BADM 449 - Midterm #1

Discuss the concept of sustainable competitive advantage (SCA) in terms of discounted cash flow (DCF) and NPV.

- maximizing the net present value of the firm's cash flow (sustainable competitive advantage) corresponds to maximization of its stock market valuation and hence maximizes the wealth of its shareholders equivalent concepts: maximize NPV, DCF approach, maximize EVA --> SCA

What are some limitations of shareholder value creation as a measure of firm performance?

- stock prices can be highly volatile which makes it difficult to assess firm performance - macroeconomic factors affect stock prices (economic growth or contraction, unemployment, interest, and exchange rates) - stock prices can reflect the mood of investors (can be irrational)

Discuss the differences between tangible and intangible Resources

- tangible resources are visible, physical attributes like labor, capital, land, buildings, plant, equipment, supplies - intangible resources are invisible, no physical attributes like culture, knowledge, brand equity, reputation, intellectual property

How does tacit knowledge help sustain competitive advantage?

- the knowledge is not observable in use - the knowledge is (socially) complex, rather than simple

Escalating Commitment (decision making bias)

Continuing to support a cause of action when it is showing signs that it may not succeed example: escalation of Vietnam War

When can market share generate and sustain a competitive advantage?

Scale economies (to generate cost leadership advantage) combined with high exit costs (to sustain the advantage) may make market share a defensible advantage

Discuss Porter's 5-Forces Analysis.

The classic industry analysis model - designed to explain variance in industry-level performance - threat of entry/barriers to entry - power of suppliers - power of buyers - threat of substitutes - rivalry among existing competitors

What are the cost drivers that lead to cost leadership?

input costs, economies of scale, and experience (product/process design?)

Which type of resources (tangible or intangible) are more likely to lead to sustainable competitive advantage (consider Googleplex)?

intangible resources

Representativeness (decision making bias)

drawing conclusions based on small samples or anecdotes example: depression after World War I

razorblade business model

the initial product is often sold at a loss or given away for free to drive demand for complementary goods; money made on replacement parts EXAMPLE: HP laser printers

pay as you go business model

users pay for only the services they consume EXAMPLE: utilities, cell phone plans

What is the purpose of industry analysis?

to determine threats and opportunities that exist for firms within a competitive environment to determine profit potential of an industry and shape a firm's competitive strategy

Discuss the concept of isolating mechanisms in terms of how path dependence, causal ambiguity, social complexity, and intellectual property protection are isolating mechanisms.

- barriers to imitation: protect resources and capabilities that underpin a firm's competitive advantage path dependence: historical lock-in to older tech or historical development of tech; honda's development of gas engines took decades and was leveraged across multiple products causal ambiguity: cause and effect unclear social complexity: social and business systems interact intellectual property: protection

Apply Ghemawat's Strategy Framework on (Linkages of) Positioning-Organization-Resources & Capabilities to our Harvard case on Wal-mart

- positioning: preemptive strategy (first to provide rural areas with discount retailer), first mover advantage, local monopolies, inside out expansion - organization: incentive systems aligned with goals of org (i.e. shrinkage incentive system) - resources: merchandising (low advertising costs), good supplier network, store operations and distribution system

Apply barriers to entry to our Harvard case on RTE Cereal

1. economies of scale - Minimum efficient scale 75 mill lbs/year 2. capital requirements - requires an investment in excess of $100 million look at write up for case

A key idea for measuring firm performance is to "triangulate" (i.e., to use multiple measures of performance to evaluate the health of the organization). How does the Apple vs. Microsoft comparison help illustrate this key idea?

Apple and Microsoft comparison helps illustrate this idea because they each are better than the other in different measures so you need to look at multiple to understand the whole picture

Bundling business model

Bundling model: products or services for which demand is negatively correlated at a discount EXAMPLE: Microsoft Office Suite

Discuss MVA, EVA, Tobin's Q, and the Market Value of the Firm.

Market Value Added: market value less total investment Economic Value Added: operating profit (after tax) less annual capital costs; basically, this is economic profit Tobin's Q: market value/book value; a firm's market value divided by its "replacement" cost Market Value of the Firm: current value of all securities issued by the firm

freemium business model

free and premium business model, provides the basic features free of charge and users pay for premium services EXAMPLE: software trials, NYT, WSJ

Discuss the (eventual) tradeoff of profitability and the growth rate of the firm.

graph with growth rate on x and profitability on y - parabola form (max growth rate before profitability starts declining)

Illusion of Control (decision making bias)

our tendency to overestimate our ability to control events example: air traffic controllers

agency business model

producer relies on an agent or retailer to sell the product and producer may control the retail price EXAMPLE: entertainment industry

What is the definition of a business-level strategy?

