WPC 480 Midterm

path dependence

A situation in which the options one faces in the current situation are limited by decisions made in the past

strategic activity system

The conceptualization of a firm as a network of interconnected activities

resource stocks

The firm's current level of intangible resources

resource flows

The firm's level of investments to maintain or build a resource

business-level strategy

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

value chain

The internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value

reservation price

The maximum price a consumer is willing to pay for a product or service based on the total perceived consumer benefits

risk capital

The money provided by shareholders in ex-change for an equity share in a company; it cannot be recovered if the firm goes bankrupt

intended strategy

The outcome of a rational and structured top-down strategic plan

strategy formulation

The part of the strategic management pro-cess that concerns the choice of strategy in terms of where and how to compete

strategy implementation

The part of the strategic management process that concerns the organization, coordination, and integration of how work gets done, or strategy execution

threat of entry

The risk that potential competitors will enter an industry

strategic group

The set of companies that pursue a similar strategy within a specific industry

strategy

The set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors

value innovation

The simultaneous pursuit of differentiation and low cost in a way that creates a leap in value for both the firm and the consumers; considered a corner-stone of blue ocean strategy

scope of competition

The size—narrow or broad—of the market in which a firm chooses to compete

dominant strategic plan

The strategic option that top managers decide most closely matches the current reality and which is then executed

network effects

The value of a product or service for an individual user increases with the number of total users

opportunity costs

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

strategic business unit (SBU)

a standalone division of a larger conglomerate, with its own profit-and-loss responsibility

Which of the following scenarios best illustrates a good stakeholder strategy? a) PA Corp. distributes only 40 percent of its annual profit after taxes to shareholders, while the remaining is invested for further research, and distributed among employees and the local community b) Gen Pharma Corp. ensures that it fully exploits free natural resources, so that most of its profits go to shareholders in the form of dividends c) VP Inc. follows a strategy in which maximization of the shareholder's wealth is the primary concern of the managers d) Carrvero Inc. ensures that its employees are paid the least in the industry so that its external stakeholders can get the best price

a) PA Corp. distributes only 40 percent of its annual profit after taxes to shareholders, while the remaining is invested for further research, and distributed among employees and the local community

The production head at the Omnitone Paint Company would frequently stay back after office hours and experiment with new color combinations even though this was part of the new product development team's job. As a result of these experiments, he came up with two new interior paint colors, foggy morning and mint julep. The new colors proved popular among test groups, and quickly became some of Omnitone's best-selling products. Which of the following strategies does this scenario best illustrate? a) emergent strategy b) tactical strategy c) unrealized strategy d) intended strategy

a) emergency strategy

During an AFI planning session, the managers of the Fukuhara Motorcycle Corporation decided to place various stages of production in different countries in order to implement the strategy of cutting overhead costs. By doing this, what issue did the firm address? a) organizational design b) corporate governance c) business ethics d) philanthropic strategy

a) organizational design

Smooth Fusion Inc. is a software company that has built and acquired numerous assets over the years. According to the resource-based view of a firm, which of the following assets of Smooth Fusion Inc. will best enable it to gain and sustain a competitive advantage? a) the expertise acquired by employees in the company b) the headquarters building owned by the company c) the capital the company raised from its shareholders d) the cloud computing service that it uses

a) the expertise acquired by employees in the company

What is the AFI framework

analysis, formulation, implementation

what is an emergent strategy

any unplanned strategic initiative undertaken by mid-level employees of their own volition

Which of the following best qualifies as a firm's internal stakeholder? a) an auditor assigned to the firm by a federal government agency b) a manager taking care of the firm's operations in a foreign market c) a labor union with whom the firm's employees can affiliate d) a competitor manufacturing the same products as that of the firm

b) a manager taking care of the firm's operations in a foreign market

Pear Tree Electronics is a large conglomerate that operates in 17 different countries. The corporate executives at the headquarters have decided that the company's objective for the next two years will be to increase its customer equity, or the value of potential future revenues generated by all its customers in a lifetime. Based on this guideline received from the top management team, the product leader of the home audio division has decided to adopt a cost-leadership strategy in all his 17 units. Thus, the decision made by the product leader best illustrates a ________ strategy a) corporate b) business c) grand d) functional

b) business

When general managers receive guidelines from corporate headquarters and select cost leadership, differentiation, or integration based on the guidelines, they are formulating what type of strategy?

