Midterm MGMT 4513 (Chapters 1-6)
Vertical Integration
becoming your own supplier or distributor through acquisition; vertical movement up or down the value chain
General Enviroment
The broad enviroment, encompassing factors that influence most businesses in a society
Industry Enviroment
The enviroment that includes factors that directly impact a given firm and its competitors
Competitor Intelligence
The ethical gathering of needed information and data that provides insight into A competitor's direction (future objectives), A competitor's capabilities and intentions (current strategy), A competitor's beliefs about the industry (its assumptions), A competitor's capabilities
Fast Cycle Market
Competitive advantages aren't shielded from imitation, Imitation happens quickly and somewhat inexpensively, Competitive advantages aren't sustainable, Non-proprietary technology is diffused rapidly
Related Diversification Costs
Coordination costs, Integration costs
Efficient Internal Capital Market Allocation
Corporate office distributes capital to business divisions to create value for overall company
Cost Leadership Strategy: Substitutes
Cost leader is well positioned to Make investments to be first to create substitutes, Buy patents developed by potential substitutes, Lower prices in order to maintain value position
Financial Economies
Cost savings are realized through improved allocations of financial resources
Economies of scope
Cost savings that occur when a firm transfers capabilities and competencies developed in one of its businesses to another of its businesses
What Drives Superior Performance?
Create Value and Capture Value
Operational Relatedness
Created by sharing either a primary activity such as inventory delivery systems, or a support activity such as purchasing
Differentiation Strategy: Competitors
Defends against competitors because brand loyalty to differentiated product offsets price competition
Monitioring
Detecting meaning through ongoing observations of environmental changes and trends
Internal analysis helps a firm
Determine if its resources and capabilities are likely sources of competitive advantage, Establish strategies that will exploit any sources of competitive advantage, Determine if the firm lacks any resources/capabilities needed to compete effectively
Assessing
Determined the timing and importance of environmental changes and trends for firms' strategies and their management
Broad Scope
The firm competes in all or most customer segments
Narrow Scope
The firm selects a segment or a few segments in the industry and tailors its strategy to serving them at the exclusion of others
Competitor Analysis
The firm studies competitors' future objectives, current strategies, assumptions, and capabilities
Competitive dynamics
The total set of actions and responses taken by all firms competing within a market
Successful Strategies are...
built by Combining Complementary Capabilities
Stakeholders
can affect the firm's vision and mission, are effected by strategic outcomes achieved, and have enforceable claims on the firm's performace
Core Competencies
capabilities that are a competitive advantage over competitors
Forecasting
Developing projections of anticipated outcomes based on monitored changes and trends
Actor's Reputation
competitors are more likely to respond to competitive moves by market leaders
Competitive Action
a strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position
Competitive Response
a strategic or tactical action the firm takes to counter the effects of a competitor's competitive action
Quality
exists when firm's goods or services meet or exceed customers expectations
Integrated Cost Leadership/ Differentiation Strategy
involves engaging in primary and support activities that allow a firm to simultaneously pursue low cost and differentiation
Internal analysis
provides a comparative look at a firm's capabilities/competencies
Tangible resources
assets that can be observed and quantified (financial, organizational, physical, technological)
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 of resources
Competitive advantage
the unique set of features of a company and its products that are perceived by the target market as significant and superior to the competition
Slow Cycle Market
Competitive advantages are shielded from imitation for long periods of time and imitation is costly. CA can be sustainable.
Vision
Future oriented picture of what the firm wants to be and achiee
Strategic Action/Response
a market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse
Tactical Action/Response
a market-based move that is taken to fine-tune a strategy; it involves fewer resources and is relatively easy to implement and reverse
Competitor Analysis provides....
A competitor's capabilities, A competitor's actions (current strategy), A competitor's beliefs about the industry (its assumptions), A competitor's direction (future objectives)
Opportunity
A condition in the general environment that if exploited, helps a company to achieve strategic competitiveness
Threat
A condition in the general environment that may hinder a company's efforts to achieve strategic competitiveness
VRIO Framework
A firm achieves SCA when its resources and capabilities are Valuable, Rare, not easily Imitated, Organized to exploit full competitive potential
Strategic flexibility
a set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment
Differentiation Strategy: Suppliers
Can mitigate suppliers' power by Absorbing price increases due to higher margins and Passing along higher supplier prices because buyers are loyal to differentiated brand
Cost Leadership Strategy: Suppliers
Can mitigate suppliers' power by Being able to absorb cost increases due to low cost position and Being able to make very large purchases, reducing chance of supplier using power
Strategic Process
1. External/Internal Analysis 2. Develop Strategy 3. Implement strategy at a business/corporate level
Resource Based Model of Above-Average Returns
1. Identify the firm's resources. Study its strengths and weaknesses compared to competitors 2. Determine the firm's capabilities. 3. Determine the potential of firm's resources and capabilities in terms of competitive advantage. 4. Locate an attractive industry 5. Select a strategy that best allow the firm to utilize its resources and capabilities in terms of a competitive advantage.
