Strategic Management Chapters 1-5

PESTEL Model

A framework that categorizes and analyses an important set of external forces (political, economic, sociocultural, technological, ecological, and legal) that might impinge upon a firm. These forces are embedded in the global environment and can create both opportunities and threats for the firm.

Structure-conduct-performance (SCP) Model

A framework that explains differences in industry performance. It ID's four different industry types.

Porter's five forces Model

A framework that identifies five forces that determine the profit potential of an industry and shape a firm's competitive strategy.

Industry

A group of companies offering similar products or services. It makes up the supply side of the market, while customers make up the demand side.

AFI strategy framework

A model that links three interdependent strategic management tasks that together help firms conceive and implement a strategy that can improve performance and result in a CA.

Resource-based view

A model that sees resources as key to superior firm performance. If a resources exhibits VRIO attributes, the resource enables the firm to gain and sustain a CA.

Crowdsourcing

A process in which a group of people voluntarily performs tasks that were traditionally completed by a firm's employees. Threadless T-shirt company used this.

Strategic (long-range) Planning

A rational, top-down process through which executives can program future success. Concentrates strategic intelligence and decision-making responsibility in the offices of the CEO.

Vision

A statement about what the firm ultimately wants to accomplish, it captures the company's aspiration. Helps employees find meaning in their work.

VRIO framework

A theoretical framework that explains and predicts firm-level CA. A firm can gain a CA if it has resources that are valuable, rare, and costly to imitate; the firm must also organize to capture value of the resources.

Strategic commitments

Actions that back up a firm's mission statement. They are costly, long-term oriented, and difficult to reverse.

Primary activities

Add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along the internal value chain.

Support activities

Add value indirectly but are necessary to sustain primary activities. R&D, information systems, operations management, HR, accounting, finance.

Activities

Allow firms to add value by transforming inputs into goods and services.

Valuable resource

Allows the firm to take advantage of an external opportunity and/or neutralize an external threat.

Strategic management

An integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage. Never ending cycle of analysis, formulation, implementation, and feedback.

Strategic initiative

Any activity a firm pursues to explore and develop new products and processes, new markets, or new ventures. Top down or bottom up. Can be random, luck, or anything.

Emergent strategy

Any unplanned strategic initiative undertaken by mid-level employees of their own volition. If successful, these have the potential to influence and shape a firm's strategy.

Resource immobility

Assumption in the resource-based view that a firm has resources that tend to be "sticky" and do not move easily from firm to firm.

Resource heterogeneity

Assumption that in resource-based view that a firm is a bundle of resources and capabilities that differ across firms.

Risk capital

Capital provided by shareholders in exchange for an equity share in a company. Cannot be recovered if the firm goes bankrupt.

Realized strategy

Combination of an intended and emergent strategy.

Triple bottom line

Combination of economic, social, and ecological concerns that can lead to a sustainable strategy.

Co-opetition

Cooperation by competitors to achieve a strategic objective.

Mission

Description of what an organization actually does (what its business is) and why it does it. Can be customer or product oriented.

Producer surplus

Difference between prices charged (P) and the cost to produce (C). AKA profit.

Consumer surplus

Difference between the value (V) a customer attaches to a good or service and what he or she paid (P) for it.

Economic value created

Difference between value and cost (V - C). AKA economic contribution. Also

Organizational values

Ethical standards and norms that govern the behavior of the individuals within a firm or organization. Must form solid foundation to build mission and long term success, as well as help the company stay on track when pursuing its mission in its quest for a CA.

Capabilities

Organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically. Intangible by nature.

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.

Complement

Product, service, or competency that adds value to the original product offering when the two are used in tandem. Increase demand and enhance profit potential.

Total return to shareholders

Return on risk capital that includes stock price appreciation plus dividends received over a specific period. External performance metric. Indicates how the stock market views all available info about a firm's past, present, and future state.

Externalities

Side-effects of production and consumption that are not reflected in the price of a product.

Strategic positioning

Staking out a unique position in an industry that allows the firm to provide value to customers while controlling costs.

Strategic business unit (SBU)

Standalone division of a larger conglomerate, with its own profits and losses.

