COMM 401 Final Exam
In what ways can an alliance with a supplier cut costs?
encourage them to better meet each other's needs by improving quality; eliminate inventory through JIT delivery; and direct R&D; spreading the investment costs of new technology across multiple companies
M&As are attractive when ....
management is unable to negotiate a contract in which the benefits exceed the costs of the business relationship, or management needs to feel a greater control over operations.
What is the definition of ACQUISITION?
one company purchases the assets or shares of another with payment made in cash, securities of the buyer, or other assets of value to the seller
Definition of Strategic Management
process by which the leader of a company manages the formulation and implementation of its strategy
Typical uses for an alliance in a stable environment
production technologies market access ( economies of scale )
Typical uses for an alliance in a dynamic environment
resource gaps create options influence environmental developments quick adaptations
Definition of Strategy
the coordinated means by which an organization pursues its goals and objectives
What is the definition of MERGER?
two companies coming together as one through the exchange of shares; both companies' stocks are surrendered and new company stock is issued in its place
In a value system, what is the part that is considered "upstream" and what is the part considered "downstream"?
• A value system is a chain of companies, each with its own value chain The part of the system that creates and delivers the company's inputs is "upstream"; the part that takes the company's output to the final consumer is "downstream"
What is Disruptive Techonology?
• Disruptive technologies: break-through product- or process-related technology that destroys the incumbents' competencies o Often introduced by new companies o Alters the industry lifecycle; industry reinvigorated and accelerates into growth
Difference between Distinct and Core Competencies
• Distinct competences: capabilities that set a company apart from other companies; something a company can do that competitors cannot duplicated easily • Core competences: capabilities that are central to a company's main business operations and are what allow it to generate new products/services
A company's choice of position is primarily influences by WHAT two factors:
(1) company resources and capabilities (2) industry structure.
What are three ways to enhance competitive advantages through an alliance? (STAGE 1 of the Alliance building strategy)
1 . improve operations - acheiving economies of scale - expanding resources - managing risks while sharing costs 2. enhancing competitive conditions - expanding the arena - developing common standards - providing for collusion 3. facilitating entry and exit - providing low-cost entry - providing low-cost exit - managing uncertainty
Defensive Moves for Incumbents caught off guard. Name 7
1. Absorbing - the most direct way to deal with the new competitor is to buy it 2. Avoiding - another way to deal with a competitive entrant is to avoid it by moving on 3. Containing - when the competitor is already present in the market, the business can work to contain the competitor 4. Countering - company can counter the new entrant's offer by improving its own offer 5. Countervailing - countering an entrant already in business elsewhere is challenging because the entrant can draw on the resources it generates in the other market; one way to counter this is for the business under attack to enter the attacker's other market 6. Locking out - a business can keep potential entrants out through such activities as patenting, behaviour channel control, and government regulations 7. Shaping - if denying the market is impossible, the threatened business can seek to channel the direction in which the entrant develops and so remove the direct threat
Describe the 5 elements of The Strategy Diamond
1. Arenas. Where will we be active? • Areas in which a company participates (products/services, distribution channels, market segments, geographic areas, core technologies, etc.) 2. Vehicles. How will we get there? • Means for participating in targeted arenas (internal development, alliances/joint ventures, acquisitions, etc.) 3. Differentiators. How will we win in the marketplace? • Features/attributes of a company's products/services that help it win sales (image, customization, technical superiority, price, quality, and reliability) 4. Staging and pacing. What will be our speed and sequence of moves? • Timing and pace of strategic moves; driven by resources, urgency, credibility, and need for early wins 5. Economic logic. How will we obtain our returns? • Means by which a company will earn a profit; consider revenues and costs
Describe the Industry Life Cycle
• Evolution and commoditization (the process by which sales eventually come to depend less on unique product features and more on price) • Evolution and reinvigoration • Evolution and information • Evolution and tactics Big changes or influences to the life cycle are Technological Discontinuities Changes can be made through PRODUCT or PROCESS. Product - related changes: Disruptive Technologies and Innovator's dilemma. Process - TQM
What are the 6 steps in a M&A process?
1. Identify Candidates 2. Preliminary Talks 3. Assess Fit (With internal and external analysis) 4. Negotiate Terms 5. Deal Signing to Deal Approval 6. Integration
What are the steps of a stakeholder analysis?