business strategy

Addams Coaches Inc. is a bus line with service to several major cities. It has several competitors that each offer service to one or two cities, and based on its current outlays, it cannot match or beat those competitors on price. Because of long-term contracts and an increase in the cost of gasoline, it is not possible to reduce expenditures at this time. Which of these strategies should Addams pursue instead? a) Compete based on inter-group rivalry, not intra-group rivalry b) Create a strategic group through mergers c) Pursue a differentiated strategy d) Close the business until the cost of gas decreases

c) Pursue a differentiated strategy

The "Natural Nourishment" granola bars manufactured by Global Good Foods have been the top-selling granola bars in the market. Though the market for granola bars is flooded with competitors, Global Good has been able to maintain its market position for a long time. This is mainly attributed to the pleasant texture of its granola, which comes from a proprietary processing technique used by the company. This competency of Global Good Foods will be considered as a(n) ________ resource in the VRIO framework. a) organizational b) imitable c) intangible d) rare

c) rare

A good strategy is based on a strategic management process that consists of what three key elements

1) diagnosis of competitive challenge 2) guiding policy to address the competitive challenge 3) set of coherent actions to implement the firm's guiding policy

What are the 5 steps to stakeholder impact analysis

1) identify stakeholders 2) identify interests 3) identify opportunities and threats 4) identify social responsibilities 5) address stakeholder concerns

resource

In the re-source-based view of the firm, a resource includes any assets as well as any capabilities and competencies that a firm can draw upon when formulating and implementing strategy

shareholders

Individuals or organizations that own one or more shares of stock in a public company

mobility barriers

Industry-specific factors that separate one strategic group from another

Soil and Sod Gardening Supplies has a vision of helping every American learn how to grow their own food. Its management team recently unveiled the mission statement "A garden at every home." What is wrong with this mission statement?

It does not indicate how the company will accomplish its goals

cognitive biases

Obstacles in thinking that lead to systematic errors in our decision making and interfere with our rational thinking

entry barriers

Obstacles that determine how easily a firm can enter an industry and often significantly predict industry profit potential

valuable resource

One of the four key criteria in the VRIO framework. A resource is valuable if it helps a firm exploit an external opportunity or offset an external threat

organized to capture value

One of the four key criteria in the VRIO framework. The characteristic of having in place an effective organizational structure, processes, and systems to fully exploit the competitive potential of the firm's resources, capabilities, and competencies

System 2

One of two distinct modes of thinking used in decision making that applies rationality and relies on analytical and logical reasoning; effortful, slow, and deliberate way of thinking

System 1

One of two distinct modes of thinking used in decision making; default mode because it is automatic, fast, and efficient, requiring little energy or attention. prone to cognitive biases that can lead to systematic errors in decision making

capabilities

Organizational and managerial skills necessary to orchestrate a diverse set of resources and deploy them strategically

stakeholders

Organizations, groups, and individuals that can affect or are affected by a firm's actions

sustainable competitive advantage

Outperforming competitors or the industry average over a prolonged period of time

minimum efficient scale (MES)

Output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale

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

d) It attempts to provide a holistic perspective on firm performance

The average cost of production for a bottle of vitamin water in the industry is $4 while its average price is $7. StoreAll Inc. manufactures the same product for $3 per bottle and sells it for $7 per bottle. Which of the following statements is most likely true of StoreAll Inc. in this scenario? a) It has competitive parity with other firms in the industry b) It has formed a strategic alliance with other firms in the industry c) It has a competitive disadvantage in the industry d) It has a competitive advantage in the industry

d) It has a competitive advantage in the industry

The Lynx Manufacturing Company produces components used in electronic toys. In fiscal year 2017, Lynx earned an accounting profit of $3 million. However, Lynx's production facilities might have also been used to produce components for mobile phones, which would have generated $2 million in revenues and saved the company $500,000 in production costs. Which of the following statements is true? a) Lynx earned an economic profit of $5.5 million b) Lynx suffered an economic loss of $500,000 c) Lynx earned an economic profit of $500,000 d) Lynx suffered an economic loss of $2.5 million

d) Lynx suffered an economic loss of $2.5 million

The owners of Puff Ball bakery want to open a second retail outlet. Which of the following scenarios is most likely to yield a competitive advantage? a) Open a shop in a crowded downtown location where several other bakeries have been successful over the years b) Purchase an existing bakery from a business that closed due to declining sales and try to revive it c) Build a shop in a sparsely populated rural area where the land is inexpensive and few other bakeries exist d) Open a shop on an inexpensive piece of land near a new mixed-use residential and business district currently under construction

d) Open a shop on an inexpensive piece of land near a new mixed-use residential and business district currently under construction

