mgt 301 exam 1

3 frameworks to assess firm performance and two integrative frameowrks combining quantitative and qualitative assessments

3 frameworks to assess firm performance: Accounting profitability - how resources are used to create a profit for a company Shareholder value creation Economic value creation 2 integrative frameworks combining quantitative data with qualitative assessments: The balanced scorecard The triple bottom line

Competitive advantage and firm performance 3 standard performance dimensions:

3 standard performance dimensions: What is the firm's accounting profitability How much shareholder value does the firm create How much economic value does the firm generate

5 dif customer groups

5 dif groups: Technology enthusiasts- customer segment the introductory stage of the industry life cycle, makes up some 2.5% market potential, often engineering mindset Early adopters- enter market in growth stage, make up 13.5% of total market potential, eager to buy early into new technology, demand driven by their imagination and creativity Early majority- come into market in shakeout stage- main consideration is practicality Late majority- enter in maturity stage, large customer market make up 34% of total market potential, demand drive most industry growth and profitability coming from early and late majority (68% total ) Laggards- last consumer segment to come into the market, enter in the declining stage of the industry life cycle, customers who adopt new product only if absolutely necessary like first time cell phone adopter sin us today, around 16%

a sixth force and coopetition

A sixth force: the strategic role of complements Complement- product service or competency that adds value to original product offering when the two are used in tandem. Complementor- company that provides a good or service that leads customers to value your firm's offering when two combined ie google complements samsung when two combined in a phone. Coopetition- cooperation by competitors to achieve strategic objectives. Samsung and google cooperate to compete against apple in mobile device industry *see page 89 for summary *

Advantages vs disadvantages of the balanced scorecard

Advantages of the balanced scorecard - allows managers to communicate and link strategic vision to responsible parties, translate vision into measurable goals, design/plan business processes, implement feedback and organizational learning to adapt strategic goals Disadvantages of the balanced scorecard - tool for strategy implementation and not for strategy formulation, provides limited guidance about which metrics to choose , managers must be aware that failure to achieve competitive advantage is more a strategic failure, not reflection of poor framework

Amount of total perceived customer benefits Three components needed to explain total perceived consumer benefits and economic value created in more detail:

Amount of total perceived customer benefits = maximum willingness to pay A lot of time competitive advantage due to superior differentiation (product), can also through cost advantage over rivals Three components needed to explain total perceived consumer benefits and economic value created in more detail: Value, 2. Price 3. costs Value- dollar amount (V)=a consumer attaches to a good or service; the consumer's maximum willingness to pay; also called reservation price Profit - difference bw price charged and cost to product or P-C (producer suprlus_ If some of economic value created goes to consumer than perceived value ie 1200$ selling at V which is 800$ because took $400 to produce and 1200-400=800 Producer surplus=another term for profit , difference bw P and C

goal internally

Best firms identify their core competencies to survive and succeed , determine how to manage internal strengths to respond to challenges and opportunities of external environment goal=create strategic fit within firm's environment by developing resources/competencies External env, PESTEL → industry → strategic group → inside the firm ie competencies

blue ocean gone bad value curve strategy canvas

Blue ocean strategy gone bad- can be quite difficult to translate into reality ie differentiation and cost leadership require trade offs, requires reconciliation of fundamentally different positions - differentiation and low cost Value curve- basis component of the strategy canvas. Value curve= horizontal connection of the points of each value on the strategy canvas that helps strategic leaders diagnose and determine courses of action Strategy canvas- graphical depiction of a company's relative performance vis-a-vis its competitors across the industry's key success factors

blue ocean strategy

Blue ocean strategy- business level strategy that successfully combines differentiation and cost leadership activities using value innovation to reconcile the inherent tradeoffs. Blue oceans represent untapped market space, additional demand creation, opportunities for highly profitable growth. Red oceans know the market space of existing industries . trader joes is in a blue ocean

Business Strategies 3 business level strategy

Business Strategy: differentiation, cost leadership, and blue oceans Business-level strategy - goal directed actions managers take in their quest for competitive advantage when competing in a single product market -may involve a single product or group of similar products using same distribution channel

Business level strategy and the five forces: Differentiation strategy - Viability of differentiation strategy is undermined when

Business level strategy and the five forces: Differentiation strategy - establishes strategic position that creates higher perceived value by controlling costs, if well executed will reduce rivalry among competitors. If successful based on unique features of product, effective marketing campaign or intangible resources ie innovation, quality Viability of differentiation strategy is undermined when focus of competition shifts to price > value creating features - can happen when differentiated products become commoditized and standard of quality among rival firms. Differentiation also needs to be careful not to be adding features that raise costs but not perceived value

business model

Business model- stipulates how the firm conducts its business with its buyers suppliers and partners in order to make money. product/process innovation is often more costly and takes longer to come up with than implement -firm's competitive advantage based on product innovation ie apple's iphone is much less likely to be made obsolete if embedded within business model innovation ie apple's ecosystem of services making users less likely to leave apple for competing product ie itunes ios icloud apple pay etc

business strategy is more likely to lead to comp adv if scope of comp strategic position...

