Strategic Management Exam #1

What is "Resource-Based Theory"?

-Resource-based theory contends that the possession of strategic resources provides an organization with a golden opportunity to develop a competitive advantage over its rivals. -These competitive advantages in turn can help the organization enjoy strong profits.

What is a "SWOT" analysis?

-A SWOT analysis is a tool that considers a firm's strengths and weaknesses along with the opportunities and threats that exist in the firm's environment. -Companies use the SWOT analysis to compare internal strengths and weakness with external opportunities and threats to generate ideas about how their firm might become more successful. It is the most important and time consuming part of the strategic planning process. -Ideas that allow a firm to leverage its strengths, steer clear of or resolve its weaknesses, capitalize on opportunities, and protect itself against threats are particularly helpful.

What is a business model? What is the difference between a corporate strategy and a business model?

-A business model should be a central element of a firm's strategic plan. Simply stated, a business model describes the process through which a firm hopes to earn profits. A business model addresses "how do we make money in the business?" -A corporate strategy answers the question "how are we going to get there?" A business model puts the numbers to the strategy. Answers the question: "given the proposed strategy, how much money can we make?"

Why does a company's strategy evolve over time?

-A company's strategy is a work in progress. Changes may be necessary to react to: competitive activities, external interventions, performance gaps, evolving customer preferences/changes in technology, emerging market opportunities, etc. -An intended strategy is the strategy that an organization hopes to execute. However a company's intended strategy rarely becomes their realized strategy- the market is always changing. A realized strategy is the strategy that an organization actually follows. Realized strategies are a product of a firm's intended strategy, the firm's deliberate strategy, and its emergent strategy.

What is a sustainable competitive advantage and how does a firm create on?

-A powerful strategy leads to a sustainable competitive advantage. A company achieves a sustainable competitive advantage when an attractive number of buyers prefer its products/services to those of rivals and when the basis for this preference can be maintained over time. -Some of the "best" strategic approaches to building sustainable competitive advantage: 1. Being the industry's low-cost provider 2. Outcompeting rivals by incorporating differentiating features 2. Developing expertise, resource strengths, and capabilities not easily imitated by rivals

What is the difference between a "resource" and a "capability"?

-A strategic resource or capability is a competitive strength: something a firm has or does well that enhances its competitiveness. -Resources refer to what an organization owns, whereas capabilities refer to what the organization can do.

What is a "PESTEL" analysis?

-An important tool that executives can rely on to organize factors within the general environment and to identify how these factors influence industries and the firms within. -PESTEL reflects the names of the six segments of the general environment: 1) Political: Political factors include elements such as tax policies, changes in trade restrictions and tariffs, and the stability of governments. 2) Economic: Economic factors include elements such as interest rates, inflation rates, gross domestic product, unemployment rates, levels of disposable income, and the general growth or decline of the economy. 3) Social: Social factors include trends in demographics such as population size, age, and ethnic mix, as well as cultural trends such as attitudes toward obesity and consumer activism. 4) Technological: Technological factors include changes in the rate of new product development, increases in automation, and advancements in service industry delivery. 5) Environmental: Environmental factors include natural disasters and weather patterns. 6) Legal: Legal factors include laws involving issues such as employment, health and safety, discrimination, and antitrust. -Executives examine these six segments to identify major opportunities and threats and then adjust their firm's strategy accordingly.

What is a vision statement and how does it differ from a mission statement?

-An organization's vision describes what the organization hopes to become in the future. Well-constructed visions clearly articulate an organization's aspirations. Having a well-formulated vision employees embrace can therefore give an organization an edge over its rivals. -Difference from a mission statement: a vision looks to the future, while a mission captures the key elements of the organization's past and present. -A strategic visions concerns a firm's future business path. Answers the question "where are we going?" -Components of a vision statement include: 1. Markets to be pursued 2. Future product/market/customer/technology focus 3. Kind of company management is trying to create

What are the key indicators of how well a strategy is working?

-Is the firm meeting financial objectives and is it an above-average industry performer? -Trend in sales and market share -Acquiring and/or retaining customers -Trend in profit margin, net profits, and ROI indicators -Overall financial strength and credit ranking -Trend in stock price and stockholder value -Image and reputation with customers

What is a mission statement? What are the three main components of a mission statement?

-Mission statements communicate a clear sense of the domain in which the organization's products and services fit. -Three main components of a mission statement: 1. Current product and services offerings 2. Types of customers being serviced 3. Geographic coverage -A mission states the reasons for an organization's existence. Well-written mission statements effectively capture an organization's identity and provide answers to the fundamental question "who are we?" While a vision looks for the future, a mission captures the key elements of the organization's past and present.

Discuss Porter's Five Forces analysis for determining industry attractiveness.

-Porter's Five Forces Analysis is used for identifying new opportunities that are most attractive to the industry. The purpose of five forces analysis is to identify how much profit potential exists in an industry. 1. Industry competitors: rivalry among existing firms. 2. Potential entrants: Threat of new entrants. 3. Buyers: Bargaining power of buyers. 4. Substitutes: Threat of substitute products and services. 5. Suppliers: Bargaining power of suppliers. 6. Other stakeholders: Relative power of unions, governments, special interest groups, etc.

