searching in unusual places -benchmarking

subscription model

a business model where a customer must pay a subscription price to have access to the product/service.

Razor-blade model

a business tactic involving the sale of dependent goods for different prices - one good is sold at a discount, while the second dependent good is sold at a considerably higher price

Capabilitites

ability to deploy, leverage, integrate, or manage resources - typically in a process

Dynamic Capabilities

an organization's capacity to purposefully create, extend or modify resources -an intangible resource

Sustaining/Incremental Innovation

are the creation of products, services, or technologies that modify existing ones

Radical or Disruptive Innovations

are the creation of products, services, or technologies, that replace existing ones

Resource Heterogeneity

bundles of resources and capabilities differ across firms

Resources

firm specific bundles of tangible or intangible assets that are built up over time

Strategy

goal-directed actions to gain and sustain competitive advantage -create value while containing cost -about what to do, and what not to do -set of activities to stake out unique position -long term commitments

Product Innovation

is a change in the appearance or the performance of a product or service or the creation of a new one

Process Innovation

is a change in the way a product or service is conceived, manufactured, or disseminated.

Scenario Planning Model

know this model Features: Analysts, Formulation, Implementation, Create Strategic Options

Disruptive innovations provide customers..

provide customers with performance and solutions incumbents don't see

Competitive Advantage

superior performance relative to competitors

Core competencies

that which contribute to customer value, is different, and is extendable

Cons of doing both Cost leadership & Differentiation

-"stuck in the middle" -no comp. adv. , low profits -no clear strategy

External issues - Merck Case

-Changing macro level environment (poor economy, R&D paradigm, adverse regulatory climate) -Health care reform -Increased competition from cheaper generics -industry consolidation

Technology Cycle & Market Evolution -Embryonic Stage-

-Competition on features/designs -Differentiation strategies -Fragmented niche markets -Low entry barriers -Low technical advance (R&D returns) -High margins/low volume

Technology Cycle & Market Evolution -Growth Stage-

-Fewer differentiation opportunities -cost-based competition/scale econ. -mass market (lower margins/high volume) -higher entry barriers -increasing technical advance -shakeout begins

Political Variables

-Government influence behavior of firms -campaigns by candidates for office -taxation at local, state, federal levels -political pressure on firms

Cost Structures

-Payroll centered (Direct) -Payroll centered (Support) -Inventory -Space/Rent -Marketing/Advertising

Rivalry Framework

-Potential competitors -Buyer power -Substitutes -Supplier power

Cost Leadership

-Provide goods at lower cost, but comparable quality -relatively standardized products, with features acceptable to "average" consumer -internal focus - efficiency, quality

Primary Activities

-add value directly in transformation inputs into outputs -contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale -inbound logistics, operations, outbound logistics, marketing and sales, and service

Legal Variables

-anti trust regulations -tort reform -environmental protection laws -hiring and promotion laws -americans with disabilities act -sarbanes-oxley act

Valuable

-attractive features -lower costs (& price)

Pros of Focus

-broader competitors ignore the niche -can improve other value-adding services to further specialize and tie in customers -may gain unique advantages serving a specialized market segment (monopolistic)

External Factors

-competitors -government -stakeholders -technology

Focus

-concentrate on a specific market and use either a cost leadership or differentiation strategy -geography, customer type etc.. -use either cost leadership or differentiation -innovation, speed

Pros of Cost Leadership

-convince competitors not to engage in price wars -provides a barrier to entry -can handle supplier price increases

characteristics that'll lower risk of a price war

-differentiated product -increasing market growth rate -low price visibility to competitors -low buyer price sensitivity -stable overall industry cost trend -high industry capacity utilization -few number of competitors

Oligopoly

-few large firms -interdependent -some pricing power -high entry barriers -ex: express mail, soft drinks

Cost Drivers

-fixed -semi variable -variable -non recurring

Pros of doing both Cost leadership & differentiation

-flexible manufacturing -internet and info technologies -globalization

Ecological Variables

-global warming -sustainable economic growth -carbon footprint -fossil fuel consumption -pollution of air and water -toxins in food and products

Economic Variables

-growth rates -interest rates -employment levels -inflation rates -currency & money supply -disposable & discretionary income

6th Force: Complimentors

-if customers value your product more when they have the complementor's product than when they have your alone -when complementors are important and their number is increasing demand and profits in the industry are boosted -when complementors are weak industry growth can slow and profits can be limited

