ORSC 3141 Midterm

What is a dynamic capability? (+ Examples)

- Ability to change or pivot - Capacity for an organization to modify its existing resources to create new ones -- Example: Svedka switching from alcohol to hand sanitizer

What are KSFs?

- Key Success Factors: Competitive factors that most affect industry members' ability to survive in the marketplace - KSFs = the strategy elements, product attributes, resources, capabilities, and market achievements with the greatest impact on future competitive success in the marketplace - KSFs are so important to competitive success that how well a firm measures up on each industry KSF can spell the difference between being a strong competitor and a weak competitor (and sometimes between profit and loss)

What is the essence of strategy?

- Knowing what NOT to do - Also, understanding competition and making correct moves to surpass your competition (create competitive advantage) and become profitable

When are competitive pressures from buyers stronger?

- Larger-volume purchases by buyers enable them to gain special treatment - A buyer's identity adds prestige to the seller's list of customers - Suppliers of the product are greater than buyer demand - There are only a few buyers, so each one's business is important to sellers - Buyers have low costs in switching to competing brands or substitute products

What is Operational Effectiveness? Is it sufficient?

- Performing same tasks better than rivals - Is not sufficient but necessary; Value-Cost=Profit - Why is it not sufficient? → best practices are easily replicated so there's no relevant improvement -- Does not create value on outside for the consumer -- Effectiveness does not make profit, strategy does

When does the threat of entry become a stronger force?

- The threat of entry is stronger when entry barriers are low - There are sizable economies of scale in production, distribution, advertising, or other activities

What makes strategy a winner? (Tests)

1. Goodness of Fit Test: strategy must exhibit fit along 3 dimensions (external, internal, dynamic) -- How well does the strategy fit the company situation? -- Must be well matched to company's internal and external situation (operation, sales, management etc) 2. Competitive Advantage Test: is the strategy helping the company achieve a sustainable competitive advantage? 3. Performance Test: is the strategy producing good company performance? -- Two key factors: --- Competitive strength/market standing --- Profitability/ financial strength

Corporate Governance - What is the role of the board of directors?

1. Oversee the company's financial accounting and financial reporting practices 2. Critically appraise the company's direction, strategy, and business approaches 3. Evaluate the caliber of senior executives' strategic leadership skills 4. Institute a compensation plan for top executives that rewards them for actions and results that serve stakeholder interests, and most especially those of shareholders

What is a Balanced Scorecard?

A widely used method for combining the use of both strategic and financial objectives, tracking their achievement, and giving management a more complete and balanced view of how well an organization is performing -- Not always about the profit bc sometimes there is a delayed profit -- The four dimensions of a Balanced Scorecard: 1. Financial 2. Customer 3. Internal Process 4. Organizational (formerly called Growth and Learning)

What is the heart and soul of strategy?

Actions in a marketplace that managers take to gain competitive advantage over rivals

What is Benchmarking?

Benchmarking: A Tool for assessing the costs and effectiveness of value chain activities -- Benchmarking is a potent tool for improving a value chain activities that is based on learning how other companies perform them and borrowing their "best practices" -- The objective is to identify the best means for performing an activity

When does rivalry among competing sellers become a stronger force?

- When high exit barriers keep unprofitable firms from leaving the industry - When buyer demand is growing slowly or declining - As it becomes less costly for buyers to switch brands - As the products of rival sellers become less strongly differentiated - When industry members have too much inventory or significant amounts of idle production capacity, especially if the industry's product entails high fixed costs or high storage costs - As the number of competitors increases and they become more equal in size and capability - As the diversity of competitors increases in terms of long-term directions, objectives, strategies, and countries of origin

When is supplier bargaining power stronger?

- Demand for suppliers' products is high and the products are in short supply - Suppliers provide differentiated inputs that enhance the performance of the industry's producT - It is difficult or costly for industry members to switch their purchases from one supplier to another - The supplier industry is dominated by a few large companies and it is more concentrated than the industry it sells to - Industry members are incapable of integrating backward to self-manufacture items they have been buying from suppliers - Suppliers provide an item that accounts for no more than a small fraction of the costs of the industry's product - Good substitutes are not available for the suppliers' products - Industry members are not major customers of suppliers

Are the five competitive forces strong, weak, or moderate?