Which of the following competitively important assets is typically excluded from a firm's balance sheet? a) patents b) land and building c) accounts payable d) customer experience

d) customer experience

Which of the following frameworks used to measure competitive advantage relies on both an internal and an external view of a firm? a) the economic value creation model b) the accounting profitability model c) the shareholder value creation model d) the balanced-scorecard model

d) the balanced-scorecard model

Years ago, the travel industry was controlled by a few large travel companies that booked holidays, air tickets, bus tickets, and hotels for their customers. However, with the emergence of the internet, smaller travel agencies started mushrooming in the industry and customers started making their own reservations. Which of the following can be inferred from this information? a) The pricing power of the incumbent firms in the travel industry has increased b) The bargaining power of buyers in the travel industry has decreased c) The structure of the travel industry changed from monopolistic competition to an oligopolistic one d) The travel industry changed from a consolidated structure to a fragmented one

d) the travel industry changed from a consolidated structure to a fragmented one

When do employees fail to adopt the organizational values of a firm? a) when the internal stakeholders of the firm are involved in designing the values b) when the organizational structure, such as its strategic decision making, is aligned with its values c) when the strategic leaders in the firm propagate and exhibit the same values d) when the top managers in the firm are merely paying lip service to the firm's stated values

d) when the top managers in the firm are merely paying lip service to the firm's stated values

competitive parity

Performance of two or more firms at the same level

escalating commitment

A cognitive bias in which an individual or a group faces increasingly negative feed-back regarding the likely outcome from a decision, but nevertheless continues to invest resources and time in that decision, often exceeding the earlier commitments

representativeness

A cognitive bias in which conclusions are based on small samples, or even from one memorable case or anecdote

illusion of control

A cognitive bias that highlights people's tendency to overestimate their ability to control events

complementor

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

level-5 leadership pyramid

A conceptual framework of leadership progression with five distinct, sequential levels

upper-echelons theory

A conceptual framework that views organizational out-comes—strategic choices and performance levels—as reflections of the values of the members of the top management team

intellectual property (IP) protection

A critical intangible resource that can provide a strong isolating mechanism, and thus help to sustain a competitive advantage

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

behavioral economics

A field of study that blends re-search findings from psychology with economics to provide valuable insights showing when and why individuals do not act like rational decision makers, as assumed in neoclassical economics

market capitalization

A firm performance metric that captures the total dollar market value of a company's total outstanding shares at any given point in time

dynamic capabilities

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

strategic position

A firm's strategic profile based on the difference between value creation and cost (V − C)

core rigidity

A former core competency that turned into a liability because the firm failed to hone, refine, and upgrade the competency as the environment changed

strategic group model

A framework that explains differences in firm performance within the same industry

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

industry analysis

A method to (1) identify an industry's profit potential and (2) derive implications for a firm's strategic position within an industry

what does a mission statement do

A mission describes what an organization does; it defines how the vision is accomplished and is often introduced with the preposition by

dynamic capabilities perspective

A model that emphasizes 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

resource-based view

A model that sees certain types of resources as key to superior firm performance

industry convergence

A process whereby formerly unrelated industries begin to satisfy the same customer need

complement

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

social complexity

A situation in which different social and business systems interact with one another

groupthink

A situation in which opinions coalesce around a leader without individuals critically evaluating and challenging that leader's opinions and assumptions

causal ambiguity

A situation in which the cause and effect of a phenomenon are not readily apparent

vision

A statement about what an organization ultimately wants to accomplish; it captures the company's aspiration

sustainable strategy

A strategy along the economic, social, and ecological dimensions that can be pursued over time without detrimental effects on people or the planet

strategic intent

A stretch goal that pervades the organization with a sense of winning, which it aims to achieve by building the necessary resources and capabilities through continuous learning

