Management Chapter 6

Explain the components and kinds of firm-level strategies.

Firm-level strategies are concerned with direct competition between firms. Market commonality and resource similarity determine whether firms are in direct competition and thus likely to attack each other and respond to each other's attacks. In general, the more markets in which there is product, service, or customer overlap and the greater the resource similarity between two firms, the more intense the direct competition between them will be.

Growth strategy

a strategy that focuses on increasing profits, revenues, market share or number of places in which the company does business

Resources

the assets, capabilities, processes, employee time, information, and knowledge that an organization uses to improve its effectiveness and efficiency and create and sustain competitive advantage

Core firms

the central companies in a strategic group (p. 118)

Unrelated diversification

creating or acquiring companies in completely unrelated businesses (p. 122)

Related diversification

creating or acquiring companies that share similar products, manufacturing, marketing, technology, or cultures (p. 125)

Star

a company with a large share of a fast-growing market (p. 122)

Cash cow

a company with a large share of a slow-growing market (p. 123)

recovery

the strategic actions taken after retrenchment to return to a growth strategy

Specify the components of sustainable competitive advantage, and explain why it is important

.Firms can use their resources to create and sustain a competitive advantage, that is, to provide greater value for customers than competitors can. A competitive advantage becomes sustainable when other companies cannot duplicate the benefits it provides and have, for now, stopped trying. Four conditions must be met if a firm's resources are to be used to achieve a sustainable competitive advantage. The resources must be valuable, rare, imperfectly imitable, and nonsubstitutable.

Explain the different kinds of corporate-level strategies.

Corporate-level strategies, consisting of portfolio strategies and grand strategies, help managers determine what businesses they should be in. Portfolio strategy focuses on lowering business risk by being in multiple, unrelated businesses and by investing the cash flows from slow-growing businesses into faster-growing businesses. One portfolio strategy is based on the BCG matrix. The most successful way to use the portfolio approach to corporate strategy is to reduce risk through related diversification. The three kinds of grand strategies are growth, stability, and retrenchment/recovery. Companies can grow externally by merging with or acquiring other companies, or they can grow internally through direct expansion or creating new businesses. Companies choose a stability strategy when their external environment changes very little or after they have dealt with periods of explosive growth. Retrenchment strategy, shrinking the size or scope of a business, is used to turn around poor performance. If retrenchment works, it is often followed by a recovery strategy that focuses on growing the business again.

Describe the different kinds of industry-level strategies.

The five industry forces determine an industry's overall attractiveness to corporate investors and its potential for long-term profitability. Together, a high level of these elements combine to increase competition and decrease profits. Industry-level strategies focus on how companies choose to compete in their industries. The three positioning strategies can help companies protect themselves from the negative effects of industry-wide competition. The four adaptive strategies help companies adapt to changes in the external environment. Defenders want to defend their current strategic positions. Prospectors look for new market opportunities to bring innovative new products to market. Analyzers minimize risk by following the proven successes of prospectors. Reactors do not follow a consistent adaptive strategy but instead react to changes in the external environment after they occur.

Grand strategy

a broad corporate-level strategic plan used to achieve strategic goals and guide the strategic alternatives that managers of individual businesses or subunits may use (p. 125)

Question mark

a company with a small share of a fast-growing market (p. 122)

Dog

a company with a small share of a slow growing market

sustainable competitive advantage

a competitive advantage that other companies have tried unsuccessfully to duplicate and have, for the moment, stopped trying to duplicate

respones

a competitive countermove, prompted by a rivals attack to defend or improve a company's market share or profit

attack

a competitive more designed to reduce a rivals market share or profits

Firm level strategy

a corporate strategy that addresses the question, "How should we compete against a particular firm"

Industry-level strategy

a corporate strategy that addresses the question, "How should we compete in this industry?" (p. 126)

Portfolio strategy

a corporate-level strategy that minimizes risk by diversifying investment among various businesses or product lines (p. 121)

Strategic dissonance

a discrepancy between a company's intended strategy and the strategic actions managers take when implementing that strategy (p. 116)

Strategic group

a group of companies within an industry against which top managers compare, evaluate, and benchmark strategic threats and opportunities (p. 118)

Threat of substitute products or services

a measure of the ease with which customers can find substitutes for an industry's products or services (p. 128)

Bargaining power of buyers

a measure of the influence that customers have on a firm's prices (p. 128)

