ORG Chapter 2

Competitive advantage can be summarized best by which of the following?

A product or service that is perceived as having higher value relative to competitive offerings

Digit is a personal finance app that connects to users' bank accounts, analyzes their regular spending habits, and automatically deposits money into a savings account for them. Users can just install the app, set it up, and start saving money. Digit's value proposition is "Save money, without thinking about it." What does this statement emphasize in the effort to differentiate Digit from its competitors?

Digit makes it easier to save money than other finance tools

Strategic Objectives and Analysis.

The first step is to define the vision, mission, and values statements of the organization. This is done in combination with the external analysis of the business environment (PESTEL) and internal analysis of the organization (SWOT). An organization's statements may evolve as information is discovered that affects a company's ability to operate in the external environment.

Strategic Formulation.

The information from PESTEL and SWOT analyses should be used to set clear and realistic goals and objectives based on the strengths and weaknesses of the company. Identify if the organization needs to find additional resources and how to obtain them. Formulate targeted plans to achieve the goals. Prioritize the tactics most important to achieving the objectives. Continue to scan the external environment for changes that would affect the chances of achieving the strategic goals.

When customers perceive the product differentiation as valuable, they will prefer to purchase the business's product over a competitor's products. This is called

a competitive advantage

strategy

a comprehensive plan to achieve its goals in the face of social, political, economic, and competitive environment conditions. it defines how a company will achieve long-term success. A plan to create sustainable competitive advantage.

Stable Environment

change is slow. Managers have time to monitor and respond to changes in a deliberate manner. The grocery industry is relatively stable

dynamic environment

changing rapidly. Managers must react quickly and organizations must be flexible to respond

Companies strive to provide a product or service that is distinct, or ________, in some way from their competitors.

differentiated

Amazon initially stole business from Best Buy. Customers would visit Best Buy to see the products and then look for the lowest prices online, often finding them at Amazon.com. Best Buy gradually found a way to compete. First, they committed to match prices with Amazon. Best Buy's salespeople are knowledgeable and helpful, something Amazon cannot offer. And they learned to showcase and ship, using their stores as warehouses for quick delivery to the local area. Best Buy's strategy mixed "brick-and-mortar" and

ecommerce

In the resource view of strategy, VRIO stands for:

valuable, rare, inimitable, and organized

Competitive advantage

means that the business outperforms its rivals in the market because customers prefer its products or services

There are four components that describe the nature of change in the environment:

stability, complexity, resource scarcity, and uncertainty.

Rare.

If only one or two companies can acquire a resource it is considered rare. A resource may be rare because little of it exists, such as workers with particular skills, or because there are few sources for it, such as lithium for batteries. Rare and valuable resources can create a temporary competitive advantage because even if other firms duplicate performance, they don't have access to the unique resource (tangible or intangible, such as a patent or unique skill). If the resource is not rare, the best a company can achieve is competitive parity (equality).

In 2011, JCPenney, a retail store, replaced its CEO with Ron Johnson, the genius behind both Apple's Genius Bar and attractive retail stores. Johnson eliminated all sales and discounts at JCPenney. According to D Magazine, "Sixteen months later, the company's stock had cascaded nearly 50 percent, 19,000 employees had lost their jobs, and sales had fallen by more than 25 percent—an almost unheard of slide for a major retailer." The next stage in JCPenney's strategy process is

strategic evaluation and control

________ decides how best to attain a company's mission and vision through the coordinated efforts to achieve specific goals and objectives.

strategic management

In order to understand the competitive structure of an industry, analysts use Michael Porter's Five Forces model. Porter's model includes all of the following EXCEPT:

strategic partnerships; research and development

Strategic management's first function is deciding how to compete. The second function is to make sure

that the people in the organization support the strategy

synergy

the pieces support each other so that the total output is greater than the sum of the output of individual functions. best fits with the planning function, and it involves two broad functions. The first is to determine how the company will create competitive advantage. That is, how will the company produce distinction and value to its customers? The answer to this question is the company's business strategy.

Strategic Management

Provides the "glue" that holds these processes together. Rather than looking at individual functions or activities, strategic management considers the entire organization and how the pieces fit together.

industry analysis

a method for a company to assess its market position relative to its competitors. An industry analysis is meant to help a company review various market and financial factors in its industry that affect the business, including evaluating the competition. This analysis helps managers understand the important factors of the marketplace and how these factors may be used to gain a competitive advantage. ____ are an important tool for companies to assess their strategy in a shorter time frame.

