MGMGT 4842 Midterm
5 forces of the competitive environment, what makes each force more powerful/intense, what makes each force less powerful/intense
Competition from rival sellers -Buyer demand is growing slowly or declining. -It is becoming less costly for buyers to switch brands. -Industry products are becoming less differentiated. -There is unused production capacity, or products have high fixed costs or high storage costs. -The number of competitors is increasing or they are becoming more equal in size and competitive strength. -The diversity of competitors is increasing. -High exit barriers keep firms from exiting the industry. Competition from potential new entrants -Expected defensive reactions of incumbent firms -Strength of barriers to entry -Attractiveness of a particular market's growth in demand and profit potential -Capabilities and resources of potential entrants -Entry of existing competitors into market segments in which they have no current presence -Incumbent cost advantages related to learning and experience, proprietary patents and technology, favorable locations, and lower fixed costs -Strong brand preferences and customer loyalty -Strong "network effects" in customer demand -High capital requirements -Building a network of distributors or dealers and securing adequate space on retailers' shelves -Restrictive regulatory and trade policies Competition from producers of substitute products -Readily available and attractively priced? -Comparable or better in terms of quality, performance, and other relevant attributes? -Offer lower switching costs to buyers? -Increasing rate of growth in sales of substitutes -Substitute producers adding new output capacity -Increasing profitability of substitute producers Supplier bargaining power -Strength of demand for and availability of suppliers' products -Whether suppliers provide a differentiated input that enhances the performance of the industry's product -Industry members' costs for switching among suppliers -Size and number of suppliers relative to industry members -Possibility of backward integration into suppliers' industry -Fraction of the cost of the supplier's product relative to the total cost of the industry's product -Availability of good substitutes for suppliers' products -Whether industry members are major customers of suppliers Customer bargaining power -Strength of buyers' demand for sellers' products -Degree to which industry goods are differentiated -Buyers' costs for switching to competing sellers or substitutes -Number and size of buyers relative to number of sellers -Threat of buyers' integration into sellers' industry -Buyers' knowledge of products, costs and pricing -Buyers' discretion in delaying purchases -Buyers' price sensitivity due to low profits, size of purchase, and consequences of purchase
Financial performance
Financial objectives relate to the financial performance targets management has established for the organization to achieve Communicate top management's goals for financial performance. Are focused internally on the firm's operations and activities. Examples An x percent increase in annual revenues Annual increases in after-tax profits of x percent Annual increases in earnings per share of x percent Annual dividend increases of x percent Profit margins of x percent An x percent return on capital employed (ROCE) or return on shareholders' equity investment (ROE) Increased shareholder value—in the form of an upward-trending stock price Bond and credit ratings of x Internal cash flows of x dollars to fund new capital investment
What is the clearest indicator of good management?
Good Strategy + Good Strategy Execution = Good Management
Acquisitions, define
Is a combination in which one firm, the "acquirer," purchases and absorbs the operations of another firm, the "acquired
Distinctive competence, define
Is a competitively valuable activity that a firm performs better than its rivals
Core competence, define
Is a proficiently performed internal activity that is central to a firm's strategy and competitiveness
Mergers, define
Is the combining of two or more firms into a single corporate entity that often takes on a new name
What are the two main factors that distinguish one competitive strategy from another?
Is the firm's market target broad or narrow? Is the competitive advantage pursued linked to low costs or product differentiation?
vertical integration, define
One that participates in multiple segments or stages of an industry's overall value chain Can expand the firm's range of activities backward into its sources of supply or forward toward end users of its products
Sustainable competitive advantage, define
Requires giving buyers lasting reasons to prefer a firm's products or services over those of its competitors
Strategic performance
Strategic objectives relate to target outcomes that indicate a company is strengthening its market standing, competitive position, and future business prospects. Examples: Winning an x percent market share Achieving lower overall costs than rivals Overtaking key competitors on product performance or quality or customer service Deriving x percent of revenues from the sale of new products introduced within the past five years Having broader or deeper technological capabilities than rivals Having a wider product line than rivals Having a better-known or more powerful brand name than rivals Having stronger national or global sales and distribution capabilities than rivals Consistently getting new or improved products to market ahead of rivals
Mission statement, define
Uses specific language to give the firm its own unique identity Describes the firm's current business and purpose—"who we are, what we do, and why we are here" Should focus on describing the firm's business, not on "making a profit"—earning a profit is an objective not a mission Ideally: Identifies the firm's product or services Specifies the buyer needs it seeks to satisfy Identifies the customer groups or markets it is endeavoring to serve Specifies its approach to pleasing customers Sets the firm apart from its rivals Clarifies the firm's business to stakeholders
SWOT Analysis, define, what are the three steps?
