BUS345 Exam Review

Social complexity

A situation in which different social and business systems interact with one another

Groupthink

A situation in which opinions coalesce around a leader without individuals critically challenging and evaluating that leader's opinions and assumptions.

Causal ambiguity

A situation in which the cause and effect of a phenomenon are not readily apparent.

Path dependence

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

Explicit knowledge

Knowldge that can be codified (e.g., information, facts, instructions, recipes); concerns knowing about a process or product.

Managerial hubris

A form of self-delusion, in which managers convince themselves of their superior skills in the face of clear evidence to the contrary.

Licensing

A form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property

Realized strategy

A combination of intended and emergent strategy

Multinational enterprise (MNE)

A company that deploys resources and capabilities in the procurement, product, and distribution of goods and services in at least two countries.

Complementor

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

Level-5 leadership pyramid

A conceptual framework of leadership progression with five distinct, sequential levels.

Upper-echlons theory

A conceptual framework that states that it's the top management team that primarily determines the success or failure of an organization through the strategies they pursue.

Boston Consulting Group (BCG) 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 mark), each of which warrants a different investment strategy.

Stakeholder impact analysis

A decision tool with which managers can recognize, assess, and address the needs of different stakeholders, to allow the firm to perform optimally and act as a good corporate citizen.

Alliance management capability

A firm's ability to effectively manage three alliance-related tasks concurrently: (1) partner selection and alliance formation, (2) alliance design and governance (3) post-formation alliance management

Absorptive capacity

A firm's ability to understand, evaluate, and integrate external technology developments.

Foreign direct investment (FDI)

A firm's investments in value-chain activities abroad.

Strategic position

A firm's strategic profile based on value creation and cost. The goal is to create as large a gap as possible between the value the firm's product or service creates and the cost required to produce it (V - C)

Porter's five forces model

A framework proposed by Michael Porter that identifies five forces that determine the profit potential of an industry and shape a firm's competitive strategy. Threat of new entrants: Bargaining power of buyers: Threat of substitute products or services: Bargaining power of suppliers: Rivalry among existing competitors: is strongest between firms in the same strategic group

SWOT analysis

A framework that allows managers to synthesize insights obtained from an internal analysis of the company's strengths and weaknesses (S and W) with those from an analysis of external opportunities and threats (O and T)

PESTEL Framework

A framework that 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. Political: actions by governmental bodies that can influence the decisions and behavior of firms. Economic: need to consider 5 factors that can affect firm strategy: Growth rates, Interest rates, Levels of employment, Price stability (inflation and deflation), and Currency exchange rates Sociocultural: Includes culture and demographic information. Technological: captures the application of knowledge to create new processes and products. Ecological: concerns broad environmental issues such as the natural environment, global warming, and sustainable economic growth Legal: captures the official outcomes of the political processes as manifested in laws, mandates, regulations, and court decisions.

Structure-conduct-performance (SCP) model

A framework that explains differences in industry performance. It identifies four different industry types: (1) Perfect competition, (2) Monopolistic competition, (3) Oligopoly, (4) Monopoly. Fragmented industries tend to be less profitable than consolidated ones.

Strategic group model

A framework that explains firm differences in performance in the same industry by clustering different firms into groups based on a few key strategic dimensions.

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.

Global strategy

A frim's strategy to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world

Industry

A group of companies offering similar products or services. It makes up the supply side of the market, while customers make up the demand side.

Regional cluster

A group of interconnected companies and institutions in a specific industry, located near each other geographically and also linked by common characteristics.

Organizational structure

A key building block of organizational design that determines how the work efforts of individuals and teams are orchestrated and how resources are distributed.

Strategic control and reward systems

A key building block of organizational design; internal governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees)

Franchising

A long-term contract in which a franchisor grants a franchisee the right to use the franchisor's trademark and business processes to offer goods and services that carry the franchisor's brand name; the franchisee in turn pays an up-front buy-in lump sum and a percentage of revenues.

Credible commitment

A long-term strategic decision that is both difficult and costly to reverse.

