4490 Exam 1

3 elements of good strategy

1. analysis 2. formulation 3. implementation

5 isolating mechanisms

1. better expectations of future resource value 2. path dependence 3. causal ambiguity 4. social complexity 5. intellectual property protection

3 parts of the formulation phase of AFI Framework

1. business strategy 2. corporate strategy 3. global strategy

the intensity of rivalry among existing competitors is determined largely by 4 factors:

1. competitive industry structure 2. industry growth 3. strategic commitments 4. exit barriers

4 steps to apply five forces model

1. define the relevant industry 2. identify the key players in each of the five forces and attempt to group these into different categories 3. identify the underlying drivers of each force 4. assess the overall industry structure

4 times the power of the buyer is high

1. few buyers, and each purchase large quantities relative to single seller 2. industry's products are standardized or undifferentiated commodities 3. buyers face low or no switching costs 4. buyers can credibly threaten backward integration (buyer moves upstream)

potential new entry depresses industry profit in 2 major ways:

1. incumbent firms may lower prices to make entry appear less attractive 2. threat of new entry may force incumbent firms to spend more to satisfy existing customers

2 parts of the implementation phase of AFI Framework

1. organizational design 2. corporate governance and business ethics

What are the factors of the PESTEL Framework

1. political 2. economic 3. sociocultural 4. technological 5. ecological 6. legal

the power of suppliers reduces a firm's ability to obtain superior performance for 2 reasons:

1. powerful suppliers can raise the cost of production by demanding higher prices for their inputs or by reducing the quality of input/service level delivered 2. powerful suppliers are a threat to firms because they reduce the industry's profit potential by capturing part of the economic value created

4 parts of the analysis phase of AFI Framework

1. strategic leadership and the strategy process 2. external analysis 3. internal analysis 4. competitive advantage, firm performance, and business models

the threat of substitutes is high when:

1. substitutes offer attractive price-performance trade off 2. buyer's cost of switching to substitute is relatively low

6 times the power of suppliers is high

1. suppliers' industry more concentrated than industry it sells to 2. suppliers to not depend heavily on the industry for large portions of revenue 3. incumbent firms face significant switching costs when changing suppliers 4. suppliers offer products that are differentiated 5. there are no readily available substitutes 6. suppliers can credibly threaten forward integration into industry

2 reasons there are a lot of examples of bad strategy

1. the inability to choose 2. template-style strategy

the structure of an industry is largely captured by

1. the number and size of its competitors 2. the firms' degree of pricing power 3. the type of product or service (commodity or differentiated product) 4. the height of entry barriers

Researchers have determined that a firm's strategy can explain up to ______% of its performance

55%

Aura Software Inc. has been operating in the country of New Fernsland for almost a decade. The nation is currently experiencing an economic downturn. Which of the following is the most likely benefit of this economic condition for Aura Software Inc.? A. Aura Software Inc. will have better access to highly skilled human capital at a lower cost B. Aura Software Inc. will have to expand its operations to meet the increasing consumer demand C. Aura Software Inc. will experience low competition from rival companies D. Aura Software Inc. will find it easier to secure capital to finance future growth

A

The expected competitive intensity is __________, when the other four forces are ___________. (select 2) A. stronger; stronger B. stronger; weaker C. weaker; stronger D. weaker; weaker

A and C

Which of the following statements about the five forces in the U.S. airline industry are true? A. substitutes are not readily available since customers can't use other means of transport B. taken together, the competitive forces are quite unfavorable for generating a profit potential in the airline industry C. the combo of the competitive forces leads to intense rivalry among existing airlines D. entry barriers in the airline industry are relatively high because of the high costs involved

B

Which of the following groups is most likely to be considered a firm's internal stakeholder? A. creditors B. customers C. alliance partners D. board members

D

Which of the following statements is true of strategy? A. Statements of desire, on their own, are strategy B. Tactical tools that are a part of a firm's functional and global initiatives are strategy C. Operational effectiveness and competitive benchmarking are strategy D. Actions that allow a firm to address a competitive challenge are strategy

D

True or false: Airlines that are strategically committed to the hub-and-spoke model face high fixed costs to maintain their network of routes that afford global coverage. Such strategic commitment leads to high fixed costs and therefore decreased rivalry

False

True or false: The stronger the five forces, the greater the industry's ability to earn above-average competitive advantage

False

_____ describe the positive externality that one user of a product or service has on the value of that product/service for other users

Network effects

How do complements affect a primary product or service?

