BUS-421 midterm study guide

Explaining advantages/disadvantages of alliances [ch 6]

A strategic alliance is a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective. Most alliances that aim at sharing technology or providing market access turn out to be temporary, lasting only a few years. This is not necessarily an indicator of failure, however. Strategic alliances can be terminated after a few years simply because they have fulfilled their purpose; indeed, many alliances are intended to be of limited duration, set up to accomplish specific short-term objectives. Longer-lasting collaborative arrangements, however, may provide even greater strategic benefits. Alliances are more likely to be long-lasting when (1) they involve collaboration with partners that do not compete directly, such as suppliers or distribution allies; (2) a trusting relationship has been established; and (3) both parties conclude that continued collaboration is in their mutual interest, perhaps because new opportunities for learning are emerging. The principal advantages of strategic alliances over vertical integration or horizontal mergers and acquisitions are threefold: 1. They lower investment costs and risks for each partner by facilitating resource pooling and risk sharing. This can be particularly important when investment needs and uncertainty are high, such as when a dominant technology standard has not yet emerged. 2. They are more flexible organizational forms and allow for a more adaptive response to changing conditions. Flexibility is essential when environmental conditions or technologies are changing rapidly. Moreover, strategic alliances under such circumstances may enable the development of each partner's dynamic capabilities. 3. They are more rapidly deployed—a critical factor when speed is of the essence. Speed is of the essence when there is a winner-take-all type of competitive situation, such as the race for a dominant technological design or a race down a steep experience curve, where there is a large first-mover advantage. While strategic alliances provide a way of obtaining the benefits of vertical integration, mergers and acquisitions, and outsourcing, they also suffer from some of the same drawbacks. Anticipated gains may fail to materialize due to an overly optimistic view of the synergies or a poor fit in terms of the combination of resources and capabilities. When outsourcing is conducted via alliances, there is no less risk of becoming dependent on other companies for essential expertise and capabilities—indeed, this may be the Achilles' heel of such alliances. Moreover, there are additional pitfalls to collaborative arrangements. The greatest danger is that a partner will gain access to a company's proprietary knowledge base, technologies, or trade secrets, enabling the partner to match the company's core strengths and costing the company its hard-won competitive advantage. This risk is greatest when the alliance is among industry rivals or when the alliance is for the purpose of collaborative R&D, since this type of partnership requires an extensive exchange of closely held information.

Explaining strategic group mapping and maps' usefulness (E) [ch 3, pp. 71-73]

A strategic group is a cluster of industry rivals that have similar competitive approaches and market positions. Strategic group mapping is a technique for displaying the different market or competitive positions that rival firms occupy in the industry. The procedure for creating a strategic group map is straightforward: 1. Identify the competitive characteristics that delineate strategic approaches used in the industry. (a) Price and quality range (high, medium, low) (b) Geographic coverage (local, regional, national, global) (c) Product-line breadth (wide, narrow) (d) Degree of service offered (no frills, limited, full) (e) Distribution channels (retail, wholesale, Internet, multiple) (f) Degree of vertical integration (none, partial, full) (g) Degree of diversification into other industries (none, some, considerable) 2. Plot the firms on a two-variable map using pairs of competitive characteristics. 3. Assign firms occupying about the same map location to the same strategic group. 4. Draw circles around each strategic group, making the circles proportional to the size of the group's share of total industry sales revenues. Several guidelines need to be observed in creating strategic group maps. 1. The two variables selected as axes for the map should not be highly correlated; if they are, the circles on the map will fall along a diagonal and reveal nothing more about the relative positions of competitors than would be revealed by comparing the rivals on just one of the variables. 2. The variables chosen as axes for the map should reflect important differences among rival approaches—when rivals differ on both variables, the locations of the rivals will be scattered, thus showing how they are positioned differently. 3. The variables used as axes don't have to be either quantitative or continuous; rather, they can be discrete variables, defined in terms of distinct classes and combinations. 4. Drawing the sizes of the circles on the map proportional to the combined sales of the firms in each strategic group allows the map to reflect the relative sizes of each strategic group. 5. If more than two good variables can be used as axes for the map, then it is wise to draw several maps to give different exposures to the competitive positioning relationships present in the industry's structure—there is not necessarily one best map for portraying how competing firms are positioned. ---- Strategic group maps are revealing in several respects. The most important has to do with identifying which industry members are close rivals and which are distant rivals. Firms in the same strategic group are the closest rivals; the next closest rivals are in the immediately adjacent groups. Often, firms in strategic groups that are far apart on the map hardly compete at all. For instance, Walmart's clientele, merchandise selection, and pricing points are much too different to justify calling Walmart a close competitor of Neiman Marcus or Saks Fifth Avenue. For the same reason, the beers produced by Yuengling are really not in competition with the beers produced by Pabst. The second thing to be gleaned from strategic group mapping is that not all positions on the map are equally attractive. Two reasons account for why some positions can be more attractive than others: 1. Prevailing competitive pressures from the industry's five forces may cause the profit potential of different strategic groups to vary. 2. Industry driving forces may favor some strategic groups and hurt others. Likewise, industry driving forces can boost the business outlook for some strategic groups and adversely impact the business prospects of others.