I/O Model of Above-Average Returns
1. study the external environment(general, industry, competitor), especially the industry environment 2. locate an industry with high potential for above average returns. 3. identify the strategy called for by the attractive industry to earn above average returns. 4. develop or acquire assets and skills needed to implement the strategy. 5.use the firms strengths to implement the strategy.
Restructuring
A firm creates value by buying and selling other firms' assets in the external market
Related Diversification
A firm is related through its diversification when its businesses share links across products, technologies, distribution channels
Factors That Drive Focused Strategies
A firm may lack the resources needed to compete in the broader market, A firm is able to serve a narrow market segment more effectively than its larger industry-wide competitors can, Focusing allows the firm to direct its resources to certain value chain activities to build competitive advantage
Competitive Risks of Focus Strategies
A focusing firm may be "outfocused" by its competitors, A large competitor may set its sights on a firm's niche market, Customer preferences in niche market may change to more closely resemble those of the broader market
Strategic Groups
A set of firms emphasizing similar strategic dimensions and using similar strategies
Value Chain Analysis
Allows the firm to understand the parts of its operations that create value and those that do not
Business-Level Strategy
An integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets
Differentiation Strategy
An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them.
Focus Strategies
An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment
Cost Leadership Strategy
An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors with features that are acceptable to customers
Mission
Answers the questions: What is the purpose of the firm? What value will the firm create? For whom will value be created?
The Political/Legal Segment
Antitrust laws, Taxation laws, Deregulation philosophies, Labor training laws, Educational philosophies and policies
Factors in the Threat of New Entrants
Barriers to entry, Economies of scale, Product Differentiation, Capital Requirements, Switching Costs, Access to Distribution Channels, Cost Disadvantages Independent of Scale, Government Policy, Expected Retaliation
Differentiation Strategy: New Entrants
Can defend against new entrants because New products must surpass proven products, New products must be at least equal to performance of proven products, but offered at lower prices
Cost Leadership Strategy: New Entrants
Can frighten off new entrants due to Their need to enter on a large scale in order to be cost competitive andThe time it takes to move down the learning curve
Differentiation Strategy: Buyers
Can mitigate buyers' power because well differentiated products reduce customer sensitivity to price increases
Cost Leadership Strategy: Buyers
Can mitigate buyers' power by Driving prices far below competitors, causing them to exit, thus shifting power with buyers back to the firm
Related Diversification Benefits
Economies of scope, Sharing activities, Transferring core competencies, Market power, Vertical integration
Unrelated Diversification Benefits
Efficient internal capital allocation and Business restructuring
Two types of financial economies
Efficient internal capital allocations and Purchasing other corporations and restructuring their assets
The Physical Segment
Energy consumption, Energy sources , Renewable energy efforts, React to natural or man-made disasters
Overcoming the dark side of resources
Experimentation and renewal, Incentive and reward systems, Organization structure, Cross-functional teams, Recruiting and training policies, Organization process
Strategic Dimensions
Extent of technological leadership, Product quality, Pricing policies, Distribution channels, Customer service
Dependence on the Market
Extent to which a firm's revenues or profits are derived from a particular market. Firms are likely to respond strongly to attacks threatening market position if high.
Risks of Differentiation
Extra costs may exceed value to customers, Not enough customers in segment, Customers don't value services or characteristics, Brand image can't be created or is easily duplicated
Multimarket competition
Firms competing against each other in several product or geographic markets
Competitors
Firms operating in the same market, offering similar products and targeting similar customers
The Global Segment
IPR rights, Unspoken rules, Government policy, Legal system
Competing with resources & capabilities
Identify - What are the firm's R & C?, Appraise - How valuable are the R & C?, Apply - Plan & act, Develop - Create new R & C
Scanning
Identifying early signal of environmental changes and trends
The dark side of resources
Inertia & inflexibility and prior strategic commitments.
