Strategic Management: Study Guide MGMT3013

The Global Economy and Technological Changes. What are they? How they are altering the strategic landscapes? What is technological diffusion?

- A global economy is one in which goods, services, people, skills, and ideas move freely across geographic borders. - Technology-related trends and conditions can be placed into three categories: technology diffusion and disruptive technologies, the information age, and increasing knowledge intensity. - The rate of technology diffusion is the speed at which new technologies become available and are used. - Perpetual innovation is a term used to describe how rapidly and consistently new, information-intensive technologies replace older ones.

What are the key steps and requirements in implementing cost leadership and differentiation strategies?

Involves engaging in primary value-chain activities and support functions that allows a firm to simultaneously pursue low cost and differentiation

You should know management's responsibilities for managing the firm's resource portfolio.

Exploiting and Maintaining Core Competencies - Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals. - Strategic leaders must verify that the firm's core competencies are understood when selecting strategies and then emphasized when implementing those strategies.Developing Human Capital and Social Capital- Human capital refers to the knowledge and skills of a firm's entire workforce. - Social capital involves relationships inside and outside the firm that help in efforts to accomplish tasks and create value for stakeholders

You should know what are the building blocks of a business level strategy (aka generic strategy): Which customers we will serve? What needs of the target customers will be served? And how will those needs be served?

Look outside to identify threats and opportunities Look inside at resources, capabilities, and practices Consider strategies for addressing threats and opportunities Being a good "fit" among strategy-supporting activities Create alignment

What are the different ways that companies can differentiate themselves? What are the key steps in developing a differentiation strategy?

Ways to differentiate: - Products that have different, valued features that are sold at a premium price. - Differentiate the products along as many dimensions as possible. - Less product similarity helps insulate company from competition with rivals. Differentiation strategy: is an integrated set of actions taken to produce goods or services (at at an acceptable cost) that customers perceive as being different in ways that are important to them.

What is strategy and what are its characteristics?

- A set of decisions and actions of a firm managers to ensure the future success of the firm/ an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage - focuses on the future - focuses on success which is generally (but not always) measured through financial performance measured in the short run and long run.

What are strategic groups? How are they useful?

- A strategic group is a set of firms emphasizing similar strategic dimensions and using a similar strategy. - The notion of strategic groups can be useful for analyzing an industry's competitive structure. Such analyses can be helpful in diagnosing competition, positioning, and the profitability of firms competing within an industry.

Understand why heterogeneous top management teams are viewed as the most successful.

- A top management team is composed of the individuals who are responsible for making certain the firm uses the strategic management process, especially for the purpose of selecting and implementing strategies. - A heterogeneous top management team is composed of individuals with different functional backgrounds, experience, and education. - They are the most successful due to different point of views, backgrounds, and experience which allows them to be well-rounded

What is an industry? What are industry boundaries? Why is defining them important? How should strategic managers deal with changing industry boundaries?

- An industry is a group of firms producing products that are close substitutes. - First, it helps executives determine the arena in which their firm is competing. Second, a definition of industry boundaries focuses attention on the firm's competitors. Defining industry boundaries enables the firm to identify its competitors and producers of substitute products. Third, a definition of industry boundaries helps executives determine key factors for success. Finally, a definition of industry boundaries gives executives another basis on which to evaluate their firm's goals.

You should know why competitive advantage may (or may not) diminish over time?

- As the market changes, if you don't change your strategy, something that was a competitive advantage may not stay one

How are resources, capabilities, and core competencies related to each other? How does the VRIO framework apply to them?

- Resources are combined to make capabilities. Those capabilities serve as a competitive advantage, which are called core competencies. - is an internal analysis tool, used by organizations to categorize their resources based on whether they hold certain traits outlined in the framework. This categorization then allows organizations to identify the company resources that are competitive advantages.

You should know what is meant by entry tickets and core rigidities? Why are they important for strategic managers?

- Entry tickets: valuable and non-substitutable capabilities - Refers to those competencies that a firm must necessarily have to survive in the industry. For a firm to have at least average returns it must possess all entry tickets relevant to an industry. - Core competencies - A large set of competencies that firms may possess (they are unique, valuable and imperfectly imitable. - No one core competency can be possessed by all firms. - For a firm to have super-normal profits, a firm must posses some core competencies. - Core rigidities: former core competencies that now generate inertia and stifle innovation. - These things are important for strategic managers because they need to know all of these to create the proper strategy for their company.

Understand the relationship between Top Management Team Composition and the Managerial Labor Market (Fig. 12-3)

- Homogeneous & Internal CEO Succession= STABLE STRATEGY -Homogeneous & External CEO Succession= Ambiguous: possible change in top mgmt team and strategy -Heterogeneous & Internal CEO Succession= STABLE STRATEGY WITH INNOVATION -Heterogeneous & External CEO Succession= Strategic Change

Know the Five Forces Model? What are its key objectives? What factors affect the intensity of each force?