Environmental scanning

is a high-level, broad-based process of gathering, analyzing, and dispensing information for purpose of developing strategies or tactics. The process entails getting both factual data and qualitative opinions. Organizations also scan when they are considering whether to enter a particular industry.

Low Price Leadership Strategy

The strategy is to produce (or purchase) comparable value goods or services at a lower cost than its competitors. The lower cost will attract the majority of customers and allow it to profit by the volume of goods sold

The threat of substitute products or services

a different product or service altogether but that performs the same purpose in the mind of the consumer.

differentiated

a product/service that is distinct from the competition

Bharti Airtel is the largest cellular provider in India, with more than 300 million customers as of 2014. It also supplies broadband and telephone services, as well as many other telecommunications services to both domestic and corporate customers. Until a few years ago Airtel did not own its own towers, which was a particular strength of some of its competitors, such as Hutchison Essar. Towers are important if your company wishes to provide wide coverage nationally. In a SWOT analysis, this point would be ________.

a weakness

Advocacy Groups

also known as special interest groups, public interest groups, environmental groups, or political support groups. Whatever their label, their aim is to influence public opinion, public policy, and company behavior. _____ groups use a variety of strategies and tactics to draw attention to their causes, including lobbying, promotions using celebrities, and public information campaigns. They provide a type of check on the business community by exposing unethical or unpopular practices. The Internet—especially social media—has greatly strengthened the ability of these groups to impact an organization. ____ represent political, economic, and social interests—all of which affect the business environment.

META is an engineering firm that manufactures electronic gyroscopes for rockets and satellites. META has patents on key features of the design. The device itself is easy to build, so competitors could easily duplicate the device, but for the patent protection. META's sole competitive advantage is

an intangible asset

The threat of new entrants in Porter's Five Forces analysis is often the most important force affecting an industry. In the food truck industry, for example, it is easy for new firms to enter and compete. The food truck industry would benefit if there were ________, such as required and restricted licenses.

barriers to entry

Dominion Electric in Virginia has proposed a 600-mile gas pipeline running through the George Washington National Forest. The forest attracts tourists and tourist spending to West Virginia and Virginia. Environmental groups have demonstrated against the proposed pipeline. Regulators are investigating the risks. Politicians have taken positions for and against it. Who else should be included in an industry environment analysis?

customers, competitors, and suppliers

The five components of industry environment are

customers, competitors, suppliers, regulations, and advocacy groups

Legal

factors include discrimination laws, consumer protection laws, and employment, health, and safety policies. Antitrust, piracy and copyright laws, as well as immigration issues are also of growing importance in the business environment. All of these factors affect how organizations operate, their costs, and the demand for products

Technological

facts include research and development (R&D), automation and robotics, and technology incentives. The rate of _______ change in the business environment is staggering. A term often paired with technology is disruption, a description for innovations that completely change the cast of leading competitors in an industry. Many organizations not only scan the ____ environment but also monitor closely for new and disruptive processes

Porter's Five Forces

five critical external factors that affect strategies being developed by organizations in any industry. Managers use the tool to examine opportunities and threats and to facilitate decision making in the context of their company's external environment. It measures the competitiveness of an industry and thus its attractiveness or potential profitability. An unattractive industry is one in which the combination of these five forces acts to drive down overall profitability.

The bargaining power of suppliers

force that shapes the competitive measure of an industry because it limits the ability of the seller to make a profit. Powerful suppliers can pressure buyers by raising prices, lowering quality, or reducing the availability of the supply.

Organizational culture

is the shared values and beliefs that guide individual behaviors in the organization. Managers can induce a culture of excellence that supports the strategy by communicating and modeling behaviors and values they want to see throughout the organization.

Which statement best captures the meaning of a value proposition?

it explains why the customer would choose a firm's product over alternatives or no product at all

competitive analysis

looks at competitors and tries to answer such questions as these in the following categories: General Background: Who are my competitors? Where are they located? Who are the key personalities? What type of organizational structure is it? Financial: How profitable are they? Have they grown in the recent past? And any other data you can ethically discover. Products: What products do they sell? Have they introduced new products and what is their success rate? What brands do they carry? Do they hold patents and licenses? Customers: What market segment do they serve? What is the customer growth rate? How strong is the customer loyalty? Advertising and Sales: What are their distribution channels? What is their promotional strategy? How large is their sales force? What is their pricing and discount structure? Personnel: How many employees do they have? What is their compensation package including benefits? What kind of managers and what management style do they show? More importantly, what skills is the competition hiring? If a company is hiring experts in artificial intelligence, it tells the competition quite a bit about the plans for the future.

