BADM 449 Exam 1

Values

Commitments put in place to act both legally and ethically to pursue our vision and mission

Strategic Role of Complements

Complement § Product, service, or competency that adds value to the original product offering when the two are used in tandem § Increase demand for the primary product, thereby enhancing the profit potential for the industry and the firm Complementor § A company that provides a good or service that leads customers to value your firm's offering more when the two are combined Co-opetition § Cooperation by competitors to achieve a strategic objective

Power of Buyers

Concerns the pressure an industry's customers can put on the producer's margins in the industry by demanding a lower price or higher product quality. High When: · There are few buyers and each buyer purchases large quantities relative to the size of a single seller · The industry's products are standardized or undifferentiated commodities · Buyers face low or no switching costs · Buyers can credibly threaten to backwardly integrate into the market

Business Strategy

Concerns the question of how to compete. Three generic business business strategies are available: Cost Leadership, differentiation, or value innovation

Functional Strategy

Concerns the question of how to implement a chosen business strategy. Within each strategic business unit are various business functions Accounting, finance, resources, etc.

Fragmented Industry

Consists of many small firms and tends to generate low profitability

Product Oriented Vision Statements

Constrains adaptability. Defines a business in terms of a good or service provided Force managers to take a more myopic view of the competitive landscape

Exit Barriers

Obstacles that determine how easily a firm can leave the industry comprised of both economic and social factors. They include fixed costs that must be paid regardless of whether the company is operating in the industry or not. Social factors include elements such as emotional attachment to certain geographical locations

Legal (PESTEL)

Official outcomes of political processes as manifested in laws, mandates, regulations, and court decision

Implementation (I)

Organizational Design Structure, Culture, Control Corporate governance and Business Ethics

Capabilities

Organizational and managerial skills necessary to orchestrate a diverse set of resources and deploy them strategically

Stakeholders

Organizations, groups, and individuals that can affect or are affected by firm's actions

What are the 3 Elements of Good Strategy?

1. A Diagnosis of competitive Challenge. Accomplished through analysis of the firm's external and internal environment 2. A Guiding Policy to address the competitive challenge. Accomplished through strategy formulation. Results in the firm's corporate business, and functional strategy 3. A set of coherent actions to implement the firm's guiding policy. Accomplished through strategy implementation

Perfect Competition

1. Perfect Competition a. Fragmented and has many small firms b. Commodity product c. Ease of entry d. Little or no ability for each individual firm to raise its prices e. Firms have similar size and access to resources f. Consumers make purchasing decisions solely on price g. Difficult to achieve any form of competitive advantage even temporary h. Cut-Throat Competition ensues i. This occurs when companies sell products below cost

How does stakeholder management benefit firm performance?

1. Satisfied stakeholders are more cooperative and thus more likely to reveal information that can further increase firm value 2. Increased trust lowers cost for firm's business transactions 3. Greater organizational adaptability/flexibility 4. Likelihood of negative outcomes can be reduced, creating more predictable and stable returns 5.. Firms can build stronger reputations

Economic (PESTEL)

5 Macroeconomic considerations 1. Growth Rates 2. Levels of Employment 3. Interest Rates 4. Price Stability 5. Currency Exchange Rates

Dynamic Capabilities Perspective

A model that emphasizes a firm's ability to modify and leverage its resource base in a way that enables it to gain and sustain competitive advantage in a constantly changing environment

Level 5- Leadership Period

A conceptual framework of leadership progression with five distinct Level 1- Highly Capable Individual. Makes productive contributions through motivation, talent, knowledge, and skills Level 2- Contributing Team Member. Uses high level of individual capability to work effectively with others in order to achieve team objectives Level 3-Competent Manager. Is efficient and effective in organizing resources to accomplish stated goals and objectives Level 4- Effective Leader. Presents compelling vision and mission to guide groups toward superior performance. Does the right things. Level 5- Executive. Builds enduring greatness through a combination of willpower and humilty

Upper- Echelons Theory

A conceptual framework that views organizational outcomes—strategic choices and performance levels—as reflections of the values of the members of the top management team. Answers question How do you become strategic leader? Lens of unique perspective through personal circumstances, values, experiences Innate abilities and learning

Stakeholder Impact Analysis

A decision tool with which managers can recognize, prioritize, and address the needs of different stakeholders, enabling the firm to achieve competitive advantage while acting as a good corporate citizen

Dynamic Capabilities

A firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in the quest for competitive advantage.