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.

The AFI Strategy Framework

A model that links three interdependent strategic management tasks -- analyze, formulate, implement -- that, together, help firms conceive of and implement a strategy that can improve performance and result in competitive advantage. Analyze: The strategic management process, External analysis, Internal analysis Formulate: Business strategy, Corporate strategy, Global strategy Implement: Organizational design, corporate governance, business ethics, and strategic leadership

Resource-based view

A model that sees resources as key to superior firm performance. If a resource exhibits VRIO attributes, the resources enables the firm to fail and sustain a competitive advantage

Architectural innovation

A new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets.

Founder imprinting

A process by which the founder defines and shapes an organization's culture, which can persist for decades after his or her departure.

Crowdsourcing

A process in which a group of people voluntarily performs tasks that were traditionally completed by a firm's employees

Industry convergence

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

Complement

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

Strategic (long-range) planning

A rational, top-down process through which management can program future success; typically concentrates strategic intelligence and decision-making responsibilities in the office of the CEO

Paradigm shift

A situation in which a new technology revolutionizes an existing industry and eventually establishes itself as the new standard.

Hypercompetition

A situation in which competitive intensity has increased and periods of competitive advantage have shortened, especially in new, technology-based industries, making any competitive advantage a string of short-lived advantages.

Thin markets

A situation in which transactions are likely NOT to take place because there are only a few buyers and seller, who have difficulty finding each other.

Strategic network

A social structure composed of multiple organizations (network nodes) and the links among the nodes (network ties)

Strategic Business Unit (SBU)

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

Vision statement

A statement about what an organization ultimately wants to accomplish; it captures the company's aspiration

Corporate governance

A system of mechanisms to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally.

Stakeholder theory

A theoretical framework concerned with how various stakeholders create and trade value; its main thesis is that effective management of the web of exchange relationships among stakeholders can help the firm achieve its goals and improve its chances of gaining and sustaining competitive advantage.

Transaction cost economics

A theoretical framework in strategic management to explain and predict the scope of the firm, which is central to formulating a corporate-level strategy that is more likely to lead to competitive advantage.

VRIO framework

A theoretical framework that explains and predicts firm-level competitive advantage. A firm can gain a competitive advantage if it has resources that are valuable (V), Rare (R), and costly to imitate (I); the firm also must organize (O) to capture the value of the resources. Valuable: A resource is valuable if it allows the firm to take advantage of an external opportunity and/or neutralize an external threat. Rare: A resource is rare if the number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition. Imitate: 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 Organize: The characteristic of having in place an effective organizational structure and coordinating systems to fully exploit the competitive potential of the firm's resources and capabilities

Agency theory

A theory that views the firm as a nexus of legal contracts.

Knowledge spillover

A type of positive externality that is regionally constrained.

Strategic alliance

A voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage.

Taper integration

A way of orchestrating value activities in which a 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

Each stage of the vertical value chain typically represents: A. A distinct industry. B. A type of product. C. The distinct process being applied. D. The type of material being used.

A. A distinct industry.

Under the accounting profitability framework to competitive advantage, comparing return on revenue (ROR) between companies is important because: A. It adjusts for size differences and provides a relative comparison. B. It reflects the firm's stock price. C. It includes the value of the firm's intangible asset base. D. All of these.

A. It adjusts for size differences and provides a relative comparison.

To _______ a stock return means to compare the percentage change of a stock price over the course of a certain time period from a common base year. A. Normalize B. Standardize C. Regulate D. Stabilize

A. Normalize

A risk to a firm that believes its resources are costly to imitate is that: A. Rivals may employ substitution and work around the original design. B. Due to the dynamic nature of competition, all resources eventually get imitated. C. A firm's products or services are shielded behind social complexity. D. Resources that are costly to imitate are based on causal ambiguity.

A. Rivals may employ substitution and work around the original design.

Questions such as "What resources do we need if this happens?" and "How can we shape our anticipated future environment?" are performed under what stage of the AFI framework? A. The formulation stage B. The forecast stage C. The installation stage D. The iteration stage

A. The formulation stage

Hostile takeover

Acquisition in which the target company does not wish to be acquired.