Integrated Strategy

organizations strive to provide more value than the average competitor but also focus on keeping costs low.

Michael Porter defined classified competitive strategies based on a grid of price strategy and target markets. Microsoft's Windows Operating System competes with Apple's MAC OS X and Linux. Linux is free. What is Microsoft's strategy in this grid?

overall differentiation

Tangible assets

physical things such as land, equipment and machines, and real estate. Although they are necessary, they aren't unique and competitors can fairly easily acquire these kinds of assets.

The bargaining power of buyers

the amount of pressure customers can put on a seller. The buyer wants to lower prices, increase service, or improve the quality of the product. From the viewpoint of the seller, an industry where the buyer has high bargaining power is not particularly attractive because competitors will have many possible strategies for easily taking the customer away. High buying bargaining power decreases potential profits if the seller responds to the buyers' tactics. Remember that the buyer is not always a consumer; many businesses sell to other businesses who also have buyer bargaining power.

The second step of the strategy process, Strategy Formulation, includes

prioritizing the tactics most important to achieving the business's objectives

E-commerce

refers specifically to exchanges or transactions that occur electronically. The younger the shopper, the more likely he or she is to conduct "business" using a smart phone. _____ strategies rely on the power of the Internet, both in the growing popularity of online purchasing and in shaping marketing strategies.

The threat of new entrants (or barriers to entry).

the threat that new competitors pose to the existing businesses in an industry. A profitable industry will attract new competitors. If it is easy for new businesses to enter the industry, then the businesses already operating in the industry are at a greater risk. There may be a high threat of new entrants to an industry when brand names are not well-known, when it is easy for customers to switch to a new supplier, and when trademarks or copyrights are not involved in the production process.

Inimitable.

If another organization can't copy, buy, or find a replacement for the resource, it is inimitable. According to Barney, resources can be inimitable if they (1) developed historically over a long period of time, (2) competitors cannot identify the particular resources that are the cause of competitive advantage, and (3) the resource is a result of the corporate culture and personal dynamics of the organization.

Strategic Implementation.

Sometimes referred to as strategic execution, this stage is when the planning stops and the action begins. The best plans won't make up for sloppy implementation. Everyone in the organization should be aware of his or her particular assignments, responsibilities and authority. Management should provide additional employee training to meet plan objectives during this stage, as well. It should also allocate resources, including funding. Success in this stage depends upon employees being given the tools needed to implement the plan and being motivated to make it work.

Regulations

The regulatory burden depends largely upon the type of industry and the specific nature of the business. In some industries, regulation is the single biggest uncertainty affecting investment and spending, corporate image, and risk management. These organizations include airlines, utilities, railways, telecommunications, banking, and pharmaceuticals. Often, the regulations have positive impacts on both consumers and businesses. They provide the public with a high level of confidence in the safety and efficacy of the products. They can also prevent competition from businesses with substandard and low-quality goods from trying to enter an industry. Despite the benefits that regulations can provide, any changes in how the product is manufactured, shipped, tested, or provided will greatly affect unit costs and profit margins. every company must comply with federal and state payroll, benefits, tax requirements, and following municipal commercial and building codes can present challenges

Political

a function of how much the government intrudes or is involved in an organization's operations. In particular, it looks at taxation and tariffs, regulations, political stability, and elections.

In the summer of 1998, Dr. Rumelt, a professor and consultant, got an opportunity to talk with Steve Jobs about strategy. Rumelt argued that everything we know about the PC business says that Apple cannot really push beyond a small niche position. The network effects are just too strong to upset the PC standard. He then asked for Jobs' strategy. Jobs said, "I am going to wait for the next big thing." Nearly twenty years later, Apple is the most valuable publicly traded company in the world. This story shows that in the context of strategy, the tech market is ________.

dynamic

Amir goes to industry conferences twice a year. The prepared speeches contain few surprises, but the side conversations give him a read on what other firms are doing and perhaps the trade-offs that they see in the industry. Amir is engaged in

environmental scanning

SWOT: A Situational Analysis Summary

examines the internal strengths and weaknesses of an organization as well as external opportunities and threats (social, political, economic, legal environmental) that would affect that organization. In fact, a _____ analysis is really more of a summary of data from various other analyses formulated in a way that allows for comparisons. Stands for: strengths, weaknesses, opportunities, and threats.

Competitors

firms that provide similar products or services and try to attract the same customers. _____ are likely to have similar business goals in terms of sales, profitability, and market share

Business Strategy

how will the company produce distinction and value to its customers?

situational analysis

looks more closely at external and internal conditions that affect your particular organization. Five key components of the organization's specific business environment are examined. These are customers, competitors, suppliers, and government and legal issues—including regulations and advocacy or support groups. The analysis looks at what impact these factors may have on a specific organization or business.