They increase the demand for the primary product

components of the Five Forces Model

Threat of Entry, Power of Suppliers, Power of Buyers, Threat of Substitutes, Rivalry

True or false: High exit barriers lead to intense rivalry

True

complementor

a company that provides a good/service that leads customers to value your firm's offering more when the two are combined

stakeholder impact analysis

a decision tool with which managers can recognize, prioritize, and address the needs of different stakeholders, enabling the firm to achieve competitive advantage while acting as a good corporate citizen

Rivalry among existing competitors has _______ with the height of the industry's exit barriers

a direct relationship

dynamic capabilities

a firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources over time in its quest for competitive advantage

strategic position

a firm's strategic profile based on economic value - the difference between value creation and cost (V-C)

core rigidity

a former core competency that turned into a liability because the firm failed to hone, refine, and upgrade the competency as the environment changed

what is PESTEL

a framework that categorizes and analyzes an important set of external factors that might impinge upon a firm. these factors can create both opportunities and threats for the firm

strategic group model

a framework that explains differences in firm performance within the same industry

corporate social responsibility

a framework that helps firms recognize and address the economic, legal, social, and philanthropic expectations that society has of the business enterprise at a given point in time

What's the Five Forces Model

a framework that identifies five forces that determine the profit potential of an industry that shape a firm's competitive strategy

industry analysis

a method to (1) identify an industry's profit potential and (2) derive implications for a firm's strategic position within an industry

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

the AFI Strategy Framework

a model that links 3 interdependent management tasks - analyze, formulate, implement - that, when used together, help managers plan and implement a strategy that can improve performance and result in competitive advantage

resource-based view (RBV)

a model that sees certain types of resources as key to superior firm performance

An industry in which only one firm supplies the market is known as ...

a monopoly

complement

a product, service, or competency that adds value to the original product offering when the two are used in tandem

implementation

a set of coherent actions to implement the firm's guiding policy. this element is accomplished through strategy implementation

social complexity

a situation in which different social and business systems interact with each other

causal ambiguity

a situation in which the cause and effect of a phenomenon are not readily apparent

path dependence

a situation in which the options one faces in the current situation are limited by decisions made in the past

If a firm is not effectively organized to exploit the competitive potential of a valuable, rare, and costly to imitate (VRI) resource, the best case scenario is ...

a temporary competitive advantage

In a perfectly competitive industry, firms have difficulty ...

achieving competitive advantage

A firm's ______ are best described as distinct and fine-grained business processes such as order taking, physical delivery of products, or invoicing customers

activities

support activities

add value indirectly

According to the dynamic capabilities perspective, competitive advantage stems from a firm's ability to ...

agilely transform its resource base

a resource is organized to capture value IF

an effective strategy/structure relation exists

resources

any assets that a firm can draw in when formulating and implementing strategy

resource immobility

assumption in the RBV that a firm has resources that tend to be "sticky" and that do not move easily from firm to firm

resource heterogeneity

assumption in the RBV that a firm is a bundle of resources and capabilities that differ across firms

isolating mechanisms

barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy

5 advantages that are independent of size

brand loyalty proprietary technology preferential access to raw materials and distribution channels favorable geographic locations cumulative learning and experience effects

sociocultural factors

capture a society's cultures, norms, and values

technological factors

capture the application of knowledge to create new processes and products

When Samsung and Google cooperate as complementors to compete against Apple's strong position in the mobile device industry while at the same time becoming increasingly competitive with each other, this is referred to as ...

co-opetition

When a firm implements a strategy that leads to superior performance relative to other companies in the same industry, it's said to achieve a ....

competitive advantage

The key to successful strategy is to seek out a _____________ within an industry

competitive position

Strategic group mapping establishes that ...

competitive rivalry is strongest between firms that are within the same strategic group

co-opetition

cooperation by competitors to achieve a strategic objective

economies of scale

cost advantages that accrue to firms with larger output because they can spread fixed costs over more units, employ technology more efficiently, benefit from more specialized division of labor, and demand better terms from their suppliers