- Depends on the industry - Whether or not competitive forces are strong, moderate, or weak varies from one industry to another -- For example, on industry may have strong bargaining power of suppliers while another has strong bargaining power of buyers

What are Competitive Assets?

- Factors that allow a company to produce goods or services better or more cheaply than its rivals - Determinant of competitiveness

When do competitive pressures for substitutes become stronger?

- Good substitutes are readily available and attractively priced - Buyers view the substitute as comparable or better in quality/performance - The costs that buyer incur in switching to the substitutes are low

What is a Sustainable Competitive Advantage?

- Hinges on valuable expertise and capabilities that rivals cannot readily match AND distinctive product offering -- For example: Apple's competitive advantage is sustainable because they give buyers lasting reasons to prefer a company's products/services over those of competitors- competitors can't easy replicate Apple - The VRIN Test -- If the advantage is durable despite best effort of competitors to overcome it, best way to do that is the VRIN test

How do you analyze a company's macro-environment?

- STEEPLE Analysis -- Social: attitudes, lifestyles, demographic factors (population size, growth rate, age) -- Technological: solar energy technology, 3-D printing, nanotechnology -- Economic: interest rates, exchange rates, inflation -- Environmental: weather, climate, climate change→ flooding, fire and water shortages -- Political: tax policy, fiscal policy, tariffs -- Legal: consumer laws, labor laws, safety regulations -- Ethical: leadership practices, workplace misconduct, harassment, abuse, fraud

What is a SWOT Analysis? (+ Know how to conduct one)

- Strength, Weaknesses, Opportunities, Threats -- The simplest and most easily applied tool for gaining some insight into the reasons for the success of a strategy or lack of one - Analysis: -- 1. Identifying a Company's Internal Strengths A company strength is something a company is good at doing or an attribute that enhances its competitiveness in the marketplace Question to ask: "What activities does the company perform well?" -- 2. Identifying Company Internal Weakness A weakness is something a company lacks or does poorly (in comparison to others) or a condition that puts it at a disadvantage in the marketplace. A company's weakness can relate to inferior or unproven skills, expertise, or intellectual capital in competitively important areas of the business Deficiencies in competitively important physical, organizational, or intangible assets Sizing up a company's strengths and deficiencies is good when constructing a strategic balance sheet -- 3. Identifying a company's market opportunities Market opportunity is crucial when shaping a strategy for a company Need to find a market that will help the company grow and not hurt it -- 4. Identifying External Threats Threats can stem from factors such as emergence of cheaper or better technology, the entry of lower-cost competitors into a company's market stronghold, new regulations, etc. A sudden death threat is a threat that throws a company into immediate crisis and battle to survive

What is a company's "macro-environment"?

- The macro-environment encompasses the broad environmental context in which a company's industry is situated - 6 principal components - political factors; economic conditions in the firm's general environment (local, country, regional, worldwide); sociocultural forces; technological factors; environmental factors (concerning the natural environment); and legal/regulatory conditions - + add ethical (7th principle component)

What are Driving Forces?

- The major underlying causes of change in industry and competitive conditions - The most powerful change agents (of the 5 forces)

What are the 5 Strategic Approaches? (+ Definitions)

1. A l​​ow-cost provider strategy- ex, Southwest airlines have been able to outcompete their competitors because they are able to sell super cheap tickets 2. A broad differentiation strategy- differentiate the company's product by making it hard for rivals to easily replicate or closely imitate the product offering- for example (Apple- produce phones, computers, watches) 3. A focused low-cost strategy- focusing on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs, thus being able to serve niche members at a lower price. (Private-label manufacturers of food use their low-cost advantage to offer supermarket buyers lower prices than those of branded products) 4. A focused differentiation strategy- niche market/narrow buyer segment and outcompeting rivals by offering buyers special attributes that meet their specialized needs and tastes better than rival products. (Tesla with its electric cars or Linkedin specializing in the business and employments aspects of social networking) 5. A best-cost provider strategy- giving customers more value for their money by satisfying their expectations on key quality features, performance or services while beating their price expectations. For example, having lower costs than rivals but better varieties- Target has high product designs with limited edition designers (Victoria Beckham) and appealing shopping ambience or Amazon

What are the five major elements of strategy? (+ Examples)

1. Arenas: Where will we be active -- ex: Includes the market and location 2. Vehicles: how will I get there -- ex. Internal development of new, leading edge products 3. Differentiators: how will we win marketplace -- ex. New tech and global reach 4. Staging: What will be our speed and sequence of moves? -- ex. Joint venture before moving on to making other products 5. Economic Logic: How will we obtain our returns? -- ex. Offer premium product that customers will like

What is a competence? Core competence? Distinctive competence?