Support Activities

-indirectly add value -activities of the value chain that either add value by themselves or add value through important relationships with both primary activities and other support activities -procurement, tech development, HR management, and general administration

Pros of Differentiation

-insulate from rivalry -consumers are less price sensitive -can increase market share, create markets -loyalty barriers develop

Cons of Focus

-larger firms may intrude -niche may disappear - tastes change, technology -may be difficult to find growth opportunities

Socio-Cultural Variables

-lifestyle changes -carer expectations -demographics -increase in temporary workers -geographic distribution of global population

Monopolistic Competition

-many firms -differentiated products -some pricing power -medium entry barriers -ex: computer hardware, organic foods

Perfect Competition

-many small firms -commodity products -firms are price takers -low entry barriers -fragmented (low profits) -ex: pet supply stores

Cons of Differentiation

-may be hard to sustain price premium -threat of products becoming commodities -customer tastes can change

Implications of Strategic Groups

-more competition within, rather than between groups. -each group may face a different set of opportunities and threats and show different profit patterns

How are PESTEL and Rivalry Framework limited?

-neglects innovation and change -ignores firm influences on forces -excludes firm differences

Monopoly

-one supplier -often government approved -considerable pricing power -very high entry barriers -consolidated (high profits) -ex: utilities for electricity, gas, and water

Rare

-only a few firm possess

Internal Issues - Merck Case

-patent expiration -insufficient product pipeline -vioxx recall and lawsuits -post-merger integration with schering-plough -organizational resistance to change

Technological Variables

-productivity improvements -focus of technological efforts -industrial spending for R&D -patent protection -digital communications -biotechnology -nanotechnology

What strategy is not..

-raking in every penny the firm can get. Profit is a consequence of good strategy, it is not the main goal -operational effectiveness -benchmarking

Cons of Leadership

-requires large asset base and capital investment -can create myopia to industry changes -typically, only one player can do -may lose touch with customer needs

Revenue Sources

-single stream -multiple streams -interdependent -loss leader

Revenue Models

-subscription/membership -volume or unit-based -advertising-based -licensing & syndication -transaction fee

Costly to Imitate

-unable to develop or buy at a reasonable price

Characteristics that'll raise risk of a price war

-undifferentiated product -stable/dec. market growth rate -high price visibility to competitors -high buyer price sensitivity -declining overall cost trend -low industry capacity utilization -many number of competitors

Internal Factors

-unique firm characteristics and capabilities -coordination of division and activities -implementing strategies

Barriers to Imitation -- Competitive Advantage

1) Better expectations of Future Values -buy resources at a low cost 2) Path Dependence -current alternatives are limited by past decisions 3) Causal Ambiguity -cause of success or failure are not apparent 4) Social complexity -two or more systems interact creating many possibilities

2 types of Mission

1) Customer Oriented (Disney) 2) Product Oriented (U.S. Railroads, Intel)

Strategic Planning -Top Down Rational-

1) Define mission, vision, goal 2) External analysis of oppor. and threats 3) Internal analysis of strengths/weaknesses 4) Create fit through SWOT 5) Formulate appropriate strategy 6) Implement strategy 7) Monitor performance and modify if necessary

Industry Life Cycle

1) Embryonic -educate customers, develop channels, finalize designs, one company 2) Growth -big increase in demand, prices decline 3) Shakeout -rivalry increases, price wars 4) Mature -saturated markets, consolidation, all demand is replacement 5) Decline -growth is negative, rivalry driven by exit barriers

Cost Drivers

1) Input Factors -lower-cost materials, money or labor 2) Economies of Scale -increased output decreased cost per unit -spread fixed costs 3) Learning Curves -"learn by doing" -steeper curve more learning 4) Experience Curves -combine economy of scale & learning curves -technology allows movement to steeper curve -combination can leapfrog in competitive advantage

3 aspects of Fit

1) Mutually reinforcing 2) Optimized 3) Consistent

4 factors a business plan must address

1) Opportunity 2) Context 3) People 4) Risks and Rewards

Value Drivers

1) Product Features -most important & clearest drivers -unique product features 2) Customer Service -ID unmet customer needs & satisfy them 3) Customization -tailoring for specific customers -"mass customization" 4) Complements -add value when consumed in tandem

Integration Strategy of Cost Leader & Differ. Value & Cost Drivers of Integration