5 intangible resources

culture knowledge brand equity reputation intellectual property

external stakeholders include

customers, suppliers, alliance partners, creditors, unions, communities, governments, media

analysis

diagnosis of the competitive challenge. this is accomplished through the analysis of the firm's external and internal environments

primary activities

directly add value

activities

distinct and fine-grained business processes that enable the firm to add incremental value by transforming inputs into goods and services

Exit barriers are composed of _________ factors

economic and social

7 examples of entry barriers

economies of scale, network effects customer switching costs capital requirements advantages independent government policy credible threat of retaliation

competitive industry structure

elements and features common to all industries

internal stakeholders include

employees, stockholders, board members

Although ________ coordination such as price fixing is illegal in the United States, _________ coordination such as "an unspoken understanding" is not.

explicit; tacit

Widgets Inc. is a vendor who supplies machine parts to an appliance manufacturing company. In return, Widgets Inc. relies on the company for its revenue and is affected by any decisions taken by the company. In this scenario, Widgets Inc. is a(n) __________ for the appliance manufacturing company

external stakeholder

strategic commitments

firm actions that are costly, long-term oriented, and difficult to reverse

a resource is costly to imitate IF

firms don't possess the resource are unable to develop or buy the resource at a reasonable price

competitive rivalry is strongest between ...

firms that are within the same strategic group

SWOT analysis

framework allows managers to synthesize insights obtained from an internal analysis of the company's strengths and weaknesses (S and W) with those from analysis of external opportunities and threats (O and T) to derive strategic implications

industry

group of incumbent companies that face more or less the same set of suppliers and buyers

formulation

guiding policy to address the competitive challenge. this element is accomplished through strategy formulation, resulting in the firm's corporate, business, and functional strategies

threat of entry is _____ when restrictive government policies ________ or when industries become _________

high; don't exist; deregulated

the threat of entry is ______ when capital requirements are ______

high; low

legal factors

include the official outcomes of political processes as manifested in laws, mandates, and court decisions - all of which can have a direct bearing on a firm's profit potential

The relative bargaining power of suppliers is most likely low when ...

incumbent firms face low switching costs when changing suppliers

customer switching costs

incurred by moving from one supplier to another

mobility barriers

industry-specific factors that separate one strategic group from another

Patents, designs, copyrights, trademarks, and trade secrets are five forms of ...

intellectual property

As strategic commitments increase, rivalry within an industry ...

intensifies

ecological factors

involve broad environmental issues such as the natural environment, climate change, and sustainable economic growth

a resource is valuable IF

it enables a firm to exploit an external opportunity, it enables a firm to offset an external threat, or it enables a firm to increase its economic value creation

In the restaurant industry, a large number of restaurants cater to the similar food-related needs of customers. However, each restaurant makes its product unique by offering a different cuisine, a different ambiance, or different services like home delivery and organic ingredients. This differentiation allows each restaurant to set its own prices. Thus, the restaurant industry best illustrates a(n) ...

monopolistically competitive structure

dynamic capabilities are essential to ...

move beyond a short-lived advantage and create a sustained competitive advantage

As utility companies tend to serve a whole market exclusively, they are known as _____ because the governments involved believe that the product or service wouldn't be supplied otherwise

natural monopolies

during periods of ______ growth, rivalry is _______

negative; fierce

When firms compete by offering unique product features rather than competing on price, _______ occurs

non-price competition

How can firms shape political factors so that they're favorable for the firm?

nonmarket strategies - lobbying, public relations, contributions, litigation

entry barrier

obstacles that determine how easily a firm can enter an industry and often significantly predict industry profit potential

a resource is rare IF

only one or a few firms possess it or the number of firms that posses it is less than the number of firms it would require to reach a state of perfect competition

capabilities

organizational and managerial skills needed to orchestrate a diverse set of resources and deploy them strategically

stakeholders

organizations, groups, and individuals that can affect or are affected by a firm's actions

sustainable competitive advantage

outperforming competitors or the industry average over a prolonged period of time

competitive parity

performance of two or more firms at the same level

managers must note 3 stakeholder attributes:

power, legitimacy, and urgency

power of buyers

pressure on industry's customers can put on producer's margins in the industry by demanding a lower price or higher product quality

capital requirements

price of the entry ticket to a new industry

examples of retaliations

price war (industry profit may fall below cost of capital) increased product/service innovation advertising and sales promotion litigation

industry convergence

process whereby formerly unrelated industries begin to satisfy the same customer need

