MGT 494BI Exam

Industry structure Industry growth Strategic commitments Exit Barriers

rivalry among industry competitors

direct competitors

same strategic group firms

Identification of possible future scenarios, with inputs from different hierarchies and functional areas Development of different strategic plans to address scenarios Decision on which option most closely matches the current reality

scenario planning

Internalize organization's value and norms through interactions

socialization

degree to which a task is divided

specialization

The key building blocks of structure are

specialization, formalization, centralization, hierarchy

implementation

structure, culture, control corporate governance and business ethics

primary activities

supply chain management operations distribution marketing/sales after sales service

The four key questions of balanced scorecard approach are

1. How do customers view us? 2. How do we create value? 3. What core competencies do we need? 4. How do shareholders view us?

What is most likely to happen if a firm relies too long on their innovative culture without honing, refining, and upgrading as the firm and the environment change? The firm's original core competency can turn from a liability into an asset. The firm's organizational inertia can turn into its core rigidity. The firm's competitive parity can turn into its competitive advantage. The firm's culture can turn from a core competency into a core rigidity.

A competency needs to be updated as the firm and environment changes, otherwise it becomes obsolete. Culture, specifically, becomes a rigidity - it constrains the actions that individuals can take and becomes a force against organizational change. Among the choices, the only statement that reflects these issues is the one refers to organizational culture. The firm's culture can turn from a core competency into a core rigidity.

How does a conglomerate benefit from following an unrelated diversification strategy? The conglomerate can solely depend on its primary business activity for a major portion of its revenues. The conglomerate can share most of its competencies in products, services, technology, or distribution between all its businesses. The conglomerate can limit the learning- and experience-curve effects it faces. The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.

A conglomerate is a corporation that is following an unrelated diversification strategy: by definition the primary business does not necessarily need to create a significant portion of revenues and few competencies are shared across business units. However being a conglomerate can have its advantages: for example, they can overcome, otherwise significant, institutional weaknesses; in an emerging economy there might be voids, or a lack of market infrastructure. As such different conglomerate businesses can fill in the voids that the market can't. The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.

A differentiation strategy works best when a: firm has tangible resources, its focus of competition shifts to price, and equivalent substitutes are readily available. firm's focus of competition shifts to price, and when increasing differentiation of product features do not create additional value. firm's differentiated products are commoditized, and costs of providing uniqueness do not rise above the customer's willingness to pay. firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.

A firm must be able to pass on the costs of creating a product, that creates additional value, to the customer. This becomes difficult when products are commodities or competition is based on price. firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.

Stakeholders instead of Shareholders Economic, social and ecological dimensions considered Noneconomic factors can have a significant impact on a firm's financial performance, as well as its reputation and goodwill.

Triple Bottom Line

Inherently assumes a top down instantaneous organizational change - Entrepreneurship vs incumbent

AFI framework

Which of the following statements is true about accounting data? Accounting data are historical and thus backward-looking Accounting data focus mostly on intangible assets, rather than tangible assets Accounting data consider off-balance sheet items such as pension obligations Accounting data do not have to be adjusted in any manner to compare companies with different capital structures.

Accounting data is historical and reports past performance, does not necessarily predict the future Accounting data are historical and thus backward-looking

Competitive Advantage - Accounting Measures Limitations

All accounting data are historical data and thus backward looking. Accounting data do not consider off-balance sheet items. Accounting data focus mainly on tangible assets, which are no longer the most important.

Which of the following is a firm effect that has an impact on the competitive advantage of a firm? The exit barriers within the industry in which the firm operates The number of companies operating in the industry in which the firm operates The intensity of rivalry among existing companies in the firm's chosen industry The value and the cost position of the firm relative to its competitors

All of the incorrect answers relate to industry effects. The value and the cost position of the firm relative to its competitors

Strategic initiatives may develop through

Autonomous actions by lower-level employee The Resource Allocation Process (RAP) Serendipity (random events, pleasant and unpleasant surprises, accidental happenstances) always plays a part

Why do firms want to grow?

Increase profits Lower costs Increase market power Reduce risk Motivate management

Vertical Integration risks

Increasing costs & reducing quality Reducing flexibility Increasing the potential for legal repercussions

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

Balanced Scorecard Advantages

It is a tool for strategy implementation, not for strategy formulation. It provides only limited guidance about which metrics to choose − different situations call for different metrics. Failure to achieve competitive advantage is not indicative of a poor framework but of strategic failure− i.e., managers must have crafted a strategy that builds competitive advantage. Managers must accurately translate their strategy into objectives that can be measured within this model.

