Management 494 Exam 1

protection to competitive advantage

"1) better expectations of future resource value (or simply luck), (2) path dependence, (3) causal ambiguity, and (4) social complexity" note no competitive advantage is indefinite

Porter's Five key competitive forces

"1. Threat of entry 2. Power of suppliers 3. Power of buyers 4. Threat of substitutes 5. Rivalry among existing competitors"

complementor

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

market capitalization

"A firm performance metric that captures the total dollar market value of all of a company's outstanding shares at any given point in time"

value chain

" The internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value. Primary activities directly add value; support activities add value indirectly." "activities are distinct actions that enable firms to add incremental value at each step by transforming input into goods and services"

industry

" a group of (incumbent) companies that face more or less the same set of suppliers and buyers"

resource heterogeneity

" bundles of resources, capabilities, and competencies differ across firms. The insight that the resource-based view brings to strategy is that the resource bundles of firms competing in the same industry (or even the same strategic group) are unique to some extent and thus differ from one another"

resource outflows

" reduction in the firm's intangible-resource stocks. Resource leakage might occur through employee turnover, especially if key employees leave. Significant resource leakage can erode a firm's competitive advantage" forgetting and leaking

network effects

" the positive effect that one user of a product or service has on the value of that product or service for other users. When network effects are present, the value of the product or service increases with the number of users." "Having secured a larger number of users, network effects give eBay an advantage over any potential new entrant."

capital requirements

""price of the entry ticket" into a new industry. How much capital is required to compete in this industry, and which companies are willing and able to make such investments?"

Two assumptions are critical in the resource-based model

"(1) resource heterogeneity and (2) resource immobility" .

dynamic capabilities

"A firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage." "essential to move beyond a short-lived advantage and create a sustained competitive advantage"

five force model

"A framework developed by Michael Porter that identifies five forces that determine the profit potential of an industry and shape a firm's competitive strategy." "enables managers to not only understand their industry environment but also shape their firm's strategy. As a rule of thumb, the stronger the five forces, the lower the industry's profit potential—making the industry less attractive for competitors. The reverse is also true" "In regard to any of the five forces that shape competition, it is important to note that their relative strengths are context-dependent."

SWOT analysis

"A framework that allows managers to synthesize insights obtained from an internal analysis of the company's strengths and weaknesses (S and W) with those from an analysis of external opportunities and threats (O and T)." "A problem with this framework is that a strength can also be a weakness, and that an opportunity can also simultaneously be a threat."

PESTEL Model

"A framework that categorizes and analyzes an important set of external forces (political, economic, sociocultural, technological, ecological, and legal) that might impinge upon a firm. These forces are embedded in the global environment and can create both opportunities and threats for the firm." "provides a relatively straightforward way to scan, monitor, and evaluate the important external factors and trends "

strategic group model

"A framework that explains differences in firm performance within the same industry by clustering different firms into groups based on a few key strategic dimensions."

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."

crowdsourcing

"A process in which a group of people voluntarily performs tasks that were traditionally completed by a firm's employees."

Complement

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

social complexity

"A situation in which different social and business systems interact with one another." "The interactions between different systems create too many possible permutations for a system to be understood with any accuracy. The resulting social complexity makes copy- ing these systems difficult, if not impossible, resulting in a valuable, rare, and costly-to- imitate resource that the firm is organized to exploit"

causal ambiguity

"A situation in which the cause and effect of a phenomenon are not readily apparent" "To formulate and implement a strategy that enhances a firm's chances of gaining and sustaining a competitive advantage, managers need to have a hypothesis or theory of how to compete. This implies that managers need to have some kind of understanding about causes for superior and inferior performance."

path dependence

"A situation in which the options one faces in the current situation are limited by decisions made in the past." ex. geographic location

accounting data limitations

"All accounting data are historical data and thus backward-looking." "Accounting data do not consider off-balance sheet items" - such as leases or pension obligations "Accounting data focus mainly on tangible assets, which are no longer the most important" - innovation, quality and customer experience

isolating mechanisms

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

relationship between consumer and producer surplus

"Both transacting parties capture some of the overall value created. Note, though, that the distribution of the value created between parties need not be equal to make trade worth- while."

triple bottom line

"Combination of economic, social, and ecological concerns that can lead to a sustainable strategy." "achieving positive results in all three areas can lead to a sustainable strategy—a strategy that can endure over time" "takes a more integrative and holistic view in assessing a company's performance"

strategic mapping insights

"Competitive rivalry is strongest between firms that are within the same 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"

co-opetition

"Cooperation by competitors to achieve a strategic objective."