- If all five forces are favorable (intensity is low) then the industry is profitable. if even one force is adverse then the industry is not very profitable. - Examine current and future profitability of the industry - examine the likely force intensity in a few yearsVariety of factors influence the intensity of each force: - examine which factors are relevant - examine each relevant factor for he impact on a given force today and how its influence on the force may alter in a few yrs.

You should know the key elements of the Resource Based Model. What are resources, capabilities and core competencies?

- Resources are inputs to the firm's production process - The firm combines individual tangible and intangible resources to create capabilities - Capabilities are used to complete the organizational tasks required to produce, distribute, and service the goods or services the firm provides to customers for the purpose of creating value for them. - Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals.

How do the different strategies help companies deal with adverse conditions such as high bargaining power of suppliers and other factors discussed in the text?

- Some buyers attempt to manage or reduce suppliers' power by developing a long-term relationship with them. Although long-term arrangements reduce buyer power, they also increase the suppliers' incentive to be helpful and cooperative in appreciation of the longer-term relationship (guaranteed sales). This is especially true when the partners develop trust in one another. - Increasing prices and reducing the quality of their products are potential means sup-pliers use to exert power over firms competing within an industry. - To reduce their costs, buyers bargain for higher quality, greater levels of service, and lower prices. These outcomes are achieved by encouraging competitive battles among the industry's firms. - Consumers armed with greater amounts of information about the manufacturer's costs and the power of the Internet as a shopping and distribution alternative have increased bargaining power in many industries.

Know the difference between tangible and intangible resources.

- Tangible resources are assets that can be observed and quantified. - Intangible resources are assets that are rooted deeply in the firm's history, accumulate over time, and are relatively difficult for competitors to analyze and imitate.

What are the criticisms of the IO Model?

- The external environment imposes pressures and constraints that determine strategic choices - Similarity in strategically relevant resources causes competitors to pursue similar strategies - Resource differences among competitors are short-lived due to resource mobility across firms -Strategic decision makers are rational and engage in profit-maximizing behaviors

What are the components of the General Environment?

- The general environment is composed of dimensions in the broader society that influence an industry and the firms within it. - Demographic, Economic, Political/Legal, Sociocultural, Technological, Global, and Sustainable Physical Environment

You should know the concepts of reach, richness, and affiliation.

- The reach dimension of relationships with customers is concerned with the firm's access and connection to customers. - Richness, the second dimension of firms' relationships with customers, is concerned with the depth and detail of the two-way flow of information between the firm and the customer. - Affiliation, the third dimension, is concerned with facilitating useful interactions with customers.

What are strategic leaders? What is their role?

- are people located in different areas and levels of the firm using the strategic management process to select strategic actions that help the firm achieve its vision and fulfill its mission - Regardless of their location in the firm, successful strategic leaders are decisive, committed to nurturing those around them, and committed to helping the firm create value for all stakeholder groups. Ex. CEOs

What are stakeholders? Why are they important? What role do they play in strategic management?

- are the individuals, groups and organizations that can affect the firm's vision and mission, are affected by the strategic outcomes achieved, and have enforceable claims on the firm's performance i. Capital Market Stakeholders- Shareholders- Major suppliers of capital ii. Product Market Stakeholders- Primary customers- Suppliers- Host Communities- Unions iii. Organizational Stakeholders- Employees- Managers- Non-managers - Stakeholders continue to support an organization when its performance meets or exceeds their expectations.108 Also, research suggests that firms that effectively manage stakeholder relationships outperform those that do not. Stakeholder relationships and the firm's overall reputation among stakeholders can therefore be a source of competitive advantage

Difference between corporate and business strategy.

- focuses on how to attain and satisfy customers, offer goods and services that meet their needs, and increase operating profits. To do this, business-level strategy focuses on positioning itself against competitors and staying up to date on market trends and technology changes (ex: Pepsico: is in the beverage, fast food, and snack food industries - seeks to make a set of business units more than the sum of its parts. It can do this by developing relationships between business units, which allows them to share resources and avoid duplication of efforts.(ex: Pepsico: given competition in the beverage industry how they should compete with Coke or Snapple

You should know what is meant by Value Chain Analysis, what are its key elements, and how it is related to strategic activities like outsourcing.

- is a process where a firm identifies its primary and support activities that add value to its final product and then analyze these activities to reduce costs or increase differentiation. Key Elements: - Supply-Chain Management: Activities including sourcing, procurement, conversion, and logistics management that are necessary for the firm to receive raw materials and convert them into final products - Operations: Activities necessary to efficiently change raw materials into finished products. Developing employees' work schedules, designing production processes and physical layout of the operations' facilities, determining production capacity needs, and selecting and maintaining production equipment are examples of specific operations activities. - Distribution: Activities related to getting the final product to the customer. Efficiently handling customers' orders, choosing the optimal delivery channel, and working with the finance support function to arrange for customers' payments for delivered goods are examples of these activities. - Marketing & Sales: Activities taken for the purpose of segmenting target customers on the basis of their unique needs, satisfying customers' needs, retaining customers, and locating additional customers. Advertising campaigns, developing and managing product brands, determining appropriate pricing strategies, and training and supporting a sales force are specific examples of these activities. - Follow-Up Service: Activities taken to increase a product's value for customers. Surveys to receive feedback about the customer's satisfaction, offering technical support after the sale, and fully complying with a product's warranty are examples of these activities. - is the purchase of a value-creating activity or a support function activity from an external supplier

What is knowledge intensity? How has it affected businesses and decision making in businesses?

