Strategic Management Midterm

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three key principles that underlie strategic positioning

1) strategy is the creation of a unique and valuable position, involving a different set of activities. 2) strategy requires you to make trade-offs in competing- to choose what not to do. 3) strategy involves creating "fit" among a company's activities

five steps of stakeholder impact analysis

1) who are the stakeholders? 2) what are our stakeholders' interests and claims? 3) what opportunities and threats do our stakeholders present? 4) what economic, legal, ethical and philanthropic responsibilities do we have to our stakeholders? 5) what should we do to effectively address the stakeholder concerns?

strategic initiative

any activity a firm pursues to explore and develop new products and precess, new markets, or new ventures. may develop through autonomous actions by lower level employees, serendipity, or resource allocation process (RAP)

emergent strategy

any unplanned strategic initiative undertaken by mid-level employees of their own volition

scenario planning

approach to strategic management. managers envision different what-if scenarios to anticipate plausible futures. takes place at both the corporate and business levels. addresses both optimistic and pessimistic futures. bottom up approach because environment helps to dictate decisions

top-down strategic planning

approach to strategic management. rational, top-down process aiding in programming for future success; typically concentrates strategic intelligence and decision-making responsibilities in office of CEO. Analysis -> Formulation -> Implementation

strategy as planned emergence

approach to strategic management. top-down and bottom-up. managers must synthesize all available input from different internal/external sources into an overall strategic vision. involves a progression from intended strategy to realized and emergent strategy

minimum efficient scale (MES)

output range needed to bring the cost per unit down so firm can take advantage of economies of scale

vertical integration

ownership of its inputs, production, and outputs in the value chain. industry level integration from upstream to downstream when Cost of in house is less than Cost of market

ecological/environmental factors

part of PESTEL framework. broad environmental issues. natural environment, global warming, sustainable economic growth

sociocultural factors

part of PESTEL framework. captures cultures, norms, and values for society. dynamic and differ across groups. demographic trends capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class

technological factors

part of PESTEL framework. captures the application of knowledge to create new processes and product. innovations in process technology. nanotechnology revolution

economic factors

part of PESTEL framework. economy wide phenomena, consisting of the following five macroeconomic factors and affecting firms strategy: growth rates, interest rates, levels of employment, price stability (inflation/deflation), currency exchange rates

legal environment

part of PESTEL framework. laws, mandates, regulations, and court decisions. tax guidelines, safety regulations, employment laws, trade regulations

political environment

part of PESTEL framework. processes/actions of government that can influence the decisions and behavior of firms. political stability, government policies

primary activities

part of value chain analysis. add value directly by transforming inputs into outputs

support activities

part of value chain analysis. add value indirectly, but are necessary to sustain primary activities.

upper-echelons theory

strategic choices and performance levels are reflections of top management values-interpret situations through unique perspective. strong leadership can be learned and is a result of innate abilities

balanced scorecard

strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial strategic goals. how do customers view us? how do we create value? what core competencies do we need? how do shareholders view us?

subscription based model

one type of business model. users pay for access to a product/service during the payment term

freemium

one type of business model. users pay only for premium services

incremental innovation

steady improvement of product or service; existing markets. Gillette now 6 bladed razors. often from incumbent firms

strategic group model

framework that explains performance differences within the same industry by clustering different firms into groups based on key strategic dimensions

limitations of shareholder value creation metrics

stock prices can be highly volatile. macro-economic factors. stock prices frequently reflect the psychological mood of investors

mapping strategic groups

1) identify important strategic dimensions. 2) for the horizontal and vertical axes- select 2 key dimensions which expose pivotal differences among the competitors (dimensions shouldn't be highly correlated). 3) graph the firms in their strategic groups, indicating each firm's market share by the size of the bubble with which it is represented

Porter's Five Forces

1) Barriers to Entry 2) Threat from substitutes 3)Threat from Buyers Bargaining Power 4) Threat from Suppliers Bargaining Power 5) Competitive Rivalry among existing competitors

what strategy is NOT

1) grandiose statements. 2) a failure to face a competitive challenge. 3) operational effectiveness, competitive benchmarking, or other tactical tools

taper integration

an alternative to vertical integration. firm is backwardly integrated but also relies on outside-market firms for some of its supplies, and/or is forwardly integrated but also relies on outside-market firms for some of its distribution

boston consulting group growth-share matrix

A corporate planning tool in which the corporation is viewed as a portfolio of business units, which are represented graphically along relative market share (horizontal axis) and speed of market growth (vertical axis). SBUs are plotted into four categories (dog, cash cow, star, and question make) each of which warrants a different investment strategy.

