Midterm MGMT 4513 (Chapters 1-6)

Vertical Integration

becoming your own supplier or distributor through acquisition; vertical movement up or down the value chain

General Enviroment

The broad enviroment, encompassing factors that influence most businesses in a society

Industry Enviroment

The enviroment that includes factors that directly impact a given firm and its competitors

Competitor Intelligence

The ethical gathering of needed information and data that provides insight into A competitor's direction (future objectives), A competitor's capabilities and intentions (current strategy), A competitor's beliefs about the industry (its assumptions), A competitor's capabilities

Fast Cycle Market

Competitive advantages aren't shielded from imitation, Imitation happens quickly and somewhat inexpensively, Competitive advantages aren't sustainable, Non-proprietary technology is diffused rapidly

Related Diversification Costs

Coordination costs, Integration costs

Efficient Internal Capital Market Allocation

Corporate office distributes capital to business divisions to create value for overall company

Cost Leadership Strategy: Substitutes

Cost leader is well positioned to Make investments to be first to create substitutes, Buy patents developed by potential substitutes, Lower prices in order to maintain value position

Financial Economies

Cost savings are realized through improved allocations of financial resources

Economies of scope

Cost savings that occur when a firm transfers capabilities and competencies developed in one of its businesses to another of its businesses

What Drives Superior Performance?

Create Value and Capture Value

Operational Relatedness

Created by sharing either a primary activity such as inventory delivery systems, or a support activity such as purchasing

Differentiation Strategy: Competitors

Defends against competitors because brand loyalty to differentiated product offsets price competition

Monitioring

Detecting meaning through ongoing observations of environmental changes and trends

Internal analysis helps a firm

Determine if its resources and capabilities are likely sources of competitive advantage, Establish strategies that will exploit any sources of competitive advantage, Determine if the firm lacks any resources/capabilities needed to compete effectively

Assessing

Determined the timing and importance of environmental changes and trends for firms' strategies and their management

Broad Scope

The firm competes in all or most customer segments

Narrow Scope

The firm selects a segment or a few segments in the industry and tailors its strategy to serving them at the exclusion of others

Competitor Analysis

The firm studies competitors' future objectives, current strategies, assumptions, and capabilities

Competitive dynamics

The total set of actions and responses taken by all firms competing within a market

Successful Strategies are...

built by Combining Complementary Capabilities

Stakeholders

can affect the firm's vision and mission, are effected by strategic outcomes achieved, and have enforceable claims on the firm's performace

Core Competencies

capabilities that are a competitive advantage over competitors

Forecasting

Developing projections of anticipated outcomes based on monitored changes and trends

Actor's Reputation

competitors are more likely to respond to competitive moves by market leaders

Competitive Action

a strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position

Competitive Response

a strategic or tactical action the firm takes to counter the effects of a competitor's competitive action

Quality

exists when firm's goods or services meet or exceed customers expectations

Integrated Cost Leadership/ Differentiation Strategy

involves engaging in primary and support activities that allow a firm to simultaneously pursue low cost and differentiation

Internal analysis

provides a comparative look at a firm's capabilities/competencies

Tangible resources

assets that can be observed and quantified (financial, organizational, physical, technological)

Market Commonality

the degree to which two companies have overlapping products, services, or customers in multiple markets

Resource Similarity

the extent to which a competitor has similar amounts and kinds of resources

Competitive advantage

the unique set of features of a company and its products that are perceived by the target market as significant and superior to the competition

Slow Cycle Market

Competitive advantages are shielded from imitation for long periods of time and imitation is costly. CA can be sustainable.

Vision

Future oriented picture of what the firm wants to be and achiee

Strategic Action/Response

a market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse

Tactical Action/Response

a market-based move that is taken to fine-tune a strategy; it involves fewer resources and is relatively easy to implement and reverse

Competitor Analysis provides....