Bargaining power of suppliers

a measure of the influence that suppliers of parts, materials, and services to firms in an industry

Character of the rivalry

a measure of the intensity of competitive behavior between companies in an industry (p. 127)

BCG matrix

a portfolio strategy developed by the Boston Consulting Group that categorizes a corporation's businesses by growth rate and relative market share and helps managers decide how to invest corporate funds (p. 122)

Competitive inertia

a reluctance to change strategies or competitive practices that have been successful in the past (p. 116

imperfectly imitable resource

a resource that is impossible or extremely costly or difficult for other times to duplicate

rare resources

a resource that is not controlled or possessed by many competing firms

non substitutable resource

a resource that produces value or competitive advantage and has no equivalent substitutes or replacements

Diversification

a strategy for reducing risk by buying a variety of items (stocks or, in the case of a corporation, types of businesses) so that the failure of one stock or one business does not doom the entire portfolio (p. 121)

Stability strategy

a strategy that focuses on improving the way in which the company sells the same products or services to the same customers

retrenchment strategy

a strategy that focuses on turning around very poor company performance by shrinking the size or scope of the business

Shadow-strategy

ask force a committee within a company that analyzes the company's own weaknesses to determine how competitors could exploit them for competitive advantage (p. 118)

Reactors

companies that do not follow a consistent adaptive strategy but instead react to changes in the external environment after they occur (p. 131)

Defenders

companies using an adaptive strategy aimed at defending strategic positions by seeking moderate, steady growth and by offering a limited range of high-quality products and services to a well-defined set of customers (p. 130)

Prospectors

companies using an adaptive strategy that seeks fast growth by searching for new market opportunities, encouraging risk taking, and being the first to bring innovative new products to market (p. 130)

Analyzers

companies using an adaptive strategy that seeks to minimize risk and maximize profits by following or imitating the proven successes of prospectors (p. 131)

competitive advantage

providing greater value for customers than competitors can

Corporate level strategy

strategy the overall organizational strategy that addresses the question, "What business or businesses are we in or should we be in?" (p. 121)

Secondary firms

the firms in a strategic group that follow strategies related to but somewhat different from those of the core firms (p. 118)

Core capabilities Secondary firms the firms in a strategic group that follow strategies related to but somewhat different from those of the core firms (p. 118) Strategic reference points the strategic targets managers use to measure whether a firm has developed the core competencies it needs to achieve a sustainable competitive advantage (p. 119)

the internal decisionmaking routines, problem-solving processes, and organizational cultures that determine how efficiently inputs can be turned into outputs (p. 117)

Cost leadership

the positioning strategy of producing a product or service of acceptable quality at consistently lower production costs than competitors can, so that the firm can offer the product or service at the lowest price in the industry (p. 129)

Differentiation

the positioning strategy of providing a product or service that is sufficiently different from competitors' offerings that customers are willing to pay a premium price for it (p. 129)

Focus strategy

the positioning strategy of using cost leadership or differentiation to produce a specialized product or service for a limited, specially targeted group of customers in a particular geographic region or market segment (p. 129)

Acquisition

the purchase of a company by another company (p. 122)

Direct competition

the rivalry between two companies that offer similar products and services, acknowledge each other as rivals, and act and react to each other's strategic actions

Strategic reference points

the strategic targets managers use to measure whether a firm has developed the core competencies it needs to achieve a sustainable competitive advantage (p. 119)

Describe the steps involved in the strategy-making process.

The first step in strategy making is determining whether a strategy needs to be changed to sustain a competitive advantage. The second step is to conduct a situational (SWOT) analysis that examines internal strengths and weaknesses as well as external opportunities and threats. The third step involves choosing a strategy. Strategic reference point theory suggests that when companies are performing better than their strategic reference points, top management will typically choose a risk-averse strategy. When performance is below strategic reference points, risk-seeking strategies are more likely to be chosen.

Threat of new entrants

a measure of the degree to which barriers to entry make it easy or difficult for new companies to get started in an industry (p. 127)

valuable resource

a resource that allows companies to improve efficiency and effectiveness

Situational (SWOT)

analysis an assessment of the strengths and weaknesses in an organization's internal environment and the opportunities and threats in its external environment (p. 117)

Market commonality

the degree to which two companies have overlapping products, services, or customers in multiple markets

resource similarity

the extent to which a competitor has similar amounts and kinds or resources

Distinctive competence

what a company can make, do, or perform better than its competitors (p. 117)