Strategic position

A firm's strategic profile based on differences between value creation and cost (V-C)

Core Rigidity

A former core competency that turned into a liability because the firm failed to hone, redefine, and upgrade the competency as the environment changed. Competency is no longer a good fit with the external environment.

Strategic Group Model

A framework that explains differences in firm performance within the same industry. Rivalry among firms in the same strategic group is more intense than the rivalry among strategic groups

Corporate Social Responsibility Framework

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 time Pyramid Levels Philanthropic Ethical Legal Economic

Michael Porter's Five Forces Model

A framework that identifies five forces that determine the profit potential of an industry and shape a firm's competitive strategy Two Key insights Rather than defining competition narrowly as the firm's closest competitors to explain/predict firm performance. Competition must be viewed more broadly (Buyers, Suppliers, Potential new entry of firms, Threat of Substitutes)

Industry

A group of incumbent companies that face more or less the same set of suppliers and buyers

Industry analysis

A method to identify an industry's profit potential. Derive implications for a firm's strategic position within an industry

AFI Framework

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

The resource Based View

A model that sees certain types of resources as key to superior firm performance. Assumptions: 1.Resource Heterogeneity- Comes from the insight that bundles of resources, capabilities, and competencies differ across firms. Exists so that analysts look at the resource bundles of firms competing in the same industry 2. Resource Immobility- Describes the insight that resources tend to be "sticky" and don't move easily from firm to firm. Resource differences between firms are difficult to replicate and therefore can last for a long time

Better expectation of future resource value (Barriers to Imitation)

A prediction of future value that allows firm to gain a competitive advantage by having better understanding of value than competitors.

Industry Convergence

A process whereby formerly unrelated industries begin to satisfy the same customer needs

Top-Down Strategic Planning

A rational data driven strategy process through which top management attempts to program future success Concentrated in office of CFO Provide detailed analysis of internal and external data to apply it to quantifiable areas Works best when environment does not change much Shortcomings Information only flows one way (top down) Cannot see the future (visions of the future from executives can be wrong) § Where Best Used · Highly regulated and stable industries

strategy

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

Social Complexity

A situation in which different social and business systems interact with one another. Emerges when two or more systems are combined. Very difficult for competitors

Casual Ambiguity

A situation in which the cause and effect of a phenomenon are not readily apparent. Makes it difficult for others seeking to copy a valuable resource, capability, or competency

Path Dependence

A situation in which the options one faces in the current situation are limited by decisions made in the past

Strategic Business Unit

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

Vision

A statement about what an organization ultimately wants to accomplish: It captures the company's aspirations

Strategic Commitments

Actions to achieve the mission that are costly and long-term oriented and difficult to reverse. When firms make strategic commitments, rivalry will become more intense

Customer-Oriented Vision Statements

Allow companies to adapt to changing environments Defines a business in terms of providing solutions to customer needs

VRIO Framework

Answers the question of what resource attributes underpin competitive advantage. (V)aluable - If no, competitive disadvantage. A resource is valuable if it helps a firm exploit an external opportunity or offer an external threat (R)are- If no, competitive parity. A resource is rare if the number of firms that possess it is less than the number of firms it would reuire to reach a state of perfect competition ICostly to (I)mitate- if no, temporary competitive advantage. A resource is costly to imitate if firms that do not possess the resource are unable to develop or buy the resource at a comparable cost (O)rganized to Capture the value of the resource. If no, temporary competitive advantage. The characteristics of having in place an effective organizational structure processes and systems to fully exploit competitive potential of firm's resources, capabiities, and competencies