1. Identify the value chain • When setting strategy, decisions made about the arena of the company determine where it comes in contact with the environment 2. Identify the stakeholders • The stakeholders who interact with the value chain are identified; subgroups within the broader groups must be identified specifically 3. Determine the stakeholders' expectations • Stakeholders have expectations about what they will receive from cooperating with the company; their expectations for the present and the future need to be assessed • At this point in the process, the number of stakeholders considered in the analysis can be reduced to those who appear to have outside of "normal" expectations 4. Determine stakeholders' power and influence over decisions • How hard the stakeholder bargains depends on two factors: how important a deal is to it (not all stakeholders affected equally) and how much power it has • Stakeholder-analysis grid -> categorize stakeholders according to the effect of strategy on the stakeholder x the power of stakeholder over strategic decisions 5. Determine which stakeholders will be satisfied and how • The relevant issues need to be prioritized according to their impact on the company in the present and in the future (determine where to focus attention and resources) • Then management decides which stakeholders' expectations will be met, depending in part on how critical the stakeholder is to the business
Name and describe the 5 Generic Strategies:
1. Low-Cost Leadership - a strategic position that enables a company to produce a P/S while maintaining total costs that are lower than what it takes competitors to offer the same P/S • With a cost advantage, a company can gain market share by selling for lower prices than rivals yet maintain the same profit margins • When it keeps its prices close to those of its competitors, it reaps higher margins • Generally, a low-cost position requires sacrificing some features or services; companies that stake out this position try to satisfy basic customer needs (vs. specialized ones) • Companies pursuing a low-cost strategy often have little public visibility because they leave the marketing of their products to others (contract manufacturer) or they produce products that become ingredients/components in the products of other companies 2. Differentiation - a strategic position where a company markets products whose quality, reliability, or prestige is discernably higher than its competitors', and its customers are willing to pay for this uniqueness • Successful differentiation enables companies to do one of two things: 1) Set prices at the industry average (and gain market share because consumers will choose higher quality at the same price) 2) Raise prices over those of competitors (and reap the benefits of higher margins) • To be successful, a company must uniquely satisfy one or more needs that are valued by buyers and do so in a manner superior to that available from most competitors and; • Customers must be willing to pay higher prices for the added points of differentiation 3. Focused Low-Cost Leadership - a strategic position that enables a company to be a low-cost leader in a narrow segment of the market 4. Focused Differentiation - a strategic position where a company's unique products are targeted to a particular market segment • Companies successful as focused differentiators find themselves in niche markets • By definition, the greater the differentiation, the smaller the market segment to which a product will appeal; some companies are able to grow beyond their original niche 5. Integrated Positions - a strategic position in which elements of one position support strong standing in another • Initially it is very difficult for any company to offer both a differentiated product demanding higher prices and still maintain a lower cost structure than competitors • Companies that attempt to exploit both low-cost and differentiation strategies are often described as "stuck in the middle" (aim to do both but do neither very well) • The tradeoffs required to achieve superiority on one dimension make it hard to succeed on the other but some companies are eventually able to achieve an integrated position • The competitive reality is that if a company excels on one dimension, it must still be good on the other dimension o A company that sells unique products must also have good cost controls in place o A company that competes on price is wise to develop additional attributes that differentiate its products beyond price alone o Alternatively, some low-cost companies develop strong brand images even though branding typically supports a differentiation strategy
Name and describe the three Strategy Implementation Levers
1. Organizational Structure • The manner in which responsibilities, tasks and people are organized; includes the organization's authority, hierarchy, units, divisions, and coordinating mechanisms 2. Systems and Processes • All the organizational processes and procedures that plan, coordinate, and control the work of people in the organization; include control and incentive systems, resource-allocation procedures, information systems, budgeting, distribution, etc. 3. People and Rewards • Using all of the organization's members to implement a strategy
An Alliance is strategic when...
1. the exchange of knowledge associated with technology, skills or products takes place. 2. Trust plays a key role in the management of the alliance 3. Success of the alliance depends on the collaborative effort among the companies in it.
What is the strongest approach to Leading?
A Total Approach: While there are alternative processes that can be used in strategic leadership, the complexity of businesses and the benefit of having all in an organization pursuing the strategy prompts leaders to use all three processes at the same time. By blending the three together, Xerox CEO Anne Mulcahy was able to ensure that all employees were functioning around the strategy and that the strategy was making the best of the situation.