Business strategy more likely to lead to competitive adv if allows firm to perform similar activities differently or perform different activities than rivals Scope of competition - the size- narrow or broad - of the market in which a firm chooses to compete ie Tesla offers focussed differentiation strategy bc focuses on env conscious consumers premium price Strategic position either cost or differentiation, and competitive scope either narrow or broad If narrow scope, cost position = focused cost leadership Narrow scope, differentiation → focused differentiation Broad scope, cost → cost leadership Broad scope, differentiation → differentiation

causal ambituity social complexity

Causal ambiguity- situation in which the cause and effect of a phenomenon are not readily apparent ie a deep understanding of why apple has been so successful Social complexity - situation in which different social and business systems interact with one another. 3 people have three relationships but adding 4th person doubles direct relationship to six, adding fifth increases number to 10

core competencies

Chapter 4 - internal analysis Firm's ability to gain and sustain competitive advantage partly driven by core competencies = unique strengths embedded deep within a firm and allow it to differentiate products/services from rivals, creating higher value ie beats headphones- core competency in marketing allows differentiation

combination vs evolution vs disruption

Combination- telecommunications companies like AT&T/verizon combine razor-razor blade model with subscription model Evolution - freemium business model can be seen as evolutionary variation on razor-razor blade model Disruption - when introducing agency model - amazon disrupted traditional wholesale model for publishers through offering many books below cost other retailers had to pay to publishers

competition change as a constant what factors explain increasingly rapid tech diffusion

Competition - process driven by the "perennial gale of creative destruction" Firms must be able to innovate while also fending off competitors imitation attempts Change is the only constant, and rate of technological change has accelerated dramatically What factors explain increasingly rapid technological diffusion/adoption? Some say initial innovations like the car, phone an d airline, sue of electricity Speed of technology diffusion has accelerated further with internet social networking and virtual messaging

Competitive advantage defined and must accomplish 2 to achieve

Competitive advantage defined= superior performance relative to other competitors in the same industry or industry average → to achieve, firm's managers must accomplish 2: 1. Accurately assess form performance 2. Compare and benchmark their firm's performance to other competitors in the same industry or against the industry average

what does competitive adv go

Competitive advantage goes to firms achieving largest economic value. Large difference between V and C gives firm ability to charge higher prices and thus increase profitability or to charge the same price as competitors and thus gain market share Profit pie = TR - TC where TR = P*Q TC includes both fixed and variable costs, VC change with level of consumer demand Opportunity costs- value of the best forgone alternative use of the resources employed

Competitive industry structure structure of industry captured by 4

Competitive industry structure - elements common to all industries. Structure of industry captured by: # and size of competitors, firm's degree of pricing power, type of product or service, height of entry barriers

consumer surplus reason for trade economic value creation framework

Consumer surplus= difference between value a consumer attaches to a good or service V and what he or she paid for it so (V-P) Relationship between consumer and producer surplus is the reason for trade The economic value creation framework shows strategy is about 1. Creating economic value and 2. Capturing as much of it as possible Ie amazon creates significant value for its customers as well as third party sellers that use its platform, also value through AWS, acquiring wholefood salsa made it grocery industry worse nightmare → amazon's customers capture amazons value

core rigidity

Core rigidity- a former core competency can turn into a liability if the firm fails to hone, refine and upgrade the competency as the environment changed. Has to do with dynamic capabilities= a firm's ability to create, deploy, modify, reconfiture, upgrade or leverage is resources in its quest for competitive advantage . for firm to sustain competitive advantage any fit bw internal strengths and external environment must be dynamic - p&g pg 126 Dynamic capabilities also enable firms to create market changes to strengthen position is apple's dynamic capabilities redefine markets for mobile devices and computing - intro o apple watch to shape market for computer wearables in its favor

Cost leadership : benefits and risks Success of business level strategy depends on two factors:

Cost leadership : benefits and risks - obtaining lowest cost position in industry while offering acceptable value , likely to have a large market share reducing threat of entry. Can absorb price reductions more easily when demanded by powerful buyers. Risks ie if new entrant enters market cost leaders margins may erode while attempts to learn new capabilities. Risk of replacement if substitute due to new innovation, also faces difficulty when focus shifts form price to non price attributes Success of business level strategy depends on two factors: how well strategy leverages firm's internal strengths while mitigating weaknesses, 2. How well helps the firm exploit external opportunities while avoiding external threats

cost of capital

Cost of capital= firm's cost of financing operations from equity and debt (stock and bonds issuance)

costly to imitate direct imigation subsitution

Costly to imitate- if firms that do not possess the resource are unable to develop or buy the resource at comparable cost ie dr dre creator relies on gut instinct so costly to imitate him too, coolness factor Direct imitation- usually see direct imitation when firms have difficulty protecting advantage. Ie patents. Crocs owns several patents for example but cheap imitators have copied the plastic clog - stock price fell from 75$ to $1 in just 13 months Substitution - accomplished through strategic equivalence ie amazon - products identical but mode of delivery different - took out uncertainty of online shopping Combining imitation and substitution ie samsung able to imitatie look and feel of iphones, use google play as an alternative .