economic value creation limitations

"Determining the value of a good in the eyes of consumers is not a simple task." "the value of a good in the eyes of consumers changes based on income, preferences, time, 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."

profit (producer surplus)

"Difference between price charged (P) and the cost to produce (C), or (P 2 C)."

consumer surplus

"Difference between the value a consumer attaches to a good or service (V ) and what he or she paid for it (P), or (V 2 P)."

economic value created

"Difference between value (V ) and cost (C), or (V 2 C); sometimes also called economic contribution"

primary activities

"Firm activities that add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along the internal value chain." "supply chain management, operations, distribution, marketing and sales, and after-sales service"

support activities

"Firm activities that add value indirectly, but are necessary to sustain primary activities" "research and development (R&D), information systems, human resources, accounting and finance, and firm infrastructure including processes, policies, and procedures"

government policy

"Frequently government policies restrict or prevent new entrants. Until recently, India did not allow foreign retailers such as Walmart or IKEA to own stores and compete with domestic companies, in order to protect the country's millions of small vendors and wholesalers"

four questions balanced scorecard

"How do customers view us?" - "The customer's perspective concerning the company's products and services is linked directly to its revenues and profits." "How do we create value?" - "challenges managers to come up with strategic objectives that ensure future competitiveness, innovation, and organizational learning" "What core competencies do we need?" - "focuses managers internally, to identify the core competencies needed to achieve their objectives, and the accompanying business processes that support, hone, and leverage those competencies" "How do shareholders view us?" - shareholders' view of financial performance

mobility barriers

"Industry-specific factors that separate one strategic group from another."

entry barrier

"Obstacles that determine how easily a firm can enter an industry. Entry barriers are often one of the most significant predictors of industry profit potential" "■ Economies of scale ■ Network effects ■ Customer switching costs ■ Capital requirements ■ Advantages independent of size ■ Government policy ■ Credible threat of retaliation"

costly to imitate

"One of the four key criteria in the VRIO framework. A resource is costly to imitate if firms that do not possess the resource are unable to develop or buy the resource at a comparable cost." "If the resource in question is valuable, rare, and costly to imitate, then it is an internal strength and a core competency. If the firm's competitors fail to duplicate the strategy based on the valuable, rare, and costly-to-imitate resource, then the firm can achieve a temporary competitive advantage. "A competing firm can succeed in imitating through directly imitating the resource in question (direct imitation) or through working around it to provide a comparable product or service (substitution)."

rare

"One of the four key criteria in the VRIO framework. A resource is rare 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." "If the resource is common, it will result in perfect competition where no firm is able to maintain a competitive advantage"

valuable

"One of the four key criteria in the VRIO framework. A resource is valuable if it helps a firm increase the perceived value of its product or service, either by adding attractive features or lowering costs"

organized to capture value

"One of the four key criteria in the VRIO framework. The characteristic of having in place an effective organizational structure, processes, and systems to fully exploit the competitive potential of the firm's resources, capabilities, and competencies." "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 com- petitive advantage."

business plan

"Organizational plan that details the firm's competitive tactics and initiatives; in short, how the firm intends to make money." "How companies do business can sometimes be as important to gaining and sustaining competitive advantage as what they do" "business model innovation might be as important achieving superior performance as product or process innovation"

credible threat of retaliation

"Potential new entrants must also anticipate how incumbent firms will react. A credible threat of retaliation by incumbent firms often deters entry. Should entry still occur, however, incumbents are able to retaliate quickly, through initiating a price war, for example"

problems with measuring firm performance through market capitalization and total return to shareholders

"Stock prices can be highly volatile, making it difficult to assess firm performance, particularly in the short term" "Overall macroeconomic factors such as the unemployment rate, economic growth or contraction, and interest and exchange rates all have a direct bearing on stock prices" "Stock prices frequently reflect the psychological mood of investors, which can at times be irrational."

balanced scorecard

"Strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals" answers four key questions that managers use to develop strategic objectives and appropriate metrics - four questions to create a competitive advantage "can accommodate both short- and long-term performance metrics" "allows managers to assess past performance, identify areas for improvement, and position the company for future growth" "All of the three approaches to measuring competitive advantage—accounting profitability, shareholder value creation, and economic value creation—in addition to other quantitative and qualitative measures, can be helpful when using this approach "takes a more integrative and holistic view in assessing a company's performance"

resource stocks

"The firm's current level of intangible resources." "built through investments over time"

resource flows

"The firm's level of investments to maintain or build a resource."

