445 Exam 1 Short answer/essays
Pick two factors from the PESTEL model (Political, Economic, Sociocultural, Technological, Ecological, Legal) and explain how uncertainty in those areas might impact a firm's ability to implement its strategic plans.
A firm's macroenvironment consists of a wide range of political, economic, sociocultural, technological, ecological, and legal (PESTEL) factors that can affect industry and firm performance. These external factors have both domestic and global aspects. Political factors describe the influence govern-mental bodies can have on firms. Economic factors to be considered are growth rates, interest rates, levels of employment, price stability (inflation and deflation), and currency exchange rates. Sociocultural factors capture a society's cultures, norms, and values.Strategic leaders need to closely monitor such trends and consider the implications for firm strategy. In recent years, for example, a growing number of U.S. consumers have become more health-conscious about what they eat. This trend led to a boom for businesses such as Chipotle, Subway, and Whole Foods. At the same time, traditional fast food companies McDonald's and Burger King, along with grocery chains such as Albertsons and Kroger, have all had to scramble to provide healthier choices in their product offerings. Technological factors capture the application of knowledge to create new processes and products.The nanotechnology revolution, which is just beginning, promises significant upheaval for a vast array of industries ranging from tiny medical devices to new-age materials for earthquake-resistant buildings.9 Recent product innovations include the smartphone, wearable devices such as smart watches, and high-performing electric cars such as the Tesla Model S. As discussed in the ChapterCase, Airbnb launched a radical process innovation of offering and renting rooms based on a business model leveraging the sharing economy. Ecological factors concern a firm's regard for environmental issues such as the natural environment, global warming, and sustainable economic growth. Legal factors capture the official outcomes of the political processes that manifest themselves in laws, mandates, regulations, and court decisions
Briefly justify why anchoring a firm in ethical core values is essential for long-term success.
Ethical core values underlay the vision statement to ensure the stability of the strategy, and thus lay the groundwork for long-term success. Ethical core values are the guardrails that help keep the company on track when pursuing its mission and its quest for competitive advantage.
Describe a SWOT analysis. What strategic implications can be drawn from a SWOT analysis?
(strengths, weaknesses, opportunities and threats) is a framework for identifying and analyzing the internal and external factors that can have an impact on the viability of a project, product, place or person. SWOT analysis can help your business identify what it's doing right and what needs to change in the organization to sustain a competitive advantage. The strategic implications of a SWOT analysis should help the firm to leverage its internal strengths to exploit external opportunities, while mitigating internal weaknesses and external threat
Why is it important for any organization to study and understand its external environment?
A firm's external environment consists of all the factors that can affect its potential to gain and sustain a competitive advantage. By analyzing the factors in the external environment, strategic leaders can mitigate threats and leverage opportunities.
Differentiate the roles of firm effects and industry effects in determining firm performance.
A firm's performance is more closely related to its managers' actions (firm effects) than to the external circumstances surrounding it (industry effects). Firm and industry effects, however, are interdependent. Both are relevant in determining firm performance.
Describe the roles of vision, mission, and values in a firm's strategy.
A vision captures an organization's aspirations. An effective vision inspires and motivates members of the organization. A mission statement describes what an organization actually does—what its business is—and why and how it does it. Core values define the ethical standards and norms that should govern the behavior of individuals within the firm.
What are core competencies? Explain the relationship between core competencies, resources and capabilities.
Core competencies are unique, deeply embedded, firm-specific strengths that allow companies to differentiate their products and services and thus create more value for customers than their rivals, or offer products and services of acceptable value at lower cost. Resources are any assets that a company can draw on when crafting and executing strategy. Capabilities are the organizational and manage-rial skills necessary to orchestrate a diverse set of resources to deploy them strategically.
Why is it important to study the internal resources, capabilities and activities of firms?