What are the four facets of dynamic environment?
A dynamic environment can be separated into four facets: competitive interaction, industry evolution, technological disruption, and global issues.
Difference between Business and Corporate Strategy
Business strategy: strategy to achieve objectives within a particular industry Corporate strategy: strategy to achieve objectives by diversifying into various industries o Management must decide which industries to be in, when and how to enter and leave these industries, and the strategies used by its businesses in each industry
What is the KEY TERM revolving around industry evolution?
Commoditization undoes the basis for segmentation of the market so competitors are drawn into industry-wide competition on the basis of price
(Industry Analysis)What is the '6' addition to Porter's Five Forces?
Complementors (industry that provides P/S that tend to increase sales in another industry) • Increase sales (MP3s and digital files, hot dogs and buns) • Decreased costs (United and Delta airlines ordering from same manufacturer) • Higher value (personal computers and computer peripherals) • Industries that complement each other will still compete to determine their share of the value they create together
Name some types of Alliances:
Consortium, cooperative, countertrade, distribution alliance, franchising, joint venture, licensing, cross-licensing, minority investment, network, outsourcing, purchasing alliance, sales alliance, solution alliance, supplier alliance
Name and Describe the Economic Drivers of "Differentiation Advantage"
Differentiation involves one or more of the following differentiators among product offerings: • Premium brand image • Convenience and customization • Unique styling • Speed (how fast customer is served, how fast products are updated) • Unusually high quality Creating value and promoting willingness to pay Differentiation works when the business can charge a price that more than recovers the extra costs of delivering the value-added features -> greater difference; greater margins
Some of the principal terms negotiated in a deal relate to:
Price, form of payment, financing, timing and deadlines, commitments, control and governance, risk management, form of transactions (legal reorganization of the business and how it's done), social issues, social welfare
(Industry Analysis) What is a key success factor in an industry?
Key success factor (KSF): key asset or requisite skill that all companies in an industry must possess in order to be a viable competitor -> dictated by industry characteristics. It will permit a company to compete but will not grant it a competitive advantage
What are the two FACTORS that a manager can alter to better improve management of the company?
Organization STRUCTURE - formal configuration of individuals and groups with specific tasks, responsibilities and authorities within an org. Organization SYSTEMS - the subsystems and process that are essential and helping people with different responsibilities work together. - MEASUREMENT systems - REWARDS systems - STAFFFING
Describe the PESTEL analysis
PESTEL analysis: a tool to analyze the political, economic, sociocultural, technological, environmental, and legal contexts in which a company operates (pg. 75) • Political factors - stability of the political environment, government policies with respect to regulation and taxation, trade treaties (NAFTA) & regional trading blocs (ASEAN, EU) • Economic factors - inflation rates, interest rates, tariffs, growth of the local and foreign national economies, exchange rates; also, unemployment rates, availability of critical labour, and local labour costs have a strong bearing on strategy • Sociocultural factors - local languages, dominant religions, leisure time, and lifespan demographics; local attitudes toward consumerism, environmentalism, and gender roles in society also vary • Technological factors - does technology enable P/S to be made more cheaply and to a higher quality? Do technologies provide opportunity for more innovative P/S? How do new technologies affect P/S distribution? • Environmental factors - access to raw materials; best viewed as a direct and indirect operating costs for the company -> ecological footprint (air & water pollution, waste) • Legal factors - whether the rule of law is well established, how easily/quickly laws and regulations change, costs of regulatory compliance
some personal factors that can enter into an M&A decision include...
- opportunistic behaviour by top executives - increasing the size of the company can increase personal compensation and enhance personal power of those in top management
What are the 5 major reasons M&As fail ?
- poor strategic rationale - mismatch of cultures - difficulties in communicating and leading the organization - poor integration planning and execution - paying too much for the target company
What are the two stages for building and managing an alliance?
1. Building the case for an alliance 2. Identifying and screening potential partners
What are the three human influences on Strategic Leadership
1. Cognitive Biases 2. Power and Politics 3. Values and Ethics
What are the 5 Key Questions about to test your strategy?
1. Does your strategy exploit your key resources? 2. Does your strategy fit with current industry conditions? 3. Will your differentiators be sustainable? 4. Are the elements of your strategy consistent and aligned with your strategic position? 5. Can your strategy be implemented?
