MGMT 3000 Chapter 5
2) conduct situational analysis
(also called SWOT analysis) can help managers determine the need for strategic change by looking at the internal environment (strengths and weaknesses) and the external environment (opportunities and threats)
portfolio strategy
(diversification) a corporate level strategy that minimizes risk by diversifying investment among various business or product lines, includes: acquisition, unrelated diversification, related diversification, single businesses
core capabilities
(intangible) less visible that distinctive competencies, these are internal decision making routines, problem solving processes, and organizational cultures that determine how efficiently inputs can be turned into outputs
strategic groups
(not actual groups) these are groups of other companies within an industry selected for study by top managers to compare, evaluate, and benchmark the companies strategic threats and opportunities, include: core and secondary firms
sustainable competitive advantage
(not the same as long lasting) after a company achieves a competitive advantage, if the competition tries to duplicate the value offered to the customer, fails, and for the time being stops trying to duplicate the value offered to the customers (cannot duplicate the value), this occurs
recovery
(second step in retrenchment strategy) consists of the strategic actions that company takes to return to growth strategy
distinctive competencies
(tangible) something that a company can make, do, or perform better than its competition (faster, cheaper, better)
strategic dissonance
a discrepancy/divergence between upper management's intended strategy and the strategy actually implemented by lower-level management, can indicate: (1) lower-managers are not doing what they should to carry out organizational strategy or (2) intended strategy is out of date and needs to be changed
response
a countermove, prompted by a rival's attack, designed to defend or improve a company's market share or profit
internal environment
a SWOT analysis begins with a look at strengths and weaknesses, a company must assess its core capabilities, distinctive competence, and sometimes shadow strategy task force
grand strategy
a broad strategic plan used to help an organization achieve its strategic goals, guide strategic alternative that managers of individual businesses or sub-units may use, three types: growth, stability, and recovery/retrenchment
focus strategy
a company can use either cost leadership or differentiation to produce a specialized product or service for a limited, specifically targeted group in a particular region or market
attack
a competitive move designed to reduce a rival's market share or profits
risk avoiding orientation
a conservative strategy aimed at protecting an existing sustainable competitive advantage
single business
a lone business with no diversification, at a high risk for failure
threat of new entrants
a measure of the degree to which barriers to entry make it easy or difficult for new companies to get started in an industry (low barriers to entry-> more people will enter the market-> less profits)
threat of substitute products/services
a measure of the ease with which customers can find substitutes of an industry's products or services (more substitutes->more competition->less profits)
bargaining power of the buyers
a measure of the influence customers have on a firms prices (less buyers->more control over prices->less profits)
bargaining power of the suppliers
a measure of the influence that suppliers of parts, materials, and services to firms in an industry have over prices of said inputs (few suppliers->higher costs->less profits)
character of rivalry
a measure of the intensity of competitive behavior among companies of a certain industry (aggressive/cut throat vs. customer oriented?)
boston consulting group matrix
a portfolio strategy that managers use to categorize their corporation's businesses by growth rate and relative market share, helping them decide how to invest corporate funds, this separate businesses into four categories based on how fast the market is growing and how much market share the firm has: stars, question marks, cash cows, and dogs
goal of companies for competitive advantage
achieve a competitive advantage by using company resources to provide greater value to customers than competitors can
shadow strategy task force
actively seeks out its own company's weaknesses and then, thinking like a competitor, determines how other companies could exploit them for a competitive advantage, to make sure that this challenges conventional thinking, its members should be independent-minded, come from a variety of company functions and levels, and have the access and authority to question the company's current strategic actions and intent
industry level positioning strategies
after analyzing industry forces (character of rivalry) the company must protect its offerings from and minimize the effects of the competition and establish a sustainable competitive advantage either through: cost leadership or differentiation or focus strategy (combination)
external environment
after assessing the internal environment a firm must complete its SWOT analysis with a look at the external environment, firms will conduct environmental scanning and categorize strategic groups, and
defenders
an adaptive strategy that seeks moderate, steady growth by offering a limited range of products and services to a well defined set of customers (aggressively defend current strategic position by doing they can do hold on to customers of a particular market segment)
risk seeking orientation
an aggressive strategy aimed at extending or creating a sustainable competitive advantage
firm level strategy
answers the question "how should we compete against a particular firm" deals with direct competition
industry level strategy
answers the question of how should we compete in this industry, must first determine the five industry forces that determine the industries overall attractiveness and potential for long-term profitability: character of rivalry, threat of new entrants, threat of substitutes, bargaining power of suppliers, and bargaining power of buyers (stronger these forces are->less attractiveness/profitability of industry) then look at potential positioning strategies and adaptive strategies
analyzers
are a blend of the defenders and prospectors strategies, they seek moderate, steady growth and limited opportunities for fast growth, rarely the first to market a new product innovative product, minimize risk and maximize profits by duplicating already existing products
3) choosing strategic alternatives