dynamic fit

"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. "

razor-razor blade model

"The initial product is often sold at a loss or given away for free in order to drive demand for complementary goods. The company makes its money on the replacement part needed. "

threat of entry

"The risk that potential competitors will enter an industry." "Potential new entry depresses industry profit potential in two major ways." 1. "with the threat of additional capacity coming into an industry, incumbent firms may lower prices to make entry appear less attractive to the potential new competitors, which would in turn reduce the overall industry's profit potential, especially in industries with slow or no overall growth in demand" 2. "the threat of entry by additional competitors may force incumbent firms to spend more to satisfy their existing customers. Larger investments in value creation further reduce an industry's profit potential if prices cannot be raised"

strategic group

"The set of companies that pursue a similar strategy within a specific industry." "differ from one another along important dimensions such as expenditures on research and development, technology, product differentiation, product and service offerings, pricing, market segments, distribution channels, and cus- tomer service."

opportunity costs

"The value of the best forgone alternative use of the resources employed"

core competencies

"Unique strengths, embedded deep within a firm, that allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost. "allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost. The important point here is that competitive advantage can be driven by core competencies" "if they are not continuously nourished will eventually lose their ability to yield a competitive advantage"

deflation

"a decrease in the overall price level. A sudden and pronounced drop in demand generally causes deflation, which in turn forces sellers to lower prices to moti- vate buyers." "a serious threat to economic growth because it distorts expectations about the future."

intangible examples

"a firm's culture, its knowledge, brand equity, reputation, and intellectual property." intellectual property: "• Patents • Copyrights • Trademarks • Trade Secrets" "Competitive advantage is more likely to spring from intangible rather than tangible resources"

growth rates

"a measure of the change in the amount of goods and services produced by a nation's economy. It indicates what stage of the business cycle the economy is in—that is, whether business activity is expanding (boom) or contracting (recession). "

freemium

"a model in which the basic features of a product or service are provided free of charge, but the user must pay for premium services such as advanced features or add-ons"

industry convergence

"a process whereby formerly unrelated industries begin to satisfy the same customer need. Industry convergence is often brought on by technological advances."

resources

"any assets such as cash, buildings, machinery, or intellectual property that a company can draw on when crafting and executing a strategy. They can be either tangible or intangible."

ecological factors

"broad environmental issues such as the natural environment, global warming, and sustainable economic growth. Organizations and the natural environment coexist in an interdependent relationship. Managing these relationships in a responsible and sustainable way directly influences the continued existence of human societies and the organizations we create."

sociocultural factors

"capture a society's cultures, norms, and values. Because these forces not only are constantly in flux but also differ across groups, managers need to closely monitor such trends and consider the implications for firm strategy" ex. health conscience demographic trends

technological factors

"capture the application of knowledge to create new processes and products." "Recent innovations in process technology include lean manufacturing, Six Sigma quality, and biotechnology."

bargaining power of suppliers

"captures pressures that industry suppliers can exert on an industry's profit potential. This force reduces a firm's ability to obtain superior performance for two reasons: powerful suppliers can raise the cost of production by demanding higher prices for their inputs, or by reducing the quality of the input factor or service level delivered."

the power of buyers

"concerns the pressure an industry's customers can put on the producer's margins in the industry by demanding a lower price or higher product quality. When buyers successfully obtain price discounts, it reduces a firm's top line (revenue). When buyers demand higher quality and more service, it generally raises production costs. Strong buyers can therefore reduce industry profit potential and with it, a firm's profitability"

economies of scale

"cost advantages that accrue for firms with larger output because they can spread fixed costs over more units, can employ technology more efficiently, can benefit from a more specialized division of labor, and can demand better terms from their suppliers. These factors in turn drive down the cost per unit, allowing large incumbent firms to enjoy a cost advantage over new entrants who can- not muster such scale."

fixed costs

"costs independent of consumer demand"

variable costs

"costs that change with the level of consumer demand"

industry growth

"directly affects the intensity of rivalry among competitors. In periods of high growth, consumer demand is rising, and price competition among firms frequently decreases. Because the pie is expanding, rivals are focused on capturing part of that larger pie rather than taking market share and profitability away from one another. The demand for knee replacements, for example, is a fast-growing segment in the medical products industry." - "Competitors are able to avoid price competition and, instead, focus on differentiation that allows premium pricing."