Name and Describe the Economic Drivers of "Low-Cost Advantage"
1. Economies of Scale: condition under which the average cost for a unit of production is lower as the scale of the business increases (larger businesses have lower cost per unit); 2. Learning Curve: incremental production costs decline at a constant rate as production experience is gained; the steeper the learning curve, the more rapidly costs decline Differences: Where economies of scale reflect the scale of the operation during any given period of time - the volume of current production - cost decreases attributable to the learning curve reflect the cumulative level of production since the production of the first unit Economies of Scope - Scope (condition under which lower total average costs result from sharing resources to produce more than one P/S -> multiproduct production) Other sources: production technology, product design, sourcing
What should a company do during each stage of the industry condition/lifecycle: 1. Embryonic Stage 2. Growth Stage 3. Maturity Stage 4. Decline Stage
1. Embryonic: due to the uncertainty and lack of information, the best a company can do while customers are unfamililar is create a strong foothold and build capacity to meet the growing demand. 2. Growth: Important growth decision in companies are made, determining the strategic vehicles they'll use to implement their preferred strategy, resources and capabilities are established and those with advantage exploit them making it more difficult to imitate. 3. Maturity: Because product information is vast, the best competitors can deliver on quality and differentiation.Many mature industries undergo consolidation - the combination of competitors through merger/acquisition. 4. Decline: containing costs is critical as price competition is high. The companies with low-cost positions have the advantage. Many companies are considering the strategy of exiting the industry.
What are the three major Processes for Leading and What are the implications and weaknesses
1. Planned process: top management uses keen analysis to create a plan of action that will put strategy in place by moving the business from where it is to where it needs to be + Implies relatively high certainty about what needs to be done; works well in static and stable situations such as those found in mature industries -> designed approach + Can be applied at the corporate, business, functional, and product level − The planned/designed process assumes that the information needed is available for analysis and can be used to produce a rational decision (not always the case) − Uncertainty, complexity, and ambiguity common when dealing with strategic situations 2. Visioned process: top management provides a vision of where strategy will be taking the company through a vision statement + Allows flexibility since it does not impose conditions on how the business gets there + Calls for managers to set ambitious goals and to develop the resources and capabilities needed to achieve them; all in line with a common superior goal − Vision could be an abstraction - not concrete enough to be useful by itself; hard to translate it into behaviours for workers at all levels of the organization − A concrete vision could catch management in the "tunnel vision trap" 3. Discovered process: people throughout the organization generate strategic ideas from which top management selects some to further (the environment is too complex/rapidly changing for consensus about strategy to be reached therefore strategy needs to be continually redefined through an iterative and evolutionary process) + Allows the business to quickly adapt to changes and "beat" others to opportunities + Allows those with the best information about the opportunities to make decisions − Strong hierarchies with top-down control systems give managers greater ability to block ideas and innovations that do not fit with their own views − Strong organizational cultures that prefer stabilities can limit innovation − Individuals in the organization may not have the necessary mindset for innovation − Championing an idea requires individuals with certain talents; they must overcome cultural inertia and political barriers by inspiring others to support their new ideas
Name the 5 Cognitive Biases
1. Prior hypothesis bias: a decision maker with a strong prior belief makes decisions based on that belief even if evidence proves otherwise; the decision maker also tends to seek and use information consistent with prior beliefs and ignore contradictory information 2. Escalating commitment: a decision maker, already having committed significant resources to a strategy, will commit more resources even after receiving feedback that it is failing; the feeling of personal responsibility induces the decision maker to continue 3. Reasoning by analogy: when faced with a complex or novel situation, the decision maker thinks back to a similar situation and transfers the lessons to the present one 4. How representative: the decision maker may generalize from a vivid example that a single number or a small sample is inappropriate; what you might expect to happen is only clear when you have seen something happen many times 5. Illusion of control: the tendency of decision makers to overestimate their ability to control events; people tend to attribute success to good decision making and failure to bad luck/external factors
Describe some OFFENSIVE moves that can lead a change in the industry
1. Re-conceiving a product/service (Cirque du Soleil) - creating a new value curve - Seperating function and form 2. Reconfiguring the Value Chain (Amazon) - radically new value chain - compress the value chain 3. Redefining the arenas (Coca-cola and Pepsi) - changing the temporal or geographic availability - imagining the total possible market rather than the served market - spearheading industry convergence 4. Rescaling the Industry - increase scale - downscaling to serve narrow or local customers 5. Reconsider the competitive mindset (IBM) - creating complementors out of suppliers, buyers and competitors
What are the potential routes for corporate strategy? Related vs unrelated.... ___
1. Related Diversification - Horizontal Integration (tangible relationships, intangible relationships, competitive relationships) - Vertical Integration (Cost reduction, negative consequences) 2. Unrelated Diversification - conglomerate
What are four key things to learn about a competitor so you can better create your competitive strategy?
