Strategic & Entrepreneurial Thinking Midterm
Economies of Scale
cost advantages that accrue to firms with larger output
Social Complexity
describes situations in which different social and business systems interact
Customer switching costs
incurred by moving from one supplier to another
Rare
only one or a few firms possess the resource
resource immobility
resources tend to be "sticky" and don't move easily from firm to firm
Casual Ambiguity
the cause and effect of a phenomenon are not readily apparent
The perceived value that a company creates for consumers less the company's costs to create the value equals ______.
the economic value created
Network effects
the positive effect that one user of a product or service has on the value of that product for other users
An intended strategy is the outcome of a plan that has which of the following characteristics?
-Rational -Top-down -Structured
What should a vision do for an organization?
-Should inspire employees -Should make employees feel like their work is important
Analysis (AFI Framework)
-Strategic Leadership and the Strategy Process -External + Internal Analysis -Competitive Advantage, Firm Performance and Business Models
Aims of stakeholder strategy
-To manage various stakeholders effectively -To gain and sustain competitive advantage
Scenario Planning
-What-if questions -Top-down -Derive strategic responses to possible future changes
When a firm implements a strategy that leads to superior performance relative to other companies in the same industry, it is said to have achieved ______.
Competitive advantage
A statement of guiding principles that typically provides very specific ethical considerations is a(n) ______.
Core values statement
What must a firm do after diagnosing its specific competitive advantage?
Create an effective guiding policy
First step in strategic management process
Define the organizations: 1. Vision 2.Mission 3.Values
What is one of the benefits of pursuing a differentiation strategy when it comes to the power of suppliers?
Differentiation provides protection against an increase in input prices.
VRIO Framework
Value, Rarity, Imitability, Organization
Values
What commitments do we make, and what safe guards do we put in place, to act both legally and ethically as we pursue our vision and mission?
Vision
What do we want to accomplish ultimately?
Power of stakeholder
When a stakeholder is able to influence the company to do something it would otherwise not do
path dependence
a process in which the options one faces in a current situation are limited by decisions made in the past. Often, early events or random ones have a significant effect on final outcomes
During the shakeout stage of the industry life cycle, profits degrade for ______.
all but the most efficient firms
3 Value drivers
-Product features -Customer service -Complements
Stake holder impact analysis can help a company do :
-Act as a good corporate citizen -Achieve a competitive advantage
Factors that determine the intensity of rivalry
-Competitive industry structure -Industry growth -Strategic commitments -Exit barriers
Factors that increase buyer power:
-Few buyers and each buyer purchases large quantities relative to of the size of a single seller -Industry's products are standardized or undifferentiated -Buyers face low or no switching costs Buyers can credibly threaten to backwardly integrate into the industry
Oligopoly
-Few(large) Firms -Some pricing power -differentiated product -high entry barriers
monopolistic competition
-Many firms -Some pricing power -differentiated product -medium entry barriers
Monopoly
-One firm
Three most important stakeholder attributes to pay attention to
-Power -Urgency -Legitimacy
Perfect Competition
-many small firms -firms are price takers -commodity product -low entry barriers
5 steps of stakeholder analysis
1. Who are our stakeholders? 2. What are our stakeholders' interests and claims? 3. What opportunities and threats do our stakeholders present? 4. What legal, ethical, and philanthropic responsibilities do we have to our stake holders? (CSR framework) 5. What should we do to effectively address the stakeholder concerns?
Power of suppliers
1.Powerful suppliers can raise the cost of production by demanding higher prices for their inputs or by reducing the quality of the input factor or service level delivered 2.Powerful suppliers are a threat ton firms because they reduce the industry's profit potential by capturing a part of the economic value created.
Porter's Five Forces
1.Threat of entry 2. Power of suppliers 3. Power of Buyers 4. Threat of Substitutes 5. Rivalry among existing competitors
Organized to capture value
A firm must have in place an effective organizational structure and coordinating systems
AFI Framework
Analysis, Formulation, Implementation
advantages independent of size
Brand loyalty, preferential access, favorable locations, cumulative learning and experience
resource heterogeneity
Bundles of resources and capabilities differ across firms
Formulation (AFI Framework)
Business strategy, corporate strategy and global strategy
Comptetitive industry structure
Captured by: -number and size of competitors -degree of pricing power -type of product/service -height of entrance barriers
Government Policy
Government policies restrict or prevent new entrants
Mission
How do we accomplish our goals?
Capital requirements
How much capital is required to compete in this industry
Business-level strategy addresses which overarching question?
How should we compete?
Confirmation Bias
Individuals search only for information that confirms their existing beliefs and ignore evidence that contradicts those beliefs.
Which of the following tend to result from strong competitive rivalry?
Limits to the industry's profit potential
Threat of substitutes
Meet the same basic customer needs as the industry's product but in a different way. Products meet the needs but come from outside the industry
Implementation (AFI Framework)
Organizational Design, Corporate Governance and Business Ethics
Rivalry among existing competitors
Other four forces all exert pressure on this, stronger the forces, the stronger this threat is
Credible threat of retalitation
Potential entrants must anticipate how incumbent firms will react (price wars)
______ are the firm's current level of intangible resources.
Resource stocks
Individuals or groups who own shares of a company's stock
Share Holders
The groups or individuals who can impact or be impacted by a firm's actions are known as ______.
Stake Holders
Effective guiding policy is supported by and stays consistent through the use of ______.
Strategic commitments
What are autonomous actions?
Strategic initiatives that lower-level employees undertake of their own volition, often in response to unanticipated events
The power of buyers
The pressure an industry's customers can put on the producer's margins by demanding a lower price or higher product quality
Strategy
The set of actions a firm takes to achieve a competitive advantage
Which theory proposes that when faced with decisions, we tend to satisfice rather than optimize?
Theory of bounded rationality
A resource is considered ______ if it helps a firm to deal with an external threat.
Valuable
Entry Barriers
economies of scale, network effects, customer switching costs, capital requirements, advantages independent of size, government policy, credible threat of retaliation
Valuable resource
enables the firm to exploit an external opportunity or offset an external threat. Enables firm to increase its economic value
The concept of a(n) ______ attempts to combine both learning effects and process improvements.
experience curve
Costly to imitate
firms that do not possess the resource are unable to develop or buy the resource at a reasonable price
Which are the four steps of the innovation process?
idea innovation invention imitation
A firm that successfully leverages network effects can ___
push its industry into the growth stage
Threat of entry
risk of potential competitors entering the industry. Depresses profit potential by: 1. Reducing industry overall profitability - incumbent firms might reduce prices to make it look less attractive to potential new competitors. 2. Increases spending among incumbent firms to satisfy existing customers
Economies of Scope
savings that come from producing two or more outputs at less cost than producing each output individually
Long Tail
when companies can obtain a large part of their revenues by selling a small number of units from almost unlimited units