Balanced Scorecard Disadvantages

Strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals

Balanced scorecard

Which of the following statements is true of the balanced-scorecard? It attempts to provide a holistic perspective on firm performance. It is a more or less a one-dimensional metric of measuring competitive advantages of a firm. It is one of the traditional ways of measuring firm performance. Its primary focus is to base a firm's strategic goals entirely on external performance dimensions.

Balanced scorecard method is a relatively new method of analyzing performance by looking at all dimensions - both internal and external - of the firm's performance. Accounting profitability, economic value creation, shareholder value creation focuses on specific metrics of firm performance and thus are more-or-less single dimensional. It attempts to provide a holistic perspective on firm performance.

The translation of strategy into action takes place in the firm's _____, which details the firm's competitive tactics and initiatives. business model economic value creation shareholder value creation scorecard model

Business models represent strategy translated into specific ways of maximizing profits and gaining competitive advantage Business model

Neon Electronics Inc. sourced touchscreens required for its tablet computers, cell phones, and televisions from a manufacturer in China. But the demand for such components was high globally, and the supplier could not meet the quality standards of Neon Electronics. Thus, Neon Electronics decided to set up its own unit to develop and manufacture the required touchscreens. What does this scenario best illustrate? Forward vertical integration Backward vertical integration New product development Conglomerate diversification

By making the decision to create its own screens, a component for their products, Neon executives are attempting to backward integrate their supply chain. Backward vertical integration

Power of Suppliers and Power of Buyers are flip sides of each other. If "Supplier" industry has weak power of the buyers, the "Buying" industry has strong power of the suppliers.

True

Structure follows strategy AND Strategy follows structure

True

Vehmo Inc. is an automobile company whose core competency lies in manufacturing petrol- and diesel-based cars. The company realizes that more of its potential customers are switching to electric cars. The R&D department of the company acquires competencies in developing electric cars and launches its first hybrid car. In this scenario, Vehmo is primarily Answer leveraging existing core competencies to improve current market position redeploying existing core competencies to compete in future markets building core competencies to protect and extend current market position unlearning existing core competencies to create and compete in markets of the future

Company is building new competencies to protect and expand its market. building core competencies to protect and extend current market position

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

Competitive Advantage Key terms here: Superior and Relative

Which of the following statements is NOT true of competitive advantage? Competitive advantage is reflected in superior firm performance. Competitive advantage is a multifaceted concept. Competitive advantage is an absolute measure. Competitive advantage has been linked to a firm's triple bottom line

Competitive advantage is not absolute, it is always relative to the competitors in the firm's specific industry Competitive advantage is an absolute measure.

Which of the following is true for competitive advantage? Strategy must follow structure Structure must follow strategy Structure must fit the strategy Core competencies must become core rigidities

Core competencies must not become core rigidities: that would stifle change in the organization. Strategy follows structure but the opposite is also true, competitive advantage depends on whether structure fits the strategy. It does not really matter which came first. Structure must fit the strategy

There is no single best way to measure competitive advantage

True

protected from competitors if price war

Cost-Leadership benefit

new entrant arrives and new capabilities needed

Cost-Leadership risk

Unable to develop/buy at reasonable price

Costly to imitate

Both Vibrant Phones Inc. and Oryxo Inc. incur a cost of $200 to manufacture a single unit of a cell phone. However, Vibrant Phones creates more economic value than Oryxo does. What does this imply? Vibrant Phones and Oryxo have achieved a competitive parity. Oryxo has a competitive advantage over Vibrant Phones. Vibrant Phones can sell its products at a better price than Oryxo Oryxo's offering has greater total perceived consumer benefits than Vibrant Phones's offering

Creating more value means that consumers view Vibrant Phones as providing them with greater total benefits; thus their willingness to pay will be higher for Vibrant Phones compared to Oryxo. Since their costs are the same, this would allow Vibrant to charge more for their phones. Vibrant Phones can sell its products at a better price than Oryxo.

Power of buyers

Customer switching costs Few large buyers Commodity products Substitutes Revenue concentration

Power of suppliers

Customer switching costs Industry concentration Substitutes Revenue concentration

Transaction costs form the boundaries of the firm

True

while industry has "effects" on firm performance, internal factors account for most of the variance in firm performance.