Strategic commitments

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

Liability of foreignness

Additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances.

Transaction costs

All costs associated with an economic exchange, whether within a firm or in markets.

Administrative costs

All costs pertaining to organizing an economic exchange within a hierarchy, including recruiting and retaining employees, paying salaries and benefits, and setting up a business.

Business ethics

An agreed-upon code of conduct in business, based on societal norms.

Standard

An agreed-upon solution about a common set of engineering features and design choices; also known as dominant design

Formalization

An element of organizational structure that captures the extent to which employee behavior is controlled by explicit and codified rules and procedures.

Specialization

An element of organizational structure that describes that degree to which a task is divided into separate jobs (i.e., the division of labor).

Hierarchy

An element of organizational structure that determines the formal, position-based reporting lines and thus stipulates who reports to whom.

Centralization

An element of organizational structure that refers to the degree to which decision making is concentrated at the top of the organization.

Stock options

An incentive mechanism to align the interests of shareholders and managers, by giving the recipient the right to buy a company's stock at a predetermined price sometime in the future.

Diversification

An increase in the variety of products or markets in which to compete.

Radical innovation

An innovation that draws on novel methods or materials, is derived from either an entirely different knowledge base or from the recombination of the firm's existing knowledge base with a new stream of knowledge, or targets new markets by using new technologies

Disruptive innovation

An innovation that leverages new technologies to attack existing markets from the bottom up.

Incremental innovation

An innovation that squarely builds on the firm's established knowledge base, steadily improves the product or service it offers, and targets existing markets by using existing technology

Stakeholder strategy

An integrative approach to connect corporate governance, business ethics, and strategic leadership.

Strategic management

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

Ambidextrous organization

An organization able to balance and harness different activities in trade-off situation.

Conglomerate

An organization that combines two or more business units, often active in different industries, under one overarching corporation.

Strategic initiative

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

Emergent strategy

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

Specialized assets

Assets that have significantly more value in their intended use than in their next-best use (high opportunity cost); they come in three types: site specificity, physical asset specificity, and human asset specificity.

Resource immobility

Assumption in the resource-based view that a firm has resources that tend to be "sticky" and that do not move easily from firm to firm

Resource heterogenity

Assumption in the resource-based view that a firm is a bundle of resources and capabilities that differ across firms

Globalization hypothesis

Assumption that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous.

Death-of-distance hypothesis

Assumption that geographic location alone should not lead to firm-level competitive advantage because firms are now, more than ever, able to source inputs globally.

Location economies

Benefits from locating value-chain activities in the world's optimal geographies for a specific activity. wherever that may be.

All of the following statements are TRUE about strategy EXCEPT: A. There is no single best strategy; only strategies that are better than that of rivals. B. A strategy that has provided competitive advantages in the past will most likely do so in the future. C. Strategy must integrate and align each business unit. D. Performance metrics that measure effectiveness must aggregate upward and reflect overall company performance.

B. A strategy that has provided competitive advantages in the past will most likely do so in the future.

Based on Strategy Highlight 9.1, Kraft's hostile takeover of Cadbury was mainly motivated by Kraft's desire for _____. A. Increased differentiation B. Access to new markets and distribution channels C. Reduction in competitive intensity D. Lower costs

B. Access to new markets and distribution channels

Buy US is a big box retailer who is in directs competition with Walmart and Target. Buy Us initially tried to respond to Walmart by cutting its prices and reducing costs. Walmart has greater buying power and a more efficient supply chain, therefore Buy Us was not able to compete on costs. The company then tried to differentiate itself by signing a celebrity to create an in-house line of clothing. However, Target has a celebrity clothing line that has a more differentiated appeal. The economic value created by Buy Us is currently less than Target and Walmart. It can be said that: A. Buy Us is successful in creating an integration strategy positioned between Walmart and Target. B. Buy Us is "stuck in the middle" and has a competitive disadvantage. C. Buy Us is still creating an integration strategy positioned between Walmart and Target and is on the right track. It should continue this business strategy. D. Buy Us is "stuck in the middle" and has a competitive advantage.