Evaluating and operationalizing offensive strategy options: blue ocean (E) [ch 6, pp. 152-153, 158]

Blue-Ocean Strategy - a Special Kind of Offensive The business universe is divided into: ∙ An existing market with boundaries and rules in which rival firms compete for advantage ∙ A "blue ocean" market space, where the industry has not yet taken shape, with no rivals and wide-open long-term growth and profit potential for a firm that can create demand for new types of products. A blue-ocean strategy offers growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand. This renders existing competitors irrelevant. Ex. Zipcar vs. traditional car rentals. The challenge in this strategy is long-term success. Fast followers can destroy an early market advantage if not properly protected. Particularly when there are low barriers to entry and consumers can switch providers with minimal cost. The Potential for First-Mover Advantages Being a pioneer is risky and typically means greater development costs than followers. However it will offer at least a short-term monopoly position which can sometimes be leveraged into a sustained competitive advantage. There are five conditions in which first-mover advantages are most likely to arise: 1. When pioneering helps build a firm's reputation and creates strong brand loyalty 2. When a first mover's customers will thereafter face significant switching costs (i.e., loyalty programs or long-term contracts) 3. When property rights protections thwart rapid imitation of the initial move (i.e., patents, copyrights, trademarks) 4. When an early lead enables movement down the learning curve ahead of rivals 5. When a first mover can set the technical standard for the industry. This requires fast-cycle product development, penetration pricing, supporting customers & suppliers, and allied producers of complementary products. The Potential for Late-Mover Advantages or First-Mover Disadvantages There can also be advantages to being an adept follower rather than a first mover. Late-mover advantages (or first-mover disadvantages) arise in the following instances: ∙ When pioneering is more costly than imitating and offers negligible experience or learning-curve benefits ∙ When the products of an innovator are somewhat primitive and do not live up to buyer expectations ∙ When rapid market evolution allows fast followers to leapfrog a first mover's products with more attractive next-version products ∙ When market uncertainties make it difficult to ascertain what will eventually succeed ∙ When customer loyalty is low and first mover's skills, know-how, and actions are easily copied or surpassed To Be a First Mover or Not There is a market penetration curve for every emerging opportunity. The curve has an inflection point at which all the pieces of the business model fall into place, buyer demand explodes, and the market takes off. That curve may come early or late. Any company that seeks competitive advantage by being a first mover needs to ask some hard questions: ∙ Does market takeoff depend on complementary products or services that currently are not available? ∙ Is new infrastructure required before buyer demand can surge? ∙ Will buyers need to learn new skills or adopt new behaviors? ∙ Will buyers encounter high switching costs in moving to the newly introduced product or service? ∙ Are there influential competitors in a position to delay or derail the efforts of a first mover? If the answer to any of these questions is yes, this suggests that the curve will likely be slower, so a company should be careful not to over invest ahead of the market opportunity. In a winner-take-all market, first-mover advantages may insulate the firm from moves made by later competitors, so it may be better to move quickly despite the risks.

Evaluating and operationalizing offensive strategy options (E) [ch 6, pp. 149-152]