Core competencies are unique, deeply embedded, firm-specific strengths that allow companies to differentiate their products and services and thus create more value for customers than their rivals, or offer products and services of acceptable value at lower cost. Resources are any assets that a company can draw on when crafting and executing strategy. Capabilities are the organizational and manage-rial skills necessary to orchestrate a diverse set of resources to deploy them strategically. Activities are distinct and fine-grained business processes that enable firms to add incremental value by transforming inputs into goods and services Each distinct activity enables firms to add incremental value by transforming inputs into goods and services. Resources reinforce core competencies, while capabilities allow managers to orchestrate their core competencies.
Apply the VRIO framework to assess the competitive implications of a firm's resources.
For a firm's resource to be the basis of a competitive advantage, it must have VRIO attributes: valuable (V), rare (R), and costly to imitate (I). The firm must also be able to organize (O) in order to capture the value of the resources. A resource is valuable (V) if it allows the firm to take advantage of an external opportunity and/or neutralize an external threat. A valuable resource enables a firm to increase its economic value creation (V − C). A resource is rare (R) if the number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition. A resource is costly to imitate (I) if firms that do not possess the resource are unable to develop or buy the resource at a comparable cost. The firm is organized (O) to capture the value of the resource if it has an effective organizational structure, processes, and system
Compare and contrast tangible and intangible resources.
Tangible resources have physical attributes and are visible. (Land, Labor, Capital) Intangible resources have no physical attributes and are invisible. (Culture, Knowledge, Goodwill) Competitive advantage is more likely to be based on intangible resources, since they are more complicated to obtain.
Explain the AFI Strategy Framework. Be sure to include the steps that a firm must take to gain and sustain competitive advantage.
The AFI strategy framework (1) explains and predicts differences in firm performance, and (2) helps managers formulate and implement a strategy that can result in superior performance. Effectively managing the strategy process is the result of three broad tasks: 1. Analyze (A) 2. Formulate (F) 3. Implement (I) Steps: 1. External/Internal Strategy Analysis a. what is strategy, why is it important b. Strategic Leadership: managing the strategy process c. External: PESTEL, Competitive forces d. Internal: Resources, capabilities, core competencies e. competitive advantage, firm performance, business models 2. Formulate Business Strategy a.Differentiation, cost leadership b.Innovation, Entrepreneur c. Corporate Strategy: vertical integration, diversification, mergers/acquisitions d. Global Strategy: competing around the world 3. Strategy Implementation a. Organizational Design: structure, culture, control b.Corporate governance, business ethics
Describe Porter's five competitive forces model and then discuss how this model can be used to explain the profit potential of different industries.
Porter's Five Forces is a business analysis model that helps to explain why different industries are able to sustain different levels of profitability. 1. Competition in the industry This force refers to the number of competitors and their ability to undercut a company. 2. Potential of new entrants into the industry The less time and money it costs for a competitor to enter a company's market and be an effective competitor, the more a company's position may be significantly weakened. An industry with strong barriers to entry is an attractive feature for companies that allows them to charge higher prices and negotiate better terms 3. Power of suppliers This force addresses how easily suppliers can drive up the cost of inputs. It is affected by the number of suppliers of key inputs of a good or service, how unique these inputs are, and how much it would cost a company to switch from one supplier to another. 4. Power of customers This specifically deals with the ability that customers have to drive prices down. It is affected by how many buyers or customers a company has, how significant each customer is, and how much it would cost a company to find new customers or markets for its output. 5. Threat of substitute products Substitute goods or services that can be used in place of a company's products or services pose a threat. Companies that produce goods or services for which there are no close substitutes will have more power to increase prices and lock in favorable terms.
Briefly explain the strategic implications of product oriented and customer oriented vision statements
Product-oriented vision statements define a business in terms of a good or service provided. Customer-oriented vision statements define business in terms of providing solutions to customer needs. Customer-oriented vision statements provide managers with more strategic flexibility than product-oriented missions. To be effective, visions and missions need to be backed up by hard-to-reverse strategic commitments and tied to economic fundamentals.