1) Quality -can increase perceived value & lower cost 2) Economies of Scope -starbucks adding hot tea to its menu 3) Innovation -IKEA - stylist furniture in flat pack delivery 4) Structure, Culture, Routines -ambidextrous organization -- explore AND exploit -intel current and future products and services

AFI Framework

1) Situational Analysis -Strategic goals -internal and external environment of the firm 2) Strategy Formulation -what industries and markets should we compete in? -how should we compete in those industries and markets? 3) Strategy implementation -allocate necessary resources -design the organization to bring intended strategies to reality

3 Steps to Strategic Management Process

1) Strategic Planning 2) Scenario Planning 3) Strategy as Planned Emergence

SWOT -- Alternatives

1) Strength-Opportunity -"offensive" alternatives, utilize a strength to address an opportunity 2) Weakness-Threat -"Defensive" alternatives, eliminate or minimize a weakness in order to minimize the effect of a threat 3) Strength-Threat -utilize a strength to minimize the effect of a threat 4) Weakness-Opportunity -shore up a weakness to enable the organization to take advantage of an opportunity

Strategic Position based on what 2 things..

1) Value Creation 2) Cost

Beware of Disruptive Innovations

1) When new technologies emerge that -offer a different package of attributes not yet valued by current customers -open up the definition of the market itself and revolutionize the structure of the industry -alter the nature of competition -require companies to adopt new strategies to survive 2) Paradigm shifts are more likely to occur when -existing companies are highly focused on existing customers -the established technology in the industry is mature and approaching its natural limit

Game Theory Principles

1) look forward, reason back 2) Know your rivals 3) Find dominant strategy 4) Strategy shapes the payoff structure of the game

An ideal competitive environment from a profit-making standpoint is when: A. Rivalry is moderate, and high entry barriers and good substitutes do not exist. B. Rivalry is high, entry barriers are low, and there are many substitutes. C. Rivalry is high, buyers and sellers have strong bargaining power, and entry barriers are low. D. Rivalry is moderate, entry and exit barriers are low, and there are many substitutes.

A

Competitive rivalry among firms in the same strategic group is generally: A. More intense than competition between strategic groups. B. Less intense than competition between strategic groups. C. Similar in intensity than competition between strategic groups. D. Fairly dependent on what industry the strategic group is in.

A

Exit barriers are obstacles that determine how easily a firm can leave the industry. When exit barriers are high, what happens to industry attractiveness? A.It decreases. B.It increases. C.It becomes a complement. D.It has no impact.

A

Generally, as the level of _________ innovation declines, the level of _________ innovation increases. A. Product; process B. Process; procedural C. Incremental; drastic D. Efficient; inefficient

A

If Smith Pharmaceuticals has a 15% return on invested capital (RoIC), what do you need to know to determine if it has a competitive advantage? A. It must be compared to the RoIC of the competitors and industry. B. Nothing, 15% is a terrific return for the shareholders. C. It must be evaluated for depreciation of the capital. D. It must be compared to the history of the firm's RoIC over a number of years.

A

In 1996, GM, Toyota, and Honda introduced electric vehicles into the California market. This was in response to a regulation passed by the state in 1990 requiring some percentage of zero-emissions vehicles from auto companies be sold in the state. When the regulation was rescinded in the late 1990s, all three firms pulled their electric vehicles out of the market. GM terminated its electric vehicle program, whereas Toyota and Honda used it to introduce hybrid cars only a few years later. Which of the following is NOT a valid conclusion to draw from this series of events? A. Government regulations are always bad for U.S. businesses. B. Government regulations can influence business strategies. C. GM made a strategic error by closing its electric-vehicle program. D. Toyota and Honda used the regulation as a catalyst for new lines of cars.

A

Strategic __________ is staking out a unique and valuable spot that allows the firm to meet customer demands. A. Positioning B. Advantage C. Goal D. Segmentation

A

The resource-based view is in sharp contrast to which model of industry competition. A. Perfect competition B. Monopoly C. Oligopoly D. Monopolistic competition

A

When competitors cooperate with one another to achieve strategic objectives, this is called? A. Co-opetition B. A merger C. Functional tasks D. A strategic initiative

A

When it comes to a firm's value chain activities and the essence of strategy, a firm should ask itself: A. Which activities should be done? And more importantly, what should not be done? B. Where can costs be minimized to reflect the greatest profitability? C. What tangible assets can be acquired to increase competitive advantage? D. What are the best practices of the closest competitor and can they be easily adapted by the firm?

