Strategic Management Exam 1 -Text

Best cost provider strategies are:

A hybrid of low-cost provider and differentiation strategies that aim at providing desired quality/features/performance/service attributes while beating rivals on price.

Resource bundle

A linked and closely integrated set of competitive assets centered around one or more cross-functional capabilities

Joint venture

A partnership involving the establishment of an independent corporate entity that the partners own and control jointly, sharing in its revenues and expenses

Benchmarking

A potent tool for improving a company's own internal activities that is based on learning how other companies perform them and borrowing their "best practices."

A Resource

A productive input or competitive asset that is owned or controlled by the firm.

SWOT analysis

A simple but powerful tool for sizing up a company's Strengths and Weaknesses, its market Opportunities, and the external Threats to its future well-being

Evolving strategy

Adapting to new conditions and constantly evaluating what is working well enough to continue and what needs to be improved are normal parts of the strategy-making process, resulting in an evolving strategy

Free Cash Flow

After tax profits + depreciation - capital expenditures - dividends

Internal cash flow

After-tax profits + depreciation

The degree to which an industry is attractive or unattractive is not the same for _________

All industry participants and all potential entrants.

When overall impact of the five competitive forces is moderate to weak, and industry is ___________

"attractive" in the sense that the average industry member can reasonably expect to earn good profits and a nice return on investment.

Operating Profit Margin

(Sales revenue - Operating expenses)/Sales revenue OR Operating income/Sales revenues

Gross Profit Margin

(Sales revenues - COGS) / Sales revenues

Total return on assets

(profits after taxes + interest)/total assets

Objectives

Are an organization's performance targets - the specific results management wants to achieve

Focused differentiation strategies

Are keyed to offering products or services designed to appeal to the unique preferences and needs of a narrow, well-defined group of buyers.

A company's weaknesses

Are shortcomings that constitute competitive liabilities.

Competitive Assets

Are the firm's resources and capabilities and are the determinants of its competitiveness and ability to succeed in the marketplace.

Key Success Factors (KSFs)

Are those competitive factors that most affect the ability of all firms in an industry to prosper.

A well thought-out, forcefully communicated strategic vision pays off:

1. It crystallizes senior executives' own views about the firm's long-term direction 2. It reduces the risk of rudderless decision making 3. It is a tool for winning the support of organization members to help make the vision a reality 4. It provides a beacon for lower-level managers in setting departmental objectives and crafting departmental strategies that are in sync with the company's overall strategy 5. It helps an organization prepare for the future

The two elements of a company's business model

1. Its customer value proposition 2. Its profit formula

Choosing which rivals to attack

1. Market leaders that are vulnerable 2. Runner-up firms with weaknesses in areas where the challenger is strong 3. Struggling enterprises that are on the verge of going under 4. Small local and regional firms with limited capabilities

The principal offensive strategy options include the following:

1. Offering an equally good or better product at a lower price. 2. Leapfrogging competitors by being first to market with next-generation products 3. Pursuing continuous innovation to draw sales and market share away from less innovative rivals 4. Adopting and improving on the good ideas of other companies (rivals or otherwise). 5. Using hit-and-run or guerrilla warfare tactics to grab market share from complacent or distracted rivals. 6. Launching a preemptive strike to secure an advantageous position that rivals are prevented or discouraged from duplicating

Key success factors can always be deduced by asking the same three questions:

1. On what basis do buyers of the industry;'s product choose between the competing brands of sellers? 2. Given the nature of competitive rivalry prevailing in the marketplace, what resources and competitive capabilities must a company have to be completely successful? 3. What shortcomings are almost certain to put a company at a significant disadvantage.

A company's board of directors has four important obligations to fulfill:

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 shareholder interests

Pitfalls to Avoid in Pursuing a Low-Cost Provider Strategy

1. Perhaps the biggest mistake a low-cost provider can make is getting carried away with overly aggressive price cutting and ending up with a lower, rather than higher, profitability. 2. Relying on an approach to reduce costs that can easily be copied by rivals. 3. Becoming too fixated on cost reduction. Low costs cannot be pursued so zealously that a firm's offering ends up being too features-poor to gain the interest of buyers.

The extent to which companies benefit from entering into alliances and partnerships seems to be a functions of six factors:

1. Picking a good partner. 2. Being sensitive to cultural differences. 3. Recognizing that the alliance must benefit both sides. 4. Ensuring both parties live up to their commitments. 5. Structuring the decision-making process so that actions can be taken swiftly when needed. 6. Managing the learning process and then adjusting the alliance agreement over time to fit new circumstances.

Any of three means can be used to achieve better cost competitiveness in the forward portion of the industry value chain:

1. Pressure distributors, dealers, and other forward's channel allies to reduce their costs and markups. 2. Collaborate with forward channel allies to identify win-win opportunities to reduce costs. 3. Change to a more economical distribution strategy, including switching to cheaper distribution channels or perhaps integrating forward into company-owned retail outlets.