1. Competence: an activity that a company has learned to perform successfully 2. Core competence: is a successfully performed internal activity that is central to a company's strategy and is typically distinctive as well. 3. Distinctive competence: a capability that enables a company to perform a particular set of activities better than rivals

What does the strategic-making process entail?

1. Developing a Strategic Vision, Mission, and Core Values 2. Setting Objectives 3. Crafting a Strategy 4. Implementing and Executing the Strategy 5. Monitoring Developments, Evaluating Performance and Initiating Corrective Adjustments

What kinds of objectives to set?

1. Financial Objectives: management's goals for financial performance 2. Strategic Objectives: management's target goals for company's market standing, competitive position, and future business prospects 3. Short-Term Objectives: coming months; focus attention on delivering performance improvements in the current period and satisfy shareholder expectations for near-term progress 4. Long-Term Objectives: (three to five years off) force managers to consider what to do now to put the company in position to perform better later -- Critical for achieving optimal long-term performance -- Should take precedence over short-term objectives -- more important than short-term objectives (unless in crisis)

What is a strategic vision, mission, and values?

1. Strategic vision= "Where we are headed", Intended future business makeup (including customers, markets, technologies, and businesses) 2. Mission= "Who we are, what we do, and why" , Present business (including products or services, Buyer needs being served, Customer groups it sells to, Scope of operations and technologies) 3. Values= Guides action and behavior of company personnel in conducting the firm's business (Fair and equitable treatment, honor and integrity, ethical standards, innovativeness, teamwork, a passion for top notch quality or superior customer service, and exhibiting good community citizenship)

What are Porter's 3 key principles of strategy?

1. Strategy requires creation of unique and valuable positioning 2. Strategy requires you to know what not to do 3. Strategy requires creating a fit (Fit is all activities align with strategy)

What are the two types of resources?

1. Tangible: physical, financial, technological, organizational 2. Intangible: -- Human assets & intellectual capital -- Brands, company image, and reputational assets -- Relationships -- Company culture and incentive system

What are Porter's five forces the shape industry competition? (+ Examples)

1. Threat of rivals 2. Threat of new entrants 3. Threat of substitutes 4. Supplier bargaining power 5. Customer/buyer bargaining power

How well is the company's present strategy working?

1. What is the first thing we examine? -- Pin down company's competitive approach -- For instance, has it cut prices? Improved the design of the product? Added new features? 2. What are the three best indicators of if a company's strategy is working? -- Is your organization achieving its stated financial and strategic objectives? -- Is your organization's financial performance above the industry average? -- Are you gaining customers and increasing your market share?

What is a strategic plan? (+ Equation)

A strategic plan maps out where a company is headed, establishes strategic and financial targets, and outlines the basic business model, competitive moves, and approaches to be used in achieving the desired business results. -- Equation: Strategic Vision + Mission + Objectives + Strategy = A Strategic Plan

What equates to good management?

Good strategy + good strategy execution = good management

Which objectives should take precedence: short-term objectives or long-term objectives? What is the exception?

Long-term objectives should take precedence over short-term objectives -- Unless in crisis

What is front-burner material?

Strategic issues that managers need to address and resolve for the company to be more financially and competitively successful in the years ahead

What are stretch objectives? Why are they important?

Stretch objectives set performance targets high enough to stretch an organization to perform at its full potential and deliver the best possible results - Why are they important? -- Increase inventiveness -- Create urgency -- Be more intentional -- Increase financial performance

What is strategy? (textbook definition)

The set of coordinated actions that its managers take in order to outperform the company's competitors and achieve superior profitability

How do you test for sustainable competitive advantage? (+ Examples)

VRIN Test - Valuable, Rare, Inimitable, Non-substitutable - Example: diamonds

What is a value chain? What are the primary and support activities? (+ Know which value chain activities are important for certain industries)

Value Chain identifies the primary activities and related support activities that create customer value 1. Primary activities: -- Supply chain management -- Operations -- Distribution -- Sales and marketing -- Service 2. Support activities: -- R&D -- Systems development -- HR management -- General administration