VRIO framework

A theoretical framework that explains and predicts firm-level competitive advantage

tangible resources

Resources that have physical attributes and thus are visible

total return to shareholders

Return on risk capital that includes stock price appreciation plus dividends received over a specific period

stakeholder strategy

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

strategic management

An integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage

producer surplus

Another term for profit, the difference between price charged (P) and the cost to produce (C), or (P-C)

strategic initiative

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

serendipity

Any random events, pleasant surprises, and accidental happenstances that can have a profound impact on a firm's strategic initiatives

resource heterogeneity

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

isolating mechanisms

Barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy

blue ocean strategy

Business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs

triple bottom line

Combination of economic, social, and ecological concerns—or profits, people, and planet—that can lead to a sustainable strategy

Juanita, a manager at a multinational organization, is trying to carefully scan and link the firm's internal environment to its external environment. The insights from this analysis will allow her to effectively leverage the company's internal strengths to exploit external opportunities, while mitigating internal weaknesses and external threats. In this scenario, what managerial tool is Juanita employing?

SWOT analysis

focused cost-leadership strategy

Same as the cost-leadership strategy except with a narrow focus on a niche market

focused differentiation strategy

Same as the differentiation strategy except with a narrow focus on a niche market

economies of scope

Savings that come from producing two (or more) outputs at less cost than producing each output individually, despite us-ing the same resources and technology

core values statement

Statement of principles to guide an organization as it works to achieve its vision and fulfill its mission, for both internal conduct and external interactions; it often includes explicit ethical considerations

business model

Stipulates how the firm conducts its business with its buyers, suppliers, and partners in order to make money

autonomous actions

Strategic initiatives undertaken by lower-level employees on their own volition and often in response to unexpected situations

nonmarket strategy

Strategic leaders' activities outside market exchanges where firms sell products or pro-vide services to influence a firm's general environment through, for example, lobbying, public relations, contributions, and litigation in ways that are favorable to the firm

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 top management envisions different what-if scenarios to anticipate plausible futures in order to derive strategic responses

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

competitive advantage

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

co-opetition

Cooperation by competitors to achieve a strategic objective

economies of scale

Decreases in cost per unit as output increases

mission

Description of what an organization actually does—the products and services it plans to provide, and the markets in which it will compete

consumer surplus

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

strategic leadership

Executives' use of power and influence to direct the activities of others when pursuing an organization's goals

exit barriers

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

strategic commitments

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

primary activities

Firm activities that add value directly by trans-forming inputs into outputs as the firm moves a product or service horizontally along the internal value chain

support activities

Firm activities that add value indirectly, but are necessary to sustain primary activities

firm effects

Firm performance attributed to the actions strategic leaders take

industry effects

Firm performance attributed to the structure of the industry in which the firm competes

differentiation strategy

Generic business strategy that seeks to create higher value for customers than the value that competitors create, while containing costs

cost-leadership strategy

Generic business strategy that seeks to create the same or similar value for customers at a lower cost

value curve

Horizontal connection of the points of each value on the strategy canvas that helps strategic leaders diagnose and determine courses of action

In the final step of the stakeholder impact analysis, a firm does what

decides a course of action to address the stakeholders' concerns

what does organizational design involve

deciding how the firm should organize to turn the formulated strategy into action

In a firm's external environment, what type of trends primarily capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.

demographic

Beach Grub is a chain of "fast casual" restaurants that sells its menu items at higher prices than its competitors. Yet, the restaurant has a large customer base due to its wide product portfolio and superior customer service. What generic business strategy has Beach Grub adopted in this scenario?

differentiation

When a firm produces at an output level beyond the minimum efficient scale, it experiences

diseconomies of scale

What four questions must be answered to achieve value innovation?

eliminate, reduce, raise, create

PPE / Revenue

indicates how much of a firm's revenues are dedicated to cover plant, property, and equipment, which are critical assets to a firm's operations but cannot be liquidated easily

R&D / Revenue

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

Working Capital / Revenue

indicates how much of its working capital the firm has tied up in its operations

Quick Market Inc. is a food supply company that wants to sell its products directly to consumers through mail order instead of going through supermarkets and other stores. However, supermarket chains want to make this transaction either illegal or more difficult for Quick Market. To accomplish this, they are using what to influence the political process.