decline stage crossing the chasm

Decline stage-at this final stage of industry life cycle managers generally have four strategic options: exit, harvest (firm reduces investment in product support and allocated minimum of human and other resources, maximize cashflow from existing product line), maintain (support marketing efforts at given level ie Marlboro), consolidate - consolidate industry by buying rivals Crossing the chasm - conceptual model that show each stage of the industry life cycle is dominated by a different customer group

differentiation parity most important cost drivers mgt can manipulate 4 and explain

Differentiation parity- creates same value as competition - often hard to create bc value creation usually means higher costs Most important cost drivers managers can manipulate: Cost of input factors - access to lower cost input factsr ie raw materials capital labor IT. ie airlines fast growing airlines ie emirates qatar comp adv over Us's delta united etc bc lower cost inputs , outsource some value chain activities Economies of scale -decreases in cost per unit as output increases, allows firms to (3): spread their fixed costs over a larger output, employ specialized systems and equipment (ie ERP systems or robotics), and take advantage of certain physical properties - ( minimum efficient scale MES = output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest cost position that is achievable through economies of scale . diseconomies of scale = increases in cost per unit when output increases- as firms get too big complexity of managing coordinating production process raises cost, negative benefits to scale , inflexible/slow decision making- could avoid this by breaking up company into smaller units Learning-curve effects-considering productivity, learning curves go down as it takes less time to produce the same output as learning to become more efficient. The steeper the learning curve, the more learning has occured. As cumulative output increases firms move down the learning curve, reaching lower per unit costs. Speed of elearning determines the slope of the learning curve/how steep. Economies of learning allow movement down a given learning curve based on current production technology Learning effects differ from economies of scale because 2: Differences in timing - learning effects occur over time as output accumulates while economies of scale are captured at one point in time when output increases.there is no such thing as diseconomies to learning Differences in complexity - in some production process effects from economies of scale quite significant while learning effects minimal and visa versa Experience-curve effects- model assumes changes to underlying technology while holding cumulative output constant, in general technology and production processes are dynamic. Process innovation - new method or technology to produce an existing product - may initiate a new and steeper learning curve. Learning by doing allows a firm to lower per nity costs by moving down given curve while experience curve effects allow firm to leapfrog to steep learning curve

differentiation strategy cost leadership strategy

Differentiation strategy - generic business strategy that seeks to create higher value for customers than the value that competitors create, while containing costs Cost leadership strategy- generic business strategy that seeks to create the same or similar value for customers at a lower cost Two above strategies called generic strategies can be used by any organization, manufacturing or service, large or small, profit or non profit etc Differentiation and cost leadership require distinct strategic positions and in turn increase firm's chances to gain/sustain competitive advantage

dynamic capabilities perspective core competenies how develop core competencies?

Dynamic capabilities perspective - model emphasizing firm's ability to leverage resource base and sustain comp adv in constantly changing env Core competencies=unique strengths embedded deep within a firm → differentiation ie honda competency in engines and business model of finding places to put its engines which express selves in superior products Development of core competencies through resources (any assets that a firm can draw on when formulating and implementing strategy ie cash/buildings/machinery/ip) and capabilities (organizational and managerial skills necessary to orchestrate diverse set of resources and deploy them strategically.

dynamic capacilities persepctive resource stocks vs flows

Dynamic capabilities perspective - model emphasizing firm's ability to modify and leverage resource base in a way that enables it to gain and sustain competitive advantages in constantly changing environment. Ie technological change accelerated base so deregulation globalization demographic shifts and dynamic markets today pertinent Resource stocks - firm's current level of intangible resources Resource flows - firm's level of investments to maintain or build a resource Intangible resource stocks build through investments over time, through continuous investments and experience over time

ecnomies of scale vs scope

Economies of scale - decreases in cost per unit as output increases Economies of scope - savings that come from producing two+ outputs at less cost than producing each output individually , despite using the same resources and technology

entreps are the agents that... strategic entrepreneurship social entrep

Entrepreneurs- the agents that introduce change into the competitive system Strategic entrepreneurship - the pursuit of innovation using tools and concepts from strategic management Social entrepreneurship - the pursuit of social goals while creating a profitable business

Entry choices to increase profitability of successful industry, strategic leaders need to consider five

Entry choices: more profitable an industry, the more attractive becomes to competitors To increase profitability of successful industry, strategic leaders need to consider five: Who are the players? When to enter? (timing so industry life cycle stage) How to enter? Could leverage existing assets, reconfigure value chains, or establish niche in existing industry and ten use this to grow further (red bull used to enter us soft drink market, at first used nontraditional outlets like gas stations and nightclubs creating a loyal following) What type of entry? Product market, value chain activity, geography, and type of business model Where to enter? Ie product positioning, pricing strategy, potential partners

A firm's external environment can impact competitive advantage potential external factors in 2 pestel framework 6 and what do

External factors in... general environment= managers have little direct influence over ie macroeconomic Task environment= managers have influence over ie strategy, industry structure Pestel model groups into six segments: political, economic, sociocultural, technological, econological, and legal . these factors create opportunities and threats and impact industry → strategic group → firm

Why what who and how of business models framework

Firm can readjust business model responding to challenges: Why does the business model create value What activities need to be performed to create and deliver the offerings to customers? How are the offerings to the customer created? Who are the main stakeholders performing the activities?

five forces model overview and do we want them weak or strong?