Strategic initiative

Any activity a firm pursues to explore and develop new products and processes, new markets, or new ventures

Resources

Any assets that a firm can draw on when formulating and implementing strategy

Serendipity (Strategy of Planned Emergence)

Any random events pleasant surprises, and accidental occurrences that can have a profound effect on a firm's strategic initiatives

Isolating Mechanisms (Barriers to Imitation)

Barriers to imitation that prevent rivals from competing away a competitive advantage

Ecological (PESTEL)

Broad environment issues No longer can firms separate the natural and business worlds

Other Effects

Business Cycle Effects 25% of firm's performance

Formulation (F)

Business Strategy, Differentiation, Cost Leadership, and Blue Oceans Corporate Strategy Vertical integration, Diversification, Strategic Alliances, M&A, Global Strategy Competing Around the World

Technological (PESTEL)

Capture the application of knowledge to create new processes and products Firms are constantly tracking technological trends as a result of potential increases in demands of their products

Power of Suppliers

Captures pressures that industry suppliers can exert on an industry's profit potential. Reduce's a firms ability to obtain superiority by raising prices or reducing quality of inputs. Power of Suppliers capture economic value creation Power of suppliers is high when: · Suppliers' industry is more concentrated than the industry it sells to · Suppliers do not depend heavily on the industry for their revenues · Incumbent firms face significant switching costs when changing suppliers · Suppliers offer products that are differentiated · There are no readily available substitutes for the products or services that suppliers offer · Suppliers can credibly threaten to forward integrate into the industry

Sociocultural (PESTEL)

Captures socieities cultures, norms, and values Demographic Trends important to consider (age, gender, sex, family size)

Rivalry among existing competitors

Describes an intensity with which companies within the same industry jockey for market share and profitability. Ranges from genteel to cut-throat. Other four forces all exert pressure upon this rivalry in a linear way (stronger forces strong rivalry). The intensity of rivalry is determined in part as well by: Competitive industry structure, industry growth, strategic commitments, exit barriers · High When o There are many competitors in the industry o Competitors are roughly of equal size o Industry growth is slow, zero, or even negative o Exit barriers are high o Incumbent firms are highly committed to the business o Incumbent firms cannot read or understand each other's strategies well o Products and services are direct substitutes o Fixed costs are high and marginal costs are low o Excess capacity exists in the industry o The product or service is perishable

Threat of Entry (MP Five Forces)

Describes the risk that potential competitors will enter the industry. Depresses industry profit potential in two ways Firms may lower prices to make entry appear less attractive to the potential new competitors Firms may have to spend more money to satisfy their existing customers High When: o Minimum efficient scale to compete in an industry is low o Network effects are not present o Customer switching costs are low o Capital Requirements are low o Incumbents do not possess § Brand loyalty § Proprietary technology § Preferential access to raw materials § Preferential access to distribution channels § Favorable geographic locations § Cumulative learning and experience effects o Restrictive government regulations do not exist o New entrants expect that incumbents will not or cannot retaliate

Mission

Description of what an organization actually does- the products and services it plans to provide, and the markets in which it will compete How do we accomplish our vision?

Activities

Distinct and fine-grained business processes that enable firms to add incremental value by transforming inputs into goods and services

Consolidated Industry

Dominated by a few firms or even just one firm and has the potential to be highly profitable

Competitive Industry Structure

Elements and features common to all industries including the number and size of competitors, the firms degree of pricing power, the type of product or service offered and the height of entry barriers. The structure of an industry is captured by: · The number and size of its competitors · The firms' degree of pricing power · The type of product or service (commodity or differentiated product) · The height of entry barriers

Legal Responsibilities of a firm

Minimum acceptable standards of firm behavior Managers must ensure that their firm obey all the laws and regulations including but not limited to: Labor, Consumer protection, Environmental Laws

Organizational Core Values

Ethical standards and norms that govern the behavior of individuals within a firm or organization Ethical Vales have two important functions 1. Lay a solid foundation on which a firm can build its vision and mission, thus long-term success 2. Values serve as the guardrails put in place to keep the company on track when pursuing its vision and mission in its quest for competitive advantage