A business-level strategy is an integrated and coordinated set of commitments and actions designed to provide value to customers and to gain a competitive advantage by utilizing core competencies in specific individual product markets.

If we consider a firm's sustainable competitive advantage as a function of barriers to imitation by others, and the firm sustaining its cash flow, then how does this conceptualization of sustainable competitive advantage relate to Net Present Value (NPV) in corporate finance?

The Net Present Value (NPV) is the sum of the present value of all future cash flows

Explain the stakeholder view of strategic management.

- "Balancing the shareholder's expectations of maximum return against other priorities is one of the fundamental problems confronting corporate management." - Understanding corporate strategy means understanding the competing value claims of multiple stakeholders. - Stakeholders are "the organizations, groups, and individuals that can affect or are affected by a firm's actions"

Tesla had a market capitalization of some $60 billion in early 2019. What was Tesla's sequence of moves contributing to this outcome?

- 2008 introduced 1st car, the Roadster, a sports coup with faster acceleration than a Porsche or Ferrari; served as prototype to show that electric vehicles can be competitive (cost $110,000) - discontinued Roadster in 2012 to focus on the Model S, a four door family sedan; Motor Trend car of the year and received highest score of any car ever tested by Consumer Reports; base price of $73,500 - In 2016 unveiled Model 3, all electric compact luxury sedan (cost $35,000) - Tesla aims to provide zero emission electric power generation options and acquired Solar City for more than $2 billion in fall of 2016

What factors lead to high bargaining power for buyers?

- A few large buyers (potential collusion) - Products are standardized or undifferentiated commodities - Buyers face low switching costs - High switching costs for sellers - Backward Integration is credible (buyer has full information) - Large buyers relative to a seller (e.g., HMO power buying pharmaceuticals) Buyers compete with the supplying industry by bargaining down prices, forcing higher quality, and playing firms off of each other.

Apply the AFI Strategy Framework to show that in late 2018, Twitter did not have a coherent strategy.

- Analysis (the competitive challenge): Twitter did not grow its user base sufficiently - e.g., compare Twitter's 330 million monthly users to Facebook' over 2 billion users. - Formulation (a guiding policy): Twitter did not formulate a strategy on how to increase its user base. - Implementation (a set of coherent actions): From its inception, Twitter had implementation problems due to infighting and public intrigues among co-founders and early leaders. Twitter attempted to be everything to everybody, without considering the strategic tradeoffs, which lead to an incoherent set of actions. Such corporate culture problems led to low employee morale, and actual performance that was far from its potential.

Discuss Indra Nooyi's "Performance with Purpose" at PepsiCo.

- As CEO of PepsiCo from 2006 to 2018, Indra Nooyi, led the company to reach $65 billion in annual revenues in 2018, and over $160 billion in stock market valuation, and close to 270,000 employees worldwide - Performance with Purpose: Human Sustainability, Environmental Sustainability, the whole person at work (Be a place to make a living and make a life)

What are the tradeoffs that firms must consider when seeking a (unique) strategic positioning?

- Competitive advantage has to come from: performing different activities, or performing the same activities differently than rivals - Requires tradeoffs: Nordstrom focuses on differentiation with trained sales-people and luxury settings, while Walmart's strategic activities strengthen its position as a cost leader

Describe strategy as planned emergence for Japan railways

- Constructing a bullet train through the mountains north of Tokyo, which required many tunnels - Persistent flooding - Complex engineering plans to drain the water - Maintenance worker suggested that the fresh water off the mountains should not be drained, but rather should be bottled - 1,000 vending machines on 1,000 railroad platforms in and around Tokyo, and home delivery of water, juices, and coffee followed - The employee's proposal had turned this "bottom-up" strategy into a multi-million dollar business

Discuss the levels of corporate, business, and functional strategy.