activities

"distinct and fine-grained business processes such as order taking, the physical delivery of products, or invoicing customers. Each distinct activity enables firms to add incremental value by transforming inputs into goods and services"

competitive industry structure

"elements and features common to all industries, including the number and size of competitors in an industry, whether the firms possess some degree of pricing power, and the type of product or service the industry offers."

exit barriers

"the obstacles that determine how easily a firm can leave that industry. Exit barriers are comprised of both economic and social factors. They include fixed costs that must be paid regardless of whether the company is operating in the industry or not"

capabilities

"the organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically. They are by nature intangible" "They find their expression in a company's structure, routines, and culture"

oligopoly competition

"few (large) firms, differentiated products, high barriers to entry, and some degree of pricing power. The degree of pricing power depends, just as in monopolistic competition, on the degree of product differentiation. A key feature of an oligopoly is that the competing firms are interdependent. With only a few competitors in the mix, the actions of one firm influence the behaviors of the others. Each competitor in an oligopoly, therefore, must consider the strategic actions of the other competitors. This type of industry structure is often analyzed using game theory, which attempts to predict strategic behaviors by assuming that the moves and reactions of competitors can be anticipated" express delivery is an example "non-price competition is the preferred mode of competition. This means competing by offering unique product features or services rather than competing based on price alone."

strategic commitments

"firm actions that are costly, long-term oriented, and difficult to reverse. Strategic commitments to a specific industry can stem from large fixed cost requirements, but also from non-economic considerations." " The traditional U.S. airlines Delta, United, and American have large fixed costs to maintain their network of routes that affords global coverage, frequently in conjunction with foreign partner airlines. These fixed costs (in terms of aircrafts, gate leases, hangars, maintenance facilities, baggage sorting facilities, and ground transporta- tion) all accrue before the airlines sell any tickets. High fixed costs create tremendous pressures to fill empty seats"

perfect competition

"fragmented and has many small firms, a commodity product, ease of entry, and little or no ability for each individual firm to raise its prices. The firms competing in this type of industry are approximately similar in size and resources. Consumers make purchasing decisions solely on price, because the commodity product offerings are more or less identical" "low profitability" "a rare industry struc- ture in its pure form, markets for commodities such as natural gas, copper, and iron tend to approach this structure"

rivalry among existing competitors

"he intensity with which companies within the same industry jockey for market share and profitability. It can range from genteel to cut- throat. The other four forces—threat of entry, the power of buyers and suppliers, and the threat of substitutes—all exert pressure upon this rivalry" the stronger the forces the stronger the competitive intensity which limits profits

currency exchange rates

"how many dollars one must pay for a unit of foreign currency. It is a critical variable for any company that either buys or sells products and services across national borders"

switching costs

"incurred by moving from one supplier to another. Changing vendors may require the buyer to alter product specifications, retrain employees, and/or modify existing processes. "

five forces model drawback

"it provides only a point-in-time snapshot of a moving target. With this model (as with other static models), one cannot determine the changing speed of an industry or the rate of innovation"

economic factors

"largely macroeconomic, affecting economy-wide phenomena." managers need to consider five macroeconomic factors

monopolistic competition

"many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers. The key to understanding this industry structure is that the firms now offer products or services with unique features." computer hardware industry: products are similar but very different

political/legal factors

"political: describes the processes and actions of government bodies that can influence the decisions and behavior of firms. Governments, for example, can affect firm performance by exerting political pressure on companies." legal: "captures the official outcomes of political processes as mani- fested in laws, mandates, regulations, and court decisions—all of which can have a direct bearing on a firm's profit potential" regulations can effect entire industries combined can have a direct bearing on a firm's perfor- mance. Governments often combine political and legal factors to achieve desired changes in consumer behavior."

sustainable strategy

"produces not only positive financial results, but also positive results along the social and ecological dimensions"

industry analysis

"provides a more rigorous basis not only to identify an industry's profit potential (the level of profitability that can be expected for the average firm), but also to derive implications for one firm's strategic position within an industry"

resource immobility

"resources tend to be "sticky" and don't move easily from firm to firm. Because of that stickiness, the resource differences that exist between firms are difficult to replicate and, therefore, can last for a long time."

resource-based view

"sees resources as key to superior firm performance" "A 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" in this view of the firm, a resource includes any assets as well as any capabilities and competencies that a firm can draw upon when formulating and implementing strategy"

interest rates

"the amount that savers are paid for use of their money and the amount that borrowers pay for that use. " "Low interest rates have a direct bearing on consumer demand. When credit is cheap (because interest rates are low), consumers buy homes, automobiles, com- puters, and even vacations on credit; in turn, all of this demand fuels economic growth."