B. Buy Us is "stuck in the middle" and has a competitive disadvantage.

Achieving differentiation parity along with lower costs is important to a low-cost leader because: A. The firm is then able to target a less price-sensitive customer market. B. Creating the same value as the competition, combined with lower costs, gives the firm a competitive advantage. C. The firm is then able to incorporate differentiation features that cause buyers to prefer its products. D. All of these.

B. Creating the same value as the competition, combined with lower costs, gives the firm a competitive advantage.

Strategic activity systems that are socially complex are: A. Tangible resources. B. Difficult to imitate. C. Challenging to leverage. D. Customer-oriented.

B. Difficult to imitate.

Experience curves attempt to capture both ______ and learning effects. A. Customization B. Economies of scale C. Economies of scope D. Competitive position

B. Economies of scale

Competitive rivalry will get weaker when all of the following happen EXCEPT: A. Demand is growing B. Exit barriers are low C. Products are differentiated D. One firm's actions will have little direct impact on a rival

B. Exit barriers are low

Globalization 1.0 from Strategy Highlight 10.1 is similar to which of the following international entry modes? A. Licensing B. Export C. Strategic alliance D. Greenfield investment

B. Export

Shell Oil is provided as an example of a firm effectively using scenario planning. in the 1960s, they prepared for a strong OPEC and therefore rising oil prices. What are they now predicting about future energy needs? A. Energy needs will continue to grow, spurred by BRIC countries. B. In 2025, that 20% of our energy will be generated from renewable technologies. C. That the Middle East leadership will fracture and oil prices will drop. D. In 2025, that 50% of our energy will be generated from renewable technologies.

B. In 2025, that 20% of our energy will be generated from renewable technologies.

If Sony and Microsoft develop the same customer knowledge base and create gaming products that provide the same customer appeal as Nintendo, then: A. Sony and Microsoft will have a VRIO resource. B. Nintendo will have a resource that is valuable but no longer rare. C. Nintendo will still have a VRIO resource. D. Nintendo will have a resource that is rare but no longer valuable.

B. Nintendo will have a resource that is valuable but no longer rare.

In strategy highlight 3.1, why was the U.S. government putting pressure on UBS, the venerable Swiss bank? A. The U.S. government was investigating UBS for restraint of trade B. The U.S. government wanted information on potential tax evaders C. The U.S. government thought UBS had vital information about the 2009 financial meltdown D. The U.S. government wanted information about UBS corporate tax payments globally

B. The U.S. government wanted information on potential tax evaders

A small-scale appliance manufacturer has been producing goods for a private label company for 25 years. This manufacturer has no brand image, a small production facility, and scarce capital resources. The company has made several strategic attempts to increase market share and create a nationally branded appliance marker presence. So far, it has been unsuccessful. Why is this most likely so? A. The appliance industry is not an attractive industry when it comes to existing firms. B. The company is limited by inter-group mobility barriers based on economies of scale and brand loyalty. C. The five forces analysis reflects that the appliance industry is very attractive. D. All of these.

B. The company is limited by inter-group mobility barriers based on economies of scale and brand loyalty.

Value creation is important to competitive advantage because: A. The product or service that is valued the highest by the firm will deliver competitive advantage(s). B. The product or service that is valued the highest by the customer can charge the highest price. C. The company with the highest future value will have the highest profits. D. The company with the highest present value will sustain competitive advantage(s).

B. The product or service that is valued the highest by the customer can charge the highest price.

If the early U.S. railroad companies defined themselves as being in the transportation needs business, which is more customer-oriented, they might have successfully moved into what product/service before any other firm? A. commercial aviation (such as Delta and United) B. modern shipping and logistics C. international cargo containers on large ocean ships D. fuel efficient automobiles

B. modern shipping and logistics

If a rival makes a strategic move in a(n) ______ industry, the dominant firm is most likely to respond with its own initiative to counter (or coordinate) the effects of the first firm. A. monopolistic competitive B. oligopolistic C. monopolistic D. perfectly competitve

B. oligopolistic

Inside directors

Board members who are generally part of the company's senior management team; appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance.