- Corporate Level: Typically involves decision-making by the top management team that includes the CEO, senior executives, the board of directors, and the corporate staff. Decisions include vertical integration, diversification, strategic alliances, acquisitions, new ventures, restructuring, and divestments. (WHERE to compete) - Business Level: Includes the strategic choice of generic strategy (cost leadership, differentiation, focus) and the benefits and costs of first-mover advantages. Often an enterprise participating in multiple businesses will have different business strategies. (HOW to compete) - Functional Level: Typically directed at improving the effectiveness of functional operations within a company, such as manufacturing, materials management, human resources, marketing, R&D, and operations management. (HOW to IMPLEMENT)

Discuss "defining the business" and the contract between customer-oriented and product-oriented visions of the firm

- Customer oriented vision defines a business in terms of providing solutions to customer needs - Product oriented vision defines a business in terms of a good or service provided; less flexible, is not needs based, can lead to myopic view - example: fall of the railroads bc railroad business vs transportation business; market myopia

What are some important considerations in strategy in the quest to create, capture, and sustain competitive advantage?

- Definition: Strategy is the quest to create, capture, and sustain competitive advantage. - It is the managers' cognitive maps about how to sustain advantage. - It is about deciding what to do, and what not to do (i.e., economic tradeoffs are considered; opportunity cost). - It has alternatives, consequences, and choices involving substantial resources, typically made under some level of uncertainty. - It requires long-term commitments that are not easily reversible. - It is about being different from your rivals. It combines a set of activities to stake out a unique positioning.

What are some of the symptoms of Groupthink?

- Illusion of invulnerability - Belief in the inherent morality of the group - Stereotyped views of members of opposing groups - Application of pressure to members who express doubts about the group's shared allusions or question the validity of arguments proposed - Practice of self-censorship - Appointment of mindguards example: Kennedy and the Bay of Pigs Invasion

Describe the Airbnb business model in disrupting the hotel industry.

- In 2019, Airbnb had 5 million listings in over 81,000 cities in 190 countries, ranging from spare rooms to entire islands, valued at $31 billion. With its "asset-light approach," based on its platform strategy, Airbnb offers more accommodations than the three biggest hotel chains combined: Marriott, Hilton, and Intercontinental to compete in the global hotel industry. - In 2010, Airbnb received funding from Sequoia Capital, a prestigious capital firm in Silicon Valley, having provided early-stage capital to firms such as Apple, Google, and WhatsApp.

Discuss the evolution of competition between Apple and Microsoft

- Microsoft was the early leader - Microsoft is now in turnaround mode (Office suite now available on Apple iOS/Android, as a subscription service, and software can be accessed on any device) - Apple has dominated the market since the iPhone in 2007 - from 2009 to 2019, Microsoft's market cap has risen from $145 to $880 billion - by fall of 2018, Apple was the first company to ever be valued at more than $1 trillion but by spring of 2019, market cap had fallen more than 21% - comparison over time shows that competitive advantage is transitory; it is difficult to gain competitive advantage in the first place and even harder to sustain it

Describe the PESTEL framework for evaluating the impact of external factors on the firm.

- Political: govt pressures, subsidies and incentives, lobbying and contributions, differences in countries, states and regions - Economic: growth rates, employment levels, interest rates, currency exchange rates - Sociocultural: norms, culture, values, demographics, lifestyle changes - Technological: innovation in products and processes, machine learning and AI, diffusion, r&d - Ecological: global warming, sustainability, pollution - Legal: court system, legislation, hiring laws, (de)regulation

What are some of the limitations of Present Value measures?

- Projections are only as good as the ability of managers to measure accurately the financial consequences of actions. - An implicit assumption of value-based strategy is that business units and all investment proposals are self-contained. It is usually expected that divesting a business or curtailing an investment project would have no financial repercussions elsewhere in the corporation - Strict financial measurement of many long-term investments, particularly in intangible assets, is virtually impossible. - Investments in R&D typically do not offer direct returns; their economic value is a strategic option to invest in new products and processes that may arise from R&D. Narrowly-defined DCF does not accurately value investments where there is significant strategic options value.

How is the "rational decision making" (optimizing) model fundamentally different from the "satisficing decision-making model?" (Note: satisficing refers to doing "good enough" with no intent to optimizing: e.g., a decision maker may be happy to find "a needle in the haystack without seeking to find the sharpest needle in the haystack").

- Rational: an optimal decision is possible, all relevant info is available, all relevant info is understandable, all alternatives are known, all possible outcomes are known - Satisficing: time constraints, limited ability to understand all factors, inadequate base of information, limited memory of decision makers, poor perception of factors to be considered in decision process

Discuss three classic definitions of strategy by (i) Schelling; (ii) Chandler; and (3) Quinn. What do these definitions have in common, and how are they different?