Sometimes a company's best strategic option is to seize the initiative, go on the attack, and launch a strategic offensive to improve its market position. Strategic offensives are called for when a firm spots opportunities to gain market share at its rivals' expense or when forced to whittle away at a strong rival's competitive advantage. The best offensives utilize the following principles: 1. Focusing relentlessly on building competitive advantage and then striving to convert it into sustainable advantage 2. Applying resources where rivals are least able to defend themselves 3. Employing the element of surprise as opposed to doing what rivals expect and are prepared for 4. Displaying a capacity for swift, decisive, and overwhelming actions to overpower rivals Choosing the Basis for Competitive Attack The best offensives use a company's most powerful resources and capabilities to attack rivals in the areas where they are competitively weakest. However they must keep the following in mind: ∙ Avoid directly challenging a targeted competitor where it is strongest. ∙ Use the firm's strongest strategic assets to attack a competitor's weaknesses. ∙ The offensive may not yield immediate results if market rivals are strong competitors. ∙ Be prepared for the threatened competitor's counter-response. The principal offensive strategy options include the following: 1. Offering an equally good or better product at a lower price. Price cutting offensives should only be initiated by companies that have first achieved a cost advantage. Otherwise any additional sales may not compensate for thinner margins. 2. Leapfrogging competitors by being first to market with next-generation products. Ex. Xbox 360 vs. PS3. 3. Pursuing continuous product innovation to draw sales and market share away from less innovative rivals. Such offensives can only be sustained if a company can keep its pipeline full with exciting new products. 4. Pursuing disruptive product innovations to create new markets. Riskier than continuous innovation but can be a game changer when successful. Ex. Online colleges. 5. Adopting and improving on the good ideas of other companies (rivals or otherwise). 6. Using hit-and-run or guerrilla marketing tactics to grab market share from complacent or distracted rivals. Aka attacking when the enemy is down. Best suited to small challengers that can't face industry leaders head on. 7. Launching a preemptive strike to secure an industry's limited resources or capture a rare opportunity. This doesn't block rivals from following but gives the early mover a more defensible, prime position. Example pre-emptive moves include (1) securing the best distributors in a particular geographic region or country; (2) obtaining the most favorable site at a new interchange or intersection in a new shopping mall; (3) tying up the most reliable, high-quality suppliers via exclusive partnerships, long-term contracts, or acquisition; and (4) moving swiftly to acquire the assets of distressed rivals at bargain prices. Choosing Which Rivals to Attack The following are the best targets for offensive attacks: ∙ Market leaders that are in vulnerable competitive positions. Just be careful not to squander resources or precipitate a costly uphill battle for market share. ∙ Runner-up firms with weaknesses in areas where the challenger is strong. ∙ Struggling enterprises on the verge of going under. Best to attack in market segments where the rival makes the most profits to threaten its survival and hasten its exit from the market. ∙ Small local and regional firms with limited capabilities. Most effective against those with limited expertise and resources, that are growing rapidly, or have sophisticated requirements that require stronger suppliers.

Define deliberate strategies [ch 1]

The biggest portion of a company's current strategy flows from previously initiated actions that have proven themselves in the marketplace and newly launched initiatives aimed at edging out rivals and boosting financial performance. This part of management's action plan for running the company is its deliberate strategy, consisting of proactive strategy elements that are both planned and realized as planned (while other planned strategy elements may not work out and are abandoned in consequence) A company's deliberate strategy consists of proactive strategy elements that are planned; its emergent strategy consists of reactive strategy elements that emerge as changing conditions warrant.

Using strategies to deliver superior value to customers [ch 5]

A company can employ any of several basic approaches to competing successfully and gaining a competitive advantage over rivals, but they all involve delivering more value to customers [differentiation] than rivals or delivering value more efficiently [lower costs] than rivals, or both. ∙ More value for customers can mean a good product at a lower price, a superior product worth paying more for, or a best-value offering that represents an attractive combination of price, features, service, and other appealing attributes. ∙ Greater efficiency means delivering a given level of value to customers at a lower cost to the company. But whatever approach to delivering value the company takes, it nearly always requires performing value chain activities differently than rivals and building competitively valuable resources and capabilities that rivals cannot readily match or trump. Delivering Superior Value via a Broad Differentiation Strategy Differentiation strategies depend on meeting customer needs in unique ways or creating new needs through activities such as innovation or persuasive advertising. The objective is to offer customers something that rivals can't—at least in terms of the level of satisfaction. There are four basic routes to achieving this aim. 1. The first route is to incorporate product attributes and user features that lower the buyer's overall costs of using the company's product. This is the least obvious and most overlooked route to a differentiation advantage. 2. A second route is to incorporate tangible features that increase customer satisfaction with the product, such as product specifications, functions, and styling. This can be accomplished by including attributes that add functionality; enhance the design; save time for the user; are more reliable; or make the product cleaner, safer, quieter, simpler to use, more portable, more convenient, or longer-lasting than rival brands. 3. A third route to a differentiation-based competitive advantage is to incorporate intangible features that enhance buyer satisfaction in noneconomic ways. Toyota's Prius appeals to environmentally conscious motorists not only because these drivers want to help reduce global carbon dioxide emissions but also because they identify with the image conveyed. 4. The fourth route is to signal the value of the company's product offering to buyers. Typical signals of value include a high price (in instances where high price implies high quality and performance), more appealing or fancier packaging than competing products... For the strategy to result in competitive advantage, the company's competencies must also be sufficiently unique in delivering value to buyers that they help set its product offering apart from those of rivals. They must be competitively superior.