1. Understand their objectives 2. Determine their current strategies 3. Seek to understand their future behaviours by considering what assumptions each competitor holds about the industry and about itself 4. What are their key strengths and weaknesses?
The 4 types of middle managers needed for value-add:
1. entrepreneur - 2. communicator - 3. psychoanalyst - 4. tightrope walker -
The two segments of the strategy diamond that focus on formulating and implementing dynamic strategies are..
ARENAS • Industry evolution -> arenas must fit with a company's resources, capabilities, and dynamic capabilities • Technological discontinuities -> role of arenas broadened to include potential customers • Globalization -> managers must apply what they have learned about competing in one geographic arena to the task of competing in others • Turbulent and hypercompetitive markets -> arenas as laboratories - sites in which to conduct experiments or launch probes into possible future of the business and strategy STAGING • Companies competing on the edge of chaos experience three levels of activity 1. Activities designed to test today's competitive strategy (defending today's business) 2. Activities designed to lead tomorrow's competitive strategy (drive growth in emerging businesses) 3. Activities designed to influence the pacing and timing of change (seeding options for future new businesses and growth initiatives) • Experimentation - a clear strategy enables the company to excel in a given business, but it also gives rise to experimentation that produces options for the future • Setting pace and rhythm - as managers move from one horizon to another they must think about the speed and pace of change
M&As are motivated by the same reasons that motivate..... because...
Alliances. Because additional value created from M&A is said to be derived from synergies dur to increased revenues and decreased costs from the combination of two companies,
What are the 4 Frameworks/Instruments to describe performance management
DuPont Anlaysis: - Donalson Brown CFO of General Motors in 1919 - based on the realization that ROA was affected by both profitability and efficiency. - uses info in the financial statement to measure performance however suffers from focusing line items that are hard to isolate and control - Formula is.. Return on Equity = Profit Margin X Total Asset Turnover X Financial Leverage Management by Objectives (MBO): - first outlined by PETER DRUCKER, the 'father of management' - MBO seeks to acheive alignment between individual goals and goals of the business (higher-level) - the construction of objectives cascades down the org. hierarchy - relies on self-control and clear responsibilities for every position in the organizational structure and requires considerable interpersonal activity to work. Value-Based Management (VBM): - focuses on the creation of VALUE - there are four ways to measure value: discounted cash flow valuation, return to shareholders, economic profit, and the market-to-book ratio - requires strong understanding of value drivers - periodic review of value drivers and must not be considered in isolation - challenges largely related to the adoption of the approach Balanced Scorecard (BSC): - developed and popularized by Harvard professor, Robert Kaplan and Palladium Group - It is a combination of metrics that reflect business strategy: 1. Finance: How do we look to the owners? (Operating income, ROE) 2. Customers : How do we look to the customers? (On-time delivery, % sales new products) 3. Internal: What must we excel at? (cycle time, yield, efficiency) 4. Innovation and Learning: Can we continue to improve and create value? (time to develop next gen of product) 1st is a lagging indicator, while the 2nd-4th are leading indicators.
What are Dynamic Capabilities
Dynamic capabilities: a company's ability to renew and change the company's stock of organizational capabilities in order to strategically respond to environmental changes • Integrating different resources and capabilities to create new revenue-producing P/S • Reconfiguring or transferring resources and capabilities from one division to another • Acquiring resources and capabilities through alliances and acquisitions
One is a strong signal of commitment to an alliance relationship?
