mgmt 495 midterm nordin

Level-5 leadership pyramid

5. Executive 4. Effective leader 3. Competent manager 2. Contributing team member 1. Highly capable individual A conceptual framework of leadership progression with five distinct, sequential levels

Upper Echelon Theory

A conceptual framework that views organizational outcomes-strategic choices and performance levels- as reflections of the values of the members of the top managerial team. Basically organizational outcomes reflect the values of the top management team.

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.

Top-down strategic planning

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

Describe the roles of vision, mission, and values in a firm's strategy

A vision captures an organization's aspirations. An effective vision inspires and motivates members of an organization. A mission statement describes what an organization actually does - what is its business - and why and how it does it. Core values define the ethical standards and norms that should govern the behavior of individuals within the firm.

Intangibles and the Value of Firms

About 75% of a firm's market valuation was determined by its intangibles. Intangibles are long-term assets like brand recognition, patents, copyrights.

industry growth

Affects intensity of rivalry among competitors During periods of high growth: -Consumer demand rises -Price competition among firms decreases --They focus on capturing new customers --They are not focused on taking profitability away from each other During periods of negative growth: -Rivalry is fierce -Rivals can only gain at the expense of one another

Limitation of Accounting Data

All accounting data are historical and backward-looking. Accounting profitability ratios only show us the outcomes from past decisions, and the past is no guarantee of the future. Does not consider off-balance sheet items: •Pension obligations •Leasing obligations Focuses mainly on tangible assets •May not be the most important •Consider: innovation, quality, customer experience

Stakeholder Strategy

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

Dynamic Nature of Business Models

Business Models: •Can be combined •Can evolve •Can be disrupted Businesses must respond to disruption & adapt Legal conflicts can arise

Describe the roles of corporate, business, and functional managers in strategy formulation and implementation

Corporate executives must provide answers to the question of where to compete, whether in industries, markets, or geographies, and how to create synergies among different business units. General managers in strategic business units must answer the strategic question of how to compete in order to achieve superior performance. they must manage and align the firm's different functional areas for competitive advantage Functional managers are responsible for implementing business strategy within a single functional area

How efficiently a company can produce a good

Cost of Goods Sold (COGS)/revenue

Customer vs Product vision statements - Advantages and Disadvantages

Customer vision statements: Advantage: Allow companies to adapt to changing environments bc they focus on how to best solve a problem for a customer Disadvantage: Might not be able to make as good of a product comparatively, but they're more flexible Product vision statements: Advantage: define a business in terms of a good or service provided. If market stays the same they can reap rewards by remaining focused. E.g. intel pc Disadvantage: Constrain the ability to adapt to a changing environment

Examples for Balance scorecard

Customers •Revenue, profit, customer satisfaction Value Creation •Competitiveness, innovation, organizational learning Core Competencies •Key business processes Shareholders •Cash flow, operating income, ROIC, ROE, total returns to shareholders

What is a business model?

Details competitive tactics and initiatives Explains how the firm: •Intends to make money •Conducts its business •With buyers, suppliers, and partners

Why, What, Who, and How of Business Models Framework

Details competitive tactics and initiatives Explains how the firm: •Intends to make money •Conducts its business •With buyers, suppliers, and partners Who - who are the main stakeholders performing the activities? What - what activities need ot be performed to create and deliver the offerings to customers? Why - why does the business model create value? (revenue + cost models) How - How are the offerings to customers created? (linking of activities)

Limitation of Economic Value Creation

Determining value for consumers is not simple. 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.

Market Capitalization

Dollar value of total shares outstanding= (Number of outstanding shares x share price)

The Triple Bottom Line

Focus: economic, social and ecological performance Three dimensions: •Economic Dimension: Profits •Businesses must be profitable to survive •Social Dimension: People •Ecological Dimension: Planet •Considers the natural environment

The Balanced Scorecard

Helps managers achieve their strategic objectives Uses internal and external performance metrics Balances both financial and strategic goals Asks: How to shareholders view us? How do customers view us? How do we create value? What core competencies do we need?

The PESTEL Framework

Is a straightforward way to scan, monitor, and evaluate the important external factors and trends that might affect a firm. Brainstorm what negative or positive facts could be bunched into the different areas of this model. Political Economic Sociocultural Technological Ecological Legal

Isolating Mechanisms: How to sustain a competitive advantage

Isolating Mechanisms: Barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy. Examples of these are barriers to imitation like path dependence (A situation in which the options one faces in the current situation are limited by decisions made in the past), causal ambiguity (A situation in which the cause and effect of a phenomenon are not readily apparent), social complexity (A situation in which different social and business systems interact with one another), intellectual property protection (A critical intangible resource that can provide a strong isolating mechanism, and thus help to sustain a competitive advantage).