Identifying strategies to improve sales performance [ch 1]

A strategy defines what actions a company should take... • To improve its financial performance • To strengthen its competitive position • To gain a sustainable competitive advantage over its rivals Mimicking the strategies of successful industry rivals—with either copycat product offerings or maneuvers to stake out the same market position—rarely works. Rather, every company's strategy needs to have some distinctive element that draws in customers and provides a competitive edge. Strategy, at its essence, is about competing differently—doing what rival firms don't do (or do it better) or doing what rival firms can't do. A creative, distinct strategy will... • Help produce above-average profits • Increase competitive pressure on rivals The five basic strategic approaches to winning a competitive advantage (also known as the five generic competitive strategies) include: 1. A low-cost provider strategy. Sustainable while rivals cannot match the pricing. 2. A broad differentiation strategy. Appeals to a broader spectrum of buyers. Sustainable while innovative enough to thwart rivals from imitation. 3. A focused low-cost strategy. Focused on low-costs in a niche market. Such as offering generic/unbranded products for cheaper than the big brands or private-label manufacturers. 4. A focused differentiation strategy. Boutique products to meet specialized, unique, or custom needs, typically at a premium price. 5. A best-cost provider strategy. Blends low-cost with differentiation. Provides some limited availability or unique products while also offering lower prices.

Analyzing and changing a value chain (E) [ch 4, pp. 103-104, 105]

Accurately assessing a company's competitiveness entails scrutinizing the nature and costs of value chain activities throughout the entire value chain system for delivering its products or services to end-use customers. A typical value chain system that incorporates the value chains of suppliers and forward-channel allies (if any) is shown in Figure 4.4. As was the case with company value chains, the specific activities constituting value chain systems vary significantly from industry to industry. Benchmarking is a potent tool for improving a company's own internal activities that is based on learning how other companies perform them and borrowing their "best practices." Managers can pursue any of several strategic approaches to reduce the costs of internally performed value chain activities and improve a company's cost-competitiveness. 1. They can implement best practices throughout the company, particularly for high-cost activities. 2. They can redesign the product and/or some of its components to eliminate high-cost components or facilitate speedier and more economical manufacture or assembly. 3. They can relocate high-cost activities (such as manufacturing) to geographic areas where they can be performed more cheaply or outsource activities to lower-cost vendors or contractors.

Evaluating and operationalizing offensive strategy options: scope of the firm (E) [ch 6, pp. 158-159]

Apart from considerations of competitive moves and their timing, there is another set of managerial decisions that can affect the strength of a company's market position. These decisions concern the scope of a company's operations—the breadth of its activities and the extent of its market reach. Decisions regarding the scope of the firm focus on which activities a firm will perform internally and which it will not. Decisions such as these, in essence, determine where the boundaries of a firm lie and the degree to which the operations within those boundaries cohere. They also have much to do with the direction and extent of a business's growth. [The scope of the firm refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses.] Several dimensions of firm scope have relevance for business-level strategy in terms of their capacity to strengthen a company's position in a given market. These include the firm's horizontal scope, which is the range of product and service segments that the firm serves within its product or service market. Mergers and acquisitions involving other market participants provide a means for a company to expand its horizontal scope. Expanding the firm's vertical scope by means of vertical integration can also affect the success of its market strategy. Vertical scope is the extent to which the firm engages in the various activities that make up the industry's entire value chain system, from initial activities such as raw-material production all the way to retailing and after-sale service activities. Outsourcing decisions concern another dimension of scope since they involve narrowing the firm's boundaries with respect to its participation in value chain activities. Outsourcing decisions concern another dimension of scope since they involve narrowing the firm's boundaries with respect to its participation in value chain activities. Strategic alliances and partnerships provide an alternative to vertical integration and acquisition strategies and are sometimes used to facilitate outsourcing.

Explain how to face disruptive changes [ch 2]

But whenever a company encounters disruptive changes in its environment, questions need to be raised about the appropriateness of its direction and strategy. If a company experiences a downturn in its market position or persistent shortfalls in performance, then company managers are obligated to ferret out the causes—do they relate to poor strategy, poor strategy execution, or both?—and take timely corrective action. A company's direction, objectives, and strategy have to be revisited anytime external or internal conditions warrant.