Macy's online store differs from the in-store experience. The online store offers free delivery on larger purchases, free returns, extensive information about the products, and reviews from other customers. Why might Macy's do business this way?

many of the strategies needed to succeed in e-commerce are very different from competing in a non-digital environment

The general environment analysis considers broad societal dimensions influencing the industry or firms within it. The general environment areas include

political, economic, social, technological, environmental, and legal

Uncertainty

refers to how predictable environmental conditions are. In an uncertain environment it is very difficult for managers to predict where and how change will occur. Instead, managers must make decisions based on assumptions rather than clear facts. Companies that "guess" right benefit from uncertainty and companies that guess wrong suffer.

The cash-strapped Cuban government cut back deliveries of high-octane gasoline in April 2017. Cuba depends on crisis-racked ally Venezuela for about 70 percent of its fuel needs, including oil for refining and re-exports. Better-off Cubans scrambled to locate fuel and to wait in long lines to fill up their cars. A Miami car dealer came to the rescue, offering to sell electric vehicles shipped from the United States. The dealer's strategy is shaped by

resource scarcity

American Spoon is a small company in Petoskey, Michigan that uses fruit from local farmers to handcraft gourmet fruit preserves and condiments in small batches since 1982. The company has expanded slowly and now has six stores in towns along Lake Michigan and a catalogue. It has grown and maintained its customers by continuing to make its products in small batches to ensure freshness and flavor, and to make seasonal and unique product offers possible. In the Strategic Evaluation and Control stage of the strategy process, American Spoon should

set up routine checks of the freshness of its inventory

customer analysis

Identify the target customer. Is this customer base growing or is it decreasing? What are your customer demographics (age, income, location, gender, politics, etc.)? What is the revenue of these customers? How much discretionary income do they have? Understand the specific customer needs. Why do they buy certain brands? How do make their purchasing decisions? Do they purchase in person or online? Show if and how your product or service meets those needs. Besides determining if a customer base exists in the region, this data can be used in the future to plan effective promotional campaigns, forecast inventory needs, and determine the optimal combination of distribution channels.

From the inception of his electric car company, Tesla, Elon Musk has emphasized innovation and quality above all else. Part of the company's strategy is to never discount products, a policy that extends to all levels of the company. Upon hearing that some salespeople were offering promotional discounts in 2016, Musk sent an email to all Tesla employees that stated, "There can never—and I mean never—be a discount on a new car coming out of the factory in pristine condition. This is why I always pay full price when I buy a car and the same applies to my family friends, celebrities, no matter how famous or influential." Why did Musk feel the need to remind the entire company about the policy rather than just disciplining the offending salespeople?

Musk wanted to protect the business's overall strategy.

Organized to capture value.

The three characteristics listed earlier are "necessary but not sufficient conditions" to achieve a sustained competitive advantage. The missing ingredient is management's ability to develop the strategy to put it all together. The firm must be organized in a way that can capture value by employing the right strategies.

Economic

These are growth, employment, inflation, and interest rates. Companies with foreign operations will worry about exchange rates. These factors are important in long-range forecasts for revenue and expenses

Social

These factors include demographics like population growth, age distribution, and attitudes toward safety and health consciousness.

Porter's Competitive Strategies

This approach results in four separate competitive strategies: overall differentiation, overall low cost, focused differentiation, and focused low cost. The fifth strategy combines elements of both low cost and differentiation. This is called the integrated approach.

Environmental

Weather, climate change, air quality, natural disasters, changes in the natural environment, including manufacturing, agriculture, tourism and travel, and sports and entertainment

value proposition

a statement that a company uses to convince customers that its product or service provides more value to them than a competitor's product or service. The _____ communicates to the customer the main reason a product or service is the one best suited to their needs.

E-business

can be defined as any business that takes place over digital processes using a computer network rather than in a physical location ("brick and mortar"). Organizations of all types, military and nonprofit, educational and governmental, use e-business strategies. The strategies are geared to three purposes: those related to decreasing production costs and increasing efficiency. those creating customer focus. those addressing internal management.

Resource scarcity

refers to the availability of resources critical to a company or that are in high demand by other companies. Resource scarcity is usually the result of a shortage of supply, but it can also result from demand driving up prices. In conditions of resource scarcity, a company may not be able to acquire the resources it needs to operate or grow

Complexity

refers to the number of elements in the organization's environment and their connections. In a highly complex environment there are many variables that can affect the company. The variables are hard to identify and measure and are connected in ways that are hard to understand. Managers must monitor and respond to more sources of change, which makes it more difficult to make decisions. Complexity can be modeled with chaos theory, where small changes in one factor can produce a major change in another.