On a strategic group map, not all positions on the map are equally attractive. Two reasons account for why some positions can be more attractive than others:

1. Prevailing competitive pressures from the industry's five forces may cause the profit potential of different strategic groups to vary. 2. Industry driving forces may favor some strategic groups and hurt others.

When a Low-Cost Provider Strategy Works Best

1. Price competition among rival sellers is vigorous. 2. Identical products are available from many sellers. 3. There are few ways to differentiate industry products. 4. Most buyers use the product in the same ways. 5. Buyers incur low costs in switching among sellers. 6. The majority of industry sales are made to a few, large volume buyers. 7. New entrants can use introductory low prices to attract buyers and build a customer base

A typical strategy is a blend of:

1. Proactive: planned initiatives to improve the company's financial performance and secure a competitive edge 2. Reactive: responses to unanticipated developments and fresh market conditions

Effectively matching a firm's business strategy to prevailing competitive conditions has two aspects:

1. Pursuing avenues that shield the firm from as many of the different competitive pressures as possible. 2. Initiating actions calculated to shift the competitive forces in the company's favor by altering the underlying factors driving the five forces.

Revamping the Value Chain System to Lower Costs

1. Sell direct to consumers and bypass the activities and costs of distributers 2. Streamline operations by eliminating low value-added or unnecessary work steps/activities 3. Reducing materials handling and shipping costs by having suppliers locate their plants close to the company.

Four most frequently used and dependable strategic and dependable approaches

1. Striving to be the industry's low-cost provider, thereby aiming for a cost-based competitive advantage over rivals 2. Outcompeting rivals on the basis of differentiating features, such as higher quality, wider product selection, added performance, value-added services, more attractive styling, and technological superiority 3. Developing an advantage based on offering more value for the money (best-cost provider strategy) 4. Focusing on a narrow market niche within an industry

Companies that have greater success in managing their strategic alliances and partnerships often credit the following factors:

1. They create a system for managing alliances. 2. They build relationships with their partners and establish trust. 3. They protect themselves from the threat of opportunism by setting up safeguards. 4. They make commitments to their partners and see that their partners do the same. 5. They make learning a routine part of the management process.

Concrete, measurable objectives are managerially valuable for three reasons:

1. They focus efforts and align actions throughout the organization 2. They serve as yardsticks for tracking a company's performance and progress 3. They motivate employees to expand greater effort and perform at a high level

Alliances are more likely to be long-lasting when:

1. They involve collaboration with suppliers or distribution allies 2. Each party's contribution involves activities in different portions of the industry value chain 3. Continued collaboration is in the mutual interest of the partners

The principle advantages of strategic alliances over vertical integration or horizontal mergers/acquisitions are threefold:

1. They lower investment costs and risks for each partner. 2. They are more flexible organizational forms and allow for a more adaptive response to changing conditions. 3. They are more rapidly deployed -a critical factor when speed is of the essence.

Four routers to deliver superior value via a broad differentiation strategy:

1. To incorporate attributes and user features that lower the buyer's overall costs of using the company's products. 2. To incorporate tangible features that increase customer satisfaction with the product, such as product specifications, functions, and styling. 3. To incorporate intangible features that enhance buyer satisfaction in noneconomic ways. 4. To signal the value of the company's product offering to buyers.

Not all buyers of an industry's product have _______

Equal degrees of bargaining power with sellers

What every strategy needs

Every strategy needs a distinctive element that attracts customers and produces a competitive edge

A vision cannot provide direction for middle management nor can it inspire and energize employees unless...

Everyone in the company is familiar with it and can observe management's commitment to the vision

Distinctiveness

If a strategy is not distinctive, then there can be no competitive advantage, since no firm would be meeting customer needs better or operating more efficiently than any other

Days in Inventory

Inventory/(COGS/365)

Outsourcing

Involves contracting out certain value chain activities to outside vendors.

Backward integration

Involves entry into activities previously performed by suppliers or other enterprises positioned along earlier stages of the industry value chain system

Forward integration

Involves entry into value chain system activities closer to the end user

Strategy Making

Involves managers at all organizational levels

Distinctive competence

Is a competitively important activity that a company performs better than its rivals- it thus represents a competitively superior internal strength

Uniqueness driver

Is a factor that can have a strong differentiating effect

Objective-setting

Is a top-down process that must extend to the lowest organizational levels

Balanced Scorecard

Is 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.

Core competence

Is an activity that a company performs proficiently and that is also central to its strategy and competitive success

Competence

Is an activity that a firm has learned to perform with proficiency—a capability.

Corporate Strategy

Is strategy at the multi-business level, concerning how to improve company performance or gain competitive advantage by managing a set of businesses simultaneously.

Business Strategy

Is strategy at the single-business level, concerning how to improve the performance or gain a competitive advantage in a particular line of business.

The Performance Test

Is the strategy producing good company performance?

