Midterm Exam

PESTEL: Socio-Cultural Factors

-Changing demographics; society's cultures, norms and values; life-style and consumption patterns, etc. -e.g. Health conscious population and fast-food consumption

PESTEL: Ecological Factors

-Environmental awareness, climate change

What is an Industry?

-Group of incumbent companies -Relatively similar suppliers and buyers -Similar products and services

PESTEL: Economic Factors

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

Industry Analysis is a method to...

-Identify an industry's profit potential -Derive implications for a firm's strategic position

PESTEL: Technological Factors

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

Power of suppliers

-Pressures that industry suppliers can exert on an industry's profit potential *want it to be low

Strategic positioning

-Refers to how companies attain competitive advantage -Trade-offs

Two critical assumptions in resource based view (RBV)

-Resource Heterogeneity: • resources and capabilities differ across firms -Resource Immobility • a firm has resources that tend to be sticky

Rivalry among competitors

-The intensity with which companies in the same industry jockey for market share and profitability -Rivalry is high when there are many competitors.

What is strategy?

-a pattern in a stream of actions -the creation of a unique and valuable position, involving different set of activities -a set of goal-directed actions a firm intends to take in order to gain and sustain competitive advantage relative to competitors *about concerted action/pattern in actions to achieve a certain goal - competitive advantage

Threat of subsitutes

-products/services that meet the same customer need. They are available from outside of the given industry

According to the Toyota case study, what is the Fuel Efficiency rate for Gas Hybrid Vehicle powertrain?

2.30 miles/liter

What year does Unilever target for achieving its goals?

2020

External analysis

A firm is not a 'stand-alone' entity; it is situated within a larger environment

Dynamic Capabilities

A firm's ability to adapt resources over time

Resource Based View (RBV)

A systematic way to understand firm performance through its resources and capabilities. •anything that can be "bought" by others is not likely to develop competitive advantage. Intangible assets are more likely for competitive advantages

What is a good strategy?

A-F-I framework -Analysis (competitive advantage, external and internal environment) -Formulation (business and corporate level strategy) -Implementation (organizational design, structure, and culture)

Which of the following statements is true of accounting data?

Accounting data are historical data and thus backward-looking.

Clearwater Case

Business Level Strategy: Differentiation -Who: retailers/restaurants -What: quality and convenience -How: invest in research Sustainability is a core value, reduce by-catch, designed new equipment, invested in research

Who is Gail Klintworth?

Chief Sustainability Officer Unilever

According to the Toyota case study, what does CAFE stand for?

Corporate Average Fuel Economy

________ is best described as decreases in cost per unit as output increases.

Economies of scale

According to the Toyota case study, which of the following were among the top three US automaker?

General Motors, Ford, and Chrysler

PESTEL: Political and Legal Factors

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

Porter's 5 Forces Model

INPUTS: -threat of new entrants -bargaining power of buyers -threat of substitute products -bargaining power of suppliers Output: -rivalry among existing competitors

Invoro is a market leader in consumer electronics. If Finolo and Ethver, companies that manufacture televisions, develop the same customer knowledge base and create products with the same customer appeal as Invoro, then

Invoro will have a resource that is valuable but no longer rare.

Which of the following is an advantage offered by a functional structure?

It allows for a higher degree of specialization and deeper domain expertise.

Which of the following statements is true of the balanced-scorecard?

It attempts to provide a holistic perspective on firm performance.

How does a sustainable strategy typically help a firm?

It helps the firm achieve positive results along the social and ecological dimensions

Coca-Cola was primarily known for its core competencies in marketing, bottling, and distributing aerated drinks. However, with the success of Gatorade, Coca-Cola developed competencies in the development and marketing of its own sports drink, Powerade. Which of the following is true of Coca-Cola?

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

How is a cost-leader protected from threats from powerful suppliers?

It is more able to absorb price increases through accepting lower profit margins.