Balanced scorecard

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

Scenario planning

Strategy-planning activity in which managers envision different what-if scenarios to anticipate plausible futures.

Competitive advantage

Superior performance relative to other competitors in the same industry or the industry average. A firm that formulates and implements a strategy that leads to superior performance relative to competitors has this.

Organized to capture value

The characteristic of having in place an effective organizational structure and coordination systems to fully exploit the competitive potential of the firm's resources and capabilities.

Value

The dollar amount a consumer would attach to a good or service. The consumers MAX willingness to pay. AKA reservation price.

Strategy

The goal-directed actions a firm intends to take in its quest to gain and sustain competitive advantages. Manager's "theory" about how to gain and sustain.

Network effects

The increase in value of a product of service as more people use it.

Value chain

The internal activities a firm engages in when transforming inputs into outputs.

Bottom of the pyramid

The largest but poorest socioeconomic group of the world's population. Can yield significant business opportunities.

Intended strategy

The outcome of a rational and structured, top-down strategic plan. First important step in strategy-making.

Industry effects

The results attributed to the choice of industry in which to compete.

Firm effects

The results of managers' actions to influence firm performance. Have stronger effect on the firm.

Strategic group

The set of companies that pursue a similar strategy within a specific industry. Consists of the firms closest competitors.

Strategic intent

The staking out of a desired leadership position that far exceeds a company's currents resources and capabilities. Allows managers to operationalize their visions because it is not only forward-looking and future-oriented but also helps in ID'ing steps that need to be taken to make a vision become reality. "Stretch Goals"

Dominant strategic plan

The strategic option that managers think most closely matches a reality at a given point in time.

Business model

The translation of the strategy into action takes place here, and it details the firm's competitive tactics and initiatives. How the firm intends to make money.

Opportunity costs

The value of the best forgone alternative use of the resources employed.

Competitive disadvantage

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

Core competencies

Unique strengths, embedded deep within a firm, that allow a firm to differentiate its PnS from those of its rivals. This creates higher value for the customer or offering products and services of comparable value at a lower cost.

Costly to imitate resource

When firms do no possess this, they are unable to develop or buy the resource at a comparable cost.

Rare resource

When only a few firms possess this, they can perform in a unique way.

Unrealized strategy

When unexpected events have dramatic strategic implications, part or all of a strategic plan becomes this.

SWOT Analysis

A framework that allows managers to synthesize insights obtained from an internal analysis of the company's strengths and weaknesses, with those from an analysis of external opportunities and threats.

Strategic group model

a framework that explains firm differences in performance in the same industry by clustering different firms into groups based on a few key strategic dimensions.

Industry convergence

a process whereby formerly unrelated industries begin to satisfy the same customer need. Ex: newspapers, magazines, TV, movies, radio

Exit barriers

Obstacles that determine how easily a firm can leave an industry. Lower the better.

Resources

(In)tangible assets such as cash, buildings, or intellectual property that a company can draw on when crating and executing a strategy.

Entry barrier

Obstacle that determines how easily a firm can enter an industry. Often of the most significant predictors of industry profitability.

Complementor

A company that provides a good or service that leads customers to value your firm's offering more when the two are combined.

Intangible resources

Have no physical attributes thus are invisible. Firm's culture, knowledge, brand equity, reputation, and intellectual property.

Tangible resources

Have physical attributes and are visible. Capital, land, buildings, plant, equipment, and supplies.

Stakeholders

Individuals or groups who can affect of are affected by the actions of a firm.

Mobility barriers

Industry-specific factors that separate one strategic group from another.

Business-level strategy

Involves deciding how to compete in order to achieve superior performance within the business unit. Formulated by general managers.

Functional-level strategy

Involves deciding how to implement the business-level strategy. Functional managers within a single functional area (accounting, HR, finance, IT, customer service) are responsible for decisions and actions.

Corporate-level strategy

Involves decisions made at the highest level of the firm about where to compete. Which industries, markets, and geographies their company should compete, and how well they can create synergies across different business units.

Strategic management process

Method by which mangers conceive of and implement a strategy that can lead to a sustainable CA. Vision, mission, values.