True

Competitive Advantage - 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, etc. To measure firm-level competitive advantage, the economic value created for all products/services offered by the firm must be assessed.

the difference between a buyer's willingness to pay for a product/service and the firm's total cost to produce it The amount of total perceived consumer benefits equals the maximum willingness to pay

Economic Value Creation

Interest / Growth / Exchange rates, Unemployment, etc. all impact the choices made by firms within an industry

Economic factors

By selling a laptop at $900 for which consumers are willing to pay up to $1200, a consumer electronics firm makes a profit of $200 per unit. In this scenario, the economic value created is: 500 300 200 1200

Economic value is customers willingness to pay minus cost. If the company is making $200 profit from a $900 laptop, that means the cost is 700 and economic value created will be 1200-700=$500 500

Using the _____ approach, managers audit their company's fulfillment to stakeholders as conscientiously as they track its financial performance. Triple-bottom line Economic value creation Accounting profitability Shareholder value creation

Economic value, shareholder value and accounting profitability measures focus on financial results rather than returns to stakeholders. Triple-bottom line

threat of new entrants

Economies of scale/Capital investment Customer switching costs Network effects Incumbency Government Regulation Threat of retaliation

In anticipation of government regulation - proactively addressing social or ecological issues

Extended producer responsibility

Why are controls like budgets and operating procedures that McDonald's implements known as input controls? They are considered before employees make any decisions They are implemented by corporate headquarters They are ad hoc and not codified They are independent of an organization's culture

Firms use input controls when the goal is to define the ways and means to reach a strategic goal and to ensure a predictable outcome. They are called input controls because management designs these mechanisms so they are considered before employees make any business decisions.

team effectiveness

First: Clear goals / responsibilities / expectations Then: Information exchange Mutual decision making Collaboration Ultimately: communication (of goals, responsibilities, problems, other requirements, let-downs, personal issues, etc.)

Which of the following real-world scenarios best exemplifies formalization? Zappos' focus on allowing its customer service employees to use their own approach rather than depend on scripts McDonald's use of standard operating procedures across the world W. L. Gore's associates organizing themselves in project-based teams that are led by sponsors, not bosses Yahoo's decision to fire its CEO after incurring huge losses

Formalization relates to the extent to which standard operating procedures, rules and/or regulations control employee behavior. McDonald's expectation of standard behaviors from employees across the world is an example of formalization. McDonald's use of standard operating procedures across the world

Groups of employees with distinct functional areas The areas of expertise correspond to distinct stages in the company's value chain activities. Recommended with limited diversification

Functional structure

Active in several different countries

Geographic diversification

What is not strategy?

Grandiose statements Failing to meet a competitive challenge Provide unrivaled customer service, be operationally efficient, brand strategy, IT strategy, etc.

True Sync Inc. is a software company, which has built and acquired numerous assets over the years. According to the resource based view of a firm, which of the following assets of True Sync Inc. will best enable it to gain and sustain a competitive advantage? The expertise acquired by the employees in the company The capital raised by the company from its shareholders The resources of the company that are mobile The headquarters owned by the company

Headquarters and capital are tangible resources that can be replicated by other firms. Mobile resources, by definition, can be transfered from one firm to another. Human capital have the best chance of enabling competitive advantage in the long term. The expertise acquired by the employees in the company

The competitive advantage that one firm has will be short-lived in an industry where: resource immobility is high. perfect competition exists. resource heterogeneity is high. capabilities of a firm are not easily replicable.

If resource immobility is high that would suggest that firm resources will not be easily transfered from one firm to another, or put differently, capabilities of a firm will not be easily replicable. High resource heterogeneity suggests firms have a variety of unique resources among them. In any of these cases competitive advantage, if achieved, will have a chance to last for a long time. In perfect competition, however, firm resources are likely to be homogeneous and imitable. perfect competition exists.

The relative bargaining power of suppliers is high when: incumbent firms face low supplier switching costs. incumbent firms can credibly threaten to backward integrate into the industry. suppliers depend heavily on the industry for a large portion of their revenues. suppliers provide products that are differentiated.

If suppliers are producing differentiated products then they will have power. Having the ability to switch to another industry and create their own supply by backward integration suggests that suppliers have little power over the buyers. Similarly if the suppliers are gaining a significant percent of their revenues from a single industry, they will be more likely to yield to buyer interests. suppliers provide products that are differentiated.