Monitoring new external developments

Is the trigger point for deciding whether to continue or change the company's vision and mission, objectives, strategy, and/or strategy execution methods

A low-cost provider's basis for competitive advantage:

Lower overall costs than competitors.

Causal ambiguity

Makes it very hard to figure out how a complex resource contributes to competitive advantage and therefore exactly what to imitate

Masterful strategies come from:

Doing things differently from competitors where it counts—out-innovating them, being more efficient, adapting faster—rather than running with the herd.

Delivering superior value or delivering value more efficiently

Nearly always requires performing value chain activities differently than rivals and building competencies and resource capabilities that are not readily matched

Blue Ocean Strategy

Offers growth in revenues and profit by discovering or inventing new industry segments that create an altogether new demand.

A company's competitive strength scores

Pinpoint its strengths and weaknesses against rivals and point directly to the kinds of offensive/defensive actions it can use to exploit its competitive strengths and reduce its competitive vulnerabilities.

A strategic vision

Portrays a company's aspirations for its future

Net Profit Margin

Profits after taxes/Sales revenues

Resource and capability analysis

Provides managers with a powerful tool for sizing up the company's competitive assets and determining whether they can provide the foundation necessary for competitive success in the marketplace

Individual customers

Rarely have much bargaining power in negotiating price concessions or other favorable terms with sellers.

Scope of the firm

Refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses.

Lagging indicators

Reflect the results of past decisions and organizational activities. Example: Financial performance measures

Strategic Objectives

Relate to target outcomes that indicate a company is strengthening its market standing, competitive position, and future business prospects

Financial Objectives

Relate to the financial performance targets management has established for the organization to achieve

A company's strengths

Represent its competitive assets

Industry environments characterized by high-velocity change

Require companies to repeatedly adapt their strategies

Successful competitive strategies are _________

Resource based

A Strategic Plan =

Strategic Vision + Objectives + Strategy

Best-cost provider strategies

Stake out the middle ground between pursuing a low-cost advantage and a differentiation advantage, and between appealing to the bread market as a while and a narrow market niche.

Driving forces

The major underlying causes of change in industry and competitive conditions.

The lower the price of substitutes, the higher the quality and performance, and the lower the user's switching costs:

The more intense the competitive pressures

Managing the implementation of strategy

The most demanding and time-consuming part of the strategy management process

The strongest competitive forces determine _______

The extent of the competitive pressure on industry profitability.

Vertical Scope

The extent to which a firm's internal activities encompass one, some, many, or all of the activities that make up an industry's entire value chain system, ranging from raw-material production to final sales and service activities.

Times interest earned ratio

operating income/interest expense

In new companies:

Top management has to consider what values, behaviors, and business conduct should characterize the company and then draft a value statement that is circulated among managers and employees for discussion and possible modification

Dynamic Fit

Winning strategies also exhibit dynamic fit in the sense that they evolve over time in a manner that maintains close and effective alignment with the company's situation even as internal conditions change

Dividend yield on common stock

annual dividends per share/current market price per share

long-term debt to capital ratio

long term debt/(long term debt + total stockholders' equity)

Return on Invested Capital (ROIC)

profits after taxes/(long term debt + total stockholders' equity)

net return on assets (ROA)

profits after taxes/total assets

Return on Stockholders' Equity

profits after taxes/total stockholders equity

Business Model

sets forth the logic for how its strategy will create value for customers, while at the same time generate revenues sufficient to cover costs and realize a profit

Wording a Vision Statement: Dos

1. Be graphic 2. Be forward-looking and directional 3. Keep it focused 4. Have some wiggle room 5. Be sure the journey is feasible 6. Indicate why the directional path makes good business sense 7. Make it memorable

A company that is racing to stake out a strong position in an industry of the future needs alliances to:

1. Establish a stronger beachhead for participating in the target industries. 2. Master new technologies and build new expertise and competencies faster than would be possible through internal efforts. 3. Open up broader opportunities in the target industry by melding the firm's own capabilities with the expertise and resources of partners.

There are three main areas in a company's total value chain system where company managers can try to improve its efficiency and effectiveness in delivering customer:

1. A company's own internal activities. 2. Suppliers' part of the value chain system. 3. The forward channel portion of the value chain system.

Pitfalls to avoid in pursuing a differentiation strategy

1. A differentiation strategy keyed to product or service attributes that are easily and quickly copied is always doomed. 2. The company's attempt at differentiation produces an unenthusiastic response on the part of the buyers. 3. Overspending on efforts to differentiate the company's product offering, this eroding profitability. 4. Offering only trivial improvements in quality, service, or performance features vis-a-vis the products of rivals. 5. Adding so many frills and extra features that the product exceeds the needs and use patterns of most buyers. 6. Charging too high a price premium.