Outside directors

Board members who are not employees of the firm, but who are frequently senior executives from other firms or full-time professionals. Given their independence, they are more likely to watch out for shareholder interest.

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.

Integration strategy

Business-level strategy that successfully combines differentiation and cost leadership activities.

AstraZeneca, a Swiss pharmaceutical firm, relocated its research facility to the Boston biotech cluster. This is because they want to ________. A. Gain access to low-cost input factors B. Gain access to foreign markets C. Develop new competencies D. Enjoy low tariffs

C. Develop new competencies

According to the integration-responsiveness framework, if a firm is facing high pressure for local responsiveness and low pressure for cost reductions, the firm is likely to adopt a(n) _________. A. Transnational strategy B. Global-standardization strategy C. Localization strategy D. International strategy

C. Localization strategy

When one firm makes a credible commitment to another firm, it is doing all of the following EXCEPT: A. Creating trust between the firms. B. Making a long-term strategic decision. C. Offering a promise that it will perform in the future. D. Sharing the risk and costs.

C. Offering a promise that it will perform in the future.

Wikipedia's "open source" approach to competitive advantage will be sustainable as long as: A. The market isn't saturated with book-based encyclopedias. B. Another firm doesn't introduce a CD-based encyclopedia. C. People are willing to volunteer to contribute content. D. All of these.

C. People are willing to volunteer to contribute content.

PepsiCo sells a wide variety of beverages and food products in 190 countries It is clearly engaging in __________ to achieve continuous growth. A. Product diversification B. Geographic diversification C. Product-market diversification D. Multimarket diversification

C. Product-market diversification

Generally, a firm that _______ is able to achieve competitive advantage for the longest time period because the type of innovation is novel and not easily duplicated at first. A. Architecturally innovates B. Focuses on cost C. Radically innovates D. Hyper-innovates

C. Radically innovates

Horizontal integration can affect several of Porter's five forces for the surviving firms. Which of the following would this include? A. Increasing the threat of entry B. Increasing rivalry among existing firms C. Strengthening bargaining power vis-a-vis supplier and buyers D. increasing the threat of substitute products

C. Strengthening bargaining power vis-a-vis supplier and buyers

The third phase in a firm's alliance management capability concerns _____. A. The choice of an appropriate governance mechanism B. Alliance design C. The ongoing management of the alliance D. Partner selection

C. The ongoing management of the alliance

All of the following are reasons why a firm seeks to diversify EXCEPT: A. Shareholder pressure for continuous growth. B. To expand the international markets of the firm. C. To determine how to compete in current markets D. To leverage core competencies.

C. To determine how to compete in current markets

Economic value created

Difference between value (V) and cost (C), or (V - C); sometimes also called economic contribution.

Strategic intent is considered to be forward-looking and future-oriented. It is most useful in situations where _____. A. large firms are close competitors with others B. all the firms competing in a market are very similar C. small firms are wanting to compete against bigger, more established firms D. the dominant plan from a scenario planning process is identified

C. small firms are wanting to compete against bigger, more established firms

When strategizing for competitive advantage, managers rely on different approaches that can complement one another. which one of the following is NOT an approach a firm may use? A. strategic planning B. strategy as planned emergence C. strategy implantation D. scenario planning

C. strategy implantation

Risk capital

Capital provided by the shareholders in exchange for an equity share in a company; it cannot be recovered if the firm goes bankrupt.

Forward vertical integration

Changes in an industry value chain that involve moving ownership of activities closer to the end point (customer) point of the value chain

Backward vertical integration

Changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain

Triple bottom line

Combination of economic, social, and ecological concerns that can lead to sustainable strategy.

Co-operation

Cooperation by competitors to achieve a strategic advantage

Profit (producer surplus)

Difference between price charged (P) and the cost to produce (C), or (C - P).