In which stage(s) of the value chain should the firm be active in

Industry value chain

Rivalry among firms within a strategic group is more intense than the rivalry between strategic groups.

Intra-group rivalry exceeds inter-group rivalry

The _____ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment. PESTEL Framework VRIO Analysis SWOT Analysis BCG Matrix

Macro environment can be analyzed using the PESTEL framework. VRIO is an internal tool, SWOT is a combination of internal and external factors, and the BCG Matrix refers to corporate-level strategic decision-making regarding whether to invest/divest from different businesses. PESTEL Framework

Which of the following is an example of an internal transaction cost? Cost of maintaining a production unit Cost for searching for a contract manufacturer Cost of signing a contract with a supplier Cost of buying raw materials

Maintaining a production unit is an internal cost, all others are external. Cost of maintaining a production unit

A group of incumbent companies that face more or less the same set of suppliers and buyers

industry

A combination of functional and M-form structure Dual line of authority and reporting lines Each SBU receives support both horizontally and vertically Very versatile Enhanced learning from different SBUs

Matrix Structure

Competitive Advantage - Accounting Measures Benefits

Measures relative profitability, which is useful when comparing firms of different size over time.

a widely adopted organizational structure, as most large firms are diversified to some extent. Each SBU is independent Each CEO of SBU reports to the corporate office.

Multidivisional (M-Form)

Collectively shared values and norms

Organizational culture

The concept of a(n) _____ attempts to capture both learning effects and process improvements at firms. experience curve managerial grid growth matrix diminishing utility curve

Organizations improve their operations over time by learning to be better at what they do as well as improving their own processes for efficiency. Concept of experience curves integrate both aspects. experience curve

W. L. Gore & Associates is the inventor of path-breaking new products such as breathable GORE-TEX fabrics, Glide dental floss, and Elixir guitar strings. Which of the following would be most likely to hinder its intention of fostering employee satisfaction, retention, and creativity? Low centralization A flat organizational hierarchy Highly organic organizational structure High formalization

Organizations that intend to be innovative benefit from organic organizational structures characterized by low degrees of formalization and centralization and flat hierarchies. High formalization

Effective process within the firm to exploit resources, capabilities and competencies.

Organized to capture value

Factors within the external environment that managers have little control over. These are not necessarily independent - but this framework allows managers to scan, monitor and evaluate factors that might impinge upon the firm.

PESTEL

Processes/actions of government that can influence the decisions and behavior of firms Laws, mandates, regulations, and court decisions - all of which can have a direct bearing on a firm's profit potential

Political / Legal factors (highly intertwined)

Active in several different product categories

Product diversification

Active in a range of both products and countries

Product-market diversification

Otion Inc. is a relatively new firm in the consumer electronics industry. The company's primary objective is to become the market leader in less than 5 years, for which it has to gain and sustain a competitive advantage. In the context of the VRIO framework, which of the following resources should Otion Inc. primarily focus on to achieve its objective? Quality standards, which are common and mandatory throughout the industry Inexpensive unskilled labor that is easily accessible by all companies Component parts that are sourced from competitors' suppliers Production systems that reduce costs by 30 percent below the current industry standards

Quality standards, unskilled labor and component parts relate either to industry standards or easy replication by competing firms. Decreasing costs by a significant percentage compared to the industry standards, however, can provide competitive advantage. Production systems that reduce costs by 30 percent below the current industry standards

support activities

R/D Info systems human resources accounting/finance Firm infrastructure (policy/procedures)

What are the products and services to offer

Range of products and services

Only few firms possess

Rare

The executives at Red Couture Inc. are developing strategic plans to address plausible future situations like rise in the prices of cotton and synthetic fabrics by 20 percent, appreciation in the value of dollar, increase in the cost of labor by 30 percent, and increase in demand for the company's products. By doing so, the company will be well-prepared with its planned responses if any of these situations occurs in the future. Thus, Red Couture is employing _____ as the approach to the development of strategy. scenario planning reverse engineering top-down strategic planning pattern recognition

Red Couture is attempting to identify potential scenarios which would help them plan for the future. scenario planning

A successfully implemented integration (blue ocean) strategy allows a firm to: charge a higher price than the cost leader in the industry create lesser economic value than the differentiator in the industry. reduce its value gap beyond that created by the cost leader in the industry. increase its price above that of the differentiator in the industry.

