Chapter 6
functional-level strategy
applies to the key functional departments or units within the business units
business-level strategy
focuses on individual units or product/service lines
cost-leadership strategy
keeping the costs, and hence prices, of a product or service below those of competitors and to target a wide market
cost-focus strategy
keeping the costs, and hence the prices, of a product or service below those of competitors and to target a narrow market
diversification
strategy by which a company operates several businesses in order to spread the risk
When would a company use a VRIO analysis?
when deciding whether or not a new product might work in the marketplace
Which is the second step in the strategic-management process?
Assess the current reality.
True or false: Many small business owners do not engage in strategic planning.
True
Companies pursuing a cost-leadership strategy keep costs/prices _____ those of competitors and target a _____ market.
below; wide
vertical integration
diversification strategy where a firm expands into businesses that provide the supplies it needs to make its products or that distribute and sells its products
corporate-level strategy
focuses on the organization as a whole; can involve acquisitions
To be successful, strategic planning requires a company to have a _____ orientation.
long-term
strategic control
monitoring performance to ensure that strategic plans are being implemented and taking corrective action as needed
strategy implementation
the implementation of strategic plans
What are Porter's four competitive strategies?
-Differentiation -Cost-leadership -Cost-focus -Focused-differentiation
According to Bryan Barry, which of these are things a manager can do to keep a strategic plan on track?
-Keep it simple -Keep moving -Stay focused -Engage people
The second step of the strategic-management process involves assessing the organization's current reality. Which of these are tools for assessing the current reality?
-SWOT analysis -forecasting -VRIO analysis -benchmarking
Which of Porter's competitive strategies are appropriate when addressing a narrow market?
-cost-focus -focused-differentiation
Bryan Barry suggested that you need to do these things to keep a strategic plan on track
-engage people -keep it simple -stay focused -keep moving
Corporate-level strategy:
-focuses on the organization as a whole -answers questions such as "what business are we in?" and "what products and services shall we offer?" -involves senior executives in planning
stability strategy can ...
-go for a no-change strategy (if, for example, it has found that too-fast growth leads to foul-ups with orders and customer complaints) -go for a little-change strategy (if, for example, the company has been growing at breakneck speed and feels it needs a period of consolidation)
growth strategy can ...
-improve an existing product or service to attract more buyers -increase its promotion and marketing efforts to try to expand its market share -expand its operations, as in taking over distribution or manufacturing previously handled by someone else -expand into new products or services -acquire similar or complementary businesses -merge with another company to form a larger company
What two things does the BCG matrix evaluate?
-market share -business growth rates
What four characteristics are being addressed in a VRIO analysis?
-organization -rarity -value -imitability
What are the three core processes of business identified by Bossidy and Charan?
-people -operations -strategy
defensive strategy can...
-reduce costs, as by freezing hiring or tightening expenses -sell off (liquidate) assets such as land, building, inventories, and the like -gradually phase out product lines or services -invest part of its business, as in selling off entire division or subsidiaries -declare bankruptcy -attempt a turnaround; do some retrenching, with a view toward restoring profitability
Which of the following represent competitive forces used in Porter's model for industry analysis?
-threat of substitute products or services -rivalry among competitors -bargaining power of buyers -bargaining power of suppliers -threats of new entrants
three levels of strategy
1. corporate 2. business 3. functional
Porter's four competitive strategies (four generic strategies)
1. cost leadership (wide market) 2. differentiation (wide market) 3. cost-focus (narrow market) 4. focused-differentiation (narrow market)
strategic position emerges from which three sources?
1. few needs, many customers 2. broad needs, few customers 3. bread needs, many customers
three overall types of corporate strategy
1. the growth strategy 2. the stability strategy 3. the defensive strategy
what questions should a strong strategic plan address?
1. what is the assessment of the external environment? 2. how well do you understand the existing customers and markets? 3. what is the best way to grow the business profitably, and what are the obstacles to growth? 4. who is the competition? 5. can the business execute the strategy? 6. are the short term and long term balanced? 7. what are the important milestones for executing the plan? 8. what are the critical issues facing the business? 9. how will the business make money on a sustainable basis?
five steps of the strategic-management process
1.establish the mission, vision, and values statements 2. assess the current reality 3. formulate corporate, business, and functional strategies 4. execute the strategy 5. maintain strategic control: the feedback loop
Pacific Specialty Bikes store gets customized parts for its high-end models from a local manufacturer, Premium Supply. When the manufacturer announced a price increase, the bike store tried to switch to other local manufacturers but learned they that they wouldn't be able to meet delivery schedules. As a result, Pacific Bike chose to pay the higher prices from Premium Supply. Which of Porter's competitive forces does this demonstrate?
Bargaining power of suppliers
Value can be assessed by asking:
Does the resource or capability allow the firm to exploit an opportunity or neutralize a threat?
_____ is the process that helps align the last two phases of the strategic-management process: strategic implementation and strategic control.
Execution
Which of these situations provides an external opportunity that the company may exploit to gain competitive advantage?
Monica's rare book company has weak competition.
In which step of the strategic-management process does an organization establish the mission and vision statements?
Step One
You own a small deli near campus and learn that the university is exploring whether it should open a Subway sandwich franchise in the Student Union. Which of Porter's competitive forces does this represent for you?
Threat of new entrants
True or false: According to Bossidy and Charan, execution is the central part of any company's strategy.