What must a cost-leadership strategy accomplish to be successful?

It must reduce the firm's cost below that of its competitors while offering adequate value.

Which of the following is a primary feature of the five forces model?

It views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of substitutes.

Make or Buy decision

Make if... cost in house < cost the market Buy is... cost in house > cost the market If the costs of "making" is less than the costs of "buying", then vertically integrate

How did Marriott use economies of scope to achieve greater economic value than its competitors?

Marriott lowered its cost structure by sharing its production assets over several types of hotels, which increased the diversity of its hotel line and thus its differentiated appeal.

Real-world scenario that exemplifies formalization?

McDonald's use of standard operating procedures across the world

Industry Competitive Structure

Monopoly: one firm, considerable pricing power, unique product, and very high entry barriers Oligopoly: few (large) firms, some pricing power, differentiated product, and high entry barriers Monopolistic Competition: many firms, some pricing power, differentiated product, and medium entry barriers Perfect Competition: many small firms that are price takers, commodity product, and low entry barriers

Toyota Case

PESTEL Factors: -Socio-cultural- targeting different markets (old people vs. young people's demands), new demand for smaller, fuel-efficient cars as people became more aware -Technological- inventing new fuel efficient engines/powertrains, battery updates, additional of computer technologies in the cars -Ecological- to decrease emissions, the team concluded that "resources" and "environment" should be the key concepts of the care for the next century

The ________ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment.

PESTEL framework

PESTEL stands for

Political Economic Sociocultural Technological Ecological Legal *not necessarily independent

BCG Matrix

Question Mark: high growth and low relative market share Star: high growth and high relative market share Cash Cow: low growth and high relative market share Dog: low growth and low relative market share

Vertical Integration

Stages in development upstream industries (backward) downstream industries (forward)

Starfish Sodas has successfully achieved a competitive advantage in the soft drink industry as a differentiator. Which of the following scenarios would undermine Starfish's position?

Starfish's customers start to consider soda a commodity.

Unilever Case

Strategy: continue to grow with sustainability as it's core Main Message: The implementation of strategy- the most difficult part and usually, it never goes as planned. Following the story-line, you realize they learn from others and bring things in to change their strategy and metrics as they go along.

Trade Joe's Case

Strategy: target market, provide affordable/unique goods, customer experience Successful: limited SKU's (diminishes costs), minimal advertisement, align activities with target market, support employees, customer first priority Values: fair employee wages, value secrecy, EDLP, did not invest in common activities, offer private labels and different products

In which of the following situations is the power of suppliers high in an industry?

Suppliers' industry is more concentrated than the industry it sells to

Which of the following statements accurately brings out the difference between tangible and intangible resources?

Tangible assets can be bought on the open market by anyone with the necessary cash, whereas intangible assets cannot be easily purchased.

What does TAC stand for in the case of Clearwater Seafoods?

Total Allowable Catch Limits

The collapse of cod fisheries is a common example of ___________?

Tragedy of the commons

What does USLP stands for?

Unilever Sustainable Living Plan

W. L. Gore & Associates is organized in such a way that it has no formal job titles, job descriptions, or chains of command. This implies that it has

a decentralized structure.

Royal Motor Corp. generates a major portion of its revenues by manufacturing luxury sports cars. However, the company also derives an insignificant percent of its annual revenues by selling its sports merchandise that includes apparel, shoes, and other accessories under the same brand name. Which of the following terms best describes Royal Motor Corp.?

a dominant-business firm

One essential thing to create a sustainable competitive advantage is...

a dynamic fit between internal strengths and external opportunities

Several ways of assessing competitive advantage

accounting measures shareholder value creation economic value creation balanced scorecard insights triple bottom line

Value Chain

allows us to see whether activities are adding value or adding more costs, and allows for thinking how they can be made better

How does a firm capture its producer surplus for a good or service?

as profit per unit sold

Competitive advantage can be ....

assessed by measuring quantitative (accounting profit, shareholder value, or economic value) and qualitative (balance scorecards, triple bottom line).