Reducing value created for the customer is not necessarily the strategy for anyone - the goal is to keep value the same or higher (i.e. the difference between willingness to pay minus cost) but be at a unique place based on costs and maximum value. An integrator attempts to decrease its cost while keeping max value at a high level - a difficult position. If it can do that successfully, it means that the firm will be able to charge higher prices compared to cost leaders (but not differentiators). charge a higher price than the cost leader in the industry

Model assumption that a firm is a bundle of resources and capabilities differ across firms

Resource heterogenity

Model assumption that a firm has resources that tend to be "sticky" and that do not move easily from firm to firm

Resource immobility

Accounting profitability measures

Return on Assets Return on Equity Return on Invested Capital

One measure of value creation for the shareholder

Return on risk capital, including stock price appreciation plus dividends received over a specific period

The money provided by shareholders in exchange for an equity share in a company

Risk capital

Combining External and Internal Views

SWOT analysis

Vertical Integration benefits

Securing critical supplies Lowering costs & improving quality Facilitating investments in specialized assets Facilitating planning and scheduling

Interaction between people and systems

Social complexity

Health conscious population and fast-food consumption Changing demographics change the society

Socio-cultural factors

Competitive Advantage - Shareholder Value Creation Limitations

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.

Stake out a unique position within an industry to provide value to customers, while controlling costs.

Strategic Positioning

concerted action: a pattern in actions to achieve a certain goal - competitive advantage.

Strategy

While working a night job at a call center, Carlos creates an app called DineSmart, which can be used to place orders at restaurants, rate the restaurants, and make reservations. Because he receives good responses for his app, he quits his current job to focus his efforts on DineSmart. He creates a start-up called TYOP and hires three people to help him improve DineSmart and maintain the servers that run it. In this scenario, TYOP most likely has a _____ structure. Simple Functional Matrix Mechnastic

Such a small company would not necessarily have (or benefit) from complex organizational structures. The new hires would likely be asked to undertake multiple tasks (hence low specialization) and the rules, regulations and standard operating procedures are probably non-existent (low formalization). Thus it would neither be a mechanistic organization nor include more complex structures like matrix or functional. Simple

Outperforming over a prolonged period

Sustainable Competitive Advantage

After carefully assessing the market potential for hybrid cars, it was decided at the corporate headquarters of Unidawn Autos Inc. that the company would be launching a hybrid version of all its car models within the next two years. This would mean that each strategic business unit under the company would be involving in its own research and development efforts. Which of the following strategies does this best illustrate? Realized strategy Intended strategy Emergent strategy Unrealized strategy

The company "intends" to have hybrid models over the next two years - it is the intended strategy. We don't know whether it will be realized or not, yet. This is top management intention, not an emergent event. Intended strategy

Mova Electronics, a leading pager manufacturer, recently declared itself bankrupt. While most of Mova's competitors were shifting their research focus toward cell phones, Mova invested most of its retained earnings on improvising its pagers. Once the pager market drastically declined, Mova Electronics was unable to capitalize on the new technology. Which of the following does this scenario best illustrate? Path dependence Causal ambiguity Social complexity Intellectual property protection

The correct answer is path dependence. Creating VRIO competencies require past investments, the fact that Mova put their earnings in an outdated market eventually led to its death. Path dependence

Beans Inc. operates in a perfectly competitive agricultural industry. Classica Apparel Inc., in contrast, operates in a monopolistically competitive industry. Keeping this information in mind, which of the following statements is true? While Classica Apparel Inc. will have the power to set the prices for its products, Beans Inc. will have little or no ability to do so Beans Inc. will face competition from many sellers, whereas Classica Apparel Inc. will be the only seller in the market. Beans Inc. will have many buyers for its products, whereas Classica Apparel Inc. will have very few buyers for its products. While Beans Inc. will communicate the degree of product differentiation through advertising, Classica Apparel Inc. will need no advertising.

The only certainty from the given information is that the agricultural company, compared to the apparel company, will have little pricing power due to its perfectly competitive market. While Classica Apparel Inc. will have the power to set the prices for its products, Beans Inc. will have little or no ability to do so

XYZ Inc. is a large chain of hypermarkets. It has cost benefits due to its extensive operation. The company's marketing and sales, logistics, administrative, and other such related costs get divided between a large number of product units stocked in its stores. This makes it difficult for smaller retail stores and supermarkets to compete against XYZ's low prices. Thus, XYZ has a competitive advantage due to its: economies of scale. superior customer service. time compression economies. learning-curve effects.