Equity Investments Joint Ventures - equity is invested in seperate organization larger companies might make a MINORITY investment in smaller companies
First Movers vs Second Movers
First mover: company that is first to offer a new P/S in a market • Can establish the rules of the game and create an industry structure beneficial to them • First movers bear significant risks, including the costs not only of designing producing, and distributing new products, but also of developing the market for them • The value of being a first mover diminishes when: its easy to imitate and mistakes are easily traceable. Second mover (fast follower): second significant company to move into a market, quickly following the first mover (their actions also have an impact on industry rules and structure) • Lag is not necessarily detrimental because new products take time to develop a market
What strategies can you adopt when entering attractive new business?
Focus on a niche • An entry that is focused involves pursuing a niche in the market and appear less threatening to the incumbents because it seems to have modest goals • Consequently, it attracts little attention and is unlikely to provoke retaliatory behaviour Using a revolutionary strategy • Affords some protection from competition because such a strategy breaks with the conventional way business is practiced by the incumbents • When it is very different, incumbents think such a strategy is inferior, unwise, or risky • Only after such a strategy proves successful will incumbents rally to try to protect their ground, but by then they are often too late Leveraging existing resources • Take is existing capabilities and pursue businesses that build on these capabilities • Can be encouraged by a corporate venture unit, a distinct organization unit controlled responsible for investing in business opportunities that are new to the corporation • Such units may engage in a variety of investment forms, from making small investments in start-ups, to incubating internal business ideas, to spinning out businesses
What are some forms of NON-equity alliances?
Non-equity alliances have strategic significance when they extend over a long term, involve the two-way exchange of information, link together business processes, and/or involve the exchange of managers
Describe what resources and capabilities are:
Resources: the inputs used by companies to create goods/services • Financial, physical, individual, and organizational attributes • Relatively undifferentiated (easy to acquire) or company-specific (difficult to acquire) • Tangible or intangible (or both) Capabilities: skills that enable a company to coordinate and exploit its resources to create goods/services; combination of procedures and expertise -> competences • Capabilities are embedded in the activities that constitute a company's value chain - total of primary and support activities through which the company adds value
DuPont Formula is...
Return on assets= Net Profit Margin x Asset Turnover (this gives you an idea of whether a company is exploiting value-chain advantage or particular resources/capabilities to create competitive advantage)
(Industry Analysis) Describe each element of Porter's 5 Forces:
Rivalry (the act of companies in an industry competing for profit) • Most critical determinants of rivalry: number of companies and their relative sizes • Concentration ratio - combined revenues of the largest industry participants expressed as a ratio of total industry sales (measure to assess the significant of the determinants) Threat of New Entry (degree to which new competitors can enter an industry) • Barriers to entry: conditions that make it more difficult to join or compete in an industry • High barriers to entry reduce potential competition by limiting supply & reducing rivalry Supplier Power (degree to which suppliers are able to dictate contract terms) Buyer Power (degree to which buyers are able to dictate terms on purchase agreements) Threat of Substitutes (degree to which P/S of other industries can satisfy same buyer needs) • The prevalence of viable substitute products from other industries places pressures on the prices that the industry can charge, limiting industry profits
Where can you go to identify potential partners? (STAGE 2 of Alliance building strategy)
Rivals - a horizontal alliance which is a company in the same industry - co-opetition: situation in which companies both cooperate and compete. New Entrants - companies already in the industry can diversify by collaborating with new entrants or limit the impact of a new entrant by co-opting it Suppliers - company can partner with a supplier calling it a VERTICAL alliance Customers - alliance between a company and a customer is ALSO a VERTICAL alliance Substitutes - companies in dif industries but with similar customer needs can ally to better target the customer etc. Complementors - when a P/S can be bundled together to create higher customer value
What are key differences between corporate strategy in a STABLE context versus a DYNAMIC context?
Stable - collaboration is SOLIDIFIED through stable structural arrangements among wholly owned businesses; the key objectives are the pursuit of ECON of SCALE and SCOPE; execution of given strategy in each business unit; the BSC objectives emphasize the PERFORMANCE against the BUDGET and WITHIN-FIRM peer units. Dynamic - collaboration is FLUID, with networks being created, changed and disassembled between combinations of owned and alliance businesses; key objectives are GROWTH, MANEUVERABILITY and ECONOMIES of SCOPE; business units execute strategies AND seek new collaborative opportunities; business-level rewards to promote aggressive execution and collaborative-search objectives; BSC objectives gauge PERFORMANCE relative to COMPETITORS in terms of growth, market share and profitability.
What are the 8 Steps to managing CHANGE.