Five forces model -developed by michael porter as a framework identifying the five forces for determining profit potential of an industry and shape firm's competitive strategy -Competition within 5 forces model : creating economic value by expanding gap w V and C and must be able to capture such value created → competitive advantage. Competition describes struggle among forces to capture as much economic value as possible From class: We want ⅘ of porter's five forces to be weak! Because the weaker they are, the higher profit potential is in the industry, we want high barrier to entry, low supplier power, low buyer power, low threat of substitutes , low rivarly so higher profit margin

Implications for strategic leaders Follow these steps to apply the five forces model:4

Follow these steps to apply the five forces model: 1.Define the relevant industry 2.Identify the key player in each of the five forces and attempt to group the into different categories 3.Determine the underlying drivers of each force 4. Access the overall industry structure Strategic leaders must conduct external analysis at different points in time to gain a sense of the underlying dynamics

industry affects vs firm affects

Industry affects- firm performance attributed to the structure of the industry in which the firm competes - determined by ie entry and exit barriers, number and size of companies, types of offerings Firm affects- firm performance attributed to the actions managers take - strategic leader's actions tend to be impact firm performance more than forces from external environment Firm industry and strategy → 75% overall firm performance and other 25% has to do with business cycles and others

strategic position strategic trade offs

Industry and firm effects are interdependent Strategic position (determined by firm's business level strategy) - strategi cprofile based on value creation and cost Strategic trade-offs - choices between a cost or value position, such choices are necessary bc higher value creation tends to generate higher cost

industry dynamics industry convergence

Industry dynamics - industry structures are not stable over time , horizontal mergers and acquisitions change industry structure in firm's favor Industry convergence - process whereby formerly unrelated industries begin to satisfy same customer need -ie media convergence unites computing communications and content whereas previously distinct industries.

industry life cycle and explain intro stage

Industry life cycle = the five different stages:: introduction, growth, shakeout, maturity, and decline, that occur in the evolution of an industry over time Introduction stage- innovator's core comp is R&D, capital intensive process , when barriers to entry tend to be high not many active competitors in market so emphasize on unique product features Also some first mover disadvantages bc must educate potential customers about product, find distribution channels, etc

industry industry analysis strategic position

Industry- group of companies that face more or less same set of suppliers and buyers Industry analysis - method to identify an industry's profit potential and derive implications for a firm's strategic position within an industry Strategic position - firm's strategic profit bases on difference between value creation and cost so V-C

intellectual property protection and 5 forms

Intellectual property protection - critical intangible resource that can sustain a competitive advantage. Five major forms of ip protection are: patents, designs, copyrights, trademarks, trade secrets . especially common in industries characterized yb high research and development costs Ip protection can make direct imitation attempts difficult or even illegal Not forever though, as patents usually expire after 20 years

limitations of accounting data 3

Limitations of accounting data: 1.all accounting data are historical and backward-looking =past decisions have no guarantee of future performance 2. Accounting data do not consider off balance sheet items ie pension obligations, operating leases 3. Accounting data focus mainly on tangible assets which not most important - not everything that can be counted matters and visa versa ie goodwill, intellectual property, etc Intangibles not captured in accounting data have been much more important to firm's stock market evaluations over past few decades

limitations of economic value creation 3

Limitations of economic value creations: Determining the value of a good in the eyes of consumers is not a simple task ie consumers vary widely in perception of value/maximum amount to pay The value of a good in the eyes of consumers changes based on income, preferences and other factors To measure firm level competitive advantage, we must estimate the economic value created for all products and services offered by the firm - if firm has a lot ie GE with hundreds or thousands of products across industries is difficult

Types of innovation Markets and technology framework architectural innovation incremental inovation

Markets and technology framework- a conceptualized model to categorize innovations along the market (existing/new) and technology (existing/new) dimensions If new market existing tech =architectural innovation. Existing market existing technologies =incremental innovation= innovation that builds on an established knowledge base and steadily improves an existing product or service

mobility barriers

Mobility barriers - industry - specific factors that separate one strategic group from another . actions costly and not easily reversed in firm's underlying cost structure , restrict movement between groups. Two groups from the strategic group model (airlines) separated by fact that offer different international routes, and this economic reality implies that if carriers in lower left cluster like jet blue would like to compete globally would need to change point to point model to hub and spoke model

network effects, growth stage, product vs process innovation

Network effects- the positive effect that one user of a product or service has on the value of that product for other users - occur when value of a product or service increases with the number of users - apple leveraged this via iTunes , apple app stores Growth stage- market growth accelerates ,demand increases rapidly Standard- an agreed upon solution about a common set of engineering features and design choices Product innovation - new or recombined knowledge embodied in new products Process innovation- new ways to produce existing products or deliver existing services

radical innovation disruptive technology

New both=radical innovation= an innovation that draws on novel methods or materials, is derived either from entirely different knowledge base or from a recombination of the existing knowledge bases with a new stream of knowledge Existing market new technologies=disruptive innovation-leverages new technologies to attack existing markets from the bottom up.