Comparing a business vs. a corporate strategy (E) [ch 2, pp. 33-34]

Corporate strategy is orchestrated by the CEO and other senior executives and establishes an overall strategy for managing a set of businesses in a diversified, multibusiness company. Corporate strategy concerns how to improve the combined performance of the set of businesses the company has diversified into by capturing cross-business synergies and turning them into a competitive advantage. It addresses the questions of what businesses to hold or divest, which new markets to enter, and how to best enter new markets (by acquisition, creation of a strategic alliance, or through internal development, for example). Business strategy is concerned with strengthening the market position, building competitive advantage, and improving the performance of a single business unit of a diversified company or single-business firm. In a diversified firm, business strategy is primarily the responsibility of business unit heads, although corporate-level executives may well exert strong influence; in such companies it is not unusual for corporate officers to insist that business-level objectives and strategy conform to corporate-level objectives and strategy themes. The business head has at least two other strategy-related roles: (1) seeing that lower-level strategies are well conceived, consistent, and adequately matched to the overall business strategy; and (2) keeping corporate-level officers (and sometimes the board of directors) informed of emerging strategic issues. In single-business companies, the uppermost level of the strategy-making hierarchy is the business strategy, so a single-business company has three levels of strategy: business strategy, functional-area strategies, and operating strategies. Proprietorships, partnerships, and owner-managed enterprises may have only one or two strategy-making levels since it takes only a few key people to craft and oversee the firm's strategy. The larger and more diverse the operations of an enterprise, the more points of strategic initiative it has and the more levels of management that have a significant strategy-making role.

Using cost drivers to manage value chain activities cost [ch 5]

Cost-Efficient Management of Value Chain Activities For a company to do a more cost-efficient job of managing its value chain than rivals, managers must diligently search out cost-saving opportunities in every part of the value chain. No activity can escape cost-saving scrutiny, and all company personnel must be expected to use their talents and ingenuity to come up with innovative and effective ways to keep down costs. Particular attention must be paid to a set of factors known as cost drivers that have a strong effect on a company's costs and can be used as levers to lower costs. Figure 5.2 shows the most important cost drivers. Cost-cutting approaches that demonstrate an effective use of the cost drivers include: Revamping of the Value Chain System to Lower Costs Dramatic cost advantages can often emerge from redesigning the company's value chain system in ways that eliminate costly work steps and entirely bypass certain cost-producing value chain activities. Such value chain revamping can include: 1. Selling direct to consumers and bypassing the activities and costs of distributors and dealers. 2. Streamlining operations by eliminating low-value-added or unnecessary work steps and activities. 3. Reducing materials handling and shipping costs by having suppliers locate their plants or warehouses close to the company's own facilities.

Strategizing to create a differentiation advantage (E) [ch 5, pp. 130-135]

Differentiation opportunities can exist in activities all along a value chain. The most systematic approach involves focusing on value drivers (aka uniqueness drivers), a set of factors-analogous to cost drivers-that help create differentiation. A value driver (or uniqueness driver) can: ∙ Have a strong differentiating effect ∙ Be based on physical as well as functional attributes of a firm's products ∙ Be the result of the superior performance capabilities of the firm's human capital ∙ Have an effect on more than one of the firm's value chain activities ∙ Create a perception of value (brand loyalty) in buyers where there is little reason for it to exist Some of the ways that managers can enhance differentiation based on value drivers include the following: 1. Create product features and performance attributes that appeal to a wide range of buyers. 2. Improve customer service or add extra services. 3. Invest in production-related R&D activities. 4. Strive for innovation and technological advances. 5. Pursue continuous quality improvement. 6. Increase marketing and brand-building activities. 7. Seek out high-quality inputs. 8. Emphasize human resource management activities that improve the skills, expertise, and knowledge of company personnel. Activities performed upstream by suppliers or downstream by distributors and retailers can have a meaningful effect on customers' perceptions of a company's offerings and its value proposition. Approaches to enhancing differentiation through changes in the value chain system include: ∙ Coordinating with channel allies (distributors, dealers, brokers, retailers) to enhance customer [perceptions of] value. ∙ Coordinating with suppliers to better address customer needs. Can speed up new product development and delivery. Differentiation strategies work best in market circumstances where: 1. Buyer needs and uses of the product are diverse. 2. There are many ways to differentiate the product or service that have value to buyers. 3. Few rival firms are following a similar differentiation approach. 4. Technological change is fast-paced and competition revolves around rapidly evolving product features. Pitfalls to Avoid in Pursuing a Differentiation Strategy ∙ Relying on product attributes easily copied by rivals. ∙ Introducing unique product features that buyers see little value in or that do not evoke an enthusiastic buyer response. ∙ Eroding profitability by overspending on efforts to differentiate the firm's product offering. ∙ Offering only trivial improvements in quality, service, or performance features vis-à-vis the products of rivals. ∙ Over-differentiating the product with quality, features, or service levels that exceed the needs of most buyers. ∙ Charging too high a price premium. The higher the price the harder it is to keep buyers from switching products.