Step 1: Creating a sense of urgency • Before change can start, people have to feel change is necessary; so the first step is to build a sense of urgency that change has to start NOW • This means thawing the view that the status quo is fine Step 2: Building coalitions • Today's companies have allowed decision rights to migrate to those of specific knowledge so that leadership is more collaborative • The consequence is that one strong leader alone cannot make change happen Step 3: Determine direction • People need a sense of where change will be taking them and the organization • The leadership team can help in this by creating a clear, concise vision Step 4: Communicate direction • This requires extensive, persuasive communication Step 5: Empower employees • The leadership group has to make the changes to structure, systems, and staffing • These administrative changes will remove barriers to change and allow employees to develop new ideas, approaches, and required behaviours that support the new strategy Step 6: Generate small wins • Argument for generating short-term wins comes from putting together two features: 1. Achieving the full organizational changes needed takes a long time 2. Successful change creates excitement, certainty, & momentum, and answers critics Step 7: Consolidate gains Step 8: Institutionalize the new design
What are the various kinds of FITs for screening potential partners for alliances?
Strategic FIT Resource and Financial Fit Cultueral Fit Structural, Systems and Process FIT
What is the VRINE model and what does each Letter stand for?
The VRINE model is based on the perception that competitors in a given industry have different resources and capabilities and that changing these is not done quickly or easily. This approach assesses resources and capabilities using their attributes to determine which provide the basis for a competitive advantage. Valuable? A resource or capability is valuable if it enables a company to take advantage of opportunities or to fend off threats in its environment Rare? Rarity is scarcity relative to demand; valuable resources available to most competitors simply enable a company to achieve parity with everyone else but when a company controls a valuable resource that's also rare, it's in a position to gain a competitive advantage Inimitable/non-substitutable? Factors limiting the ability of competitors to imitate resources or capabilities: high costs, property rights, time (historical conditions), and casual ambiguity; the non-substitutability criterion is satisfied if a competitor cannot achieve the same results using a different combination of resources and capabilities Exploitable? The organizational structure, systems, and processes of a business work in combination with the resources and capabilities to enable the business to attain the full potential of its competitive advantage
What is globalization and what are the 4 factors that reveal whether an industry has globalized or is in the process of globalizing?
The evolution of distinct geographic product markets into a state of globally interdependent product markets o Markets - the more similar markets in different regions are, the greater the pressure for an industry to globalize o Costs - any time fixed costs are high, there will be pressure to globalize so that fixed costs are spread across more customers; also, the cost to globalize has been reduced significantly over the past decades (lower wages in emerging economies, improvement in logistics and transportation capabilities) o Governments and competitions - government policy can both encourage and discourage competition (reduced trade restrictions, subsidized exports)
Name the 3 Determinants of Competitive Advantage
The internal perspective (Resource-based view of the company) • Companies possess resources and capabilities of different qualities and competitive advantage goes to companies with superior resources and capabilities The external perspective • Competitive advantage as a function of industry attractiveness and the position of companies within the industry relative to competitors The dynamic perspective • Combines the internal and external determinants and helps explain why competitive advantage typically does not last for long periods
Threats to Competitive Positioning: What are the threats specific to each type of position: 1. Low-cost position 2.Differentiator position 3. Focus position 4. Integrated position
Threats to low-cost positions 1. The company may face threats on the technological front • The resource that enables a company to compete on cost can be imitated; however, the original company benefits from greater experience and learning curve • More serious threat that another company may introduce a new technology - one that supports a different scale and a more efficient learning process 2. The company must offer an acceptable combination of price and quality • A real threat to an intended low-cost position is the failure to offer sufficient quality to satisfy buyers' basic needs Threats to differentiation positions 1. Customers are not willing to pay for the (costly) differentiating feature 2. Management may fail to recognize the cost of differentiation 3. It is east to imitate the differentiating feature Threats to focus positions 1. Additional threat of competitors taking away customers by being more focused • Original company might diffuse its focus as it expands to meet the needs of more customers • Competitor might have a more finely segmented understanding of the marketplace and so is able to craft a strategy that has greater appeal to a subset of customers Threats to integrated positions • Michael Porter argues that a good strategy is one that competitors have difficulty copying without doing everything the same way • Competitors that try to pursue several generic strategies are said to be straddling, and they can get "stuck in the middle" and so perform neither strategy well
Businesses can take a waiting strategy as a defensive move to allow for uncertainty to clear however they can make small investments in the mean time to prepare for a bolder move later... that is called... examples of this include...
