MGMT - Chapter 6

A sustainable competitive advantage is:

a competitive advantage that other companies have tried unsuccessfully to duplicate and have, for the moment, stopped trying to duplicate

Portfolio strategy:

a corporate-level strategy that minimizes risk by diversifying investment among various businesses or product lines

• strategic dissonance: .

a discrepancy between a company's intended strategy and the strategic actions managers take when implementing that strategy

Threats - Strategic group:

a group of companies within an industry against which top managers compare, evaluate, and benchmark strategic threats and opportunities

3. Threat of substitute products or services:

a measure of the ease with which customers can find substitutes for an industry's products or services

5. Bargaining power of buyers:

a measure of the influence that customers have on a firm's prices

• competitive inertia:

a reluctance to change strategies or competitive practices that have been successful in the past

Stability strategy:

a strategy that focuses on improving the way in which the company sells the same products or services to the same customers

Growth strategy:

a strategy that focuses on increasing profits, revenues, market share, or the number of places in which the company does business

Retrenchment strategy:

a strategy that focuses on turning around very poor company performance by shrinking the size or scope of the business

Direct competition:

• the rivalry between two companies that offer similar products and services, acknowledge each other as rivals, and act and react to each other's strategic actions

Strategic reference points:

• the strategic targets managers use to measure whether a firm has developed the core competencies it needs to achieve a sustainable competitive advantage

Step 1 - Assess Need for Strategic Change

- Avoid Competitive Inertia - Look for strategic dissonance (are strategic actions consistent with the company's strategic intent?

Companies that have created and sustained competitive advantages can be subject to:

- competitive inertia and strategic dissonance

Step 2: Conduct Situational Analysis - Environmental Internal Strength and Weaknesses

- distinctive competence - core capability

Step 2: Conduct Situational Analysis Environmental External Opportunities and Threats

- environmental scanning - strategic group - shadow/strategy task force

• Resource similarity largely affects

- response capability, that is, how quickly and forcefully a company can respond to an attack. o When resource similarity is strong, the responding firm will generally be able to match the strategic moves of the attacking firm.

2. 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

4. Bargaining power of suppliers

: a measure of the influence that suppliers of parts, materials, and services to firms in an industry have on the prices of these inputs

1. Character of the rivalry

: a measure of the intensity of competitive behavior between companies in an industry

Step 3 - Choose Strategic Alternatives

Risk Avoiding Strategies Risk Seeking Strategies

Grand Strategy:

a broad corporate-level strategic plan used to achieve strategic goals and guide the strategic alternatives that managers of individual businesses or subunits may use

• Shadow Strategy Task Force: THREAT

a committee within a company that analyzes the company's own weaknesses to determine how competitors could exploit them for competitive advantage

• risk-seeking (aggressive) strategy:

aims to extend or create a sustainable competitive advantage.

• risk-avoiding (conservative) strategy:

aims to protect an existing competitive advantage

Situational analysis, also called a SWOT analysis,

assesses a company's internal (strengths and weaknesses) and external (opportunities and threats) environment.

A company's sustainable competitive advantage can be based upon what?

• Brand name, know how, scale, patents, barriers to entry, etc.

External business environment

changes rapidly. Company's must be aware of changes to assess the need for strategic change to maintain sustainable competitive advantage.

Internal - Weaknesses Opportunities -

external to company - something to capitalize on

• Two factors determine the extent to which firms will be in direct competition with each other:

market commonality and resource similarity

Four conditions required for achieving sustainable competitive advantage: Valuable Resource

o a resource that allows companies to improve efficiency and effectiveness

Four conditions required for achieving sustainable competitive advantage: Rare resource:

o a resource that is not controlled or possessed by many competing firms

Four conditions required for achieving sustainable competitive advantage: Nonsubstitutable resource:

o a resource that produces value or competitive advantage and has no equivalent substitutes or replacements

• core firms:

o the central companies in a strategic group

• secondary firms:

o the firms in a strategic group that follow strategies related to but somewhat different from those of the core firms

Internal - Strengths • core capabilities:

o the internal decision-making routines, problem-solving processes, and organizational cultures that determine how efficiently inputs can be turned into outputs