Explain conditions in a competitive marketplace [ch 3]

Every company operates in a broad "macro-environment" that comprises six principal components: political factors; economic conditions in the firm's general environment (local, country, regional, worldwide); sociocultural forces; technological factors; environmental factors (concerning the natural environment); and legal/regulatory conditions. Each of these components has the potential to affect the firm's more immediate industry and competitive environment, although some are likely to have a more important effect than others. PESTEL analysis can be used to assess the strategic relevance of the six principal components of the macro-environment: Political, Economic, Social, Technological, Environmental, and Legal/Regulatory forces. The most powerful and widely used tool for diagnosing the principal competitive pressures in a market is the five forces framework. This framework holds that competitive pressures on companies within an industry come from five sources. These include (1) competition from rival sellers, (2) competition from potential new entrants to the industry, (3) competition from producers of substitute products, (4) supplier bargaining power, and (5) customer bargaining power. Thinking strategically about a company's industry and competitive environment entails using some well-validated concepts and analytic tools. These include the five forces framework (p. 50), the value net (p. 66), driving forces (p. 67), strategic groups (p. 71), competitor analysis (p. 74), and key success factors (p. 75). Proper use of these analytic tools can provide managers with the understanding needed to craft a strategy that fits the company's situation within their industry environment.

Creating financial objectives (characteristics) [ch 2]

Financial objectives relate to the financial performance targets management has established for the organization to achieve. Strategic objectives relate to target outcomes that indicate a company is strengthening its market standing, competitive position, and future business prospects. Examples: An x percent increase in annual revenues Annual increases in after-tax profits of x percent Annual increases in earnings per share of x percent A company's set of financial and strategic objectives should include both near-term and longer-term performance targets. Short-term (quarterly or annual) objectives focus attention on delivering performance improvements in the current period and satisfy shareholder expectations for near-term progress. Longer-term targets (three to five years off) force managers to consider what to do now to put the company in position to perform better later. Long-term objectives are critical for achieving optimal long-term performance and stand as a barrier to a nearsighted management philosophy and an undue focus on short-term results.

Determining a net competitive advantage or disadvantage (E) [ch 4, pp. 109-111]

High-weighted competitive strength ratings signal a strong competitive position and possession of competitive advantage; low ratings signal a weak position and competitive disadvantage. The overall competitive strength scores indicate how all the different strength measures add up—whether the company is at a net overall competitive advantage or disadvantage against each rival. The higher a company's overall weighted strength rating, the stronger its overall competitiveness versus rivals. The bigger the difference between a company's overall weighted rating and the scores of lower-rated rivals, the greater is its implied net competitive advantage. Thus, Rival 1's overall weighted score of 7.70 indicates a greater net competitive advantage over Rival 2 (with a score of 2.10) than over ABC Company (with a score of 5.95). Conversely, the bigger the difference between a company's overall rating and the scores of higher-rated rivals, the greater its implied net competitive disadvantage. Rival 2's score of 2.10 gives it a smaller net competitive disadvantage against ABC Company (with an overall score of 5.95) than against Rival 1 (with an overall score of 7.70).

Comparing the five forces and effects on an industry's profitability (E) [ch 3, p. 65]