Competitive rivalry within the industry.

the intensity or the level of competition in an industry is one of the main forces that determines the profitability of that industry. A highly competitive market suggests that the competitors are aggressively trying to take market share from their rivals. Intensity can be affected by the number of competitors, the size of the market, the growth of the industry, and how difficult it is to differentiate your product (make it unique in some major feature).

The advertisements for the Apple MacBook show an edge-on image of a MacBook with the caption "MacBook: Light. Years ahead." This refers to the lightweight design and the advanced tech inside. This is Apple's

value proposition

Cavanagh Altar Breads makes communion wafers or crackers for Catholic services. Historically, the wafers were made by local nuns or sisters, but automation and mass production lowered costs significantly. The sisters buy the wafers wholesale and resell them to local churches. From the perspective of the bakery industry, Cavanagh's strategy is

Focused and low-cost

PESTLE analysis

A _____ analysis examines six key macro-environmental factors in order to understand their interactions with the organization. Besides alerting top management to potential threats in the environment, a ______ analysis is a part of the external strategic analysis when conducting research into new markets. It gives an overview of the different macro-environmental factors that the company has to take into consideration

Valuable.

A resource is valuable if it enables the company to take advantage of opportunities or defend against threats. A valuable resource allows the company to provide value for its customers by making its product better or cheaper. It means the company can continue to add features or lower the price to maintain the perceived value.

Differentiation Leadership Strategy

A strategy based on differentiation (distinction) calls for goods and services that offer unique features and that have high value for the target customer. The features must be perceived by the customer to be so much better than what the competition offers that they are worth an additional cost.

Competitors

At the situational level, a business needs to identify its specific competitors and assess their potential for taking market share. An organization needs to be aware of future initiatives of the competition (as much as is possible) and examine the competitors' financial and marketing performances

Strategic Evaluation and Control.

Because external and internal conditions are always changing, this stage is extremely important. Performance measurements (determined by the nature of the goal) will help determine if key milestones are being met. If actual results vary from the strategic plan, corrective actions will need to be taken. If necessary, reexamine the goals or the measurement criteria. If it becomes apparent that the strategy is not working according to plan, then new plans need to be formulated (see Step 2) or organizational structures adjusted. Personnel may need to be retrained or shifted to other duties. You may even have to repeat the strategic management process from the beginning, including the information and knowledge gained from this first attempt.

The Strategic Management Process

Strategic Objectives and Analysis. Strategic Formulation. Strategic Implementation. Strategic Evaluation and Control.

In conducting its situation analysis, the New England Patriots, a professional football team, sees that most of its players are individually top competitors and their coach had been a great player. Where does this information belong in a SWOT analysis?

Strengths

sustainable competitive advantage

The goal of companies is to create competitive advantage in ways that are difficult or costly for competitors to copy.

supply chain

a system comprised of organizations, information, resources, people, technology, and activities that bring products or services from a supplier to a consumer. In larger organizations, entire departments may be dedicated to ___ logistics. Implementing cooperative alliances with key suppliers is also a popular tactic employed by strategic organizations. Although multiple sources of supply helps to guarantee the availability of supplies, creating a cooperative agreement with one supplier can significantly reduce costs

The VRIO Framework

analyze a firm's internal resources and capabilities to see if they can be used to sustain a competitive advantage.

Intangible assets

are anything an organization can own that is not physical. Examples include brand names, intellectual property, and the organization's reputation and goodwill. These kinds of assets are not easily acquired and usually contribute heavily toward a sustained competitive advantage. For example, Mercedes Benz has a reputation for quality engineering and luxury in its vehicles. People take it as a given that they produce precision, high-quality products

Resource-based View (RBV) Strategic Approach

argues that focusing on an organization's strengths is essential to achieve a sustained competitive advantage. (Remember, the purpose of the SWOT analysis is to help companies identify their strengths.) RBV supporters look for ways to use internal resources (assets) to take advantage of external opportunities.

DeBeers controls many of the world's most productive diamond mines, selling more than one-third of the world's rough diamond production. When analyzing the fine jewelry industry according to Porter's Five Forces, DeBeers' control over diamond supplies reveals ________within the industry.

high bargaining power of suppliers

A robust competitive analysis will allow you to focus on those companies that will compete for customers You were correct.

in your target market