A competitor's capabilities, A competitor's actions (current strategy), A competitor's beliefs about the industry (its assumptions), A competitor's direction (future objectives)

Opportunity

A condition in the general environment that if exploited, helps a company to achieve strategic competitiveness

Threat

A condition in the general environment that may hinder a company's efforts to achieve strategic competitiveness

VRIO Framework

A firm achieves SCA when its resources and capabilities are Valuable, Rare, not easily Imitated, Organized to exploit full competitive potential

Strategic flexibility

a set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment

Differentiation Strategy: Suppliers

Can mitigate suppliers' power by Absorbing price increases due to higher margins and Passing along higher supplier prices because buyers are loyal to differentiated brand

Cost Leadership Strategy: Suppliers

Can mitigate suppliers' power by Being able to absorb cost increases due to low cost position and Being able to make very large purchases, reducing chance of supplier using power

Strategic Process

1. External/Internal Analysis 2. Develop Strategy 3. Implement strategy at a business/corporate level

Resource Based Model of Above-Average Returns

1. Identify the firm's resources. Study its strengths and weaknesses compared to competitors 2. Determine the firm's capabilities. 3. Determine the potential of firm's resources and capabilities in terms of competitive advantage. 4. Locate an attractive industry 5. Select a strategy that best allow the firm to utilize its resources and capabilities in terms of a competitive advantage.

I/O Model of Above-Average Returns

1. study the external environment(general, industry, competitor), especially the industry environment 2. locate an industry with high potential for above average returns. 3. identify the strategy called for by the attractive industry to earn above average returns. 4. develop or acquire assets and skills needed to implement the strategy. 5.use the firms strengths to implement the strategy.

Restructuring

A firm creates value by buying and selling other firms' assets in the external market

Related Diversification

A firm is related through its diversification when its businesses share links across products, technologies, distribution channels

Factors That Drive Focused Strategies

A firm may lack the resources needed to compete in the broader market, A firm is able to serve a narrow market segment more effectively than its larger industry-wide competitors can, Focusing allows the firm to direct its resources to certain value chain activities to build competitive advantage

Competitive Risks of Focus Strategies

A focusing firm may be "outfocused" by its competitors, A large competitor may set its sights on a firm's niche market, Customer preferences in niche market may change to more closely resemble those of the broader market

Strategic Groups

A set of firms emphasizing similar strategic dimensions and using similar strategies

Value Chain Analysis

Allows the firm to understand the parts of its operations that create value and those that do not

Business-Level Strategy

An integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets

Differentiation Strategy

An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them.

Focus Strategies

An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment

Cost Leadership Strategy

An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors with features that are acceptable to customers

Mission

Answers the questions: What is the purpose of the firm? What value will the firm create? For whom will value be created?

The Political/Legal Segment

Antitrust laws, Taxation laws, Deregulation philosophies, Labor training laws, Educational philosophies and policies

Factors in the Threat of New Entrants

Barriers to entry, Economies of scale, Product Differentiation, Capital Requirements, Switching Costs, Access to Distribution Channels, Cost Disadvantages Independent of Scale, Government Policy, Expected Retaliation

Differentiation Strategy: New Entrants

Can defend against new entrants because New products must surpass proven products, New products must be at least equal to performance of proven products, but offered at lower prices

Cost Leadership Strategy: New Entrants

Can frighten off new entrants due to Their need to enter on a large scale in order to be cost competitive andThe time it takes to move down the learning curve

Differentiation Strategy: Buyers

Can mitigate buyers' power because well differentiated products reduce customer sensitivity to price increases

Cost Leadership Strategy: Buyers

Can mitigate buyers' power by Driving prices far below competitors, causing them to exit, thus shifting power with buyers back to the firm

Related Diversification Benefits

Economies of scope, Sharing activities, Transferring core competencies, Market power, Vertical integration

Unrelated Diversification Benefits

Efficient internal capital allocation and Business restructuring

Two types of financial economies

Efficient internal capital allocations and Purchasing other corporations and restructuring their assets

The Physical Segment

Energy consumption, Energy sources , Renewable energy efforts, React to natural or man-made disasters

Overcoming the dark side of resources

Experimentation and renewal, Incentive and reward systems, Organization structure, Cross-functional teams, Recruiting and training policies, Organization process

Strategic Dimensions

Extent of technological leadership, Product quality, Pricing policies, Distribution channels, Customer service

Dependence on the Market

Extent to which a firm's revenues or profits are derived from a particular market. Firms are likely to respond strongly to attacks threatening market position if high.

Risks of Differentiation

Extra costs may exceed value to customers, Not enough customers in segment, Customers don't value services or characteristics, Brand image can't be created or is easily duplicated

Multimarket competition

Firms competing against each other in several product or geographic markets

Competitors

Firms operating in the same market, offering similar products and targeting similar customers

The Global Segment

IPR rights, Unspoken rules, Government policy, Legal system

Competing with resources & capabilities

Identify - What are the firm's R & C?, Appraise - How valuable are the R & C?, Apply - Plan & act, Develop - Create new R & C

Scanning

Identifying early signal of environmental changes and trends

The dark side of resources

Inertia & inflexibility and prior strategic commitments.