Internal - Strengths • distinctive competencies:

o what a company can make, do, or perform better than its competitors

Market commonality and resource similarity determine what?

the likelihood of an attack or response

Focus strategy:

the positioning strategy of using cost leadership or differentiation to produce a specialized product or service for a limited, specially targeted group of customers in a particular geographic region or market segment

Recovery:

the strategic actions taken after retrenchment to return to a growth strategy

Problems with portfolio strategy -

• (1) higher risk in unrelated diversification • (2) dysfunctional consequences - managers are not always good at correctly categorizing businesses

Positioning strategies:

• After analyzing industry forces, the next step in industry-level strategy is to protect your company from the negative effects of industry-wide competition and to create a sustainable competitive advantage.

To formulate effective strategies, companies must be able to answer three questions.

• What business are we in? • How should we compete in the industry? • Who are our competitors and how should we respond to them?

Adaptive strategies: • are another set of industry-level strategies.

• Whereas the aim of positioning strategies is to minimize the effects of industry competition and build a sustainable competitive advantage, the purpose of adaptive strategies is to choose an industry-level strategy that is best suited to changes in the organization's external environment.

Stars:

• a company with a large share of a fast-growing market - invest

Response:

• a competitive countermove, prompted by a rival's attack, to defend or improve a company's market share or profit

Attack:

• a competitive move designed to reduce a rival's market share or profits

Firm level strategies:

• a corporate strategy that addresses the question "How should we compete against a particular firm?"

Best known portfolio strategy - Boston Consulting Group (BCG) matrix -

• a portfolio strategy developed by the Boston Consulting Group that categorizes a corporation's businesses by growth rate and relative market share and helps managers decide how to invest corporate funds • separates businesses into four categories based on how fast the market is growing and the size of the business's share of that market

Four conditions required for achieving sustainable competitive advantage: Imperfectly imitable resource:

• a resource that is impossible or extremely costly or difficult for other firms to duplicate

diversification:

• a strategy for reducing risk by buying a variety of items (stocks or, in the case of a corporation, types of businesses) so that the failure of one stock or one business does not doom the entire portfolio

Industry level strategies:

• addresses the question "How should we compete in this industry?"

Question marks:

• are companies that have a small share of a fast-growing market. - more risky than investing in stars

Dogs:

• are companies that have a small share of a slow-growing market. - sell

Reactors:

• companies that do not follow a consistent adaptive strategy but instead react to changes in the external environment after they occur

Cash cows:

• companies that have a large share of a slow-growing market.

unrelated diversification:

• creating or acquiring companies in completely unrelated businesses

related diversification:

• creating or acquiring companies that share similar products, manufacturing, marketing, technology, or cultures

Porter's five industry forces:

• five industry forces determine an industry's overall attractiveness and potential for long-term profitability.

A competitive advantage is:

• providing greater value for customers than competitors can

Defenders:

• seeking moderate, steady growth and by offering a limited range of high-quality products and services to a well-defined set of customers

Prospectors:

• seeks fast growth by searching for new market opportunities, encouraging risk taking, and being the first to bring innovative new products to market

Analyzers:

• seeks to minimize risk and maximize profits by following or imitating the proven successes of prospectors

Resources are:

• the assets, capabilities, processes, employee time, information, and knowledge that an organization uses to improve its effectiveness and efficiency and create and sustain competitive advantage

o Market commonality:

• the degree to which two companies have overlapping products, services, or customers in multiple markets

o Resource similarity:

• the extent to which a competitor has similar amounts and kinds of resources

Corporate Level Strategy: overall organizational strategy

• the overall organizational strategy that addresses the question "What business or businesses are we in or should we be in?"

Cost leadership:

• the positioning strategy of producing a product or service of acceptable quality at consistently lower production costs than competitors can, so that the firm can offer the product or service at the lowest price in the industry

Differentiation:

• the positioning strategy of providing a product or service that is sufficiently different from competitors' offerings that customers are willing to pay a premium price for it

acquisition:

• the purchase of a company by another company