strategic outsources

an alternative to vertical integration. moving one or more value chain activities outside the firm's boundaries to other firms in the industry value chain

diversification

an increase in the variety of products and services a firm offers of markets and the geographic regions in which it competes

stakeholder strategy

an integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage

ambidextrous organization

an organization able to balance and harness different activities in trade-off situations

implications of 3 external analysis methods

PESTEL- how the external factors identified affect the firm's industry environment. Porter's five forces- identifies industry profit potential and firm positioning for gaining and sustaining competitive advantage. strategic group map- helps find performance differences within the focal industry

conglomerate

a company that combines two or more strategic business units under one overarching corporation; follows unrelated diversification

complementor

a company that provides a good or service that leads customers to value your firm's offering more when the two are combined

strategic positioning

a company's relative position within its industry. reflects choices a company makes about the kind of value it will create and how that value will be created differently than rivals. differentiation and cost leadership. tradeoffs are required (walmart v. nordstrom)

level-5 leadership pyramid

a conceptual framework of leadership progression with five distinct sequential levels. 1) highly capable individual 2) contributing team member 3) competent manager 4) effective leader 5) executive

market capitalization

a firm performance metric that captures the total dollar market value of all of a company's outstanding shares at any given point in time. market cap = number of outstanding shares X share price

dynamic capabilities

a firm's ability create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage. essential to create a sustained competitive advantage. goal is to achieve a dynamic fit between internal strengths and external opportunities

strategic position

a firm's ability to create value (v) for customers while containing costs (c)

competitive advantage

a firm's ability to outperform other companies competing for the same set of customers. a large value gap (v-c)

innovation ecosystem

a firm's embeddedness in a complex network of suppliers, buyers, and complementors, which requires interdependent strategic decision making

organizational inertia

a firm's resistance to changes in the status quo

corporate social responsibility

a framework that helps firms recognize and address the economic, legal, social, and philanthropic expectations that society has of the business enterprise at a given point in time

industry

a group of firms that face the same set of suppliers and buyers

AFI Framework

a model that links three interdependent strategic management tasks (analyze, formulate, implement) that together help managers plan and implement a strategy that can improve performance and result in competitive advantage

complement

a product, service, or competency that adds value to the original product offering when the two are used in tandem

strategy

a set of goal directed actions a firm takes to gain and sustain superior performance relative to competitors

thin markets

a situation in which transactions are likely not to take place because there are only a few buyers and sellers who have difficulty finding each other

strategic business units

a standalone division of a larger conglomerate, with its own profit and loss responsibility

three performance dimensions

accounting profitability, shareholder value creation, economic value creation

strategic commitments

actions that are costly, long-term-oriented, and difficult to reverse

principal-agent problem

agent performing activities on behalf of a principal pursues his or her own interests

limitations of accounting profitability

all accounting data are historical data and thus backward-looking. accounting data do not consider off-balance sheet items (only focus on tangible assets)

transaction costs

all internal and external costs associated with an economic exchange. corporate strategy determines whether its cost-effective for their firm to expand its boundaries through vertical integration or diversification.

SWOT analysis

allows managers to evaluate a firm's current situation and future prospects by simultaneously considering internal and external factors. strengths weaknesses opportunities threats

vision

aspiration of the firm that lays the foundation for its mission- "to" is a common word

to measure competitive advantage, we must

assess firm performance and benchmark to the industry average/other competitors

long tail

business model in which companies can obtain a large part of their revenues by selling a small number of units from among almost unlimited choices. selling less of more. online retailing with unlimited virtual shelf space

Porter's 4 part framework

framework for predicting competitive behavior. 1) competitors current strategy, 2) competitors objective, 3) competitors assumptions about the industry, 4) competitors resources and capabilities