Organized to capture value isolating mechanisms and real estate example

Organized to capture value - characteristic of having in place an effective organizational structure, processes, and systems to fully exploit competitive potential of firm's resources capabilities and competencies Isolating mechanisms: how to sustain a competitive advantage Isolating mechanisms: barriers to imitation that prevent rivals form competing away the advantage a firm may enjoy ie better expectations of future resource value, path dependence, causal ambiguity, social complexity, IP protection Ie real estate developer buys parcels of land at low cost in undeveloped rural areas in anticipation that will increase sin value with shifting demographics. Years later highways built near this and suburban growth explodes, and can use this property to build apartments, value creation . once highway announced cost of developers land would rise dramatically negating competitive adv potential

path dependence and example

Path dependence - a situation in which the options one faces in the current situation are limited by decisions made in the past Ie US carpet industry 85% carpets sold in US and almost ½ of all carpets worldwide come from capet miles located near dalton georgia due to these innovations made in past Also gm recalled and destroyed the electronic vehicle program after the 1990s. Toyota prius sales took off in the early 2000s and gm's first competition to prius took over a decade bc gm had to start an electric vehicle program from scratch. G's us market share dropped in 2009 and bankruptcy filed Path dependence takeaway- once train of new capability development has left the station it is hard to jump back on bc of path dependence

Four main competitive industry structures:

Perfect competition-many small firms, commodity product, ease of entry, firms similar in size and resources Monopolistic competition - many firms, differentiated product, some obstacles to entry, ability to raise prices for unique product ie computer hardware, apple dell hp lenovo together have less than 20% market share Oligopoly - few large firms, differentiated products, high barriers to entry, some degree of pricing power , competing firms interdependent . ie express delivery industry so fedex ups- any strategic decision made by one impacts other. Monopoly -only one often large firm supplying the market, may be a unique product and challenges to moving into industry tend to be high, pricing power ,ie gov grants one firm right to sole supplier. Ie public utilities supplier water gas etc. natural monopolies appear to be disappearing. But near mopoies exist ie EU view google with 90% market share in online search as digital monopoly

political, economic sociocultural impacted by

Political: result from actions of government bodies that influence decisions of firm Nonmarket strategies ie lobbying, public relations, contributions, political factors are closely linked to legal factors Economic: macroeconomic impacted by: Growth rates (change in amount of goods and services produced by a nation's economy), levels of employment (ie boom times rate is low), interest rates (amounts creditors are paid for use of their money and debtors pay for that use), price stability (lack of change in price levels of goods and services - is rare) , currency exchange rates (how many dollars one must pay for unit of foreign currency) Sociocultural: capture society's cultures, norms, and values ie US consumers more health conscious → firms follow, demographic trends also important factors Gets very complicated ie nike? With colin kaepernick, in US store old person job to smile at customers coming into store, this would never happen in ie germany

power of suppliers power of buyer both when high

Power of suppliers- bargaining power , reduces firm's ability to obtain superior performance bc can raise cost of production by demanding higher prices for inputs, capture economic value created. Bargaining power of suppliers is high when: Supplier' industry concentration >, suppliers do not depend on industry for large revenue portion, incumbent firms face high supplier switching costs, suppliers offer differentiated products, no readily available substitutes, suppliers can threaten to forward integrate credibly Power of buyers - pressure industry's customers can put on producer's margins by demanding lower price or higher product quality. Reduces revenues, capture economic value portion. Large institutions have significant buyers power bc can move ie several thousand employees at once. Power of buyers is high when: Few buyers and each purchases large Q, industry products undifferentiated, buyers face low switching costs, buyers can backwardly integrate ie walmart huge buyer power

Question asked with this strategy "how should we compete" and must answer four questions:

Question asked with this strategy "how should we compete" and must answer four questions: Who- which customer segments will we serve What customer needs, wishes and desires will we satisfy Why do we want to satisfy them How will we satisfy customer needs

ROIC fomrula and explain

ROIC formula = (net profits/invested capital), measures how effectively a company uses total invested capital which consists of 1. Shareholder's equity through selling shares to the public and 2. Interest bearing debt through borrowing from financial institutions and bondholders If ROIC > cost of capital, firm generates value

ROR broken down into 3:

ROR broken down into 3: cogs/revenue (efficiency of producing a good), R&D expense/revenue (how much each dollar firm earns in sales is invested into R&D), and SG&A/revenue (how much each dollar that firm earnings in sales is invested into SG&A)