5 examples of support activities

research and development (R&D), information systems, human resources, accounting/finance, firm infrastructure including processes/policies/procedures

2 assumptions of RBV

resource heterogeneity and resource immobility

political factors

result from the processes and actions of government bodies that can influence the decisions and behavior of firms

The intensity with which companies in an industry jockey for market share and profitability is known as ...

rivalry

Price discounts, frequent new product releases with minor modifications, and intense promotional campaigns are all tactics indicative of an industry with _____ growth

slow or negative

The groups or individuals who can impact or be impacted by a firm's actions are known as ...

stakeholders

The black swan events in the past have demonstrated that...

stakeholders can affect and be affected by a firm's actions

a firm can shape an industry's structure in its favor through its...

strategy

The _______ the five forces, the _______ industry's profit potential

stronger; lower

the ______ the forces, the _______ the competitive intensity, which in turn _____ the industry's profit potential

stronger;stronger;limits

5 examples of primary activities

supply chain management, operations, distribution, marketing/sales, after-sale services

The auditor of a public company is assessing the value of all the intangible assets owned by the company. Which of the following would most likely by included in this assessment?

the company's brand equity

resource stocks

the firm's current level of intangible resources

resource flows

the firm's level of investments to maintain or build a resource

The most important factor in determining performance is ...

the firm's strategy

The greater the difference between value creation and cost:

the greater the firm's economic contribution and the more likely it will gain competitive advantage

value chain

the internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value

threat of entry

the risk potential that competitors will come into the industry

strategic group

the set of companies that pursue a similar strategy within a specific industry

strategy

the set of goal-directed actions a firm takes to gain and sustain competitive advantage

The key takeaway from the Five Forces Model is ...

the stronger the forces, the lower the industry's ability to earn profits

The fact that tax preparation software such as Intuit's TurboTax is a valid alternative for professional services offered by H&R Block and others, is an example of ...

the threat of substitution

network effects

the value of a product/service for an individual user increases with the number of total users

VRIO Framework

theoretical framework that explains and predicts firm-level competitive advantages

What is true of firms competing in the same industry?

they offer similar products and services to meet specific customer needs

What is reduced when network effects are present?

threat of entry

When a firm integrates the competitive strategies of cost-leadership and differentiation, it will most likely result in...

trade-offs that work against each other

competitive disadvantage

underperformance relative to other competitors in the same industry or industry average

core competencies

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

components of VRIO framework

valuable, rare, costly to imitate, organized to capture value

When does a stakeholder have power over a company?

when it can get the company to do something that it would otherwise not do

When does a stakeholder have legitimate claim?

when it is perceived to be legally valid or otherwise appropriate

When does a stakeholder have an urgent claim?

when it requires a company's immediate attention and response

when is a resource an internal strength and a core competency

when it's valuable, rare, and costly to imitate

4 hallmarks of bad strategy

1. failure to face the problem 2. mistaking goals for strategy 3. bad "fuzzy" strategic objectives 4. fluff (i.e. superficial abstraction)

5 macroeconomic factors that affect firm strategy

1. growth rates 2. levels of employment 3. interest rates 4. price stability (inflation/deflation) 5. currency exchange rates

Which of the following real-world examples best supports the statement that strategic commitment to a specific industry may be the result of more political than economic considerations? A. Airbus was created by a number of European governments through direct subsidies in order to provide a countervailing power to Boeing B. Airbus and Boeing are likely to exit the aircraft manufacturing industry when industry profit potential falls to zero C. the traditional U.S. airlines Delta, United, and American Airlines have large fixed costs to maintain their network of routes that affords global coverage, frequently in conjunction with foreign partner airlines D. given their strategic commitments, airlines are unlikely to exit the industry

A

The term oligopoly comes from the Greek for ...

few sellers

What's the more important factor in determining firm performance than external environment forces?

firm effects

firm effects

firm performance attributed to the actions managers take

industry effects

firm performance attributed to the structure of the industry in which the firm competes; determined by elements common to all industries

economic factors

firm's external environment, largely macroeconomic, affecting economy-wide phenomena