a simple but powerful tool for sizing up a company's strengths and weaknesses, its market opportunities, and the external threats to its future well-being -Identify strengths and assets -identify weaknesses and competitive deficiencies -identify market opportunities identify external threats 1. Identifying the company's resource strengths and weaknesses and its opportunities and threats 2. drawing conclusions about the company's overall situation 3. translating the conclusions into strategic action to improve the company's strategy
Strategic group mapping, define
a technique for displaying the different market or competitive positions that rival firms occupy in the industry A strategic group is a cluster of industry rivals that have similar competitive approaches and market positions
"balanced scorecard"
a widely used method for combining the use of both strategic and financial objectives, tracking their achievement, and giving management a more complete and balanced view of how well an organization is performing. measures a firm's optimal performance by: Placing a balanced emphasis on achieving both financial and strategic objectives. Tracking both measures of financial performance and measures of whether a firm is strengthening its competitiveness and market position.
Vision statement, define, how communicated?, why?
describes management's aspirations for the company's future and the course and direction charted to achieve them. Ideally: Delineates management's aspirations for the firm to its stakeholders Provides direction: "where we are going" Sets out the compelling rationale (strategic soundness) for the firm's direction Uses distinctive and specific language to set the firm apart from its rivals
Macroenvironment, define, name components
includes the economic conditions, sociocultural forces, environmental forces, legal and regulatory forces, and political forces. The immediate industry and competitive environment includes the company, suppliers, substitute products, buyers, new entrants, and rival firms Parts: Demographic, Economic, Physical, Technological, Political-Legal, Social-Cultural
outsourcing, define, why?
involves contracting out certain value chain activities that are normally performed in-house to outside vendors Can be performed better or more cheaply by outside specialists Is not crucial to achieving sustainable competitive advantage Improves organizational flexibility and speeds time to market Reduces risk exposure due to new technology or buyer preferences Allows the firm to concentrate on its core business, leverage key resources, and do even better what it already does best
backward integration, define, why?
involves entry into activities previously performed by suppliers or other enterprises positioned along earlier stages of the industry value chain system. Reduction of supplier power Reduction in costs of major inputs Assurance of the supply and flow of critical inputs Protection of proprietary know-how
forward integration, define, why?
involves entry into value chain system activities closer to the end user To lower overall costs by increasing channel activity efficiencies relative to competitors To increase bargaining power through control of channel activities To gain better access to end users To strengthen and reinforce brand awareness To increase product differentiation
Who/what level of employees are responsible for strategy making?
managers
What makes a winning strategy?
must pass three tests: The fit test Does it exhibit fit with the external and internal aspects of the firm's dynamic situation? The competitive advantage test Does it help the firm achieve a sustainable competitive advantage? The performance test Will it produce superior performance as indicated by the firm's profitability, financial and competitive strengths, and market share?
What are the characteristics of a well stated objective?
specific quantifiable (measurable) challenging (motivating) deadline for achievement
What makes for a powerful strategy as opposed to an ineffective strategy?
specific, focused, attainable
Driving forces, define
the major underlying causes of change in industry and competitive conditions
Key success factors, define
the strategy elements, product and service attributes, operational approaches, resources, and competitive capabilities that are essential to surviving and thriving in the industry These vary from industry to industry, and over time within the same industry, and in importance as drivers of change and competitive conditions change
Strategic intent, define
when a company relentlessly pursues an ambitious strategic objective, concentrating the full force of its resources and competitive actions on achieving that objective
Define, explain when the strategy works best, what are disadvantages to the strategy, what do buyers look like for each, how do companies achieve each strategy?
• broad differentiation: to offer unique product attributes that a wide range of buyers find appealing and worth paying for. • low cost: lower cost than competitors • best cost:a hybrid of low-cost provider and differentiation strategies that aim at providing more desirable attributes (quality, features, performance, service) while beating rivals on price Product differentiation is the market norm. There are a large number of value-conscious buyers who prefer mid-range products. There is competitive space near the middle of the market for a competitor with either a medium-quality product at a below-average price or a high-quality product at an average or slightly higher price. Economic conditions have caused more buyers to become value-conscious • focused low cost:Concentrating on a narrow price-sensitive buyer segment and on costs to offer a lower-priced product • focused differentiation: Concentrating on a narrow buyer segment by meeting specific tastes and requirements of niche members