Shareholder:

Legal owners of stock in the company

Explain the AFI strategy Framework

Outlines actions that managers take to gain and sustain competitive advantage. (1) Explains and predicts differences in firm performance, and (2) helps managers formulate and implement a strategy that can result in superior performance AFI includes 3 broad tasks: Analyze (External and internal analysis) , Formulate (Business Strategy and Corporate strategy), and Implement (Organizational Design and corporate governance and business ethics)

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

Explain the role of Strategic Leaders and what they do

Pertains to executives' use of power and influence to direct the activities of others when pursuing an organization's goals They use use power to influence the behavior of other organizational members to do things, including things they would not do otherwise

Profit (or "Producer Surplus")

Price charged - price to produce

Popular Business Models

Razor -razorblade: pay for replacements Subscription: pay for access Pay as you go: pay for what you consume Freemium: pay for extra features / add-ons Wholesale: products sold at a discount Agency: products sold on commission Bundling: more than one product sold at a discount

How Do We Measure and Assess Competitive Advantage?

Relative to a benchmark •Either using competitors or the industry average It is a multi-faceted concept By measuring accounting profit, shareholder value, or economic value The balanced scorecard approach The triple bottom line

How much each dollar that the firm earns in sales is invested to conduct research and development

Research and Development (R & D) expense/ Revenue

How much of each dollar that the firm earns in sales is invested in sales, general and administrative (SG & A) expenses. Generally an indicator of the firm's focus on marketing and sales to promote its products and services.

Selling, general, & Administrative (SG and A) expense / Revenue

Shareholder Value Creation

Shareholder value creation is a better measure of competitive advantage over the long term due to the "noise" introduced by market volatility, external factors and investor sentiment.

Limitation of Shareholder Value Creation

Stock prices can be volatile •Difficult to assess firm performance Macroeconomic factors affect stock prices •Economic growth or contraction •Unemployment, interest and exchange rates Stock prices can reflect the mood of investors •Investors can be irrational

Explain the role of strategy in a firm's quest for competitive advantage.

Strategy is the Set of goal directed actions a firm takes to gain and sustain superior competitive advantage/superior performance relative to competitors

scenerio planning

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

Competitive Advantage

Superior performance relative to other competitors in the same industry or the industry average.

Examine how competitive industry structure shapes rivalry among competitors.

The competitive structure of an industry is largely captured by the number and size of competitors in an industry, whether firms possess some degree of pricing power, the type of product (commodity or differentiated) or service the industry offers and the height of entry barriers. From 1 to 4 it increases the profit potential. 1) A perfectly competitive industry is characterized by many small firms, a commodity product, low entry barriers, and no pricing power for individual firms (firms are price takers) 2) A monopolistic industry is characterized by many firms, a differentiated product, medium entry barriers, and some pricing power. 3) An oligopolistic industry is characterized by few (large) firms, a differentiated product, high entry barriers, and some degree of pricing power. 4) A monopoly exists when there is only one large firm supplying the market. offers a unique product, the barriers to entry are very high, and the monopolist has considerable pricing power.

Economic Value Creation

The difference between: •A buyer's willingness to pay for a product / service •And the firm's total cost to produce it is •The difference between value (V) and cost (C)

Assess the relationship between stakeholder strategy and sustainable competitive advantage.

The effective management of stakeholders is necessary to ensure the continued survival of the firm and to sustain any competitive advantage. This is achieved through stakeholder strategy.

Understand how each of the five forces affect competition and thus industry profitability.

The key take-away from the five forces model is that the stronger the forces, the lower the firm's ability to gain and sustain a competitive advantage. The Five Forces Model: 1. Threat of Entry: The risk that potential competitors will enter an industry. The higher the prices and profitability of the industry, the more attractive the industry is, the more new entrants enter. So companies may want to manipulate their prices to distort the reality of their industry to defend from new entrants. 2: Bargaining Power of Suppliers. Powerful suppliers can raise the costs of production by demanding higher prices for their inputs or by reducing the quaility of the input factor or service level delviered. Powerful suppliers are a threat to firms because they reduce the industry's profit potential by capturing part of the economic value created. 3. Bargaining Power of Buyers. In many ways, the bargaining power of buyers is the opposite of suppliers. Buyers are the customers of an industry. The power of buyers concerns the pressure an industry's customers can put on the producers margins in the industry by demanding a lower price or higher product quality. Powerful buyers are a threat to the producing firms because they reduce the industry's profit potential by capturing part of the economic value created. 4. The 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. A high threat of substitutes reduces industry profit potential by limiting the price the industry's competitors can charge for their products or services. The threat of substitutes is high when: 1) The substitute offers an attractive price-performance trade-off. 2) The buyers cost of switching to the substitute is low. 5. Rivalry among existing competitors: describes the intensity with which companies within the same industry jockey for market share and profitability. The other four forces exert pressure upon this rivalry. the stronger the forces, the stronger the expected competitive intensity, which in turn limits the industry's profit potential.