Five generic competitive strategy options:

1. A low-cost provider strategy 2. A broad differentiation strategy 3. A focused low-cost strategy 4. A focused differentiation strategy 5. A best-cost provider strategy

Outsourcing makes strategic sense whenever:

1. An activity can be performed better or more cheaply by outside specialists. 2. The activity is not crucial to the firm's ability to achieve sustainable competitive advantage. 3. It improves organizational flexibility and speeds time to market. 4. It reduces the company's risk exposure to changing technology or buyer preferences. 5. It allows a company to assemble diverse kinds of expertise speedily and efficiently. 6. It allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best.

Determine whether the prevailing change drivers, on the whole, are acting to make the industry environment more or less attractive. Answers to three questions are needed:

1. Are the driving forces as a whole causing demand for the industry's product to increase or decrease? 2. Is the collective impact of the driving forces making competition more or less intense? 3. Will the combined impacts of the driving lead us to higher or lower industry profitability?

Rivalry increases when

1. Buyer demand is growing slowly or declining 2. It becomes less costly for buyers to switch brands 3. The products of rival sellers become less strongly differentiated 4. There is excess supply or unused production capacity, especially if the industry's produce has high fixed costs high storage costs 5. The number of competitors increases and they become more equal in size/capability 6. The diversity of competitors increases in terms of long-term directions, objectives, strategies, and countries of origin 7. High exit barriers keep unprofitable firms from leaving the industry

When a Differentiation Strategy Works Best:

1. Buyer needs and uses of the product are diverse 2. There are many ways to differentiate the product or service that have value to buyers 3. Few rival firms are following a similar differentiation approach 4. Technological change is fast paced and competition revolves around rapidly evolving product features

The factors determine the strength of buyer power in an industry.

1. Buyer power increases when buyer demand is weak in relation to industry supply. 2. Buyer power increases when industry goods are standardized or differentiation is weak. 3. Buyers' bargaining power is greater when their costs of switching to competing brands or substitutes are relatively low. 4. Buyers have more power when they are large and few in number relative to the number of sellers. 5. Buyers gain leverage if they are well informed about sellers' products, prices, and costs. 6. Buyers' bargaining power is greater when they pose a credible threat of integrating backward into the business of sellers. 7. Buyer leverage increases if buyers have discretion to delay their purchases or perhaps even not make a purchase at all. 8. Buyer price sensitivity increases when buyers are earning low profits or have low income. 9. Buyers are more price-sensitive if the product represents a large fraction of their total purchases.

Most drivers of industry and competitive change fall into one of the following categories:

1. Changes in an industry's long-term growth rate. 2. Increasing globalization. 3. Emerging new internet capabilities and applications. 4. Changes in who buys the product and how they use it. 5. Technological change and manufacturing process innovation. 6. Product and marketing innovation. 7. Entry or exit of major firms. 8. Diffusion of technical know-how across companies and countries. 9. Changes in cost and efficiency. 10. Reductions in uncertainty and business risk. 11. Regulatory influences and government policy changes. 12. Changing societal concerns, attitudes, and lifestyles.

Successful differentiation allows a firm to:

1. Command a premium price for its product 2. Increase unit sales 3. Gain buyer loyalty to its brand.

Five Forces Model of Competition

1. Competition from rival sellers 2. Competition from potential new entrants to the industry 3. Competition from producers of substitute products 4. Supplier bargaining power 5. Customer bargaining power

Two kinds of performance indicators tell the most about the caliber of a competitive strategy:

1. Competitive strength and market standing 2. Profitability and financial strength

Approaches to enhancing differentiation through changes in the value chain system include:

1. Coordinating with channel allies to enhance customer perceptions of value. 2. Coordinating with suppliers to better address customer needs.

The most widely encountered entry barriers candidates must hurdle include all of the following:

1. Cost advantages enjoyed by industry incumbents 2. Strong brand preferences and high degrees of customer loyalty 3. Strong "network effects" in customer demand 4. High capital requirements 5. The difficulties of building a network of distributions or dealers and securing adequate space on retailer's shelves 6. Restrictive government policies

Merger and acquisition strategies typically set sights on achieving any of five objectives:

1. Creating a more cost-efficient operation out of the combined companies. 2. Expanding a company's geographic coverage. 3. Extending the company's business into new product categories. 4. Gaining quick access to new technologies or complementary resources and capabilities. 5. Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.

Assessing the competitive pressures coming from substitutes, company managers must identify substitutes, which involves:

1. Determining where the industry boundaries lie 2. Figuring out which other products/services can address the same basic customer needs as those produced by industry members.

The strategy-making, strategy-executing process

1. Developing a strategic vision, a mission statement, and a set of core values. 2. Setting objectives for measuring the firm's performance and tracking its progress. 3. Crafting a strategy to move the firm along its strategic course and to achieve its objectives. 4. Executing the chosen strategy efficiently and effectively. 5. Monitoring developments, evaluating performance, and initiating corrective adjustments.