- Schelling: "The term 'strategy' is intended to focus on the interdependence of the adversaries' decisions and on their expectations about each other's behavior." - Chandler: "Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out those goals." - Quinn: Strategy is: "The pattern or plan that integrates an organization's major goals, policies, and action sequences into a cohesive whole. A well-formulated strategy helps to marshal and allocate an organization's resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment, and contingent moves by intelligent opponents."

Provide the Analysis-Formulation-Implementation (AFI) Strategy Framework.

- Strategic Management: an integrative management field that combines analysis, formulation, and implementation (AFI) in the quest for sustainable competitive advantage - Tesla example illustrates the AFI framework - The AFI framework enables us to think like a general manager to help position our firm for SCA, which can be viewed as positive economic profit (taking into account the opportunity cost of capital), and can be operationalized as positive NPV.

Describe important differences in Kahneman's (2011) path-breaking book, Thinking Fast and Thinking Slow between System 1 and System 2 modes of thinking

- System 1: fast, unconscious, automatic, everyday, snap decision, and error prone, higher likelihood of biases - System 2: slow, conscious, effortful, complex, analytical decisions, and reliable, lower likelihood of biases

Describe Target's stakeholder strategy.

- Target Corporation has numerous awards that reflect its strong relationship with its stakeholders. It is on lists such as best places to work, most admired companies, most ethical companies, best in class for corporate governance, and grassroots innovation. Since its founding, Target has given 5% of its profits to education, the arts, and social services in communities in which it operates, and it contributed $4 million per week in 2012. - To show its commitment to minorities and women, Target launched a program to bring minority- and women-owned businesses into its supply chain. Volunteerism and corporate giving strengthen the relationship Target has with its employees, consumers, local communities, and suppliers. These actions can help Target gain a competitive advantage as a retailer as long as the benefits Target accrues from its stakeholder strategy exceed the costs of such programs.

Describe the mission of Teach for America (TFA)

- Teach for America (TFA) is a non-profit organization of future leaders that works to ensure that under-privileged youth obtain an excellent education. TFA members spend two years teaching in economically disadvantaged communities across the United States. - A study commissioned by the U.S. Department of Education found that students being taught by TFA corps. members showed significantly higher achievement, especially in math and science.

Describe the leadership crisis at Facebook

- The End of the Zuckerberg-Sandberg Era? - By 2019, Facebook found itself caught in a perfect storm, and many were demanding that Zuckerberg and Sandberg step down. - Due to its lenient privacy controls, third parties were able to siphon off the personal data of tens of millions of Facebook users, and lax data oversight enabled foreign interference during the 2016 U.S. presidential elections. Critics assert that because of its single-minded pursuit of exponential growth, Facebook's leadership failed to consider the seriousness of negative side effects on its stakeholders and the firm's reputation.

Discuss how Merck showed effective stakeholder management in the case of "river blindness."

- Vision: "to preserve and improve human life" - Values: "We try to never forget that medicine is for the people. It is not for profits. The profits follow, and if we have remembered that, they have never failed to appear" - Merck donated Mectizan in remote areas where health services are often not available - after 25 years and more than 1 billion treatments the disease had effectively been eradicated

Use the VRIO Framework to evaluate Groupon.

- a daily deal website, offering group coupons - grew quickly, but share price fell 90% - it was Valuable and Rare, but not costly to Imitate so more specialized local startups began

Discuss some limitations of accounting data

- all accounting data are historical and thus backward-looking - accounting data do not consider off balance sheet items such as pension and leasing obligations - accounting data focus mainly on tangible assets, which are no longer the most important

Discuss the blue ocean strategy of (successfully) combining differentiation and cost leadership, and discuss examples of Trader Joes and IKEA.