The PESTEL Framework

categorizes and analyzes an important set of external forces (political, economic, sociocultural, technological, ecological, and legal) that might impinge upon a firm. these forces are embedded in the global environment and can create both opportunities and threats for the firm

strategic trade-offs

choices between a cost or value position. such choices are necessary because higher value tends to require higher cost

integration

combination of differentiation and cost leadership strategies. can work if investments are in complements rather than substitutes (spill over effects). goal of strategy is larger economic value than that of rivals pursuing differentiation and low cost

triple bottom line

combination of economic, social and ecological concerns that can lead to a sustainable strategy

realized strategy

combination of intended and emergent strategy

advantages of balanced scorecard

communicate and link the strategic vision to responsible parties within the organization, translate the vision into measurable operational goals, design and plan business processes, implement feedback and organizational learning in order to modify and adapt strategic goals when indicated

sustained competitive advantage

companies strategy enables it to maintain above average profitability over a prolonged period of time

first-mover advantages

competitive benefits that accrue to the successful innovator

good strategy

consists of analysis, formulation, and implementation

unrelated diversification strategy

corporate strategy in which a firm derives less than 70 percent of its revenues from a single business activity and there are few, if any, linkages among its businesses

related diversification strategy

corporate strategy in which a firm derives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity

geographic diversification strategy

corporate strategy in which a firm is active in several different countries

product diversification strategy

corporate strategy in which a firm is active in several different product markets

product-market diversification strategy

corporate strategy in which a firm is active in several different product markets and several different countries

cost-leadership strategy cost drivers

cost of input factors, economies of scale, learning-curve effects, experience-curve effects

external transaction costs

costs associated with economic exchanges. searching for a firm to contract with. negotiating and enforcing contracts

internal transaction costs

costs pertaining to organizing an exchange within a firm. recruiting and training employees, paying salaries, office space. administrative costs

differentiation

create higher value by delivering products/services with unique features

cost leadership

create similar value by delivering products/services at a lower cost and lower prices than competitors

resource stocks

current level of intangible resources

economies of scale

decreases in cost per unit as output increases

product oriented vision statements

defines a business in terms of good service provided. "to be the safest most progressive North American railroad." less flexible

customer oriented vision statements

defines a business in terms of providing solutions to customer needs. "we are in the business of providing solutions to professional communications needs." allows firms to adapt to changing environments

network effects

describe the positive effects that one user of a product or service has on the value of that product or service for other users. threat of potential entry is reduced when they are present. when present, value of the product or service increases with number of users

firm performance

determined not only by the industry to which the firm belongs, but also by its strategic group membership

limitations of economic value creation

determining the value of a good in the eyes of consumers is not simple. the value of a good in the eyes of consumers changes based on income, preferences, time, etc., to measure firm-level competitive advantage, the economic value created for all products/services offered by the firm must be assessed

economic value created

difference between value (v) and cost (c), or v-c; sometimes also called economic contribution

signaling

differentiation is only effective if it is communicated to consumers. not as important for search goods, which are good whose qualities can be ascertained via inspection. important for experience goods, which are goods whose qualities can only be ascertained after consumption (wine)

value (v)

dollar amount (v) a consumer would attach to a good or service; the consumer's maximum willingness to pay. reservation price

competitive industry structure

elements and features common to all industries, including the number and size of competitors in an industry, whether the firms possess some degree of pricing power, and the type of product or service the industry offers. perfect competition has lowest profit potential -> monopolistic competition -> oligopoly- > monopoly has highest profit potential

dynamic capabilities perspective

emphasizes a firm's ability to modify and leverage its resources based in a way that enables it to gain and sustain competitive advantage in a constantly changing environment

values

ethical standards/norms that govern the behavior of individuals within a firm

strategic leadership

executives' use of power and influence to direct assets in the pursuit of an organization's goals