Wording a Vision Statement: Don'ts

1. Don't be vague or incomplete 2. Don't dwell on the present 3. Don't use overly broad language 4. Don't state the vision in bland or uninspiring terms 5. Don't be generic 6. Don't rely on superlatives 7. Don't run on and on

The best offensives tend to incorporate several principles:

1. Focusing relentlessly on building competitive advantage and then striving to convert it into a sustainable advantage 2. Applying resources where rivals are least able to defend themselves 3. Employing the element of surprise as opposed to doing what rivals expect and are prepared for 4. Displaying a strong bias for swift, decisive, and overwhelming actions to overpower rivals.

The five forces model determines the nature and strength of competitive pressures in a given industry involves three steps:

1. For each of the five forces, identify the different parties involved, along with the specific factors that bring about competitive pressures 2. Evaluate how strong the pressures stemming from each of the five forces are (strong, moderate, or weak) 3. Determine whether the strength of the five forces, overall, is conclusive to earning attractive profits in the industry

Mission statement

1. Identifies the company's products/services 2. Specifies the buyer needs that it seeks to satisfy and the customer groups or makes it serves 3. Gives the company its own identity

The procedure for constructing a strategic group map:

1. Identify competitive characteristics that delineate strategic approaches used in the industry. 2. Plot the firms on a two-variable map using pairs of these variables. 3. Assign firms occupying about the same map location to the same strategic group. 4. Draw circles around each strategic group, making the circles proportional to the size of the group's share of total industry sales revenues.

Driving forces analysis:

1. Identifying what the driving forces are 2. Assessing whether the drivers of change are, on the whole, acting to make the industry more or less attractive 3. Determining what strategy changes are needed to prepare for the impact of the driving forces

Managers can pursue any of several strategic approaches to reduce the costs of internally performed value chain activities and improve a company's cost competitiveness:

1. Implement the use of best practices. 2. Eliminate some cost-producing activities altogether. 3. Relocate high-cost activities. 4. Outsource activities. 5. Invest in productivity enhancing, cost-saving technological improvements. 6. Find ways to detour around the activities or items where costs are high.

Disadvantages of vertical integration strategy

1. Increases business risk 2. Slow to embrace technological advances 3. Less flexibility in accommodating shifting buyer preferences 4. May not enable a company to realize economies of scale 5. Capacity matching problems 6. Calls for developing different types of resources and capabilities

Every corporation should have a strong, independent board of directors that

1. Is well informed about the company's performance 2. Guides and judges the CEO and other top executives 3. Has the courage to curb management actions the board believes are inappropriate or unduly risky 4. Certifies to shareholders that the CEO is doing what the board expects 5. Provides insight and advice to management 6. Is intensely involved in debating the pros and cons of key decisions and actions

Cost cutting methods that demonstrate an effective use of cost drivers:

1. Striving to capture all available economies of scale. 2. Taking full advantage of experience and learning-curve effects. 3. Trying to operate facilities at full capacity. 4. Improving supply chain efficiency. 5. Using lower costs inputs where doing so will not entail too great a sacrifice in quality. 6. Using the company's bargaining power vis-a-vis suppliers or others in the value chain system to gain concessions. 7. Using communication systems and information to achieve operating efficiencies. 8. Employing advanced production technology and process design to improve overall efficiency. 9. Being alert to the cost advantages of outsourcing or vertical integration. 10. Motivating employees through incentives and company culture.

Ways managers can enhance differentiation based on uniqueness drivers include the following:

1. Striving to create superior product features, design, and performance. 2. Improving customer service or adding additional services. 3. Pursuing production R&D activities. 4. Striving for innovation and technological advances. 5. Pursuing continuous quality improvement. 6. Increasing emphasis on marketing and brand-building activities. 7. Seeking out high-quality inputs. 8. Emphasizing human resource management activities that improve the skills, expertise, and knowledge of company personnel.

Types of company resources

1. Tangible (physical, financial, tech) 2. Intangible (human assets and intellectual capital, relationships, company culture)

A Winning Strategy must pass three tests:

1. The Fit Test 2. The Competitive Advantage Test 3. The Performance Test

The risks of a focused low-cost or focused differentiation strategy:

1. The chance that competitors will find effective ways to match the focused firm's capabilities in serving the target niche. 2. The potential for the preferences and needs of niche members to shift over time toward the product attributes desired by the majority of buyers. 3. The segment may become so attractive that it is soon inundated with competitors, intensifying rivalry and splintering segment profits.

The value chains of a company's distribution channel partners are relevant because:

1. The costs and margins of a company's distributors and retail dealers are part of the price the ultimate consumer pays. 2. The activities that distribution allies perform affect sales volumes and customer satisfaction.

Whether buyers are able to exert strong competitive pressures on industry members depends on:

1. The degree to which buyers have bargaining power 2. The extent to which buyers are price-sensitive

The key advantages of using strategic alliances rather than arm's-length transactions to manage outsourcing are:

1. The increased ability to exercise control over the partner's activities. 2. A greater willingness for the partners to make relationship-specific investments.