value

"the dollar amount (V ) a consumer would attach to a good or service; the consumer's maximum willingness to pay; sometimes also called reservation price"

threat of substitutes

"the idea that products or services available from outside the given industry will come close to meeting the needs of current customers. For example, many software products are substitutes to professional services, at least at the lower end."

price stability

"the lack of change in price levels of goods and services—is rare. Therefore, companies will often have to deal with changing price levels, which is a direct function of the amount of money in any economy" inflation and deflation

pay as you go model

"the user pays for only the services he or she consumes."

monopoly competition

"there is only one (large) firm supplying the market. "Mono" means one, and thus a monopolist is the only seller in a market. The firm may offer a unique product, and the challenges to moving into the industry tend to be high. The monopolist has considerable pricing power. As a consequence, firm (and thus industry) profitability tends to be high." "While natural monopolies appear to be disappearing from the competitive landscape, so-called near monopolies are of much greater interest to strategists. These are firms that have accrued significant market power, for example, by owning valuable patents or pro- prietary technology."

advantages independent of size

"these advantages can be based on brand loyalty, proprietary technology, preferential access to raw materials and/or distribution channels, favorable geographic locations, and cumulative learning and experience effects."

goal of strategic management

"to integrate and align each business function and activity to obtain superior performance at the business unit and corporate levels. There- fore, competitive advantage is best measured by criteria that reflect overall business unit performance rather than the performance of specific departments."

subscription based model

"traditionally used for (print) magazines and newspapers. Users pay for access to a product or service whether they use the product or service during the payment term or not. Industries that use this model presently are cable television, cellular service providers, satellite radio, Internet service providers, and health clubs."

rivalry among competitors is high when

"√ There are many competitors in the industry. √ The competitors are roughly of equal size. √ Industry growth is slow, zero, or even negative. √ Exit barriers are high. √ Incumbent firms are highly committed to the business. √ Incumbent firms cannot read or understand each other's strategies well. √ Products and services are direct substitutes. √ Fixed costs are high and marginal costs are low. √ Excess capacity exists in the industry. √ The product or service is perishable."

advantages to balanced scorecard

"■ Communicate and link the strategic vision to responsible parties within the organization. ■ Translate the vision into measurable operational goals. ■ Design and plan business processes. ■ Implement feedback and organizational learning in order to modify and adapt strategic goals when indicated"

rivalry intensity determined by

"■ Competitive industry structure ■ Industry growth ■ Strategic commitments ■ Exit barriers"

important factors for strategic mapping

"■ Identify the most important strategic dimensions (such as expenditures on research and development, technology, product differentiation, product and service offerings, pricing, market segments, distribution channels, and customer service). ■ Choose two key dimensions for the horizontal and vertical axes, which expose important differences among the competitors. The dimensions chosen for the axes should not be highly correlated. ■ Graph the firms in the strategic group, indicating each firm's market share by the size of the bubble with which it is represented."

buyers are price sensitive when

"■ The buyer's purchase represents a significant fraction of its cost structure or procurement budget. ■ Buyers earn low profits or are strapped for cash. ■ The quality (cost) of the buyers' products and services is not affected much by the quality (cost) of their inputs."

threat of substitutes is high when

"■ The substitute offers an attractive price-performance trade-off. ■ The buyer's cost of switching to the substitute is low." "The movie rental company Redbox, which uses over 42,000 kiosks in the U.S. to make movie rentals available for just $1, is a substitute for buying movie DVDs. For buyers, video rental via Redbox offers an attractive price-performance trade-off with low switch- ing costs in comparison to DVD ownership."

power of buyers is high when

"■ There are a few buyers and each buyer purchases large quantities relative to the size of a single seller. ■ The industry's products are standardized or undifferentiated commodities. ■ Buyers face low or no switching costs. ■ Buyers can credibly threaten to backwardly integrate into the industry"

two key insights from five force 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 encompass not only 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. - "Competition describes the tug-of-war between these forces to capture as much as possible of the economic value created in an industry. " 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.

five steps to apply five force model

1. define the relavent industry 2. "Identify the key players in each of the five forces and attempt to group them into dif- ferent categories." 3. "Identify the underlying drivers of each force" 4. "Assess the overall industry structure. " 5. "draw a strategic group map"

shareholders

Individuals or organizations that own one or more shares of stock in a public company. They are the legal owners of public companies

Three components needed to explain total perceived consumer benefits and economic value created

Price, Cost and Value

total return to shareholders

Return on risk capital that includes stock price appreciation plus dividends received over a specific period. investors are primarily interested in this

threat of entry is high

The minimum efficient scale to compete in an industry is low. Network effects are not present. Customer switching costs are low. Capital requirements are low. Incumbents do not possess: ° Brand loyalty. ° Proprietary technology. ° Preferential access to raw materials. ° Preferential access to distribution channels. ° Favorable geographic locations. ° Cumulative learning and experience effects. Restrictive government regulations do not exist. New entrants expect that incumbents will not or cannot retaliate."