- is the basis of technology and its application. In the competitive landscape of the twenty-first century, knowledge is a critical organizational resource and an increasingly valuable source of competitive advantage - An increase in intangible resources (Knowledge) increases shareholder value and helps the firm achieve strategic competitiveness (an advantage in the industrial environment)

Make sure you know what is meant by above average returns.

- returns in excess of what an investor expects to earn from other investments with a similar amount of risk

Understand the perspectives and criteria of the balanced scorecard concept.

-a framework used to verify that the firm has established both strategic and financial controls to asses its performance -prevents overemphasis of financial controls at the expense of strategic controls Four perspectives of the balanced scorecard: -financial: cash flow, return on equity, return on assets. -customer: assessment of ability to anticipate customers needs, effectiveness of customer service, % of repeat business, quality of communications with customers -Internal business process: asset utilization improvements, improvements in employee morale, changes in turnover rates factors -learning and growth: improvements in innovation ability, number of new products compared to competitors, increases in employees skills

You should know and be able to describe the different generic business level strategies? Cost Leadership, Differentiation, Focused-low cost, Focused differentiation, stuck in the middle, and integrated cost differentiation strategies. What are the risks of these strategies?

Cost Leadership Risks - Loss of competitive advantage to new technologies - Too much focus on cost reductions may occur at expense of customers' perceptions of differentiation - Competitors may successfully imitate the cost leader's strategy Focus Risks - A focusing firm may be "out-focused" by its competitors - A large competitor might set its sights on a firm's niche market - Customer preferences in a niche market may change to more closely resemble those of a broader market Differentiation Risks - The price differential between the differentiators' product and the cost leader's product becomes too large - Differentiation ceases to provide value for what the customer is willing to pay - Experience narrows customers' perceptions of the value and differentiated features - Counterfeit goods replicate the differentiated features of the firm's products

Be sure to know the difference between cost and price from a strategic management perspective.

Cost: the amount of money that a firm pays to deliver products or services to the customer. Price: what the customer pays to obtain the product/service

Make sure you understand who the members of an industry are, who are its buyers and suppliers.

Customers: The set of entities who buy the products of the said industry. EX: consumers, rental agencies, retailers Suppliers: set of firms that supplies raw materials the the industry EX: Steel, cotton

What are the different forms of imitation?

Direct imitation Bells and whistles - These are additions to the product/serviceStripping - Ex. Online bankingSubstitution - Ex. Kodak used to dominate film/photography firm. Competitors was Polaroid and they gave instant photos. Kodak's response to this was quick service system, getting photos developed while you're shopping

What does competitor analysis mean? What are its key elements?

How companies gather and interpret information about their competitors Future Objectives Current Strategy Assumptions Capabilities = Response

Know the key elements of the IO Model. (Industry definitions, General environment, and 5 forces model).

The I/O (Industrial Organization) Model adopts an external perspective to explain that forces outside of the organization represent the dominate influences on a firm's strategic actions.The general environment is composed of dimensions in the broader society that influence an industry and the firms within it.The industry environment is the set of factors that directly influences a firm and its competitive actions and responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competing firms.The demographic segment is concerned with a population's size, age structure, geographic distribution, ethnic mix, and income distributionThe economic environment refers to the nature and direction of the economy in which a firm competes or may compete.The political/legal segment is the arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding interactions among nations as well as between firms and various local governmental agencies.The sociocultural segment is concerned with a society's attitudes and cultural values.The technological segment includes the institutions and activities involved in creating new knowledge and translating that knowledge into new outputs, products, processes, and materials.The global segment includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets.The sustainable physical environment segment refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to those changes with the intent of creating a sustainable environment.

Understand the definition of corporate culture and the importance of maintaining an effective organizational culture. Be familiar with the balanced scorecard concept.

The balanced scorecard is a tool firms use to determine if they are achieving an appropriate balance when using strategic and financial controls as a means of positively influencing performance. - Financial (growth, profitability, and risk from the shareholders' perspective) - Customer (amount of value customers perceive was created by the firm's products) - Internal Business Processes (focus on the priorities for various business processes that create customer and shareholder satisfaction) - Learning and Growth (firm's effort to create a climate that supports change, innovation, and growth) Organizational culture as the complex set of ideologies, symbols, and core values that are shared throughout the firm and that influence how the firm conducts business. Corporate culture refers to the beliefs and behaviors that determine how a company's employees and management interact and handle outside business transactions.