Strategic Leadership

Executives use of power and influence to direct the activities of others when pursuing an organization's goals. Additionally, executives whose vision and actions enable their organizations to achieve competitive advantage demonstrate strategic leadership

Firm Effects

Firm performance attributed to the actions managers take Can explain up to 55% of firm performance

Industry Effects

Firm performance attributed to the structure of the industry in which the firm competes 20% of firm success

PESTEL Framework

Helps to scan, monitor, and evaluate the important external factors and trends that might impinge upon a firm Political Economic Social Technological Environmental Legal

Five-Steps of Stakeholder Impact Analysis

Important to note managers must pay particular attention to three important stakeholder attributes: Power, legitimacy, urgency Stakeholder has power over a company when it can get the firm to do something it otherwise wouldn't A stakeholder has a legitimate claim when it is perceived to be legally valid or otherwise appropriate A stakeholder has an urgent claim when it requires a company's immediate attention and response 1. Identify Stakeholders 2. Identify Stakeholder Interests 3. What opportunities/threats do our stakeholders present 4. What economic, legal, ethical, and philanthropic responsibilities do we owe our stakeholders 5. What should we do to effectively address stakeholder concerns?

Mobility Barriers

Industry specific factors that separate one strategic group from another

Time impression diseconomies

Inefficiencies when things are done fast. Learning and improvement must take place over time

Stakeholder Strategy

Integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage. They allow firms to analyze and manage how various internal/external stakeholders interact to jointly create and trade value

Internal Stakeholders Versus External Stakeholders

Internal- Stockholders, Employees, Bondholders External- Customers, suppliers, alliance partners, creditors, unions, communities, governments at various levels, and media

Economic Responsibility of Firm

Investors expect adequate return for capital Creditors expect firm to repay debt Suppliers expect to be paid in full Governments expect firm to pay taxes and manage natural resources

Barriers to Entry

Obstacles that determine how easily a firm can enter an industry and often significantly predict industry profit potential. Barriers include: Economies of scale, Network Effects, Customer Switching Costs, Capital Requirements, Advantages independent of size, Government Policy, Credible Threat of Retaliation

Ethical Responsibilities of a firm

Managers desires should go beyond legal responsibilities. Firm is called upon to do what society deems just and fair. Embody the full scope of expectations, norms, and values of its stakeholders

Strategic Management Process

Method put in place by strategic leaders to formulate and implement a strategy which can lay the foundation for a sustainable competitive advantage

Sustainable Competitive Advantage

Outperforming competitors or the industry average over a prolonged period of time

Threat of Substitutes

Products or services available from outside the given industry will come close to meeting the needs of current customers. High When: · The substitute offers an attractive price-performance trade off · The buyers' cost of switching to the substitute is low

Pros/Cons of Top-Down Strategic Management Process

Pros: · Provides a clear strategy process and lines of communication · Affords coordination and control of various business activities · Readily accepted and understood as process is well established and widely used · Works relatively well in stable environments Cons: · Fairly rigid and inhibits flexibility · Top-down, one-way communication limits feedback · Assumes that the future can usually be predicted on past data · Separates elements of AFI framework so that top management (analysis and formulation) are removed from line employees (implementation)

Political (PESTEL)

Results from the processes and actions of government bodies that can influence the decisions and behavior of the firm

Core Values Statement

Statements of principles to guide an organization as it works to achieve its vision and fulfill its mission, for both internal conduct and external interactions, it often includes explicit ethical considerations

Strategy as Planned Emergence

Strategy process in which organizational structure and systems allow bottoms up strategic initiatives to emerge and be evaluated and coordinated by top management Utilizes Three concepts: 1. Autonomous Actions 2. Serendipity 3. Resource-Allocation Process (RAP) Best Used New Ventures and smaller firms High velocity industries such as technology

Scenario Planning

Strategy-planning activity in which top management envisions different what if scenarios to anticipate plausible futures in order to derive strategic responses Addresses both optimistic and pessimistic scenarios § Where Best Used · Fairly stable industries, often characterized by some degree of regulation

Competitive Advantage

Superior performance relative to other competitors in the same industry or industry average. It is always relative and not absolute.