When a focused low-cost or focused differentiation strategy is attractive:

1. The target niche is big enough to be profitable and offers good growth potential. 2. Industry leaders have chosen not to compete in the niche -in which case focusers can avoid battling head to head against the industry's biggest and strongest competitors. 3. It is costly or difficult for multisegment competitors to meet the specialized needs of niche buyers and at the same time satisfy the expectations of their mainstream customers. 4. The industry has many different niches and segments, thereby allowing a focuser to pick the niche best suited to its resources and capabilities. Also, with more niches there is more room for focusers to avoid each other in competing for the same customers. 5. Few if any rivals are attempting to specialize in the same target segment -a condition that reduces the risk of segment overcrowding.

There are six conditions in which first-mover advantages are likely to arise:

1. When pioneering helps build a firm's reputation and creates strong brand loyalty. 2. When a first-mover's customers will thereafter face significant switching costs. 3. When property rights protections thwart rapid imitation of the initial move. 4. When an early lead enables the first mover to move down the learning curve ahead of rivals. 5. When a first mover can set the technical standard for the industry.

Late Mover Advantages / First-Mover Disadvantages

1. When pioneering is more costly than imitative following, and only negligible learning-curve benefits accrue to the leader-a condition that allows a follower to end up with lower costs than the first-mover. 2. When the products of an innovator are somewhat primitive and do not live up to buyer expectations, thus allowing a follower with better-performing products to win disenchanted buyers away from the leader. 3. When rapid market evolution gives second-movers the opening to leapfrog a first-mover's products with more attractive next-version products. 4. When market uncertainties make it difficult to ascertain what will eventually succeed, allowing late movers to wait until these needs are clarified.

The two biggest factors that distinguish one competitive strategy from another boil down to:

1. Whether a company's market target is broad or narrow. 2. Whether the companies pursuing a competitive advantage linked to lower costs or differentiation.

Factors that determine the strength of suppliers' bargaining power:

1. Whether demand for suppliers' products is high and they are in short supply. 2. Whether suppliers provide a differentiated input that enhances the performance of the industry's product. 3. Whether it is difficult or costly for industry members to switch their purchases from one supplier to another. 4. Whether the supplier industry is dominated by a few large companies and whether it is more concentrated than the industry that it sells to. 5. Whether suppliers provide an item that accounts for a sizable fraction of the costs of the industry's product. 6. Whether it makes food economic sense for industry members to integrate backward and self-manufacture items they have been buying from suppliers. 7. Whether there are good substitutes available for the suppliers' products. 8. Whether industry members are major customers of suppliers.

Whether the competitive pressures from substitute products are strong, moderate, or weak depends on 3 factors:

1. Whether substitutes are readily available and attractively priced 2. Whether buyers view the substitutes as being comparable or better in terms of quality, performance, and other relevant attributes 3. Whether the costs that buyers incur in switching to the substitutes are low or high

The three best indicators of how well a company's strategy is working are:

1. Whether the company is achieving its stated financial and strategic objectives. 2. Whether its financial performance is about the industry average, and whether it is gaining customers and increasing its market share.

Other market indicators of the competitive strength of substitute products:

1. Whether the sales of substitutes are growing faster than the sales of the industry being analyzed 2. Whether the producers of substitutes are moving to add new capacity 3. Whether the profits of the producers of substitutes are on the rise

A strategic group

A cluster of industry rivals that have similar competitive approaches and market positions

Crafting and executing strategy

A collaborative team effort in which every company manager plays a strategy-making role

Acquisition

A combination in which one company, the acquirer, purchases and absorbs the operations of another, the acquired.

Merger

A combination of two or more businesses to form a single firm which takes a new name

Competitive Advantage

A company achieves a competitive advantage when it provides buyers with superior value compared to rival sellers or offers the same value at a lower cost to the firm

Strategic Intent

A company exhibits this when it relentlessly pursues an ambitious strategic objective, concentrating the full force of its resources and competitive actions on achieving that objective.

The biggest danger of outsourcing is:

A company will farm out too many or the wrong types of activities and thereby hollow out its own capabilities.

Strategy

A company's action plan for outperforming its competitors and achieving superior profitability

How strategy is shaped

A company's strategy is shaped partly by management analysis and choice and partly by the necessity of adapting and learning by doing

Values

A company's values are the beliefs, traits, and behavioral norms that company personnel are expected to display in conducting the company's business and pursuing its strategic vision and mission

Cost driver

A factor that has a strong influence on a company's costs

A strategic vision should be easily communicated

A strategic vision can usually be stated adequately in one to two paragraphs, and managers should be able to explain it to company personnel and outsiders in 5-10 minutes

External Fit

A strategy has to be well matched to industry and competitive conditions, a company's best market opportunities, and other pertinent aspects of the business environment in which the company operates

Internal Fit

A strategy must be tailored to the company's resources and competitive capabilities and be supported by a complementary set of functional activities

When a strategy stands a chance of succeeding

A strategy only stands a chance of succeeding when it is predicted on actions, business approaches, and competitive moves aimed at appealing to buyers in ways that set a company apart from rivals

Improving Financial Performance

A stronger market standing and greater competitive vitality is what enables a company to improve its financial performance

Strategic Group Mapping

A technique for displaying the different market or competitive positions that rival firms occupy in the industry. This is the best technique for revealing the market position of industry competitors.