The balanced-scorecard can accommodate

both short- and long-term performance metrics

Threadbare Industries is a new high-end textile company that has raised sufficient capital from multiple sources. It is planning to use its capital to purchase certain assets. Which of the following assets will be the most difficult for Threadbare Industries to acquire using its capital?

brand name

Organizational and managerial skills that find their expression in a company's structure, routines, and culture are referred to as

capabilities.

Environment is not stale but ____

changing so should the firm's capabilities and resources

Product line of Clearwater Seafoods?

clams lobster crab

SWOT Analysis

combining external (opportunities, threats) and internal (strengths, weaknesses) views

Cloud Cones is a fast-growing chain of ice cream shops. It has acquired an edge over its competitors through its ability to provide a wide array of unique flavors and a hip atmosphere in stores. This advantage of Cloud Cones best exemplifies a

core competency.

Four lenses to view competitive advantage

customer innovation and learning internal business financial

3 dimensions of triple bottom line

economic social ecological **can lead to a sustainable strategy—a strategy that can be pursued over time without detrimental effects on people or the planet

A firm incurs $400 to manufacture a television. In the market, customers are willing to pay a maximum of $600 for the television priced at $500. The difference of $200 ($600 minus $400) is the

economic value created.

In the aircraft manufacturing industry, at least for large commercial jets, Boeing and Airbus are the only competitors. There is not a significant threat of entry because

entering the aircraft manufacturing industry requires huge capital investments.

O'Ryan Plastics maintains a manufacturing plant overseas. The local government has just been overthrown by a military group that opposes foreign influence in the country. According to the SWOT analysis, the political situation in this location is considered to be an

external threat.

A differentiation strategy works best when a

firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.

A strategic group will typically include

firms within the same industry.

A firm that manufactures and sells car engines to major automobile companies launches its own line of cars. This illustrates a ____.

forward vertical integration company

What is NOT strategy?

grandiose statements (ex: we will be #1) failing to meet a competitive challenge (ex: blockbuster)

True Moto Corp. (TMC) is a leading automobile company. The company has been able to sustain its competitive advantage primarily due to its high-quality and efficient electric motors. Most of its competitors have failed to develop similar electric motors at a reasonable price. Which of the following resource attributes listed in the VRIO framework has helped TMC sustain its competitive advantage?

high costs involved in imitation

In the context of the SWOT matrix, which of the following best exemplifies a firm's internal strength?

increase in a firm's customer loyalty

Each stage of the vertical value chain typically represents a distinct ________ in which a number of different firms are competing.

industry

Economies of scale are cost advantages that accrue for firms with

larger output.

Decisions relating to the range of products and services a firm will offer determine the firm's

level of diversification.

There are many reasons why firms need to grow. Which of the following reasons is strongly influenced by economies of scale?

lowering costs

When a firm diversifies into different product lines and geographies, a ________ structure is preferred.

multidivisional

________ define appropriate employee attitudes and behaviors.

norms

Eon Inc., Electravia Inc., and FC Inc., the three largest firms in the consumer electronics industry, hold close to 85 percent of the industry's market share. These companies mainly compete against each other by providing unique features in their products rather than pricing them low. These firms are interdependent, and each firm must consider the strategic actions of its competitors. Which of the following industry competitive structures does this scenario best illustrate?

oligopoly

BioCure Inc. is a pharmaceutical company that has many breakthroughs in medicine to its credit. Unlike many other pharmaceutical companies, BioCure has a relaxed work environment where employees are free to discuss projects with each other. Employees are encouraged to choose the projects that interest them; communication between team members and their supervisors is open and easy. Because of the company's work culture, its employees feel motivated to work harder and display more entrepreneurial behaviors. In this scenario, BioCure Inc. is most likely an organization that is

organic.