How should the SWOT analysis be used (e.g. what are the three highest priority actions that should come from the SWOT analysis)?

-SWOT analysis invoices more than just developing the 4 lists of strengths, weaknesses, opportunities, and threats. -The most important part of the SWOT analysis is acting on the conclusions to: 1) Correct the important weaknesses (those related to "key success factors"). 2) To match a company's distinctive competencies to market opportunities. 3) To defend against critical external threats.

Explain strategic group mapping. What is this also called perceptual mapping? How is it used? What can be learned from strategic group maps?

-Strategic groups are sets of firms that follow similar strategies to one another but differ in important ways from the members of other groups within an industry. -When considering competitive moves, peers within the same strategic group are most important because they are the main rivals. -The two ways to use strategic group mapping is to identify gaps or needs for potential new opportunities in the industry and also to see if the members are delivering the strategy in the way that was intended. -Strategic mapping is sometimes referred to as perceptual mapping because it is based on the perception of the consumer. -Examining strategic groups in an industry provides a firm's executives with a better understanding of their closest rivals, reveals alternative paths to success, and highlights untapped opportunities.

What is strategic management?

-Strategic management examines how actions and events involving top executives, firms, and industries influence and firm's success or failure. - A successful strategic plan requires the effective utilization of the firm's limited resources; "effective utilization" meaning in a way that maximizes the firm's ability to meet it's long-term objectives. -Strategic management uses formal analytical tools to determine the best allocation of resources, however formal tools are not enough; creativity is just as important to develop unique and effective plans.

What are "strategic" resources? Be able to give a real-world example that is not in your textbook.

-Strategic resources are those resources that a firm possesses that are rare, valuable, and difficult for others to copy. They are what gives the organization power over their direct competitors. -Google uses their unique corporate culture and HR strategy as strategic resources to enhance their competitveness. We strive to maintain the open culture often associated with startups, in which everyone is a hands-on contributor and feels comfortable sharing ideas and opinions. Our offices and cafes are designed to encourage interactions between Googlers within and across teams, and to spark conversation about work as well as play.

What is the difference between "tangible" and "intangible" resources? Which one is usually more valuable (powerful)? Be able to give a real-world example that is not in your textbook.

-Tangible resources are resources that can be readily seen, touched and qualified. Physical assets such as a firm's property, plant, and equipment, as well as cash, are considered to be tangible resources. -Intangible resources are quite difficult to see, to touch, or to quantify. Intangible resources include, for example, the knowledge and skills of employees, a firm's reputation, and a firm's culture. -In comparing the two types of resources, intangible resources are more valuable. Executives who wish to achieve long-term competitive advantages should therefore place a premium on trying to develop their firms' intangible resources. -Apple does a great job of using their tangible and intangible resources to ensure the success of the company. The company's tangible resources include their cash and technological inventions. Their intangible resources would be their popular reputation as a brand and technical knowledge and expertise.

Discuss how the Issues Priority Matrix is used.

-The Issues Priority Matrix is a way to identify and analyze developments in the external environment. Firms can use it to decide which environmental trends should be scanned (low priority) and which should be monitored as strategic factors (high priority). -First you must assess the probability of the occurrence, and then confirm what kind of impact that this occurrence will have on the corporation. -External strategic factors are the key environmental trends judged to have both a medium to high probability of occurrence and impact.

Explain the external environmental variables. What is the difference between societal (macro) environmental variables and industry (task) environmental variables? Give an example of each.

-The external environment is a source of opportunities and threats for an organization. 1. Opportunities are events and trends that create chances to improve an organizations performance level. -The microenvironment includes opportunities such as social trends impacting societal values and lifestyles, technological trends, population demographics, and economic conditions. 2. The industry environment consists of multiple organizations that collectively compete with one another by providing similar goods, services, or both. These variables impose threats such as suppliers, buyers, substitute products, rival firms, and new entrants.

What is the main purpose/reason for developing a mission statement?

-The main purpose for developing a mission statement is to capture the key elements of the organization's past and present by stating why the organization exists and what role it plays in society. -Answers the following questions: "who we are?" and "what we do?" -Mission statements should be inspirational as well as aspirational. Given your resources, what is doable in 5 years, not 50.

What are the factors that determine the sustainability, or strategic "power," of a firm's resource (think VRIO)?

-There are four different characteristics to use when determining the competitive power of a company resource. -To qualify as competitively valuable or to be the basis for sustainable competitive advantage, a resource must pass 4 tests: 1. Value- Does it provide customer value? 2. Rareness- Do other competitors already possess it? 3. Imitability- Is the resource really competitively superior and is it difficult for others to copy? 4. Organization- Is the firm organized to exploit the resource?

Discuss the guidelines for developing a well-written vision/mission statement.