To be successful, a best-cost provider has to _____________

Achieve significantly lower costs I providing upscale features so it can outcompete high-end differentiators on the basis of a significantly lower price.

Good Management =

Good Strategy + Good Strategy Execution

Most telling signs of good management

Good strategy and good strategy execution

Sustainable Competitive Advantage

An advantage is sustainable if it persists despite the best efforts of competitors to match or surpass this advantage

Dynamic capability

An ongoing capacity of a company to modify its existing resources and capabilities or create new ones

Dividend yield payout ratio

Annual dividends per share/Earnings per share

VRIN tests for sustainable competitive advantage

Ask if a resource is Valuable, Rare, Inimitable, and Non-substitutable.

Strategic offensives should, as a general rule, be _________

Based on a company's strongest competitive assets.

A company's Value Chain

Identifies the primary activities and related support activities that create customer value

A low-cost provider strategy can defeat a differentiation strategy when ____________

Buyers are satisfied with a basic product and don't think "extra" attributes are worth a higher price.

Deliberate Strategy

Consists of proactive strategy elements that are both planned and realized as planned

Emergent Strategy

Consists of reactive strategy elements that emerge as changing conditions warrant

The steps involved in SWOT Analysis:

Identify the four components of SWOT, draw conclusions, translate implications into strategic actions.

Full implementation and proficient execution of the company strategy (or important new pieces thereof)

Can take several months to several years

Competitive Advantage Test

Can the strategy help the company achieve a sustainable competitive advantage?

A low-cost advantage

Can translate into better profitability than rivals attain

Strategy is a work in progress

Changing circumstances and ongoing management efforts to improve the strategy cause a company's strategy to evolve over time -a condition that makes the task of crafting strategy a work in progress, not a one-time event

What strategy is about

Competing differently from rivals -doing what competitors don't do, or, even better, doing what they can't do

first-mover advantages and disadvantages

Competitive advantage can spring from when a move is made as well as from what move is made.

Macro environment

Comprised of political factors, economic conditions, technological advancements, environmental factors, sociocultural factors, and legal/regulatory factors

Focused low-cost strategy

Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs than rivals and thus being able to serve niche members at a lower price

Focused differentiation strategy

Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals' products

Functional-Area Strategies

Concern the actions and approaches employed in managing particular functions within a business- like R&D, sales and marking, customer serices, and finance

Operating Strategies

Concern the relatively narrow approaches for managing key operating units and specific operating activities with strategic significance

Price to Earnings Ratio

Current market price per share/earnings per share

Strategic plan

Lays out a company's future direction, performance targets, and strategy. It maps out where a company is headed, establishes strategic and financial targets, and outlines the competitive moves and approaches to be used in achieving the desired business result

Customer value proposition

Lays out the company's approach to satisfying buyers wants and needs at a price customers will consider a good value. Customers want the best value for the cost (C), (Value-Price).

A company's mission

Describes its purpose and its present business

Strategic Vision

Describes management's aspirations for the future and delineates the company's strategic course and long-term direction. Provides a panoramic view of "where we are going."

The most successful approaches to differentiation are those that are _____________

Difficult for rivals to duplicate.

Well-conceived visions are ________ and ____________ to a particular organization and they avoid generic, feel-good statements that could apply to hundreds of organizations.

Distinctive and Specific

What makes a competitive advantage sustainable

Elements of the strategy that give buyers lasting reasons to prefer a company's products or services over those of competitors -reasons that competitors are unable to nullify or overcome despite their best efforts

The strongest competitive pressures associated with potential entry...

Frequently come not from outsiders but from current industry participants looking for growth opportunities

The big risk of a best-cost provider strategy:

Getting squeezed between the strategies of rims using low-cost and high-end differentiation strategies.

Best-cost provider strategy

Giving customers more value for the money by satisfying buyers' expectations on key quality/features/performance/service attributes while beating their price expectations. This option is a hybrid strategy that blends elements of differentiation and low-cost strategies; the aim is to have the lowers (best) costs and prices among sellers offering products with comparable differentiating attributes.

Successful Low-cost leaders

Have the lowest industry costs, are exceptionally good at finding ways to drive costs out of their businesses and still provide a product or service that buyers find acceptable.

The Fit Test

How well does the strategy fit the company's situation?

Business buyers

In contrast to individual customers, have considerable bargaining power.

Immediate Industry and Competitive Environment

Industry in which a company competes (rival firms, supplies, buyers, new entrants, and substitute products).

