Strat 5700 Midterm review

What is strategy about?

1. Consistently beating rival firms 2. Hard to come up with a good stategy 3. Can still be profitable without one 4. Study it because some firms do succeed, managers want to know how

SodaStream: How does it make profits?

By selling the bottles of flavoring

Fragmented

Consolidation

Competitive Advantage

Create more economic value than rival companies

Mature

Differentiate yourself (service, costs, product improvements)

Temporary vs. sustained competitive advantage

Economist view: Can never sustain competitive advantage "No arbitrage" idea

Industry Structures

Emerging Fragmented Mature Declining

Emerging

First-mover advantage (tech, consumers, valuable inputs)

Conditions under which costs leadership strategies work well

Hard to differentiate goods Large market size

Declining

Harvest Divest Niche Market Leader

Applying analysis Externally

Having a higher WTP or lower costs is bound to help Subtleties: how they help deal with each of the forces

Reasons why something might be hard to copy

History/first mover Casual ambiguity Social complexity Patents

Applying analysis Internally

More focus on this Give reasons in the specific setting why a resource that helps the firm achieve cost leadership/product differentiation is VRI

Bally: External threats

New entrants

Reasons why they might not want to copy

Not consistent with their strategy Complementary resources are lacking Tacit cooperation/collusion

Economic value

Perceived consumer value minus costs

Measuring competitive advantage (accounting measures

ROA= Profit after taxes/Total assets Gross Profit margin= Sales- COGS/sales DuPont Identity: margin times turnover Measures of efficiency in terms of creating value from "stuff"

What is hard to copy

Reputation Complex products Timing, Location

Buyers/supplier power dynamics (think bargaining)

Strengths of threat: fewer, bigger, differentiated. What would happen if other side refuses to contract with you? All about value capture (same good, different profits)

How to Analyze

Ways of achieving cost leadership/product differentiation Need resources to achieve it Are these resources VRI amongst rivals? if so, more likely to be a sustainable position Minor caveat: rival could have a different resource that creates lower costs

Cost Leadership

What is consistent with a cost leadership strategy and what isn't consistent Whys of achieving lower costs 1. economies of scale vs. Experience/Learning 2. Differential access to low-cost inputs 3. Technology: hardware and "software" (culture) 4. Policy choices: "make it happen" Note: you still need resources to pull off these strategies. Which ones are hard to copy

General Ideas about opportunities under different market structures

declining industry => find niche instead of first-mover Won't test on anything that's a gray area

Assumptions

firms look different

Consumers

go into the general environment bucket (Cultural trends, demographics)

Resources/capabilities

help you implement a strategy Need X to do Y (need efficient distribution to get low costs => everyday lower prices)

VIRO test for resources (O is less emphasized)

is X valuable? (usually) Is X rare? Is X hard to copy?

Conditions under which product differentiation strategies work will

many ways to differentiation products, taste heterogeneity Few rivals are using the approach Fast technological change/product innovation

Ways of differentiating your product

product attributes Firm-customer relationships Firm-Firm relationships

Buyers

thinking about companies rather than consumers. (P&G's buyer is walmart or CVS

Significan variationm within an industry in profitability

try to use firm characteristics to predict which companies are consistently more profitable than competitors

Good expansions

Asset-light expansions: leverage existing assets to make more profits Costs decrease (economies of scale) Other synergies across businesses (later; corporate level strategies) More sales

Strategy

A firm's Theory about how to gain (and sustain) competitive advantages

Strategic Management Process

Analysis, choices, implementation => Competitive Advantage An iterative process, sometimes stumble into a good strategy (emergent)

Internal analysis

Apply VIRO to specific resources/capabilities, not the firm as a whole Some VRIO Resources (could be a bundle) What can you do with it? Can you leverage it to build a strategy?

Bad Expansions

Asset-Intensive expansions that are unprofitable Low margin segments dilute overall margin Costs increase