The question describes a situation where a company has competitive advantage over others due to cost benefits that allow the firm to be a low cost provider. In this case, cost benefits come from economies of scale as "costs get divided between a large number of product units". economies of scale.

Value is determined by the perceived benefits a good or service provides to a(n) Buyer Manufacturer Investor Retailer

The ultimate judge of value is the person/entity that pays for it. A firm or its shareholders can decide to charge as much as they want for a product, but it is the customer's perception of value that matters on whether that product or service will be bought. Buyer

Which of the following statements is true about strategic groups? It is not possible to have two different strategic groups within the same industry. Rivalry within the same strategic group tends to be lower than rivalry between different strategic groups. Profitability varies between different strategic groups. Companies within the same strategic group are complementors to each other.

There could be more than two strategic groups in an industry and firms within the same strategic groups are direct competitors (not complementors) thus within-group rivalry will exceed the industry levels. Strategic group firms will likely have similar profitability and some strategic groups will be more profitable than others. Profitability varies between different strategic groups.

The telecom industry in the country of Andalus is an industry characterized by the presence of strong network effects, high brand loyalty, high economies of scale, and proprietary technology among incumbent firms. Thus, in the telecom industry, the: threat of new entrants is most likely low. threat of substitutes is most likely high. bargaining power of buyers is most likely low. entry barriers are most likely non-existent.

These factors characterize an environment where threat of new entrants will be low. Brand loyalty and propriety technology suggests difficulty for competing products, network effects and economies of scale help create entry barriers. We would need a bit more information to make a claim about bargaining power of buyers. threat of new entrants is most likely low.

A _____ is best described as any activity a firm pursues to explore and develop new products and processes, new markets, or new ventures. Strategic initiative Supply chain Corrective action Value chain

This is a definition - copied directly from the slides Strategic initiative

A(n) _____ is best used to depict the transformation of raw materials into finished goods and services along distinct vertical stages. industry value chain chain of command scatter chart encrypt

This question is asking for a definition of the industry value chain. industry value chain

According to the _____, competitive advantage is the outflow of 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. Dynamic capabilities perspective Value chain perspective PESTEL framework Expectancy theory

This question refers to how the dynamic capabilities perspective is defined. Dynamic capabilities perspective

White Leo Autos manufactures and markets four different cars: Leo Sport, Leo Prestige, Leo Spark, and Leo Ease. These four product variants are operated as individual business units. While the product leaders of Leo Sport, Leo Prestige, and Leo Spark have adopted a differentiation strategy to attract the niche market: the product leader of Leo Ease follows a cost-leadership strategy to suit the mass market. This decision of the product leader of Leo Ease can be ideally categorized as a _____ strategy. corporate functional business grand

This question relates to a strategic business unit as each brand is run as a different business. In this case, business strategy describes the decision of how to compete in a given market. Business

Attractive features for lower costs and higher prices

Valuable

VRIO

Valuable Rare Costly to Imitate Organized to capture the value of the resource/capability

Which of the following is NOT a factor that makes total return to shareholders and market capitalization unreliable measures of company performance? Unpredictability of return on revenue Stock price volatility Effects of the unemployment rate Variations in exchange rates

Variations in exchange and unemployment rates are two of the many factors that add volatility to stock prices. This volatility, in turn, makes it difficult to assess competitive advantage and firm performance - especially in the short term. Unpredictability of return on revenue

Are Porter's 5 forces strong or weak in the airline industry?

Very strong

Are Porter's 5 forces strong or weak in the soft drink industry?

Very weak - therefore attractive

Three quantitative performance dimensions for competitive advantage

What is the firm's accounting profitability? How much shareholder value does the firm create? How much economic value does the firm generate?

True Machine Inc. and One Electrona Inc. are two competing consumer electronics companies. While True Machine's COGS/Revenue is 66%, One Electrona's is 74%. What do you infer from this financial data? True Machine's profit margin is higher than that of One Electrona. One Electrona has a competitive advantage over True Machine. One Electrona is more efficient than True Machine by eight percentage points. True Machine should focus more on driving down costs, while increasing revenues, and One Electrona should focus more on increasing its fixed asset turnover.