Is the Collective Strength of the Five Competitive Forces Conducive to Good Profitability? Assessing whether each of the five competitive forces gives rise to strong, moderate, or weak competitive pressures sets the stage for evaluating whether, overall, the strength of the five forces is conducive to good profitability. Is any of the competitive forces sufficiently powerful to undermine industry profitability? Can companies in this industry reasonably expect to earn decent profits in light of the prevailing competitive forces? The most extreme case of a "competitively unattractive" industry occurs when all five forces are producing strong competitive pressures. Strong competitive pressures coming from all five directions drive industry profitability to unacceptably low levels, frequently producing losses for many industry members and forcing some out of business. But an industry can be competitively unattractive without all five competitive forces being strong. In fact, intense competitive pressures from just one of the five forces may suffice to destroy the conditions for good profitability and prompt some companies to exit the business. As a rule, the strongest competitive forces determine the extent of the competitive pressure on industry profitability. Thus, in evaluating the strength of the five forces overall and their effect on industry profitability, managers should look to the strongest forces. Having more than one strong force will not worsen the effect on industry profitability, but it does mean that the industry has multiple competitive challenges with which to cope. In that sense, an industry with three to five strong forces is even more "unattractive" as a place to compete. Effectively matching a company's business strategy to prevailing competitive conditions has two aspects: 1. Pursuing avenues that shield the firm from as many of the different competitive pressures as possible. 2. Initiating actions calculated to shift the competitive forces in the company's favor by altering the underlying factors driving the five forces. But making headway on these two fronts first requires identifying competitive pressures, gauging the relative strength of each of the five competitive forces, and gaining a deep enough understanding of the state of competition in the industry to know which strategy buttons to push.

Explain reactive/emergent strategies [ch 1]

Managers must always be willing to supplement or modify the proactive (deliberate) strategy elements with as-needed reactions to unanticipated conditions. Inevitably, there will be occasions when market and competitive conditions take an unexpected turn that calls for some kind of strategic reaction. Hence, a portion of a company's strategy is always developed on the fly, coming as a response to fresh strategic maneuvers on the part of rival firms, unexpected shifts in customer requirements, fast-changing technological developments, newly appearing market opportunities, a changing political or economic climate, or other unanticipated happenings in the surrounding environment. These adaptive strategy adjustments make up the firm's emergent strategy. A company's strategy in toto (its realized strategy) thus tends to be a combination of proactive and reactive elements, with certain strategy elements being abandoned because they have become obsolete or ineffective. A company's realized strategy can be observed in the pattern of its actions over time, which is a far better indicator than any of its strategic plans on paper or any public pronouncements about its strategy.

Developing a competitive advantage through resources [ch 4]

Resource and capability analysis provides managers with a powerful tool for sizing up the company's competitive assets and determining whether they can provide the foundation necessary for competitive success in the marketplace. The competitive power of a resource or capability is measured by how many of four specific tests it can pass. These tests are referred to as the VRIN tests for sustainable competitive advantage—VRIN is a shorthand reminder standing for Valuable (improves customer value or profit formula), Rare (something rivals lack), Inimitable (hard to copy), and Nonsubstitutable (no substitutes exist). The first two tests determine whether a resource or capability can support a competitive advantage. The last two determine whether the competitive advantage can be sustained. Resources and capabilities must be continually strengthened and nurtured to sustain their competitive power and, at times, may need to be broadened and deepened to allow the company to position itself to pursue emerging market opportunities. Organizational resources and capabilities that grow stale can impair competitiveness unless they are refreshed, modified, or even phased out and replaced in response to ongoing market changes and shifts in company strategy. Management's challenge in managing the firm's resources and capabilities dynamically has two elements: (1) attending to the ongoing modification of existing competitive assets, and (2) casting a watchful eye for opportunities to develop totally new kinds of capabilities.

Identifying opportunities in light of a company's strengths [ch 4]

SWOT analysis is a simple but powerful tool for sizing up a company's strengths and weaknesses, its market opportunities, and the external threats to its future well-being. A strength is something a company is good at doing or an attribute that enhances its competitiveness in the marketplace. A company's strengths depend on the quality of its resources and capabilities. Resource and capability analysis provides a way for managers to assess the quality objectively. While resources and capabilities that pass the VRIN tests of sustainable competitive advantage are among the company's greatest strengths, other types can be counted among the company's strengths as well. A capability that is not potent enough to produce a sustainable advantage over rivals may yet enable a series of temporary advantages if used as a basis for entry into a new market or market segment. A resource bundle that fails to match those of top-tier competitors may still allow a company to compete successfully against the second tier.

Analyzing the five competitive forces [ch 3]

The five forces framework holds that competitive pressures come from five sources: 1. Competition from rival sellers 2. Competition from potential new entrants 3. Competition from producers of substitute products 4. Supplier bargaining power 5. Customer bargaining power Using the five forces model to determine the nature and strength of competitive pressures in a given industry involves three steps: Step 1: For each of the five forces, identify the different parties involved, along with the specific factors that bring about competitive pressures. Step 2: Evaluate how strong the pressures stemming from each of the five forces are (strong, moderate, or weak). Step 3: Determine whether the five forces, overall, are supportive of high industry profitability.

