strategic management midterm beth hynes

Managers use the AFI strategy framework to do two things:

(1) to explain and predict differences in firm performance (2) to help managers formulate and implement a strategy that results in superior performance.

what are the two key insights that form the basis of michael seminal five forces model?

1. Rather than defining competition narrowly as the firm's closest competitors to explain and predict a firm's performance, competition must be viewed more broadly to not only encompass direct rivals but also a set of other forces in an industry: buyers, suppliers, potential new entry of other firms, and the threat of substitutes. 2. The profit potential of an industry is neither random nor entirely determined by industry-specific factors. Rather, it is a function of the five forces that shape competition: threat of entry, power of suppliers, power of buyers, threat of substitutes, and rivalry among existing firms

3 pillars of successful strategy

1. analysis 2. formulation 3. implementation (hence-- AFI)

perfectly competitive market

A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

AFI Framework

A model that links three interdependent strategic management tasks—analyze, formulate, and implement—that, together, help managers plan and implement a strategy that can improve performance and result in competitive advantage.

Top-down strategic planning

A rational, data-driven strategy process through which top management attempts to program future success.

Groupthink

A situation in which group members seek unanimous agreement despite their individual doubts

Porter's Five Forces

Also known as Industry and Competitive Analysis. A framework considering the interplay between (1) the intensity of rivalry among existing competitors, (2) the threat of new entrants, (3) the threat of substitute goods or services, (4) the bargaining power of buyers, and (5) the bargaining power of suppliers. Porters Five Forces is meant to examine the overall attractiveness of an industry vs. looking at specific financial metrics which are relative.

illusion of control

people's belief that they can influence events, even when they have no control over what will happen

Compare and contrast the roles of industry versus firm effects when determining firm performance.

Industry effects account for all common elements that all competitors share when competing in the same industry whereas firm effects attribute firm performance directly to the actions strategic leaders take. Firm effects account for the majority of the variation (approx. 55 percent) while industry effects account for nearly 20 percent of firm performance. Therefore, it's important to consider both areas when addressing firm performance.

PESTEL

Political Economic Social Technological Environmental Legal

mission

defines the company's business, its objectives and its approach to reach those objectives

scenario planning

Strategy-planning activity in which top management envisions different what-if scenarios to anticipate plausible futures in order to derive strategic responses.

power position

The degree to which the leader has formal power to reward, punish or otherwise obtain compliance

How can a firm fully exploit the competitive potential of its resources, capabilities, and competencies?

The final criterion of whether a rare, valuable, and costly-to-imitate resource can form the basis of a sustained competitive advantage depends on a firm's ability to capture the resource's value creating potential. To fully exploit the competitive potential of its resources, capabilities, and competencies a firm must be organized to capture value—that is, it must have in place an effective organizational structure and coordinating systems.

VRIO Framework

The resource-based framework that focuses on the value (V), rarity (R), imitability (I), and organizational (O) aspects of resources and capabilities.

vision

describes the desired future position of the company

The Bathtub Metaphor

The role of inflows and outflows in building stocks of intangible resources Inflows - investments and resources (faucet) Intangible Resource Stocks - dynamic capabilities, human capital etc. (tub) Outflows - leakage, forgetting, people leaving (leaks in the tub)

VRIO Framework

Value, Rarity, Imitability, Organization

competitive parity

a firm's strategy of setting prices that are similar to those of major competitors competitive parity is achieved by generating average returns, relative to competition in a given industry. two or more firms that perform at the same level.

dynamic capabilities perspective

a model that emphasizes a firm's ability to modify and leverage its resource base in a way that enables it to gain and sustain competitive advantage in a constantly changing environment For a firm to sustain advantage, any fit between its internal strengths and the external environment must be dynamic. That is, the firm must be able to change its resource base as the external environment changes. The goal should be to develop resources, capabilities, and competencies that create a strategic fit with the firm's environment. Rather than creating a static fit, the firm's internal strengths should change with its external environment in a dynamic fashion.

competitive advantage

a set of unique features of a company and its products that are perceived by the target market as significant and superior to those of the competition

Strategic Management Process

a six-step process that encompasses strategic planning, implementation, and evaluation

confirmation bias

a tendency to search for information that supports our preconceptions and to ignore or distort contradictory evidence

escalation of commitment

an increased commitment to a previous decision in spite of negative information

perfectly competitive industry

an industry in which producers are price-takers low profitablility difficulty achieving competitive advantage

A firm always has a competitive disadvantage when its return on invested capital is

below the industry average

If Modern Furniture LLC obtains an 18 percent return on invested capital, which of the following will help determine if it has a competitive advantage over other pharmaceutical companies?

comparing the return to the return on invested capital obtained by other firms in the industry. why? Competitive advantage is always relative, not absolute.

cognitive limitations

constraints such as time or the brain's inability to process large amounts of data that prevent us from appropriately processing and evaluating each piece of information we encounter tend to lead us to choose the "good enough option" that satisfies our immediate needs, rather than to search for an optimal solution.

Visionary companies differ from their competition in that

employees in visionary organizations find meaning in their work and are motivated. The vision is the first principle that needs to be defined because it succinctly identifies the primary long-term objective of the organization. Strategic leaders need to begin with the end in mind

The founder of T-Square Construction strongly believes in the notion of corporate social responsibility, so he has proposed several philanthropic activities that he expects the company to pursue. In order to accomplish this vision, the managers should first: review all legal codes in the areas in which T-Square operates and ensure all permits are up-to-date. ensure that the company is profitable and has a sustainable competitive advantage. make sure it is paying employees wages that allow them to live comfortably. ask for public input on issues that the company can help address.

ensure that the company is profitable and has a sustainable competitive advantage. why? the firm is first and foremost an economic institution. Without first gaining and sustaining a competitive advantage, T-Square would not have the resources to meet the rest of its legal, ethical, and philanthropic responsibilities and achieve the founder's vision of giving back to society.

Organizational core value

ethical standards and norms that govern the behavior of individuals within a firm or organization. By lowering engine emissions below beyond what federal laws require, Emerald Autos is acting on an ethical standard and thus an organizational value.

Mission vs. Vision

mission: how you will get there (strategy) vision: where you want to be (identify this first, use mission to get you there)

Resource-based view

model that sees certain types of resources as key to superior firm performance. If a resource exhibits VRIO attributes, the resource enables the firm to gain and sustain a competitive advantage. Competitive advantage is more likely to spring from intangible rather than tangible resources.

representativeness bias

refers to the cognitive bias of drawing conclusions based on small samples, or even from one memorable case or anecdote.

difference between stakeholders and stockholders

stakeholders can be both internal and external while stockholders own shares of a firm and are classified as internal to the firm.

credo

statement of belief or principle; creed

Balanced Scorecard

strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals

SWOT analysis

strengths, weaknesses, opportunities, threats A SWOT analysis allows managers to evaluate a firm's current situation and future prospects by simultaneously considering internal and external factors. The SWOT analysis encourages managers to scan the internal and external environments, looking for any relevant factors that might affect the firm's current or future competitive advantage. The focus is on internal and external factors that can affect—in a positive or negative way—the firm's ability to gain and sustain a competitive advantage.

core competencies

unique strengths, embedded deep within a firm, that are critical to gaining and sustaining competitive advantage