The online auction site eBay has more than 100 million active users, so buyers are more likely to find what they are looking for while sellers are more likely to find buyers for the items they're offering. This is an example of ...

network effects

Both ____ and _____ activities should add incremental value to the final product/service that the firm offers or the activities must reduce the cost of the product/service

primary; support

The rewards of superior value creations and capture are ______ and _______________

profitability; market share

competitive advantage

superior performance relative to other competitors in the same industry or industry average

A successful business strategy creates ________ for both producers and customers

value

competitive advantages are always _____, not _________

relative; absolute

Which of the following are important factors in determining the intensity of rivalry among existing competitors? (all that apply) A. industry growth B. exit barriers C. competitive industry structure D. entry barriers E. short-term contracts

A, B, and C

In an oligopoly, which of the following conditions exist? (all that apply) A. differentiated products B. a few large firms C. price fixing D. high barriers to entry

A, B, and D

Which of the following are characteristic of a monopolistically competitive industry? (all that apply) A. obstacles to entry B. ability to raise prices without losing customers C. very few competing firms D. a differentiated product

A, B, and D

Which of the following are likely outcomes of a competitive rivalry based entirely on price cutting? (all that apply) A. firms struggle to make profits B. product offerings improve C. most or all value is transferred to customers D. investments from firms drop off

A, C, and D

Which of the following are the four main competitive industry structures? (all that apply) A. oligopoly B. perfect monopoly C. monopolistic oligopoly D. monopolistic competition E. monopoly F. perfect competition

A, D, E, and F

stakeholder strategy

an integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage

strategic management

an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage

A diagnosis of the competitive challenge, an element of good strategy, is primarily accomplished through strategy ______

analysis

What are the 3 components of the AFI Framework?

analyze, formulate, implement

The _____ perspective is 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

dynamic capabilities

Which of the following would be most likely to directly put an organization like BP at a major competitive disadvantage? A. the fact that BP caused an environmental disaster despite being recognized as having high business integrity B. the EPA banning BP from any new contracts with the U.S. government C. the claims it faces by many small business owners in the tourism and seafood industries D. the fact that the small business owners along the Gulf coast have become powerful BP stakeholders

B

FL Systems Inc. and Oryxo Systems Inc. are two competing firms. FL Systems Inc. has $300,000 in tangible assets and $200,000 in intangible assets. Oryxo Systems Inc. has $150,000 in tangible assets and $347,000 in intangible assets. In the context of the resource-based view, which of the following is the most likely implication of the asset values of the two companies? A. Oryxo Systems Inc. has less valuable resources than FL Systems Inc. B. Oryxo Systems Inc. has less invisible assets than FL Systems Inc. C. FL Systems Inc. will find it harder than Oryxo Systems Inc. to attain competitive advantage D. FL Systems Inc. will find it easier than Oryxo Systems Inc. to sustain competitive advantage

C

Which of the following statements will effectively guide a strategist? A. It's necessary to isolate the key stakeholders and their needs when formulating a strategy B. Industry and firm effects that determine firm performance are independent of each other C. Strategy is all about competitive benchmarking and operational effectiveness D. The principles of strategic management can be applied universally to all organizations

D

______ is best described as the amount that savers are paid for use of their money and the amount that borrowers pay for that use

Interest rate

Revved Rider Inc., a motorcycle company, is the market leader due to its superior engine technology and service organization. These unique qualities have helped the company generate revenues that are consistently higher than other firms in the same industry. Which of the following can be concluded about Revved Rider Inc. from this scenario? A. It has a direct investment in other firms B. It has a competitive advantage over the other firms C. It has an exchange relationship with the other firms D. It has competitive parity with the other firms

B

Which of the following statements is true of an oligopoly? A. in an oligopoly, price-competition is the preferred mode of competition B. an oligopoly is often analyzed using game theory C. in an oligopoly, competing firms are most often independent of each other D. an oligopoly is characterized by low entry barriers

B

The firm's internal activities to transform inputs into outputs consist of _________ activities which add value directly and ______ activities which add value indirectly

primary; support

Firms are able to create a near monopoly by maximizing ...

product differentiation

A firm is likely to have a competitive advantage when it

provides services that consumers will value more than those of its rivals