VRIO framework

explains and predicts firm level competitive advantage. a firm can gain competitive advantage if it has resources that are valuable, rare, and costly to imitate (inimitable). the firm must also organize to capture the value of the resources

transaction cost economies

explains and predicts the boundaries of the firm, which is central to formulating a corporate strategy that is more likely to lead to competitive advantage

firm effects

firm performance attributed to the actions managers take

industry effects

firm performance attributed to the structure of industry in which the firm competes

game theory

helps describe and structure competitive situations. points to five aspects of strategic behavior: cooperation, deterrence, commitment, changing the structure of the game being played, signaling

functional strategy

how to implement a business strategy

isolating mechanisms

how to sustain a competitive advantage. barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy. 1) better expectations of future values. 2) path dependence. 3) casual ambiguity. 4) social complexity

the four I's

idea --> invention --> innovation --> imitation

industry analysis

identifies the industry's profit potential

black swan events

incidents that describe highly improbably but high-impact events. accounting scandal at Enron, 2008 financial crisis. two key points: managers actions can affect the economic wellbeing of countless people, effective stakeholder management is necessary to ensure continued survival and sustainable competitive advantage

diseconomies of scale

increases in cost per unit when output increases

risks of vertical integration

increasing costs due to lack of market competition, reducing quality, reducing flexibility, increasing the potential for legal repercussions (anti-trust)

switching costs

incurred by moving from one supplier to another

generic business strategies

independent of industry- can be used by an organization- manufacturing or service, large or small, for profit or non profit, public or private -in the quest for competitive advantage

shareholders

individuals or organizations who own one or more shares of stock in a public company

closed innovation

internal discovery, development and commercialization. fully capture returns, but costly. dominant during 20th century

industry life cycle

introduction -> growth -> shakeout -> maturity -> decline

resource flows

investments to maintain or build a resource

accounting profitability

one performance dimension. using accounting data (financial data and ratios derived from income statements and balance sheets); Enable us to conduct direct performance comparisons between different companies

razor-razor blade model

one type of business model. initial product is often sold at a loss or given away for free in order to drive demand for complementary goods. developed by Gillette

pay as you go model

one type of business model. only pay for what you consume. power, ZipCar

open innovation

leverages both internal ideas and inventions, and external ones. use licensing agreements, strategic alliances, joint ventures

strategic management process

method put in place by strategic leaders to conceive and implement a strategy, which can lay foundation for a sustainable competitive advantage

forward vertical integration

moving ownership of activities closer to the end consumer

backward vertical integration

moving ownership of activities upstream to the originating inputs of the value chain

process innovations

new ways to produce existing products or deliver existing services. product innovations --> process innovations

radical innovation

novel methods or materials serving new markets. mass production- Ford. X-ray

disruptive innovation

novel technologies serving existing markets from bottom up. digital photos, data storage

analysis

one element of a good strategy. diagnosis of the competitive advnatage

formulation

one element of a good strategy. guiding policy to address the competitive challenge

implementation

one element of a good strategy. set of coherent actions to implement the firm's guiding policy

better expectations of future values

one isolating mechanism. buy resources at a low cost. nike signing future mega-athletes early in their career (MJ). real estate development- highway expansion

causal ambiguity

one isolating mechanism. cause of success or failure is not apparent. why has apply had such a string of successful products?

path dependence

one isolating mechanism. current alternatives are limited by past decisions. QWERTY keyboard- in part, advantage is due to time needed to develop this dependence

social complexity

one isolating mechanism. two or more systems interact creating many possibilities. when combined configurations abound and are too complex to imitate

resource immobility

one major assumption of the resource based view. a firm has resources that tend to be "sticky" and don't move easily from firm to firm

resource heterogeneity

one major assumption of the resource based view. a firm is a bundle of resources and capabilities that differ across firms

where to compete

one of three dimensions of the firm defined by corporate strategy. determines geographic scope

range of products and services

one of three dimensions of the firm defined by corporate strategy. how much should we diversify?

industry value chain

one of three dimensions of the firm defined by corporate strategy. transformation of raw materials into finished goods. what stages to participate? determine vertical integration

economic value creation

one performance dimension. a firm has a competitive advantage when it creates more economic value than rival firms. measure of net profit after tax - cost of capital. the amount of total perceived consumer benefits equals the maximum willingness to pay

competitive parity

performance of two or more firms at the same level

differentiation strategy value drivers

product features, customer service, complements/bundling, differentiation by brand, differentiation by positioning

how to gain competitive advantage

provide either goods or services consumers value more highly than those of its competitors, or offer similar products at a lower price

value and cost drivers of integration strategy

quality, economies of scope, customization, innovation, structure, culture and routines

architectural innovation

reconfigure known components to create new markets. cannon user-friendly copiers. GPS to handheld consumer devices