How to evaluate a standout vs. low-performing company's strategy (E) [ch 1, pp. 12-13]

Three tests can be applied to determine whether a strategy is a winning strategy: 1. The Fit Test: Does the strategy exhibit fit with the external (with respect to current market conditions), internal (the company has the resources and capabilities to execute), and dynamic (it must be adaptable and remain in alignment with changing company goals and internal & external conditions) dimensions of a company's situation? 2. The Competitive Advantage Test: Does it help the company achieve a sustainable competitive advantage? 3. The Performance Test: Will it produce superior results in profitability, financial/competitive strength, and market share? --- 1. The Fit Test (external and internal): How well does the strategy fit the company's situation? To qualify as a winner, a strategy has to be well matched to industry and competitive conditions, a company's best market opportunities, and other pertinent aspects of the business environment in which the company operates. No strategy can work well unless it exhibits good external fit with respect to prevailing market conditions. At the same time, a winning strategy must be tailored to the company's resources and competitive capabilities and be supported by a complementary set of functional activities (i.e., activities in the realms of supply chain management, operations, sales and marketing, and so on). That is, it must also exhibit an internal fit and be compatible with a company's ability to execute the strategy in a competent manner. Unless a strategy exhibits good fit with both the external and internal aspects of a company's overall situation, it is likely to be an underperformer and will fall short of producing winning results. Winning strategies also exhibit dynamic fit in the sense that they evolve over time in a manner that maintains close and effective alignment with the company's situation even as external and internal conditions change. 2. The Competitive Advantage Test: Is the strategy helping the company achieve a sustainable competitive advantage? Strategies that fail to achieve a persistent competitive advantage over rivals are unlikely to produce superior performance for more than a brief period of time. Winning strategies enable a company to achieve a competitive advantage over key rivals that is long-lasting. The bigger and more durable the competitive advantage, the more powerful it is. 3. The Performance Test: Is the strategy producing superior company performance? The mark of a winning strategy is strong company performance. Two kinds of performance indicators tell the most about the caliber of a company's strategy: (1) competitive strength and market standing and (2) profitability and financial strength. Above-average financial performance or gains in market share, competitive position, or profitability are signs of a winning strategy. Strategies—either existing or proposed—that come up short on one or more of the preceding tests are plainly less appealing than strategies passing all three tests with flying colors. New initiatives that don't seem to match the company's internal and external situations should be scrapped before they come to fruition, while existing strategies must be scrutinized on a regular basis to ensure they have good fit, offer a competitive advantage, and are contributing to above-average performance or performance improvements. Failure to pass one or more of the three tests should prompt managers to make immediate changes in an existing strategy.

Identifying a company's ranking in a market (E) [ch 4, p. 109]

Using resource and capabilty analysis, value chain analysis, and benchmarking to determine a company's competitiveness on value and cost is necessary but not sufficient. A more comprehensive assessment needs to be made of the company's overall competitive strength. The answers to two questions are of particular interest: 1. First, how does the company rank relative to competitors on each of the important factors that determine market success? [answers this question] 2. Second, all things considered, does the company have a net competitive advantage or disadvantage vs. major competitors? [answers following question] An easy-to-use method for answering these two questions involves developing quantitative strength ratings for the company and its key competitors on each industry key success factor and each competitively pivotal resource, capability, and value chain activity. Much of the information needed for doing a competitive strength assessment comes from previous analyses. Step 1 in doing a competitive strength assessment is to make a list of the industry's key success factors and other telling measures of competitive strength or weakness (6 to 10 measures usually suffice). Step 2 is to assign weights to each of the measures of competitive strength based on their perceived importance. (The sum of the weights for each measure must add up to 1.) Step 3 is to calculate weighted strength ratings by scoring each competitor on each strength measure (using a 1-to-10 rating scale, where 1 is very weak and 10 is very strong) and multiplying the assigned rating by the assigned weight. Step 4 is to sum the weighted strength ratings on each factor to get an overall measure of competitive strength for each company being rated. Step 5 is to use the overall strength ratings to draw conclusions about the size and extent of the company's net competitive advantage or disadvantage and to take specific note of areas of strength and weakness. --- Industry and competitive analyses reveal the key success factors and competitive forces that separate industry winners from losers. Benchmarking data and scouting key competitors provide a basis for judging the competitive strength of rivals on such factors as cost, key product attributes, customer service, image and reputation, financial strength, technological skills, distribution capability, and other factors.