For a strategic vision to function as a valuable managerial tool:

It must convey what management wants the business to look like and provide managers with a reference point in making strategic decisions and preparing the company for the future

Virtually all organizational capabilities are _________

Knowledge-based, residing in people and in a company's intellectual capital or in an organizational processes and systems, which embody tacit knowledge.

Strategic Plan

Lays out a company's future direction and business purpose, performance targets and strategy

Managers must be willing to modify strategy

Managers of every company must be willing and ready to modify the strategy in response to changing market conditions, advancing technology, unexpected moves by competitors, shifting buyer needs, emerging market opportunities, and mounting evidence that the strategy is not working well

Vertically integrated firm

One that performs value chain activities along more than one stage of an industry's value chain system.

Translating company performers of value chain activities into competitive advantage:

Option 1: Beat rivals by creating more customer value chain activities, for a differentiation-based competitive advantage. Option 2: Beat rivals by conducting value chain activities more efficiently, for a cost-based competitive advantage.

The most extreme case of a "completely unattractive" industry occurs when all five forces are producing strong competitive pressures:

Rivalry among sellers is vigorous, low entry barriers allow new rivals to gain a market foothold, competition from substitutes is intense, and both suppliers and buyers are able to exercise considerable leverage.

Broad differentiation strategy

Seeking to differentiate the company's product or service from rivals' in ways that will appeal to a broad spectrum of buyers

In companies with long-standing values that are deeply entrenched in the corporate culture:

Senior managers are careful to craft a vision, mission, and strategy that match established values; they also reiterate how the value-based behavioral norms contribute to the company's business success

Low-cost provider strategy

Striving to achieve lower overall costs than rivals on comparable products that attract a broad spectrum of buyers

Profit Margin and rivalry

Strong rivalry: profit margins are minimal Moderate rivalry: profit margins are acceptable Weak: profit margins are high

Realized Strategy (Strategy In Toto)

Tends to be a combination of proactive and reactive elements, with certain strategy elements being abandoned because they have become obsolete or ineffective

A company is more likely to be a standout performer in the marketplace...

The better conceived a company's strategy is and the more competently it is executed

A Capability (or competence)

The capacity of a firm to perform some internal activity competently

Profit formula

The profit formula describes the company's approach to determining a cost structure that will allow for acceptable profit, given the pricing tied to its customer value proposition. The profit formula reveals how efficiently a company can meet customer wants and needs and deliver on the value proposition

Horizontal Scope

The range of product and service segments that a firm serves within its focal market.

The difference between a low-cost provider strategy and a focused low-cost strategy is:

The size of the buyer group to which a company is appealing -the former involves a product offering that appeals broadly to almost all buyer groups and market segments, whereas the latter aims at just meeting the needs of buyers in a narrow market segment.

A company's competitive strategy deals exclusively with _________

The specifics of management's game plan for competing successfully.

Characteristics of routes to competitive advantage

There are many routes to competitive advantage, but they all involve either giving buyers what they perceive as superior value compared to the offerings of rival sellers or giving buyers the same value as others at a lower cost to the firm

Michael Porter's Framework for Competitor Analysis points to fore indicators of a rivals likely strategic moves and countermoves.

These include a rival's current strategy, objectives, capabilities, and assumptions.

The market opportunities most relevant to a company are _________

Those that match up well with the company's competitive assets, offer the best prospects for growth and profitability, and present the most potential for competitive advantage.

The primary purpose of value chain analysis:

To facilitate a comparison, activity-by-activity, of how effectively and efficiently a company delivers value to its customers, relative to its competitors.

The least obvious and most overlooked route to a differentiation advantage.

To incorporate attributes and user features that lower the buyer's overall costs of using the company's products.

The essence of a broad differentiation strategy is:

To offer unique product attributes that a wide range of buyers find appealing and worth paying for.

Total debt-to-assets ratio

Total Debt/Total Assets

Debt to Equity Ratio

Total Debt/Total Stockholders' Equity

Social complexity and casual ambiguity

Two factors that inhibit the ability of rivals to imitate a firm's most valuable resources and capabilities.

A differentiation strategy calls for a customer value proposition that is _______

Unique

The target market for a best-cost provider is _________

Value conscious buyers -buyers who are looking for an appealing extras and functionality at a comparatively low price.

Anything less than a unified collection of strategies...

Weakens the overall strategy and is likely to impair company performance

A barrier to entry exists...

Whenever it is hard for a newcomer to break into the market and/or the economics of the business put a potential entrant at a disadvantage

Strategic alliance

a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective.

Average Collection Period

accounts receivable/(total sales/365)

Inventory Turnover

cost of goods sold/inventory

Working Capital

current assets - current liabilities

Current Ratio

current assets/current liabilities

PESTEL Analysis

focuses on the six principal components of strategic significance in the macro-environment: Political, Economic, Social,Technological, Environmental, and Legal forces

long-term debt to equity ratio

total long term debt / total stockholders' equity