- blue ocean strategy uses value innovation to reconcile trade offs - metaphor of blue ocean means untapped market space, creation of additional demand, and opportunity for highly profitable growth Trader Joes: regional grocer, offers high value and health conscious foods at much lower costs than Whole Foods Ikea: eliminates sales people and after sales service, offers tens of thousands of home furnishing items, and created a new way to shop for furniture

Discuss Cirque du Soleil's difficulties in implementing a blue ocean strategy

- combines traditional circus with storytelling, ballet, and theater - a perfect storm: lack of differentiation resulting in lower sales and acrobat safety concerns after performer deaths in 2013, 2016, and 2018

Discuss the concept of Strategic Coherence and apply to Wal-mart and Southwest Airlines

- combining activities that complement and reinforce one another; these activities dovetail together to help achieve the overall objectives of the firm - such strategies, which may regarded as systems of activities are often more successful because they are more difficult to imitate; thus, they can lead to a sustainable competitive advantage - strategic coherence may not be a sufficient condition for attaining a competitive advantage, but it is often a necessary one Southwest: low price, short routes, no frills, point to point, one aircraft, no meals Walmart: low price, serving underserved markets, unluxurious office spaces/warehouses, self service

Describe JetBlue's challenges in seeking a blue ocean strategy.

- copied/improved Southwest's business model several incidents that have damaged customer service record: - passengers kept on the tarmac for 9 hours during a snowstorm - flight attendant insulted passengers before deploying the emergency escape chute - issue of pilot's mental health - removed legroom - poor on-time record in 2017

BP's experience in the Gulf of Mexico shows how not to manage stakeholder relationships effectively. What were the consequences of poor management?

- did not identify potential opportunities/threats - oil spill cleanup cost $14 billion - 5 million barrels of crude oil released into the Gulf of Mexico (largest environmental disaster in US history) - Management repeatedly failed to put a safety culture in place BP paid over $25 billion to settle claims made against them by small business owners that were effected (total cost for incident was $60 billion) - EPA banned BP from any new contracts with the US government

What factors lead to high bargaining power for suppliers?

- dominated by a few companies - suppliers products are differentiated - no substitutes for supplier products - incumbents face high switching costs - product is important input to buyer - forward integration is a credible threat suppliers exert power in the industry by threatening to raise prices or reduce quality. Powerful suppliers can squeeze industry profitability

Discuss the concepts of dynamic capabilities and core rigidities.

- dynamic capabilities are a firm's ability to create, deploy, modify, reconfigure, upgrade, and leverage its resources over time - this helps prevent core rigidity (a former core competency that turned into a liability as the environment changed)

What factors make it difficult (and/or costly) for an entrant to duplicate an established firm's competitive advantage?

- historical conditions - uncertainty - social complexity - property rights protection

What factors lead to high (price) rivalry?

- low barriers to entry = high price rivalry - many competitors in the industry (concentration is low) - firms are of equal size - industry growth is slow or shrinking (over-capacity is high) - exit barriers are high - products and services are direct substitutes (product differentiation is low)

Discuss how Threadless leverages crowdsourcing in the design of their T-shirts

- online design community and apparel - started in 2000 with $1,000 by 2 students - prosumers (a hybrid supplier/customer) - shirt designs are submitted by the community - designs are voted on by the online community - only winning designs are produced and sold - leverages "crowdsourcing": volunteers for tasks - customers are important throughout the value chain (idea generation, design, marketing, demand forecasting, and distribution)

Describe the balanced scorecard and its limitations.

- perspectives of balanced scorecard: financial, customer, operations, and organizational limitations: - focused on implementation - does not provide criteria for strategy formulation - how to get back on track if deviations occur - lacks guidance: which metrics to use and how to address setbacks?

Discuss the value chain model in terms of primary and support activities.

- primary activities add value directly in transforming inputs to outputs - support activities indirectly add value, provide support to primary activities, include information systems, hr, accy, etc

Describe the Triple Bottom Line as an assessment of firm performance.

- profits: economic dimension - business must be profitable to survive - people: social dimension - emphasizes the people aspect - planet: ecological dimension - emphasizes the relationship between business and the natural environment

Discuss the concepts of resource stocks and resource flows and its illustration through the bathtub metaphor.

- resource stocks: the firm's current level of intangible resources - resource flows: the firm's level of investments to maintain or build a resource note: the resource stock impacts the current flow bathtub metaphor: inflows/investments in resources fill up the tub - tub full of water is the intangible resource stocks - any dripping out the bottom of the tub from holes or cracks are outflows/leakage/forgetting

Describe Ghemawat's Strategy Framework on (Linkages of) Positioning-Organization-Resources & Capabilities.

- role of strategy in business is to generate and sustain value via the linkages between positioning, organization, and resources - positioning includes vertical integration (value chain), choice of businesses, product market positioning, geographic scope - organization includes structure, systems, and processes - resources include tangible and intangible

Discuss how JCPenney under its (former) CEO, Ron Johnson, learned the hard way how difficult it is to change a firm's strategic position, leading to being "stuck in the middle."