based on strategic reference point theory,
resources
belongings of an organizations such as: assets, capabilities, processes, information, and knowledge, used to improve organizational effectiveness and efficiency, critical to organizational strategy, because they help companies create and sustain an advantage over competitors
core firms
central companies in a strategic group
competitive advantage
companies achieve this by using resources to provide greater value than the competition can
stars
companies that have a large share of a fast growing market (requires substantial investment to make a profit) produce reliable profits
cash cows
companies that have a large share of a slow growing market, highly profitable
question marks
companies that have a small share of a fast growing market, investment can help the company become a star but they are more uncertain than stars because of their small market share
dogs
companies that have a small share of a slow growing market, not profitable
unrelated diversification
creating or acquiring companies in unrelated industries, at a high risk for failure
related diversification
different business units sharing similar products, manufacturing, marketing, technology, or cultures, must create or acquire companies with similar core capabilities
1) assessing the need for strategic change
difficult due to all of the uncertainty in the business environment and because top management isn't involved in day-to-day or are relying on already successful, established sustained competitive advantage (competitive inertia), managers can improve speed and accuracy of strategic change by actively looking for signs of strategic dissonance
reactors
do not follow a consistent strategy, rather than anticipating and preparing for external opportunities and threats they react to events in their industry (poor performing)
secondary firms
firms that use related, but somewhat different strategies than core firms (care less than core firms)
conditions for sustainable competitive advantage
four conditions that must all be met for the resources a company uses to help create a sustainable competitive advantage: valuable, rare, imperfectly imitable, and nonsubstitutable
three steps of the strategy making process
includes: (1) assess need for strategic change (2) conduct situational analysis and (3) choose strategic alternatives
differentiation
making a product/service sufficiently different from competitors offerings so that customers are willing to pay a premium price for the extra value or performance that it provides
environmental scanning
managers must identify specific opportunities and threats that affect a company's ability to sustain a competitive advantage
competitive inertia
occurs when top-level managers are slow to recognize need for change in strategy, stemming from a reluctance to change strategies or competitive practices because of their success in the past
corporate level strategy
overall organizational strategy that answers the question: what business are we in or should we be in, example: portfolio strategy/diversivication
cost leadership
producing a product/service of acceptable quality at consistently lower production costs than competitors so that firms can offer product/service at the lowest price in the market
adaptive strategies
purpose is to choose an industry level strategy that is best suited to changes in the organizations external environment, four types: defenders, prospectors, analyzers, and reactors
stability strategy
purpose is to continue doing what the company does but do it better, improve the way you sell the same products to the same customers
growth strategy
purpose is to increase profits, revenues, market share, or number of places (stores, offices, locations) in which the company does business, can be organic (internal) or external (acquisition/merger)
retrenchment strategy
purpose is to turn around very poor company performance by shrinking the size and scope of the business, includes: cost reduction, layoff of employees, closing of poorly performing locations, or closing/selling entire product lines then recovery
valuable resources
resources that allow companies to improve efficiency and effectiveness, easy to become lose this status due to changing: consumer preferences, actions of the competition, and technology
imperfectly imitable resources
resources that are impossible, costly, or difficult to duplicate
rare resources
resources that are not controlled or possessed by many competing firms and are necessary to sustain a competitive advantage
nonsubstitutable resources
resources that no other resource can replace them and produce similar value or competitive advantage
prospectors
seek fast growth by searching for new market opportunities, encouraging risk taking, and being the first to bring new innovative products to the market
strategic reference points
targets management uses to measure whether the firm has developed the core capabilities and distinctive competencies to achieve a sustainable competitive advantage
strategic reference point theory
targets used are not deterministic, mangers must choose between two basic alternative strategies depending on whether management views the company as following above or below reference points: risk avoiding and risk seeking, managers can actively change and adjust targets used to judge strategic performance and aren't predestined to choose one orientation over the other
market commonality
the degree to which two companies have overlapping products, services, or customers in multiple markets, the more markets in which there is product, service, or customer overlap, the more intense the direct competition between the two companies
resource similarity
the extent to which a competitor has similar amounts and kinds of resources, that is, similar assets, capabilities, processes, information, and knowledge used to create and sustain an advantage over competitors (the strategic actions that your company takes can probably be matched by your direct competitors)
diversification
the process of gaining ownership of many stocks in a variety of companies in different industries (reduces risk in the overall stock portfolio)
acquisition
the purchase of a company by another company
direct competition
the rivalry between two companies offering similar products and services that acknowledge each other as rivals and take offensive and defensive actions as they act and react to each other's strategic actions (extent determined by market commonality and resource similarity) and firms in this situation must either attack or respond (main is market entry but varies over a range of intensity)