A

First Mover

Advantages: -market pioneer -potential monopoly like profits/status -ability to lock in customers and prevent switch Disadvantages: -free riders -less uncertainty -leverage complementary assets in marketing

A mission describes ____________. A.what a business will do in the future B.what a business actually does and why it does it C.what the norms are of the business D.what the business has done historically

B

Achieving differentiation parity along with lower costs is important to a low-cost leader because: A. The firm is then able to target a less price-sensitive customer market. B. Creating the same value as the competition, combined with lower costs, gives the firm a competitive advantage. C. The firm is then able to incorporate differentiating features that cause buyers to prefer its products. D. All of these.

B

Generally, perfectly competitive industries such as paper and steel (commodities) are deemed to be ________ in profits to more differentiated industries like pharmaceuticals and cosmetics. A. superior B. inferior C. similar D. indeterminate

B

Six Sigma, lean manufacturing, and genetic engineering are examples of ___________ that deliver new ways to produce or deliver existing products or services. A. Procedural changes B. Process innovations C. Entrenched standards D. Trial innovations

B

The five-forces-plus-complements model is useful in understanding industry profit potential, but it is only a snapshot in time. Managers must also consider ___________. A. the cost structure B. the industry dynamics C. the competitive landscape D. the strategic group

B

When firms that provide key raw materials to an industry can frequently negotiate for higher prices, the: A. Bargaining power of buyers is high. B. Bargaining power of suppliers is high. C. Barriers to entry are low. D. Bargaining power of suppliers is low.

B

Threat of New Entrants Factors & How It Works

Brand Loyalty -few established brands or if branding not important Switching Costs -low switching costs such that new products don't require investments by customers Capital Requirements -little capital required Access to Distribution Channels -open distribution channels, easy to obtain space or create new Learning Curve -flat learning curve with little proprietary technology such that new entrants will not face a cost disadv.

A ____________ is a product or service that can help raise demand in an industry by indirectly enhancing performance or decreasing prices. A. core competency B. substitute C. complement D. component

C

A business model is the translation of strategy into action, which details the firm's competitive tactics and initiatives. Another way to say this is ___________. A. It's reliant on co-opetition to be successful B. It's a crowdsourcing process for the firm C. It's how the firm intends to make money D. It's how network effects are taken into account

C

All of the following are aspects of sociocultural factors influencing industry attractiveness EXCEPT: A. The growth rate of the population B. The age distribution of the population C. Environmental protection laws D. Lifestyle changes

C

All of the following are tangible resources EXCEPT: A. Production equipment. B. Distribution centers. C. A firm's reputation. D. A firm's headquarters building.

C

All of the following are tools typically used to achieve cost-leadership EXCEPT: A. Controlling the cost of inputs. B. Leveraging economies of scale. C. Offering products that have superior value. D. Learning by doing.

C

An industry with three firms and a differentiated product is most likely a(n) ________, while an industry with three thousand firms and a differentiated product is most likely a(n) ________ industry. A. perfect competition; oligopolistic B. monopoly; perfectly competitive C. oligopoly; monopolistic competitive D. oligopoly; perfectly competitive

C

Currently, lean manufacturing is a __________ but ____________ resource, which leads to competitive parity. A. Valuable; rare B. Common; tangible C. Valuable; common D. Rare; tangible

C

One of the strategic goals of management is to develop a resource base that is primarily: A. Flexible, responsive, and efficient B. Variable, rare, costly to initiate, and orderly C. Valuable, rare, costly to imitate, and organized to capture value D. Unique and difficult to imitate

C

Which of the following is a major decision that was generated from a change in corporate strategy? A. Changing Google's pricing model on its Google Ads products B. Providing superior customer service at Neiman Marcus retail stores C. Selling IBM's personal computer business to the Chinese firm Lenovo D. Applying for patents on Pfizer's cholesterol-lowering drug Lipitor

C

Which of the following would NOT indicate that buyers are a strong competitive force? A.They can integrate backward. B.They can purchase from several sellers. C.They are reliant on the industry's product. D.They buy in large quantities.

C

_________ and __________ are two of the value drivers that managers can utilize when trying to improve a firm's differentiation strategic position. A. Co-opetition; complements B. Learning-curve effects; co-opetition C. Customer service; complements D. Economies of scale; co-opetition

C