- sales dropped by 25% - their stock was dropped from the S&P 500 Index - CEO Ron Johnson was fired and predecessor came out of retirement to step in - experienced a sustained competitive disadvantage as they were "stuck in the middle"

Describe Dr. Shetty's use of learning curves and economies of scale in the medical industry

- trained as heart surgeon in London - conducted open-heart surgery on Mother Teresa - goal is to drive down costs through process innovation - applies learning curves to his work: they work 6 days per week and their skills improve quicker than their US counterparts - achieves economies of scale

What are core competencies? Provide some examples.

- unique strengths - embedded deep within a firm - enables a firm to differentiate its products and services from those of its rivals - results in creating higher value for the customer or offering products and services at lower cost - five guys and high quality ingredients, wide range of free toppings - beats electronics combines hardware and software and superior marketing - Netflix creates proprietary algorithm-based on individual customer preferences

Describe the 2X2 of knowledge in terms of Levels and Types of Knowledge.

2X2 grid: top is levels of knowledge (individual & organization) left is types of knowledge (explicit & tacit) individ & explicit: information facts/scientific knowledge individ & tacit: skills org & explicit: databases, systems & procedures, IP org & tacit: organizational capabilities

Provide the five steps of stakeholder impact 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 economic, legal, ethical, and philanthropic responsibilities do we have to our stakeholders? 5. What should we do to effectively address the stakeholder concerns?

Evaluate the Five Forces in our Harvard business case concerning the U.S. soft-drink industry. What is the predicted industry economic performance, based on this evaluation?

1. barriers to entry are high (threat of entry is low) 2. power of suppliers is low 3. power of buyers is low 4. threat of substitutes is low 5. price rivalry among existing competitors is low Price rivalry among CSD is very low, leading to high industry profitability. Agreements and laws make concentrate prices fixed and no room for competition. 5 star industry

Evaluate each of Porter's Five Forces Model within the airline industry: (1) Threat of entry; (2) bargaining power of suppliers; (3) bargaining power of buyers; (4) threat of substitutes; and (5) (price) rivalry among existing competitors. What is the predicted industry economic performance, based on this industry evaluation?

1. barriers to entry are low (threat of entry is high) 2. power of suppliers is high 3. power of buyers is high 4. threat of substitutes is high 5. price rivalry among existing competitors is high As a result of the first 4 forces, price rivalry among airlines is incredibly intense, leading to low industry profitability. Ticket prices have been falling since industry deregulation in 1978 thanks to search engines and price comparisons. zero star industry

Provide the taxonomy of barriers to entry

1. economies of scale (economies of scope and scale) 2. network effects 3. high switching costs of buyers 4. capital requirements 5. intended excess plant capacity 6. product differentiation (brand loyalty and customer loyalty) 7. favorable access to raw materials 8. access to distribution channels 9. cumulative learning curve advantages (11% reduction in unit costs = 89% learning curve) 10. proprietary technology 11. government policy 12. credible threats for price cutting 13. exit barriers (of incumbents) can be entry barriers (to potential entrants)

Show how to calculate EVA.

1. operating profit - taxes = Y 2. compute WACC: %equity(%) + %debt(%) = WACC 3. WACC * capital = X 4. Y - X = EVA

Discuss the three approaches to strategize for competitive advantage: (1) Strategic planning; (2) Scenario planning; and (3) Strategy as planned emergence.

1. strategic planning - formal, top-down planning approach; may not adapt well to change, information flows one way 2. scenario planning - formal, top-down planning approach; envision different "what-if" plans, generate a dominant strategic plan (however, black swan events) 3. planned emergence - begins with a strategic plan, less formal; top down and bottom up, relies on data as well as personal experience, deep domain expertise, and front line employee insights

How is product differentiation competition (e.g., advertising battles) potentially quite different from pricing competition?

Advertising battles may well expand or enhance the level of product differentiation in the industry for the benefit of all firms. In other words, advertising is not necessarily a "zero sum" game - it can be a positive sum game

What PESTEL factors led to the decline of Blackberry and of Blockbuster?