True
VRIO
a framework for analyzing a resource or capability to determine its competitive strategic potential by answering four questions about its value, rarity, imitability, and organization
trend analysis
a hypothetical extension of a past series of events into the future
BCG matrix
a management strategy by which companies evaluate their strategic business units on the basis of (1) their business growth rates and (2) their share of the market
Benchmarking is defined as
a process by which a company compares its performance with that of high-performing organizations.
forecast
a vision or projection of the future
A forecast is defined as
a vision or projection of the future.
benchmarking
a way to measure something against a standard, the benchmark
The second step of the strategic management process involves
assessing the current reality
current reality assessment (organizational assessment)
assessment to look at where the organization stands and see what is working and what could be different so as to maximize efficiency and effectiveness in achieving the organization's mission
The process by which a company compares its performance with that of other high-performing organizations is known as _______.
benchmarking
Strategic _____ involves monitoring the execution of strategy and taking corrective action when necessary.
control
Which level of strategic management focuses on the organization as a whole?
corporate-level
If you focus on (1) keeping costs, and hence prices, of a product or service below those of your competitors and (2) targeting a wide market, you are using a __________ strategy.
cost-leadership
The strategy of moving into new lines of business is called _____.
diversification
Business growth rate, as used in the BCG matrix, is concerned with how fast the _____ is(are) growing.
entire industry
organizational threats
environmental factors that hinder an organization's achieving a competitive advantage
organizational opportunities
environmental factors that the organization may exploit for competitive advantage
sustainable competitive advantage
exists when other companies cannot duplicate the value delivered to customers
According to the BCG matrix, a company will do better in a _____ market in which it has a high market share.
fast-growing
A _____ is a vision or projection of the future that is made following a SWOT analysis.
forecast
innovation strategy
grows market share or profits by innovating improvements in products or services
A business that wants to reach more customers and hires more employees to get this done is focusing on a _____ strategy.
growth
A grand strategy that involves expansion of things like sales revenues, market share, or number of employees is known as a(n) _____ strategy.
growth
star
have high growth, high market share; definite keepers
dogs
have low growth, low market share; should be gotten rid of
cash cows
have slow growth but high market share; income finances stars and question marks
Porter's five competitive forces form a model for _____ analysis.
industry
Porter's model for industry analysis
model proposes that business-level strategies originate in five primary competitive forces in the firm's environment: 1. threats of new entrants 2. bargaining power of suppliers 3. bargaining power of buyers 4. threats of substitute products of services 5. rivalry among competitors
Diversification involves
moving into new lines of business.
When considering SWOT analysis, what is an example of an organizational weakness?
obsolete technology
unrelated diversification
occurs when a company acquires another company in a completely unrelated businesses
focused-differentiation strategy
offering products or services that are of unique and superior value compared to those of competitors and to target a narrow market
differentiation strategy
offering products or services that are of unique and superior value compared with those of competitors but to target a wide market
stability strategy
one of the three grand strategies, this strategy involves little or no significant change
defensive strategy (retrenchment strategy)
one of the three grand strategies, this strategy involves reduction in the organization's efforts
growth strategy
one of three grand strategies, this strategy involves expansion - as in sales revenues, market share, number of employees, or number of customers or (for nonprofits) clients served
Sustainable competitive advantage exists when
other companies cannot duplicate the value that an organization delivers to customers.
Within a SWOT analysis, an organizational threat will come from _____ the company.
outside
Of the three core processes of business identified by Bossidy and Charan, which do they believe is the most important?
people
Strategic positioning attempts to achieve sustainable competitive advantage by:
preserving what is distinctive about a company
question marks
risky new ventures; some will become stars, some dogs
The first step in the strategic-management process is to establish the mission, vision, and values statements. The firm's vision statement:
states what the organization wants to become and where it wants to go strategically
Michael Porter defined _____ as an attempt to achieve sustainable competitive advantage by preserving what is distinct about a company.
strategic positioning
strategic positioning
strategy that attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company
The skills and capabilities that give an organization special competencies and competitive advantages in executing strategies in pursuit of its mission are called organizational ______.
strengths
Within a SWOT analysis, the letter "S" represents a company's _____.
strengths
When a company is readily able to switch to another company in order to get the raw materials it needs to make products, Porter would say that the bargaining power of ______ goes down.
suppliers
When other companies cannot duplicate the value provided by a competitor, then the competitor has established a(n) _____ competitive advantage.
sustainable
contingency planning (scenario planning and scenario analysis)
the creation of alternative hypothetical but equally likely future conditions
organizational weaknesses
the drawbacks that hinder an organization in executing strategies in pursuit of its mission
strategy formulation
the process of choosing among different strategies and altering them to best fit the organization's needs (take long time)
SWOT analysis (situational analysis)
the search for the strength, weaknesses, opportunities, and threats affecting the organization
organizational strengths
the skills and capabilities that give the organization special competencies and competitive advantages in executing strategies in pursuit of its mission
Newly-implemented government regulations have reduced the availability of raw materials for Blair Woodworking Corp. This would be considered an external organizational ______ in a SWOT analysis.
threat
In terms of a SWOT analysis, organizational _____ are environmental factors that hinder an organization from achieving a competitive advantage.
threats
Within a SWOT analysis, the letter "T" represents a company's _____.
threats
Sasha has run a small diner near the train station for the past ten years. Six months ago, a chain restaurant serving gourmet burgers and sandwiches opened up near him and he has had to re-think his menu. He added some specialty sandwiches and free fries with every burger in order to retain his customers. Which of Porter's five competitive forces has affected Sasha's business?
threats of new entrants
execution
using questioning, analysis, and follow-through in order to mesh strategy with reality, align people with goals, and achieve the results promised
When you ask "does this resource or capability allow our firm to exploit an opportunity or neutralize a threat?" you are assessing the resource or capability's _________.
value
related diversification
when a company purchases a new business that is related to the company's existing business portfolio