Unrelated diversification strategy

Corporate strategy in which a firm derives less than 70% 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 but 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

Cultural distance

Cultural disparity between an internationally expanding firm's home country and its targeted host country.

Consumer surplus

Difference between the value a consumer attaches to a good or service (V) and what he or she paid for it (P), or (V - P)

The triple bottom line is important to competitive advantage because: A. Social and ecological implications are important to firm performance. B. Achieving the triple bottom line can lead to sustained competitive advantage(s). C. The dimensions are important to stakeholders. D. All of these.

D. All of these.

Which of the following is true when it comes to a firm's capabilities? A. They are the organizational and managerial skills within a firm. B. They are found in the firm's structure, routines, and processes. C. They are used to deploy a firm's resources to orchestrate core competencies. D. All of these.

D. All of these.

When a firm is able to successfully employ and integration strategy, it will create a competitive advantage by: A. combining high quality and product features to provide service that customers truly value. B. Using a first-mover advantage to be the lowest price in the market. C. Winning market share with a highly differentiated product. D. Beating rivals on product attributes while offering a better price.

D. Beating rivals on product attributes while offering a better price.

According to globalization hypothesis, there seems to be some convergence of consumer preferences across the globe. However, national differences remain. This is due to _________. A. Core competencies B. Location economies C. Regional clusters D. Distinct institutions and cultures

D. Distinct institutions and cultures

According to Porter, the enduring competitive advantages in a global economy lie increasingly in local things, such as __________. A. Labor, resource, and location B. Investment, politics, and entry barriers C. Strategy, leadership, and dominant design D. Knowledge, relationship, and motivation

D. Knowledge, relationship, and motivation

Court decisions and regulations such as CARB zero-emissions are element of which macro environmental force? A. Politcal factors B. Economic factors C. Sociocultural factors D. Legal factors

D. Legal factors

The Microsoft-IBM (non-exclusive) licensing agreement for MS-DOS is an example of a(n) _____. A. Joint venture B. Acquisition C. Equity alliance D. Non-equity alliance

D. Non-equity alliance

All of the following are forms of strategic alliances EXCEPT: A. Long-term contracts. B. Equity alliances. C. Joint ventures. D. Short-term outsourcing.

D. Short-term outsourcing.

When a firm has resources and capabilities that are valuable and rare only, it has: A. Competitive ambiguity B. Competitive parity C. Sustained competitive advantage D. Temporary competitive advantage

D. Temporary competitive advantage

Apple orchestrated a web of strategic alliances with publishing houses to challenge Amazon's early lead in the delivery of e-content. This was due to which of the following reasons listed? A. To hedge against uncertainty B. To access critical complementary assets C. To learn new capabilities D. To strengthen competitive advantage

D. To strengthen competitive advantage

OXO differentiates kitchen utensils by using a patent-protected, ergonomically designed rubber grip. By adding unique product features, OXO can: A. Turn differentiated products into standardized products with price parity. B. Turn differentiated products into standardized products with price disadvantages. C. Turn commodity products into differentiated products with price disadvantages. D. Turn commodity products into differentiated products with premium pricing.

D. Turn commodity products into differentiated products with premium pricing.

Economies of scale

Decreases in cost per unit as output increases

Industry value chain

Depiction of the transformation of raw materials into finished goods and services along distinct vertical stages, each of which typically represents a distinct industry in which a number of different firms are competing

Mission statement

Description of what an organization actually does -- what its business is -- and why it does it; can be customer-oriented or product-oriented

Power-distance dimension

Dimension of culture that focuses on how a society deals with inequality among people in terms of physical and intellectual capabilities, and how those methods translate into power distributions within organizations.

Uncertainty-avoidance dimension

Dimension of culture that focuses on societal differences in tolerance toward ambiguity and uncertainty

Masculinity-femininity dimension

Dimension of culture that focuses on the relationship between genders and its relation to an individual's role at work and in society.

Individualism dimension

Dimension of the culture that focuses on the relationship between individuals in a society, particularly the relationship between individual and collective pursuits.