Power of buyers

pressure customers put on an industry *want it to be low

To reduce the amount of time it takes to apply packaging to its finished products, North Star Foods is implementing new equipment at its production plants. By doing this, North Star is addressing a ________ in the value chain analysis.

primary activity

When executives of a firm consider business opportunities only where they can leverage their existing competencies and resources, it can be concluded that the firm is using

related-constrained diversification.

________ are the legal owners of public companies.

shareholders

The smartphone division of the large consumer electronics company, True Electra Inc., has a significant market share in the fast-growing cell phone market. If the company invests further into this division, it will be able to reap increased cash flows. In the Boston Consulting Group (BCG) growth-share matrix, the smartphone division of True Electra will be categorized under

stars

A high percentage of R&D/Revenue ratio indicates a(n)

strong focus on innovation to improve current products and services.

A firm's ________ determines how the work efforts of individuals and teams are orchestrated and how resources are distributed.

stucture

Competitive Advantage is defined as...

superior performance relative to other firms in the industry

Gladiator Apparel is the market leader in the sportswear industry. Though most of its resources are common to those of its competitors, a few rare resources have helped the company gain and sustain a competitive advantage. Which of the following assets of Gladiator Apparel is most likely to be considered a rare resource that is contributing to its competitive advantage?

the company's design patents

Which of the following is an example of an internal transaction cost?

the cost of maintaining a production unit

Transaction costs

the costs associated with economic exchange internal and external from the boundaries of the firm

A blue ocean strategy differs from a low-cost strategy in that

the intent of a blue ocean strategy is not to be the absolute lowest-cost provider because a blue ocean must also increase perceived value.

Vision, mission and values

vision: what do we want to accomplish mission: how do we accomplish our goals values: what commitments do we make (ethics, principles and norms)

____ five forces means _____

weaker means greater industry profit potential, indicates attractiveness

Anita has been named CEO of a popular sports apparel company. As CEO, she is tasked with setting the firm's corporate strategy. Which of the following decisions is Anita most likely to make?

what range of products the firm should offer

Differentiation Strategy

• higher value vs. competitors • unique features • higher prices focus and goal is adding value o Benefit: reduced rivalry & high cost of imitation o Risk: might overshoot features needed & vulnerable to price-sensitive customers

Cost Leadership

• similar value vs. competitors • lower prices focus and goal is decreasing costs o Benefit: protected from competitors if price war o Risk: new entrant arrives and new capabilities needed

Key Strategic Concepts for Internal Analysis

•Core Competencies: unique strengths •Resources: assets •Capabilities: skill •Activities: business processes

VRIO framework

•For competitive advantage, resources must be: -Valuable (attractive) -Rare -Costly to Imitate -Firms must be Organized to capture the value of the resource/capability MICRO

Generic Business Strategies

•Generic strategies mean independent of industry •2 fundamentally different generic business strategies: -Cost Leadership -Differentiation: **trade-offs

Competitive Scope

•Scope of competition also affects strategy: -size of the market that the firm chooses to compete in

Why do firms diversify?

•To get into a new market •To exploit existing core competences for competitive advantage

When does vertical integration make sense?

•When there are issues with raw materials •To enhance the customer experience •When transaction costs are high

Strategic Groups

•a set of firms pursuing a similar strategy within a specific industry

Business Level Strategy

•addresses 'how to compete in a single product market' -Who (which customer segments) will we serve? -What customer needs, wishes, and desires will we satisfy? -How will we satisfy our customers' needs?

Corporate level strategy

•addresses the following: -Range of products and services: What products and services to offer? -Industry value chain: In which stage(s) of the value chain to be active? -Where to compete: What geography? 2: vertical integration and diversification (product and geographic)

Blue Ocean Strategy

•represent: -Untapped market space -Creation of additional demand -Opportunities for highly profitable growth to achieve: -lower costs -increase perceived consumer benefits

Threat of new entrants

•the risk that potential competitors will enter the industry entry barriers