BUS

Discuss how understanding the five forces that shape industry competition is useful as a starting point for developing strategy.

- Analysis of the five forces is a powerful way for firms to discover the threats and opportunities in their environments. - The five forces help explain why industry profitability is what it is—and why it might be changing - Each of the five forces can be analyzed to determine how, and the degree to which, it contributes to industry attractiveness. - understanding each force and how it is influencing profitability helps managers know where to focus in dealing with challenges - will be able to perceive wider competitive threats and be better prepared to address them

Discuss how strategies are formulated and implemented in order to achieve objectives.

- Formulating a strategy involves selecting which actions the company will take to gain and sustain competitive advantage. •Actions must be formulated and implemented at three levels: 1. Corporate Level: decisions about where to compete in terms of industries and markets. 2. Business Unit Level: how to gain and sustain advantage in that particular market for a standalone business unit 3. Functional Level: how to effectively implement the business unit strategy within functional areas like finance, product development, operations, information technology, sales and marketing, and customer service. •Strategy Implementation: - occurs when a company adopts a set of organizational processes that enable it to effectively carry out its strategy - done by making sure functional strategies (R&D, sales, operations, HR) are aligned to deliver the unique value identified in the overall strategy, usually most successful when a company can measure how effective functional strategies are being performed

Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Competitive advantages arise when resources or capabilities possess two attributes: 1. Value: Resources that help a firm bring such differentiated products and services to the market create value for customers 2. Rarity: Rare or unique resources create competitive advantage through scarcity Two principles determine the sustainability of competitive advantage: 1. Inimitability, the characteristics that make a resource or capability difficult to imitate - Path dependence, Tacit Knowledge, and complexity with resources create internal comp. advantage 2. Organization to exploit profit returns generated by its unique and valuable resources.

Discuss situations in which entry into both attractive and unattractive industries follows "new thinking" rather than conventional wisdom.

Conventional wisdom: - Use 5 Forces Model to compete in attractive (i.e., profitable) industries or markets characterized by high bargaining power over suppliers and buyers, low threats of substitutes or new entry, and low rivalry. New Thinking: - the success of their choice to enter a market is determined almost completely by the unique value the firm hopes to offer and the resources and capabilities it has to deliver that unique value, and whether they can prevent imitation - whether a market is attractive may depend more on what the entrant can offer to that market rather than the structural characteristics of the market. - unattractive markets according to conventional wisdom may be quite attractive to the right kind of entrant -also important to understand that attractive markets from a five-forces perspective are typically unattractive for new entrants.

Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Resources: - answers the question, "What creates the firm's strengths?" - Are tangible or intangible assets - Four categories of resources important contributors to competitive advantage: 1. Physical resources, such as plant or equipment 2. Financial resources, such as free cash flow 3. Human resources, including employee know-how, management skill, and talents 4. Intangible resources, such as brands and patents - enable the core operational and important support/administrative activities in the value chain Capabilities: - processes that the firm has developed to coordinate human activity in order to achieve specific goals 2 types: 1. operating capabilities: Procedures, processes, or routines for delivering value to customers, employees, suppliers, or investors. 2. dynamic capabilities: Procedures, processes, and routines that continuously expand existing resources or improve operating capabilities. Priorities: - a firm's rankings about what is most important. - priorities guide resource allocation processes - maintain those allocations over time when things get tough

Explain who is responsible for, and who benefits from, good business strategy.

Strategic organizational leaders are responsible for implementing a good business strategy. They must communicate the strategy in a way that is motivating and easy to understand for employees. 4 Stakeholders benefit: 1. Capital market stakeholders (shareholders, banks, etc.) 2. Product market stakeholders (customers, suppliers) 3. Organizational stakeholders (employees) 3. Community stakeholders (communities, government bodies, community activists)

Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

The Five forces that shape the profit-making potential of the average firm in an industry: 1. rivalry: Typically this involves firms putting pressure on each other and limiting each other's profit potential by attempting to gain profits and/or market share. 2. buyer power: When buyers have sufficient power, they can demand either lower prices or better products from their suppliers, thereby hurting the average profitability of firms in the supplier industry 3. supplier power: When supplier industries have strong bargaining power, they can charge higher prices, which tends to decrease average profitability in a buyer's industry 4. threat of new entrants: Can cause a loss of market share and bring new production capacity, which tends to drive prices down unless demand is growing faster than the increase in supply. 5. threat of substitute products: substitutes can put downward pressure on the price that firms in an industry can charge. The strength of each force varies from industry to industry so must analyze to understand to what extent is it shaping the industry's attractiveness. Then estimate the overall strength of the combined five forces to determine the general attractiveness of the industry

Identify the factors in the general environment that affect firm and industry profitability.

The eight categories that help shape the general environment are: • Complementary products or services • Technological change • General economic conditions • Population demographics • Ecological/natural environment • Global competitive forces • Political, legal, and regulatory forces • Social/cultural forces - The importance of each of the general environmental factors differs from industry to industry - Each category can affect an industry's dynamics - Can potentially give you advance notice of what is going to change in your industry and a chance to plan accordingly.

Identify the steps in the value chain a firm uses to create a competitive advantage.

The horizontal elements are the primary activities in the value chain and are the production process that a firm uses to acquire and import raw materials, transform them into valuable outputs, and put them in the hands of customers. These primary activities are usually inbound logistics, operations, outbound logistics, marketing and sales, and after-sales services. The vertical axis is the support activities and represents four administrative elements across the firm's economic activities. These are firm infrastructure, human resource management, technology development, and procurement

Explain the importance of correctly identifying and choosing a firm's industries and markets.

This is the first strategic decision that most firms must make. If managers do not properly define and understand their industry, they may be vulnerable to unseen competitors. To understand an industry you have to take a customer-oriented view. Understanding customer needs can be very helpful in defining the boundaries of an industry.

Analyze a company and identify its strengths or weaknesses, resources, capabilities, and priorities using the competitive advantage pyramid tool.

Top: Activities - What is the company good at? What activities create value for customers? Middle: Resources, Capabilities, and Organization - What resources and capabilities drive those activities? How rare are they? How difficult to imitate? -In what ways is the organization designed to capture the value created? Bottom: Values and Priorities - What priorities and values support and sustain resources and capabilities? How committed is the company to these priorities and values?

Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

•Business Strategy: a company's plan to gain and sustain a competitive advantage in the marketplace and is formed by making four strategic choices: 1. Markets to compete in 2. The unique value the firm will offer in those markets 3. The resources and capabilities required to offer that unique value better than competitors 4. Ways to sustain the advantage by preventing imitation •Competitive Advantage: - Needed in a business strategy to generate above-average profits - develop resources and capabilities to deliver unique value better than competitors •Strategic Management Process: the process of formulating and implementing a business strategy based on analysis of both the company's external environment and internal resources and capabilities. This process identifies the best business opportunities and forms a strategy for gaining a competitive advantage.

Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

•Mission: outlines the company's primary purpose and often specifies the businesses which the firm chooses to compete against, or customers it intends to serve. The combined results of external analysis with internal analysis of the firm are often summarized as a SWOT analysis. •External Analysis: involves 1. industry analysis: an examination of 5 forces that shape industry competition and profitability 2. customer analysis: to understand price sensitivity and different segments of customers to offer unique value to them •Internal Analysis: involves analysis of the company's set of resources and capabilities that can be deployed—or should be developed—to deliver unique value to customers.