Economic value creation reservation price

Relationship between this and competitive advantage is fundamental in strategic management Economic value creations= different bw buyer's willingness to pay for product service and firm's total cost to product so bw value V and cost C (V-C) Reservation price- maximum price consumer willing to pay for a product or service based on total perceived customer benefits

resources baed view

Resource based view- model that sees resources as key to superior firm performance- resources fall broadly into tangible so visible - physical attributes like labor capital land building and intangible so invisible (no physical attributes) ie culture knowledge brand equity reputation, IP Competitive advantage more likely to spring from intangible rather than tangible resources

response to disruption legal conflicts

Response to disruption - market is dynamic ie many book publishers worked with apply on agency approach → ebooks , publishers then withheld new released from amazon and forced amazon to raise prices on newly released ebooks Legal conflicts -r rapid development of business models can lead producers to breach existing rules of commerce is apple found guilty of colluding with major book publishers to rix prices on ebooks

implications for strategic leaders SWOT analysis

SWOT analysis - framework that allows managers to synthesize insights obtained from an internal analysis of the company's strengths and weaknesses with those form an analysis of external opportunities and threats to derive strategic implications External opportunities and threats are in firm's general environment and use PESTEL and porter's five forces Swot analysis simultaneously consider internal and external factors, use set of strategic questions to link both

shakeout stage maturity stage

Shakeout stage- rapid industry growth and expansion cannot go on indefinitely, rate of growth will start to decline. Price becomes more competitive weapon in shakeout stage bc product features and performance requirements tend to be well-established, usually winders of this stake out strong position as cost leaders Maturity stage- industry structure morphs not oligopoly with only a few large firms. Market has reached maximum size and industry growth likely to be zero or even negative moving forward. Generally the firms left tend to be larger, economies of scale etc

shareholders

Shareholders - individuals or organizations that own one or more shares of stock in a public company . measure of competitive advantage valued most creately is return on risk capital: the money provided by shareholders in exchange for an equity share in a company; cannot be recovered if firm goes bankrupt

`arrows starting at resources + capabilities activities when do core competencies go south

So basically resources +capabilities → core competencies → activities → comp adv Activities = distinct and fine grained business processes that enable firms to add incremental value by transforming inputs into goods and services *core competencies that not continuously nourished will lose ability to yield competitive advantage* also invisible part of core competencies is important, don't just focus on visible aspect (superior products/services)

stock market valuations

Stock market valuations (share price * number shares outstanding) in LT provides useful metric to assess competitive advantage - microsoft remains below apple in stock valuations but microsoft is catching up! 1995-2011 ish microsoft had competitive advantage over apple with stock market valuation but since 2011 apple has > valuation.

Limitations of shareholder value creation: 3

Stock prices can be highly volatile making it difficult to assess firm performance in ST. implies total return to shareholders is better measure of firm performance and competitive advantage over LT Overall macroeconomic factors ie economic growth/contraction, employment rate, interest and exchange rates all have direct bearing on stock prices Stock prices reflect psychological mood of investors which can be at times irrational

strategic activity system vanguard

Strategic activity system - the conceptualization of a firm as a network of interconnected activities May add new activities, remove no longer relevant activities If you look at vanguard - has emphasized low cost investing and quality service since founding, investing innovations but strategic activity systems needed to evolve as companies grew and market conditions change. Evolved over time, pursued the mission of the highest value provider. Six strategic themes to reinforce strategic activity network , added new core activity - customer segmentation in 2017 to six core activities in place in 1997, core mission and goals accomplished through interconnected primary and support activities

strategic commitments, eixt barriers

Strategic commitments - firm actions that are costly long term oriented and difficult to reverse-ie required to compete in airline industry , delta american united have large fixed costs to maintain network of routes that affords global coverage, maintenance etc even if doesn't sell any tickets Exit barriers- obstacles that determine how easily a firm can leave an industry , includes fixed costs regardless of if company operating like contractual obligations to suppliers, employee health care, severance .industry with low exit barriers more attractive bc allows underperforming firms to exit more easily

strategic group model -maps indsutry competitors into strategic groups by:

Strategic group model- map industry competitors into strategic groups by: identifying most important strategic dimensions ie r&d, technology. Product differentiation etc, choosing two key dimensions for x and y axes which expose differences among competitors, and graphing firms in strategic group indicating each firm's market share by size of bubble If we do this with the domestic airline industry, two groups become apparent - low cost point to point airlines like Alaska, Southwest, Jetblue AND differentiated airlines using hub and spoke systems like american, Delta, united.