VRIO criteria

Value, Rare, Costly to imitate, and Organized to capture value

VRIO framework

a firm can gain and sustain a competitive advantage only when it has resources that satisfy all of the VRIO criteria. Keep in mind that resources in the VRIO framework are broadly defined to include any assets as well as any capabilities and competencies that a firm can draw upon when formulating and implementing strategy. "A theoretical framework that explains and predicts firm-level competitive advantage. A firm can gain a competitive advantage if it has resources that are valuable (V), rare (R), and costly to imitate (I). The firm also must organize (O) to capture the value of the resources."

strategic position

a firms "ability to create value for customers (V) while containing the cost to do so (C)."

the three standard performance dimensions

accounting profitability shareholder value economic value

economic value creation

foundation to cost leadership and differentiation a firm has a competitive advantage when they have a larger economic value than their rivals "This approach is conceptually quite powerful, and it lies at the center of many strategic management framework" "it falls short when managers are called upon to operationalize competitive advantage. When the need for "hard numbers" arises, managers and analysts frequently rely on firm financials such as accounting profitability or share- holder value creation to measure firm performance"

corporate social responsibility

helps a firm "recognize and address society's expectations of the business enterprise at a given point in time."

vehicles

how will we get there? internal development? joint ventures? liscencing/franchising? acquisitions?

economic logic

how will we obtain our returns? * Lowest costs through scale advantages? * Lowest costs through scope and replication advantages? * Premium prices due to unmatchable service? * Premium prices due to proprietary product features?

differentiators

how will we win? * Image? * Customization? * Price? * Styling? * Product reliability?

disadvantages to balanced scorecard

it is "a tool for strategy implementation, not for strategy formulation" "provides only limited guidance about which metrics to choose" "The balanced scorecard is only as good as the skills of the managers who use it:"

The amount of total perceived consumer benefits equals

maximum willingness to pay

better expectations of future resource value

or luck ex. Nike signing Michael Jordan before he became a superstar

linking capabilities, resources, core competencies, activities, competitive advantage and superior firm performance

resources reinforce core competencies while capabilities orchestrate core competencies, core competencies leverage activities --> competitive advantage --> superior performance

levels of employment

state of the economy directly effects this "In boom times, unemployment is low, and skilled human capital becomes a scarce and more expensive resource. In economic downturns, unemployment rises. As more people search for employment, skilled human capital is abundant and wages usually fall."

risk capital

the money provided by shareholders in exchange for an equity share in a company; it cannot be recovered if the firm goes bankrupt most important measurement of competitive advantage for shareholders

added sixth force

the strategic role of complements

accounting data allows us

to conduct direct performance comparisons between different companies return on invested capital (ROIC), return on equity (ROE), return on assets (ROA), and return on revenue (ROR) are common ratio comparisons

staging

what will be our speed and sequence of moves? speed of expansion? sequence of initiatives?

inflation

when there is too much money we tend to see this happen in the economy "too much money chasing too few goods and services"

arenas

where will we be active? * Which product categories? * Which market segments? * Which geographic areas? * Which core technologies? * Which value-creation stages?

to measure competitive advantage

you must be able to (1) accurately assess firm performance and (2) compare and benchmark the focal firm's performance to other competitors in the same industry or against the industry average.

five macroeconomic factors that affect firm strategy

■ Growth rates ■ Interest rates ■ Levels of employment ■ Price stability (inflation and deflation) ■ Currency exchange rates

bargaining power of suppliers is high

■ The suppliers' industry is more concentrated than the industry it sells to. ■ Suppliers do not depend heavily on the industry for a large portion of their revenues. ■ Incumbent firms face significant switching costs when changing suppliers. ■ Suppliers offer products that are differentiated. ■ There are no readily available substitutes for the products or services that the suppliers offer. ■ Suppliers can credibly threaten to forward integrate into the industry."