lobbying forces

The ratio of SG&A/Revenue is an indicator of a firm's focus on

marketing and sales to promote its products and services

Powell Lighting was the first company to start selling LED light bulbs in its country—a product that gained popularity among diverse groups. Soon, other companies started to sell their own brands of LED bulbs, thereby giving Powell Lighting ample competition. In response, Powell Lighting decided to limit its LED light bulbs to outdoor models. However, it ensured that these models were the longest-lasting and lowest-priced on the market. With this innovation, Powell Lighting consistently outperformed its competitors for ten years. In this scenario, Powell Lighting maintained a what through its innovative strategy

sustainable competitive advantage

a resource is rare if

the number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition

emergent strategy

Any unplanned strategic initiative bubbling up from the bottom of the organization

top-down strategic planning

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

what are the 5 levels of the level-5 leadership pyramid

1) highly capable individual 2) contributing team member 3) competent manager 4) effective leader 5) executive

reason by analogy

A cognitive bias in which individuals use simple analogies to make sense out of complex problems

resources

Any assets that a firm can draw on when formulating and implementing a strategy

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

How is differentiation parity different from cost parity?

Differentiation parity deals with value not cost

strategic trade-offs

Choices between a cost or value position. Such choices are necessary because higher value creation tends to generate higher cost

confirmation bias

Cognitive bias in which individuals tend to search for and interpret information in a way that supports their prior beliefs. Regardless of facts and data presented, individuals will stick with their prior hypothesis

realized strategy

Combination of intended and emergent strategy

cognitive limitations

Constraints such as time or the brain's in-ability to process large amounts of data that prevent us from appropriately processing and evaluating each piece of information we encounter

Value drivers contribute to a firm's competitive advantage only if

the increase in value creation exceeds the increase in costs

activities

Distinct and fine-grained business processes that enable firms to add incremental value by transforming inputs into goods and services

competitive industry structure

Elements and features common to all industries, including the number and size of competitors, the firms' degree of pricing power, the type of product or service offered, and the height of entry barriers

organizational core values

Ethical standards and norms that govern the behavior of individuals within a firm or organization

strategy canvas

Graphical depiction of a company's relative performance vis-à-vis its competitors across the industry's key success factors

black swan events

Incidents that describe highly improbable but high-impact events

diseconomies of scale

Increases in cost per unit when output increases

strategic management process

Method put in place by strategic leaders to formulate and implement a strategy, which can lay the foundation for a sustainable competitive advantage

costly-to-imitate

One of the four key criteria in the VRIO framework. A resource is costly to imitate if firms that do not possess the resource are unable to develop or buy the resource at a comparable cost

rare resource

One of the four key criteria in the VRIO framework. A resource is rare if the number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition

intangible resources

Resources that do not have physical attributes and thus are invisible

dialectic inquiry

Technique that can help to improve strategic decision making; key element is that two teams each generate a detailed but alternate plan of action (thesis and anti-thesis). The goal, if feasible, is to achieve a synthesis between the two plans

resource-allocation process (RAP)

The way a firm allocates its resources based on predetermined policies, which can be critical in shaping its realized strategy

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 are critical to gaining and sustaining competitive advantage

theory of bounded rationality

When individuals face decisions, their rationality is con-fined by cognitive limitations and the time available to make a decision. Thus, individuals tend to "satisfice" rather than to optimize

how do you calculate economic profit/loss

accounting profit - opportunity cost

To help a firm achieve a competitive advantage, each distinct activity performed in the value chain needs to

contribute to the firm's strategic position as either low-cost leader or differentiator

Tangles Costume Jewelry offers slightly lower quality merchandise than competitors at a much lower price. What strategy is Tangles using?

cost leadership

the greater the difference between value creation and cost, the greater the firm's

economic contribution

PESTEL model

framework that categorizes and analyzes an important set of external factors that might impinge upon a firm, and can create both opportunities and threats for the firm

COGS/Revenue

indicates how efficiently a company can produce a good

long-term assets / revenue

indicates how much of each dollar a firm earns in revenues is tied up in long-term assets

What are the components of the PESTEL model

political, economic, sociocultural, technological, ecological, legal

What three important stakeholder attributes should be paid attention to in each step of stakeholder impact analysis?

power, legitimacy, urgency

A firm's what relates to its ability to create value for customers (V) while containing the cost to do so (C)

strategic position

when does a firm have a sustainable competitive advantage

when it is able to outperform its competitors or the industry average over a prolonged period of time