1. Communicate the company's uniqueness. 2. Contain the following: -A brief description of the company's product line -A definition of the company's market and scope -Future growth directions (no specifics here- just a statement of direction/the "vision" component). 3. Be as short and simple as possible- one sentence would be nice, but it is difficult to do (try to keep it at no more than two or three sentences). 4. Be simple enough so that everyone understands it! Avoid technical jargon that only excerpts or specialists understand.

Discuss the 8-step strategy process.

1. Develop a strategic "mission" and "vision." -Contains: product line definitions and SCA, market scope, and growth directions 2. Conduct a "SWOT" analysis. -Internal strengths and weakness, external opportunities and threats -Identify critical weakness related to key success factors -Identify critical threats to the firm's continued success or existence 3. Set company objectives. -"SMART": Specific, measurable, attainable (aggressive), realistic, with a timetable 4. Craft a corporate strategy to allocate resources among SBUs. -Use decision tools such as the BCG Growth-Share Matrix and/or the Industry Attractiveness-Competitive Strength Matrix 5. Craft business-level strategies for each SBU within the company. -Use decision tools such as the TOWS matrix and product-market matrix -Chose one of the Porter's generic strategies: overall low-cost leadership, broad differentiation, focus low-cost leadership, or focused niche 6. Forecast sales and profits (business model component). 7. Implement Strategies. 8. Monitor, review, and revise as necessary- but don't make major changes.

What is the difference between a "distinctive competency" and a "key success factor"? Give an example of each.

1. Distinctive competency is evident when a core competency is superior to those of the competition. -Relates to what one individual company does better than the competition. -Examples of distinctive competencies include: Apple: innovation and technological expertise Starbucks: innovative coffee drinks and store ambiance Southwest airlines: corporate culture based on a focus on employees, customers, and cost efficiencies 2. Key success factors are factors that can significantly affect the overall competitive positions of companies within a particular industry. -Refers to every organization- what every company should be doing and has to do in order to stay afloat in the industry. -Examples of key success factors include: Clothing industry: brand name Fast food: price and good taste/quality Hotels: cleanliness and services Colleges: graduation rates Airline industry: safety, customer service, and scheduling

Discuss the three questions that can be used to test the merits of one strategy versus another to distinguish a winning strategy.

1. Goodness of fit test: how well does strategy fit the firm's situation? 2. Competitive advantage test: does strategy lead to sustainable competitive advantage? 3. Performance test: does strategy boost firm performance based on the business model?

Discuss some of the sociocultural trends currently going on in America.

1. Increasing environmental awareness -More and more people are starting to understand what it means to sustainably manage our planet's resources. 2. Increasing health consciousness -Consumers are making an effort to maintain active and health-conscious lifestyles. 3. Increasing diversity in the workforce and marketplace -Workers from difference backgrounds are combining to breed a more creative, innovative, and product workforce. 4. Changing pace of life -The pace of life for everyone is speeding up thanks for an obsession with technology and efficiency. 5. Change of household composition - Economic and social change have transformed the structure and composition of the American family with trends related to marriage, children, and household composition. 6. Expanding seniors market 7. Impact of the Generation Y boomlet -Baby boomers 8. A declining mass market -No longer cookie-cutter

Discuss the steps in a basic financial analysis.

1. Scrutinize historical income statements and balance sheets (at least 5 years if possible). These two basic statements provide most of the data needed for analysis. Statements of cash flow may also be useful. Compare historical statements over time if a series of statements is available. 2. Calculate changes that occur in individual categories from year to year, as well as the cumulative total change. 3. Determine the change as a percentage as well as an absolute amount. 4. Adjust for inflation (especially if it is a significant factor). 5. Benchmark again key competitors and the industry as a whole.

What are the three big strategic questions answered by the strategic planning process?

1. What's the company's present situation? -Need to look inside and outside of the company 2. Where does the company need to go from here? -Business (businesses) to be in market positions to stake out. -Buyers needs and groups to serve -Direction to head 3. How should it get there? -A company's answer to "how will we get there?" is its strategy

In Porter's Five Forces analysis, what causes competitive rivalry to be stronger? Weaker?

Rivalry among existing competitors tends to be high to the extent that: 1. Competitors are numerous or are roughly equal in size and power. -No one firm rules the industry, and cutthroat moves are likely as firms jokey for position. 2. The growth rate of the industry is slow. -A shortage of new customers leads firms to steal each other's customers. 3. Competitors are not differentiated from each other. -This forces firms to compete based on price rather than based on the uniqueness of their offerings. 4. Fixed costs in the industry are high (bad). -These costs must be covered, even it if means slashing prices in order to do so. 5. Exit barriers are high. -Firms must stay and fight rather than leaving the industry gracefully. 6. Excess capacity exists in the industry. -When too much of a product is available, firms must work hard to earn sales. 7. Capacity must be expanded in large increments to be efficient. -The high costs of adding these increments needs to be covered. 8. The product is perishable. -Firms need to sell their wares before they spoil and become worthless.

Why do we say that the strategic plan is mainly a "resource allocation" document?

The strategic plan is mainly a "resource allocation" document because it tells a firm how to allocate its limited resources in order to maximize the ability to meet their long-term objectives.