Resource Stocks

The firm's current level of intangible resources

Philanthropic Responsibilities

The idea of corporate citizenship reflects the notion of voluntarily giving back to society

Strategic Management

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

Strategy Formulation

The part of the strategic management process that concerns the choice of strategy in terms of where and how to compete

Strategy Implementation

The part of the strategic management process that concerns the organization, coordination, and integration of how work gets done or strategy execution

Strategic Group

The set of companies that pursue a similar strategy within a specific industry

resource-allocation process (RAP)

The way a firm allocates its resources based on predetermined policies which can be critical on its realized strategy

Monopoly

a. When there is only one firm in the industry b. Offers a unique product and the challenges to moving into the industry tend to be high c. Considerable price power d. Firm/Industry profit is high e. Natural Monopolies i. Incentivized company engaging in a venture that would not be profitable if there were more than one supplier f. Near Monopolies i. Firms that have accrued significant market power by owning valuable patents or proprietary technology ii. Changes the industry structure in their favor from monopolistic competition or oligopolies to near monopolies

Competitive Parity

Two or more firms performing at the same level

Core Competencies

Unique strengths that are embedded within a firm. Allow a firm to differentiate its products or services from those of rivals. Developed from their interplay of resources and capabilities.

Economic Value

Value-Cost

Monopolistic Competition

a. Many firms b. Differentiated product c. Some obstacles to entry d. Ability to raise prices for a relatively unique product while retaining customers e. The key to understanding this industry structure is that the firms now offer products or services with unique features f. Firms frequently communicate the degree of product differentiation through advertising

Analysis (AFI)

What is strategy? External Analysis: Industry structure, Competitive Forces, and Strategic Groups Internal Analysis Resources, Capabilities, and Core Competencies Competitive Advantage, Firm Performance, and Business Models

Ripple Effect on Supply Chain

When one major player in an industry shuts down, its suppliers are adversely impacted as well

Oligopoly

a. Consolidated with a few large firms b. Differentiated products c. High barriers to entry d. Some degree of price power i. Depends on the degree of product differentiation e. Competing firms are independent f. Actions of one firm influence the behaviors of the others g. Have incentives to coordinate their strategic actions to maximize joint performance h. Non-price competition is the preferred mode of competition

Autonomous Actions (Strategies of Planned Emergence)

strategic initiatives undertaken by lower-level employees on their own volition and often in response to unexpected situations

dominant strategic plan

the strategic option that top managers decide most closely matches the current reality and which is then executed

Pros/Cons of Scenario Planning Strategic Management

§ Pros · Provides a clear strategy process and lines of communication · Affords coordination and control of various business activities · Readily accepted and understood as process is well established and widely used · Provides some strategic flexibility § Cons · Top-down, one-way communication limits feedback · Separates elements of AFI framework so that top management (Analysis & Formulation) are removed from line employees (implementation) · As the future is unknown, responses to all possible events cannot be planned · Leaders tend to avoid planning for pessimistic

Pros/Cons of Strategy of Planned Emergence

· Pros o Combines all elements of AFI framework in a holistic and flexible fashion o Provides provisional direction through intended strategy o Accounts for unrealized strategy (not all strategic initiatives can be implemented) o Accounts for emergent strategy (good ideas for strategic initiatives can bubble up from lower levels of hierarchy through autonomous actions, serendipity, and RAP) o The firm's realized strategy is a combination of intended and emergent strategy o Highest degree of strategic flexibility and buy-in by employees · Cons o Unclear strategy process and lines of communication can tend to employee confusion and lack of focus o Many ideas that bubble up from the bottom may not be worth pursuing o Firms may lack a clear process of how to evaluate emergent strategy, increasing the chances of missing mega opportunities or pursuing dead ends, may also contribute to employee frustration and lower morale