Strategic Management

PESTEL Framework

Allows firm to look at external environment: political, economic, socio-cultural, technological, ecological, legal; factors are interdependent

What is the difference between corporate and business strategies?

Corporate strategy is formulated at headquarters and business strategy occurs within strategic business units

Mintzberg's Planning Framework

Design intended strategy; when unpredictable events occur unrealized strategies; bottom-up emergent strategy; realized strategy

VRIO

V - valuable R - rare I - costly to imitate O - organize to capture the value

What is competitive advantage?

a firm that formulates and implements a strategy that leads to superior performance relative to other competitors in the same industry or the industry average

path dependence

a process in which the options one faces in a current situation are limited by decisions made in the past

Strategic Group

a set of companies that pursue a similar strategy within a specific industry in their quest for competitive advantage

casual ambiguity

a situation in which the cause and effect of a phenomenon are not readily apparent

primary activities

add value directly as the firm transports inputs into outputs

support activities

add value indirectly

types of innovation

architectural innovation - new market, existing technology radical innovation - new and new incremental innovation - existing market and technology disruptive innovation - new technology, existing market

resource stocks

are the firm's current level of intangible resources

Threat of entry

barriers/obstacles that determine how easily a firm can enter an industry many barriers can = highly profitable industry

technological factors

capture the application of knowledge to create new processes and products

hyper-competition

competitive intensity has increased and periods of competitive advantage have shortened, especially in newer technology-based industries, marking an competitive advantage a string of short lived advantages

ecological factors

concern broad environmental issues such as natural environment, global warming, and sustainable economic growth

Triple bottom line

economic, social, and ecological achieve all lead to sustainable synergy

cost leader

focuses all attention on reducing cost

Industry

group of companies offering similar products or services

Threat of substitutes

idea that products or services from outside the given industry will come close to meeting the needs of current customers

short head

mainstream

monopolistically competitive

many firms, differentiated product, some obstacles to entry, basis for raising prices is pretty unique product while retaining customers

Perfect competition

many small firms, commodity product, easy entry, little or no ability for a firm to raise its prices

focused strategy

narrower scope

paradigm shift

new technology revolutionizes old, and the industry standard changes

Monopoly

only one firm supplying the market; many barriers to entry, considerable pricing power

legal factors

outcomes of the political processes manifested in laws, mandates, regulations, and court decisions

competitive advantage is the difference between

perceived value captured by how much customers are willing to pay for a product or service, and the total cost the firm incurs to create that value

discontinuities

periods of time in which underlying technological standards change

strategic position

position based on value creation and cost in a specific product market

Value drivers

product features customer service customization complements

strategic role of complements

product or service that adds value to the original product offering when two are used in tandem

resource-based view of a firm

provide a model that systematically aids in identifying core competencies

resource heterogeneity

resources differ across firms

resource immobility

resources don't move easily from firm to firm

SWOT analysis

s) strength w) weakness o) opportunities t) threats

social complexity

situations in which different social and business situations

fragmented industry structures

small firms trying to generate low profitability

socio-cultural factors

society's cultural norms, values, and cultures; ex) ppl become more health conscience

economies of scope

the average total cost of production decreases as the number of different goods increases

power of buyers

the bargaining power of buyers; demanding lower price for a better product; strong buyers reduce a firm's profitability

Power of suppliers

the bargaining power of suppliers captures the pressure that suppliers place on industry profitability - ex) labor unions

resource flows

the firm's level of investments to maintain or build a resource

rivalry among existing competitors

the intensity with which companies in an industry jockey for market share and profitability

the long tail

the remaining 80% of the market- obtain a large part of revenue from selling a small number of units from almost unlimited choices

structure-conduct-performance (SCP) model

theoretical framework, developed in industrial-organization economics, explains differences in industry performance; underlying industry structure determines firm conduct

Balanced scorecard

this approach harnesses multiple internal and external performance metrics in order to balance both financial and strategic goals

core competencies

unique strengths, embedded deep within a firm, that allow a firm differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost

business-level strategy

who - which customer segments will we serve what - customer needs wishes, and desires will we satisfy why - do we want to satify them how - will we satisfy our customer's needs

Oligopoly

"few sellers"; few (large) firms, differentiated products, high barriers to entry, some degree of pricing power - firms are interdependent - analyzed using game theory

Economic factors

- growth rates - interest rates - levels of employment - price stability - currency exchange rates

implications for the strategist

- quantitative and qualitative performance dimensions matter in judging how effective a firm's strategy is - goal of strategic management is to integrate and align each business function and activity to obtain superior performance at the co. level - no best strategy exists

Four main industry types

1) perfect competition 2) monopolistic competition 3) oligopoly 4) monopoly

the 5 forces model

1) threat of entry 2) power of suppliers 3) power of buyers 4) threat of substitutes 5) rivalry among existing competitors

What are the levels of strategy formulation?

corporate, business, functional

cost drivers

cost of input factors economies of scale learning-curve effects experience curve effects

differentiation

create higher value for customers than the competitors create - deliver products or services while keeping cost at the same or similar level

cost-leadership

create similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers

economies of scale

decreases in cost per unit as output increases

dynamic capabilities

describe a firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources

Strategy as planned emergence

describes any unplanned strategic initiative undertaken by mid-level employees of their own volition

value chain

describes the internal activities a firm engages in when transforming inputs and outputs

Mission statements

describes what the organization actually does --the products and services it plans to provide and the markets in which it plans to compete

consolidated industry structures

dominated by a few firms which are highly profitable

mobility barriers

industry-specific factors that separate one strategic group from another