quadrants meaning SWOT

Strengths opportunities quadrant - offensive alternatives to exploit Oops Weaknesses-threats quadrant - defensive alternatives to minimize internal weakness or external threat Strengths threats- minimize effect of threat Weakness-opportunities - improve ability to take adv of ops

value chain - support activities

Support activities: R&D, information systems, human resources, accounting and finance, and firm infrastructure (including processes policies and procedures) To help a firm achieve competitive advantage each activity performed needs to either add incremental value to product or service or lower its relative costs

sustainable strategy

Sustainable strategy- strategy alone the economic, social and ecological dimensions that can be pursued over time without detrimental effects on people or the planet

technologial factors moores laaw ecological factors legal factors

Technological factors - ie AI,capture application of knowledge to create new processes and products ie smartphone, smart watches Moore's law - change is going to be happening at an accelerated rate , any time disruptor creates new platform for customers firms etc to utilize Ecological factors - involve broad env issues like natural environment, global warming, and sustainable economic growth Negative examples ie pollution, depletion of natural resources (oil,gas), oil spills Positive examples like zero emission battery powered vehicles Legal factors - official outcomes of political processes as manifested in laws and regulations, court decisions, have direct impact on firm's profit potential

The balanced scorecard and four questions

The balanced scorecard - strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals Four key questions of balanced scorecard: How do customers view us? Consumers decide reservation price , manager must track to improve focusing on speed quality service and cost How do we create value? -trying to develop strategic objectives that ensure future competitiveness, innovation and organizational learning What core competencies do we need? Focuses on managers internally to identify these needed to achieve objectives How do shareholders view us? How shareholders view financial performance ie some rely on ROIC ROE, total returns to shareholders cash flows etc

the innovation process invention patent exclusive rights.. trade secret innovation first-move advantages

The innovation process Invention- the transformation of an idea into a new product or process, or the modification and recombination of existing ones Patent - a form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea Exclusive rights often temporary monopoly position until expires ie pharmaceuticals, but double edged sword bc have to disclose innovation once patent expires Trade secret- valuable proprietary information that is not in the public domain and where the firm makes every effort to maintain its secrecy ie coca cola Innovation - the commercialization of any new product or process, or the modification and recombination of existing ones First-move advantages- competitive benefits that accrue to the successful innovator ie economies of scales and experience and learning curve effects

The strategic group mapping done above provides additional insights 4:

The strategic group mapping done above provides additional insights : Competitive rivalry strongest bw firms that are within ame strategic group The external environment affects strategic groups differently The five competitive forces affect strategic groups differently Some strategic groups are more profitable than others

triple bottom line

The triple bottom line - combination of economic, social and ecological concerns - or profits, people and planet - that can lead to a sustainable strategic Profits- the economic dimension captures necessity of business to be profitable to survive People- social dimension emphasizes people's aspect Planet- ecological dimension emphasizes relationship between business and natural environment

the value chain economic value chain creation primary activities

The value chain- the internal activities a firm engages in when transforming inputs into outputs, each activity adds incremental value - adds incremental value like inputs transformed into finished products, but also adds incremental costs Economic value creation as V-C (perceived value - costs to create) Chain primary activities: supply chain mgt , operations, distribution, marketing and sales, after sales service

VRIO Framework

The vrio framework - one tool for evaluating firm's resource endowments - explains and predicts firm level competitive advantage. Identifies certain types of resources as key to superior firm performance: Valuable Rare, and costly to Imitate. And finally the firm must be Organized to capture the value of the resource V no competitive disadvantage, V y R n competitive parity . imitation costly N temporary comp adv Organized to capture value no temp CA, if all yes then sustainable CA

threat of entry and hat does this result in? entry barriers? (a lot)

Threat of entry -- risk potential competitors will enter the industry, resulting in: Firms lowering prices to make entry appear less attractive to potential new competitors, reducing profit potential or b) firms spending more to satisfy existing customers Entry barriers include: economies of scale (cost advantages with firms for larger outputs bc can spread fixed costs over more units, efficient technology, demand better terms from suppliers), network effects (value of product or service for an individual user increases with the number of total users), customer switching costs (costs moving from one supplier to another), capital requirements (price of entry ticket ie capital required to compete in industry like tesla when purchased manufacturing plant from toyota and upgraded with automation etc), advantages independent of size (ie brand loyalty, technology, preferential access to RM), government policy ie until recently india did not allow foreign retailers like walmart to compete with domestic companies , credible threat of retaliation

threat of substitutes rivalry among competitors

Threat of substitutes -products or services from outside the given industry will come close to meeting customer needs ie software products substitutes to professional services , tax prep software substitute for professional services. High threat of substitutes when: Substitute offers an attractive price-performance trade off, the buyers cost of switching to the substitute is low Rivalry among existing competitors -intensity with which companies within the same industry jockey for market share and profitability. All other forces impact this. Intensity of rivalry depends on: Competitive industry structure, industry growth, strategic commitments, exit barriers

Total return to shareholders-\market capitalization

Total return to shareholders- return on risk capital that includes stock price appreciation plus dividends received over a specific period- essentially indicates how stock market views public info about firm in past current and future performance Market capitalization - firm performance metric that captures the total dollar market value of a company's total outstanding shares at a given point in time

two critical assumptions in resource based model and explain

Two critical assumptions in resource based model= resource heterogeneity and resource immobility Resource heterogeneity- insight that bundles of resources capabilities and competencies differ across firms -ensures that analysts look more critically at resource bundles of firms competing in same industry bc each bundle unique to some extent ie south est and alaska airlines both compete in same strategic group but different resource bundles ie SWA employee productivity higher, job descriptions informal. Resource immobility- assumption that resources tend to be "sticky" and that do not move easily from firm to firm Because of this, resource differences that exist bw firms are difficult to replicate and can last for a long time . ie continental and delta both attempted to copy SWA with continental lite and song airline offerings respectively but neither airline successfully imitated resource bundles that make swa unique.