Value chain analysis to understand which of the firm's activities in the process of transforming inputs into outputs generate differentiation and which drive costs.

The value chain describes the internal activities a firm engages in when transforming inputs into outputs. Each activity the firm performs along the horizontal chain adds incremental value and incremental costs. A careful analysis of the value chain allows managers to obtain a more detailed and fine-grained understanding of how the firm's economic value creation breaks down into a distinct set of activities that helps determine perceived value and the costs to create it. When a firm's set of distinct activities is able to generate value greater than the costs to create it, the firm obtains a profit margin (assuming the market price the firm is able to command exceeds the costs of value creation).

opportunity costs

The value of the best forgone alternative use of the resources employed Example: Opportunity Costs of an Entrepreneur (1) forgone wages if employed elsewhere (2) the cost of capital invested in the business E.g. vs. the stock market vs. U.S. Treasury bonds

Outline how dynamic capabilities can enable a firm to sustain a competitive advantage

To sustain competitive advantage, any fit between a firm's internal strengths and the external environment must be dynamic. Dynamic Capabilities: allow a firm to create, deploy, modify, reconfigure, or upgrade its resource base to gain and sustain competitive advantage in a constantly changing environment.

Competitive Disadvantage

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

What are core competencies?

Unique strengths that are embedded deep within a firm that allow a firm to differentiate its products and services from those of its rivals Results in: -Creating higher value for the customer or -Offering products and services at lower cost

3.3 Changes over time: Entry Choices and Industry Dynamics

What are the Entry Choices? 1.When? Entry timing, stage of industry life cycle, order of entry 2.How? Leverage existing assets, reconfigure value chains, establish niches 3.What? Type of entry: scale, commitment, product or service, business model etc. 4.Where? Leverage existing assets, reconfigure value chains, establish niches 5. Who? Identify the players: entrants, suppliers, customer, other stakeholder How do industry dynamics change over time? Industries are dynamic, they change over time. Sometimes there is industry convergence, where formerly unrelated industries begin to satisfy the same consumer need. This is usually brought on by tech advances.

3.4 The Strategic Group Model

a framework that explains differences in firm performance within the same industry The strategic group model (framework): Clusters different firms into groups and it is based on key strategic dimensions. How to: 1) Identify the important strategic dimensions 2) Choose two key dimensions (For horizontal and vertical axes + Ensure they're not highly correlated) - e.g. cost structure and routes 3)Graph the firms in the strategic group (Each firm's market share indicated by the size of the bubble)

The Pyramid of Corporate Social Responsibility

a model that suggests corporate social responsibility is composed of economic, legal, ethical, and philanthropic responsibilities and that the firm's economic performance supports the entire structure. Levels: 1: Economic Responsibilities. To gain and sustain competitive advantage. 2: Legal Responsibilities. Laws and regulations are society's codified ethics. Define the minimum acceptable standard. 3: Ethical Responsibilities. Do what is right, just, and fair. 4: Philanthropic Responsibilities. Corporate Citizenship

SWOT analysis

a planning tool used to analyze an organization's strengths, weaknesses, opportunities, and threats

strategic commitments

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

Black Swan Events

incidents that describe highly improbable but high-impact events

exit barriers

obstacles that determine how easily a firm can leave an industry

The strategic role of complements

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

total return to shareholders

return on risk capital that includes (stock price appreciation + dividends)

planned emergence

strategy process in which organizational structure and systems allow bottom-up strategic initiatives to emerge and be evaluated and coordinated by top management.

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

consumer surplus

what you are willing to pay minus what you paid

VRIO Framework

A theoretical framework that explains and predicts firm-level competitive advantage. Must be valuable, rare, costly to imitate, and organized to capture value.

Evaluate the two critical assumptions behind the resource-based view.

1) Resource Heterogeneity: Assumption in the resource-based view that a firm is a bundle of resources and capabilities that differ across firms. 2) Resource Immobility: Assumption in the resource-based view that a firm has resources that tend to be "sticky" and that do not move easily from firm to firm.