Blackberry: lacked awareness of sociocultural and technological factors - people began to use their own phones for work and social, and IT depts had to incorporate other devices AND Apple's release in 2007 included a camera, touchscreen, and wifi; Blackberry dismissed Apple as a toy with low security features Blockbuster: unable to respond to technological changes, receiving threats from cable networks and then from Netflix, and then to stream content

Prior Hypothesis Bias (confirmation bias - decision making bias)

Searching for information to support existing beliefs example: market share leads to higher profitability

What are two fundamental questions in business strategy and competitive advantage?

How do you generate advantage? How do you sustain advantage?

What is the Structure-Conduct-Performance Model for Industry Analysis?

Industry structure: number of buyers and sellers, degree of product differentiation, barriers to entry, cost structures, vertical integrations, and alliances Firm Conduct: pricing, advertising, r&d, investment in PPE Performance: econ profits, accounting profits (ratios), NPV/DCF, MVA/EVA, Tobin's Q **no one-way casual link

Provide details concerning the VRIO decision tree for explaining and predicting sustainable competitive advantage.

Is the resource, capability, or competency... Valuable? (no - competitive disadvantage) Rare? (no - competitive parity) Imitation costly? (no - temp comp advantage) And is the firm Organized to capture value? (no - temp comp advantage) **N = non substitutable

Explain the role of benchmarking in determining the core competence(s) within the value chain.

Must benchmark to other firms in the industry to see how you compare and what your true core competency is/what you do better than the competitors

What is the sixth force? Why was this omission critical?

Power of Complements - adds a cooperative dimension to Porter's "competitive forces" model

What are the key questions for "defining the business?"

Who is being satisfied? What is being satisfied? How are customer needs satisfied?

Discuss the evolution of Five Guy's core competencies.

core competency: make the best burgers, don't worry about the cost - Five Guys claims the title of fastest-growing restaurant chain in the United States with some 1,500 locations worldwide and revenues of $2 billion. - 1986: first store opened by Jerry Murrell in Arlington, VA - 2003: 5 stores in Washington, D.C. area; started franchising - 2010: beyond the United States to Canada - 2013: to the UK - 2015-2018: to France, Ireland, Kuwait, UAE, and Saudi Arabia

Discuss the generic and the focused business strategies, and provide examples for: - Cost Leadership - Differentiation - Focused Cost Leadership - Focused Differentiation

cost leadership: similar product at lower cost (Walmart) differentiation: price premium from unique product (Coke) focused means competitive scope is narrow or in other words you focus on a smaller market of products (example is bic being a focused cost leadership strategy)

Discuss "devil's advocacy" and "dialectical inquiry" techniques that can address groupthink problems. How do the two techniques differ?

devil's advocacy: appoint someone/group to question assumptions and criticize group's plan, revise plan, devil's advocate, revise plan, etc dialectical inquiry: one team generates a plan of action and another generates alternative plan (thesis & antithesis), then teams debate to upper level mgmt and upper level mgmt either adopts neither team's proposals, one of the proposals, or a synthesis of the proposals

Be prepared to do calculations concerning learning curves, and to provide the limits to learning curve strategies.

how to calculate: kn=k1(n^b) k1= direct labor hours for first unit n= cumulative number of units produced b= log r/log 2 r= learning curve limits: - copying and reverse engineering of products - hiring a competitor's employees - purchasing the know-how from consultants - obtaining the know-how from customers - experience advantages are often nullified by product obsolescences and innovations

What is the definition of a Differentiation Advantage?

occurs when a firm is able to obtain from its differentiation a price premium in the market which exceeds the cost of providing differentiation

Reasoning by Analogy (decision making bias)

the tendency to use simple analogies to make sense out of complex problems example: domino theory of countries falling to Communism

wholesale business model

traditional model in retail; products sold at fixed price to retailers and retailers mark up the prices to make a profit EXAMPLE: books

subscription business model

traditionally used for magazines and newspapers - users pay for access to a product or service EXAMPLE: cable TV, health clubs

Describe the mobility barriers that define the Strategic Group Structure of the Airline Industry.

you can't do it all - either less routes at low-cost for point to point travelers or more routes at higher cost and more differentiated

Discuss the adoption of Frappuccino by Starbucks.

•Diana - Starbucks store manager in California -Received requests for iced beverage -Tried the beverage, and liked it •Requested Starbucks HQ offer the drink -Request denied; She did it anyway •Sales skyrocketed -Was eventually adopted by Starbucks Executives •This is now the Starbucks Frappuccino -At one point, was 20% of Starbucks' revenues, which were $26 billion