Valuable resource rare resource

Valuable resource- a resource is valuable if helps firm exploit an external opportunity or offset an external threat Rare resource- if the number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition ie beat's ability to reach placement and celebrity endorsements that build coolness factor is rare.- so beats is valuable and rare

value drivers that managers have 3 cost leadership strategy

Value drivers that managers have at disposal: Product features -increase perceived value, strong r&d often needed for superior product features Customer service - ie if don't outsource this and do not use scripts, build trust Compliments - finding them is crucial ie smartphones and cell services Cost leadership strategy: understanding cost drivers - goal is to reduce firm's cost below competitors while offering adequate value -focuses attention on reducing costs to manufacture product or lowering operating cost to deliver service, quality/value must still be acceptable Achieve comp adv if economic value V-C is > competitors

value innovation four questions

Value innovation- the simultaneous pursuit of differentiation and low cost in a way that creates a leap in value for both the firm and the consumers, considered a cornerstone of blue ocean strategy To initiate strategic moves allowing firms to open new market space through value innovation managers must answer four key questions. Value innovation - lower costs Eliminate. Which of the factors that the industry takes for granted should be eliminated? Reduce. Which of the factors should be reduced well below the industry's standard? Value innovation - increased perceived consumer benefits Raise. Which of the factors should be raised well above the industry's standard? Create. Which factors should be created that the industry has never offered?

business models cont wholesale vs agency vs bundling ALL BUSINESS MODELS ARE DYNAMILC!!

Wholesale - ie book publishing industry - book publishers would sell books to retailers at fixed price. Retailers however were free to set own price on any book and profit difference Agency- producer relies on an agent/retailer to sell product at predetermined commission percentage ie entertainment industry, app sales Bundling - sells products/services for which demand is negatively correlated at a discount. Instead of selling both products 120 each may sell combined at a discount ie 150$ Dynamic nature of business models

working capital turnover

Working capital turnover is measure of effectively capital is being used to general revenue (working capital is amount of money company can deploy in short term so CA-CL) Broken down into working capital/revenue - how much working cap firm tied in ops ; PPE/revenue how much of firm's revenues dedicated to cover ppe, intangibles/revenue - microsoft may be higher in intanbiles/revenue in future comparing to apple ie future growth for microsoft in AI

Goal of differentiation strategy=

dd unique features that will increase perceived value of goods and services so will pay a higher price ie pepsico's Lifewtr , Coca-cola's smartwater, both premium waters in bottled water industry Company that uses differentiation strategy can achieve competitive advantage as long as economic value created V-C is > competitors Even if firm fails to maintain cost parity (ie same costs as competitors), can still gain comp adv, but must control costs bc rising costs reduce economic value created

defining goal of strategic management and what does it lead to

gaining/sustaining competitive advantage is defining goal of strategic management→ leads to superior firm performance

Common strategic management profitability ratios 4

ie ROIC return on invested capital, ROE return on equity, ROA return on assets, ROR return on revenue which identifies how much of firm's sales converted into profits

external analysis 3

industry structure, competitive forces, and strategic groups

Innovation must be (3) entrepreneurship examples 4 successful entreps

nnovation must be (3) a novel idea, useful idea, and successfully implemented Entrepreneurship- the process by which people undertake economic risk to innovate - to create new products, processes , and sometimes new organizations = competitive weapon entrepreneurs use to exploit pops to create change Examples of successful entrepreneurs: 1. Reed Hastings - founder of Netflix 2. Dr dre- founded death row records, aftermath entertainment, beats 3. Jeff Bezos - amazon 4. Elon musk- founded zip2 co found pay pal, tesla

popular business models razor blades, subscription, paygo, freemium

razor -razor blades - initial product often sold at a loss or given away for free to drive demand for complementary goods. Company makes money on replacement part needed ie invented by gillette Subscription- ie for print magazines - users pay for access to product/service whether they use it or not. pay-as -you-go- users pay for only services they consume ie power and water, cell phone plans Freemium - free-premium business model - basic features of product free of charges but premium services charges user ie free trial

strategic group strategic group model

trategic group: the set of companies that pursue a similar strategy within a specific industry in quest for competitive advantage. Ie differ from one another along r&d, technology. Product differentiation. Product and service offerings, market segments, distribution channels, customer service Strategic group model - framework explaining differences in firm performance within the same industry. Implies firm performance determined not only by industry to which firm belongs but by strategic group membership .