With the given information, the only thing that we can infer is that True Machine has a higher profit margin, all other choices require more information. True Machine's profit margin is higher than that of One Electrona.

Does it pay to diversify?

Yes

Competitive Advantage can also be defined by economic value

a large value gap (V - C)

Business processes that add incremental value by transforming input into service and products.

activities

expression of culture in items such as physical design, stories, and celebrations

artifacts

Identifying the profit potential within the industry and the firm's strategic position within that industry

industry analysis

Ability to identify future VRI resources today.

better expectations of future resource value

The goal-directed actions managers take in their quest for competitive advantage when competing in a single product market

business level strategy

Organizational and managerial skill in strategic deployment of resources.

capabilities

What is the source of the success anyway?

casual ambiguity

where the decision is made

centralization

The key to successful strategy

combine activities for a unique position in an industry

A product, service, or competency that adds value when used in tandem with the original product offering

complement

existence of complementary products make an industry more attractive.

complementaries

Unique strengths of the firm allowing it to differentiate its products/services by creating more value for the consumer.

core competencies

Environmental awareness, identification of new threats

ecological factors

Where to compete alongside three dimensions: Industry value chain Range of products and services Where to compete

corporate level strategy

formulation

corporate strategy business strategy functional strategy

Create similar value by delivering products/services at a lower cost and lower prices than competitors

cost leadership

Brings new leadership Mergers and acquisitions

cultural change

Create higher value by delivering products/services with unique features

differentiation

reduced rivalry & high cost of imitation

differentiation benefit

might overshoot features needed & vulnerable to price sensitive customers

differentiation risk

A firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage

dynamic capability

A firm is not a 'stand-alone' entity - it makes its choices but it is situated within a larger environment.

external environment

Determined not only by the industry to which the firm belongs, but also by its strategic group membership

firm performance

codified rules and formal procedures

formalization

formal, position-based reporting lines

hierarchy

Budgets Rules and standard operating procedures

input controls

Are tangible or intangible assets more likely to be sources of competitive advantage?

intangible assets

Culture Sanctions Specify goals, measure progress, and provide performance feedback

internal governance mechanisms

Is cost leadership strategy more mechanistic or organic?

mechanistic

High degree of specialization and formalization Tall hierarchy Centralized decision making

mechanistic organizations

many firms some pricing power differentiated product medium entry barriers

monopolistic competition

one firm considerable pricing power unique product very high entry barriers

monopoly

appropriate employee behaviors and attitudes

norms

few (large) firms some pricing power differentiated product high entry barriers

oligarchy

Is differentiation strategy more mechanistic or organic?

organic

Low degree of specialization and formalization Flat structure Decentralized decision making

organic organizations

Resistance to change

organizational inertia

Defines how jobs and tasks are divided and integrated Delineates the reporting relationships up and down the hierarchy Defines formal communication channels Prescribes how individuals and teams coordinate their work efforts

organizational structure

Extrinsic motivators Result-oriented

output controls

VRI resources of today are simply a product of all of the specific decisions taken in the past.

path dependence

man small firms firms are price takers commodity product low entry barriers

perfect competition

Competitive advantage has to come from

performing different activities performing the same activities differently than rivals

pestel

political economical socio cultural technological ecological legal

A manager may pursue his or her own interests such as job security and managerial perks in lieu of principal's interests

principle agent problem

A systematic way to understand firm performance through its resources.

resource based view

Tangible and intangible assets that the firm can utilize in formulating and implementing strategy

resources

Set of firms pursuing a similar strategy within a specific industry

strategic group

Framework that explains performance differences within the same industry by clustering different firms into groups based on key strategic dimensions

strategic group model

Activity a firm pursues to explore and develop new products and processes, new markets, or new ventures to renew organizational competencies

strategic initiative

Activity a firm pursues to explore and develop new products and processes, new markets, or new ventures

strategic initiatives

guide the development of strategic initiatives by all organizational members - similar to the organizational structures that guide employee behavior

strategic priorities

Innovations in manufacturing, availability of new non-patented technology, increase in telecommunication infrastructure

technological factors

porter's 5 forces

threat of new entrants buyer power supplier power threat of substitutes rivalry among competition

Attractive price/performance trade-off Buyers switching cost

threat of substitutes

what is considered important

value

Ownership of its inputs, production, & outputs in the value chain

vertical integration

analysis

vision, mission, values internal analysis external analysis

geography

where to compete