The Economic Segment

Inflation rates, Interest rates, Trade deficits or surpluses, Budget deficits or surpluses, Personal savings rate, Business savings rates, Gross domestic product

Effect of a strategic group

Internal competition is greater, more heterogeneity in the performance

Ways to Develop resources

Linking strategy to Human Resource Management--developing individual competencies, Acquisition or alliance (Daimler-Chrysler and Mitsubishi), Greenfield development in separate organizational unit (GM & Saturn), Product sequencing (Intel , Sony, Hyundai)

Porter's five forces

Longterm profitability of an industry is determined by: (industry attractiveness) 1. Threat of new entrants in the industry 2. Threat of substitutes 3. Bargaining power of buyers 4. Bargaining power of suppliers 5. Rivalry among existing competitors

Unrelated Diversification Costs

Management costs

Factors in Intensity of Rivalry Among Competitors

Numerous or equally balanced competitors, Slow Industry Growth, High Fixed Costs or High Storage Costs, Lack of Diff. or Low Switching Costs, High Strategic Stakes, High Exit Barriers

Risks of the Integrated Cost Leadership/ Differentiation Strategy

Often Involves Comprises and Becoming Stuck in the Middle

The Demographic Segment

Population size, Age structure, Geographic distribution, Ethnic mix, Income distribution

Competitive Risks of Cost Leadership Strategy

Processes used to produce and distribute good or service may become obsolete due to competitors' innovations., Focus on cost reductions may occur at expense of customers' perceptions of differentiation., Competitors, using their own core competencies, may successfully imitate the cost leader's strategy

The Technological Segment

Product innovations, Applications of knowledge, Focus of private and government-supported R&D expenditures, New communication technologies (Skype)

Synergy

Revenue enhancement from being within the same corporate parent

Cost Leadership Strategy: Competitors

Rivals hesitate to compete on basis of price, Lack of price competition leads to greater profits

Components of External Environmental Analysis

Scanning, Monitoring, Forecasting, Assessing

Market power

Sell its products above the existing competitive level and/or Reduce the costs of its primary and support activities below the competitive level

Strategic Management Process

The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns.

Competitive rivalry

The ongoing set of competitive actions and responses occurring between competitors. Influences a firm's ability to gain and sustain competitive advantages

Market Segmentation

The process of dividing a market into meaningful, relatively similar, and identifiable segments or groups

Corporate Relatedness

Using complex sets of resources and capabilities to link different businesses through managerial and technological knowledge, experience, and expertise

The Four Criteria of Sustainable Competitive Advantage

Valuable Capabilities, Rare Capabilities, Inimitable Capabilities, Nonsubstitutable Capabilities

Differentiation Strategy: Substitutes

Well positioned relative to substitutes because Brand loyalty to a differentiated product tends to reduce customers' testing of new products or switching brands

Key Issues in Business-Level Strategy

What: Which customers to serve, What: which need to satisfy, How: How resources or capabilities are needed.

Why outsource?

When it lacks capabilities (or which do not create advantage), the firm can concentrate fully on those areas in which it can create value

The Sociocultural Segment

Workforce diversity, Attitudes about quality of worklife , Concerns about environment, Shifts in work and career preferences, Shifts in product and service preferences, Women in the workplace

Late Mover

a firm that responds to a competitive action a significant amount of time after the first mover's action and the second mover's response

Second Mover

a firm that responds to the first mover's competitive action, typically through imitation

First Mover

a firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position

Corporate level strategy

about how to achieve above normal returns (competitive advantage) by operating in more than one business/industry

Strategic Competiveness

achieved when a firm successfully formulates and implements a value creating strategy

Horizontal Integration

acquisition of competitors; horizontal movement at the same point in the value chain

Intangible resources

assets that are rooted deeply in the firm's history accumulate over time, and are relatively difficult for competitors to analyze and imitate (Human resources, Innovation, Reputational)

Product Development

developing new products and/or significantly improving on existing products

Industry

group of firms producing products that are close substitutes

Purpose of an external analysis

look outside the organization to identify potential organizational threats and opportunities

Standard Cycle Markets

markets in which the firm's competitive advantages are moderately shielded from imitation and where imitation is moderately costly

Market Development

moving into different geographic markets

Above average returns

returns in excess of what is expected in comparison to another with similar risk

Competitive Behavior

set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position

Risk

uncertainty about a particular investment