a REAL OPTION. 1. Waiting-to-invest options -> the value of waiting to build a factory until better market information comes along may exceed the value of immediate expansion 2. Growth options -> an entry investment may create opportunities to pursue valuable follow-up projects 3. Flexibility options -> serving markets on two continents by building two plants instead of one gives a company option of switching production from one to other 4. Exit (or abandonment) options -> the option to sell (or walk away from) a project in response to new information increases its value Learning options -> an initial investment may generate further information about a market opportunity and may help to determine whether the company should add more capacity
What is Michael Porter's "Generic Strategy Model"
a classic framework for creating business strategies. it is based on how a company positions itself in the market relative to its competitors. The goals of the alternative positions of generic strategies are to reduce the effects of rivalry and improve profitability. Generic strategies: strategic position designed to reduce the effects of rivalry that are a function of two sets of choices - economic logic (low-cost leadership vs. differentiation) x scope of arenas (broad vs. niche market arenas)
(Competitive Analysis) What is the Goal of the Value Curve?
a graphical depiction of how a company and major groups of its competitors are competing across KSFs and who has the competitive advantage on each factor
What is a horizontal alliance?
an alliance between two companies in the same industry
What is a vertical alliance?
an alliance with a supplier a customer (someone who is in the value chain of the company)
What are the three categories of dynamic industries?
• First category - industries in which the structural characteristics shift very little in the absence of significant regulatory changes (utilities, transportation) • Second category - industries that may be undergoing gradual changes (consumer-products) o Generally, five-forces model plus complementors applies best to these two • Third category - industries undergoing substantial change o Can result from deregulation; may bring about significant changes in KSFs and completely redesign the competitive playing field
Decribe the reasons for Diseconomies of Scale
• Getting bigger is not always beneficial because costs per unit do not continue to decline as a business expands • Diseconomy of scale: condition under which the average total cost increases at higher levels of output • Diseconomies of scale can be due to growing bureaucracy, the increasing costs of labour, and differences in efficiency between interdependent operations • A company can have economies of scale in some value chain activities and diseconomies of scale in other activities
What is Minimum Efficiency Scale
• Minimum Efficiency Scale (MES): the minimum scale at which the business fully exploits the economies of scale (the point at which the curve flattens)
A Value Chain Analysis: What are the elements of the value chain and what are some possible capabilities that a firm uses to gain competitive advantage:
• Primary activities: inbound logistics, operations, outbound logistics, marketing and sales, service • Support activities: procurement, technology development, human resources management, company infrastructure - the linkages between activities are clear and well-configured and sometimes different from competitors (IKEA), - outsourcing: sourcing the function, product, or services of a value-chain activity - offshoring: taking the activity from a high cost country to love cost country
Name the sources of economies of scale:
• Specialization - larger size allows increased specialization as work is divided into distinctive tasks that enhance productivity, which lowers cost per unit • Spreading Fixed Costs - business with higher volume can spread fixed costs over the larger volume, lowering the contribution of each to average total cost per unit • Technological Scale - sometimes the cost of productions is less on large-scale equipment because the cost of making the equipment goes up at a slower rate than the volume of output produced by the equipment o In other cases, the equipment is very efficient but large scale; a smaller company could buy this equipment but would still have higher costs because it would not be running the equipment at full capacity • Better Use of Joint Products - larger plants that produce by-products in sufficient volume can use what was once considered as waste as the input to an additional business, eliminating a cost of disposal and gaining a new source of revenue
Process of Strategic Positioning:
• means by which managers situate a company relative to its rivals -> fits with the strategy diamond • The generic strategy typology starts with the intended economic logic of that company's strategy and the arenas in which it will compete • Underlying the choice of economic logic is the idea of what differentiators to employ: 1) Decide whether the company will be a low-cost leader or a differentiator 2) Decide whether the company will serve the broad market or more specialized niches
What is Innovator's Dilemma?
• when an incumbent's economic incentives are to continue developing evolutionary improvements in their existing technology and to avoid sponsoring disruptive innovations o The sustaining innovations satisfy the needs of their mainstream and most profitable customers despite the fact that the disruptive technology may eventually come to displace the existing technology