crossing the chasm

related to the technology adoption lifecycle where five main segments are recognized: technology enthusiasts (2.5%), early adopters (13.5%), early majority (34%), late majority (34%) and laggards (16%). According to Moore, the marketer should focus on one group of customers at a time, using each group as a base for marketing to the next group

productivity frontier

relationship that captures the result of performing best practices at any given time; the function is concave (bulging outward) to capture the trade-off between value creation and production cost

two critical assumptions of resource based view

resource heterogeneity and resource immobility

mobility barriers

restricts movement between groups; industry-specific factors that separate one strategic group from another

total return to shareholders

return on risk capital that includes stock price appreciation plus dividends received over a specific period

pareto principle

roughly 80% of effects come from 20% of causes

focused cost leadership strategy

same as cost leadership except with a narrow focus on a niche market

focused differentiation strategy

same as differentiation except with narrow focus on niche market

direct competitors

same strategic group firms

economies of scope

savings that come from producing two or more outputs at less cost than producing each output individually, despite using the same resources and technology

benefits of vertical integration

securing critical supplies and distribution channels, lowering costs, improving quality, facilitating scheduling and planning, facilitating investments in specialized assets

strategic group

set of firms pursuing a similar strategy within a specific industry. differences identify business level strategies

resource allocation process

shapes what initiatives a firm funds

alternatives on the make or buy continuum

short-term contracts, strategic alliances, parent-subsidiary relationship

information asymmetries

situations in which one party is more informed than another, because of the possession of private information

resource based view

suggests that a company is a bundle of resources. resources as key to superior firm performance. helps to determine what a firm's core competencies are and whether a company's resources are truly valuable enough to serve as a basis for strategy. if resources and capabilities exhibit VRIO attributes, they become building blocks for gaining and sustaining competitive advantage

attractive industry

sustainable competitive advantage easier. high profit potential. weaker five forces

unattractive industry

sustainable competitive advantage harder. low profit potential and strong five forces

competitive intelligence

systematic collection and analysis of information about rivals for informing decision making. forecasts competitors future strategies and decisions, predicts competitors likely reactions to a firms strategic initiatives, determines how competitors behavior can be influenced to make it more favorable

stakeholder impact analysis

takes managers through a five-step process of recognizing stakeholders' claims. a stakeholder has: power over a company when it can get the company to do something it would not otherwise do, a legitimate claim when it is perceived to be legally valid or otherwise appropriate, an urgent claim when it requires a company's immediate attention and response

business strategy

the goal-directed actions managers take in their quest for competitive advantage when competing in a single market. cost leadership, differentiation, or integration. determines a firm's strategic position

efficient-market hypothesis

the idea that all available information about a firm's past, current state, and expected future performance is embedded in the stock price of the firm

strategic management

the integrative management filed that combines analysis, formulation, and implementation in the quest for competitive advantage

value chain analysis

the internal activities a firm engages in when transforming inputs into outputs. there are primary and support activities. each activity adds incremental value and associated costs

risk capital

the money provided by shareholders in exchange for an equity share in the company. cannot be recovered if the firm goes bankrupt

intended strategy

the outcome of a rational and structured top-down strategic plan

entreprenueurship

the process by which people undertake economic risk to innovate- to create new products, processes, and sometimes new organizations

strategic entrepreneurship

the pursuit of innovation using tools and concepts from strategic management

social entrepreneurship

the pursuit of social goals by using entrepreneurship. teach for america, TOMS

innovation

the successful introduction of a new product, process or business model

opportunity costs

the value of the best forgone alternative use of the resources employed

disadvantages of balanced scorecard

tool for strategy implementation, not strategy formulation. limited guidance about which metrics to choose. failure to achieve competitive advantage is not indicative of a poor framework but of strategic failure. managers must accurately translate their strategy into objectives that can be measured

business model

translation of strategy into action. how a firm intends to make money and conduct business. effective business models are formulated and implemented

competitive disadvantage

underperformance relative to other competitors in the same industry or industry average

core competencies

unique strengths, embedded deep within a firm, that allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost. amazon: largest selection of items online combined with great customer service. Netflix: proprietary algorithms to track individual customer preference

mission

what an organization does, including products, services, and which markets- "by" is a common word

corporate strategy

where to compete. industry, markets, and geography


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