The Economic Segment
Inflation rates, Interest rates, Trade deficits or surpluses, Budget deficits or surpluses, Personal savings rate, Business savings rates, Gross domestic product
Effect of a strategic group
Internal competition is greater, more heterogeneity in the performance
Ways to Develop resources
Linking strategy to Human Resource Management--developing individual competencies, Acquisition or alliance (Daimler-Chrysler and Mitsubishi), Greenfield development in separate organizational unit (GM & Saturn), Product sequencing (Intel , Sony, Hyundai)
Porter's five forces
Longterm profitability of an industry is determined by: (industry attractiveness) 1. Threat of new entrants in the industry 2. Threat of substitutes 3. Bargaining power of buyers 4. Bargaining power of suppliers 5. Rivalry among existing competitors
Unrelated Diversification Costs
Management costs
Factors in Intensity of Rivalry Among Competitors
Numerous or equally balanced competitors, Slow Industry Growth, High Fixed Costs or High Storage Costs, Lack of Diff. or Low Switching Costs, High Strategic Stakes, High Exit Barriers
Risks of the Integrated Cost Leadership/ Differentiation Strategy
Often Involves Comprises and Becoming Stuck in the Middle
The Demographic Segment
Population size, Age structure, Geographic distribution, Ethnic mix, Income distribution
Competitive Risks of Cost Leadership Strategy
Processes used to produce and distribute good or service may become obsolete due to competitors' innovations., Focus on cost reductions may occur at expense of customers' perceptions of differentiation., Competitors, using their own core competencies, may successfully imitate the cost leader's strategy
The Technological Segment
Product innovations, Applications of knowledge, Focus of private and government-supported R&D expenditures, New communication technologies (Skype)
Synergy
Revenue enhancement from being within the same corporate parent
Cost Leadership Strategy: Competitors
Rivals hesitate to compete on basis of price, Lack of price competition leads to greater profits
Components of External Environmental Analysis
Scanning, Monitoring, Forecasting, Assessing
Market power
Sell its products above the existing competitive level and/or Reduce the costs of its primary and support activities below the competitive level
Strategic Management Process
The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns.
Competitive rivalry
The ongoing set of competitive actions and responses occurring between competitors. Influences a firm's ability to gain and sustain competitive advantages
Market Segmentation
The process of dividing a market into meaningful, relatively similar, and identifiable segments or groups
Corporate Relatedness
Using complex sets of resources and capabilities to link different businesses through managerial and technological knowledge, experience, and expertise
The Four Criteria of Sustainable Competitive Advantage
Valuable Capabilities, Rare Capabilities, Inimitable Capabilities, Nonsubstitutable Capabilities
Differentiation Strategy: Substitutes
Well positioned relative to substitutes because Brand loyalty to a differentiated product tends to reduce customers' testing of new products or switching brands
Key Issues in Business-Level Strategy
What: Which customers to serve, What: which need to satisfy, How: How resources or capabilities are needed.
Why outsource?
When it lacks capabilities (or which do not create advantage), the firm can concentrate fully on those areas in which it can create value
The Sociocultural Segment
Workforce diversity, Attitudes about quality of worklife , Concerns about environment, Shifts in work and career preferences, Shifts in product and service preferences, Women in the workplace
Late Mover
a firm that responds to a competitive action a significant amount of time after the first mover's action and the second mover's response
Second Mover
a firm that responds to the first mover's competitive action, typically through imitation
First Mover
a firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position
Corporate level strategy
about how to achieve above normal returns (competitive advantage) by operating in more than one business/industry
Strategic Competiveness
achieved when a firm successfully formulates and implements a value creating strategy
Horizontal Integration
acquisition of competitors; horizontal movement at the same point in the value chain
Intangible resources
assets that are rooted deeply in the firm's history accumulate over time, and are relatively difficult for competitors to analyze and imitate (Human resources, Innovation, Reputational)
Product Development
developing new products and/or significantly improving on existing products
Industry
group of firms producing products that are close substitutes
Purpose of an external analysis
look outside the organization to identify potential organizational threats and opportunities
Standard Cycle Markets
markets in which the firm's competitive advantages are moderately shielded from imitation and where imitation is moderately costly
Market Development
moving into different geographic markets
Above average returns
returns in excess of what is expected in comparison to another with similar risk
Competitive Behavior
set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position
Risk
uncertainty about a particular investment