Activities

Enable firms to add value by transforming inputs into goods and services

Corporate venture capital (CVC)

Equity investments by established firms in entrepreneurial ventures; CVC falls under the broader rubric of equity alliances.

Organizational values

Ethical standards and norms that govern the behavior of individuals within a firm or organization

Primary activities

Firm activities that add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along the internal value chain. Raw materials > production phases > sales and marketing > customer service

Support activities

Firm activities that add value indirectly, but are necessary to sustain primary activities. Include: R&D, information systems, operations management, HR, finance, accounting, and general management

Scope of competition

The size -- narrow or broad -- of the market in which a firm chooses to compete.

Differentiation strategy

Generic business strategy that seeks to create higher value for customers than the value competitors create, by delivering products or services with unique features while keeping the firm's cost structure at the same or similar level.

Cost-leadership strategy

Generic business strategy that seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers.

Diseconomies of scale

Increases in cost per unit when output increases

The textbook discusses four types of innovation in the markets and technologies framework. Which type is the most common? Why is it the most common?

Incremental innovation is by far the most common type. This type of innovation builds on existing products or services and gradually improves them. Thus, both large incumbent firms and new startups will contribute to this type of innovation. Economic incentives and organizational inertia are both strong reasons for incumbents to use incremental innovation. Also, continuous small improvements reinforce the existing network of the industry value chain. Incremental innovations are largely what drives the industry life cycle stages after the introductory period and therefore provides the bulk of daily improvements.

Stakeholders

Individuals or groups who can affect or are affected by the actions of the firm External: Customers, suppliers, alliance partners, creditors, unions, communities, governments Internal: Employees, stockholders, board members

Mobility barriers

Industry-specific factors that separate one strategic group from another.

Tacit knowledge

Knowledge that can not be codified; concerns knowing how to do a certain task and can be acquired only through active participation in that task

Strategic trade-offs

Situations that require choosing between a cost or value position, necessary because higher value tends to require higher cost.

Input controls

Mechanisms in a strategic control and reward system that seek to define and direct employee behavior through a set of explicit and codified rules and standard operating procedures, considered prior to the value creating activites.

Output controls

Mechanisms in a strategic control and reward system that seek to guide employee behavior by defining expected results (outputs), but leave the means to those results open to individual employees, groups, or SBUs.

Strategic management process

Method by which managers conceive of and implement a strategy that can lead to a sustainable competitive advantage. Follows the AFI framework

Strategic outsourcing

Moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain

Product innovations

New products such as jet airplane, electric vehicle, MP3 player, and netbook.

Process innovations

New ways to produce existing products or deliver existing services

Entry barriers

Obstacles that determine how easily a firm can enter an industry. Entry barriers are often one of the most significant predictors of industry profitability.

Exit barriers

Obstacles that determine how easily a firm can leave an industry.

Mechanistic organization

Organizational form characterized by a high degree of specialization and formalization, and a tall hierarchy that relies on centralized decision making.

Organic organization

Organizational form characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making.

Joint venture

Organizational form in which two or more partners create and jointly own a new organization

Business model

Organizational plan that details the firm's competitive tactics and initiatives; in short, how the firm intends to make money.

Simple structure

Organizational structure in which the founders tend to make all the important strategic decisions as well as run the day-to-day operations.

Matrix structure

Organizational structure that combines the functional structure with the M-form.

Multidivisional structure (M-Form)

Organizational structure that consists of several distinct SBUs, each with its own profit-and-loss (P&L) responsibility

Functional structure

Organizational structure that groups employees into distinct functional areas based on domain expertise.

Minimum efficiency scale (MES)

Output range needed to bring down the cost per unit as much as possible allowing a firm to stake out the lowest cost position that is achievable through economies of scale.

Unrealized strategy

Part or all of a firm's strategic plan that falls by the wayside due to unexpected events

Non-equity alliance

Partnership based on contracts between firms. The most frequent forms are supply agreements, distribution agreements, and licensing agreements.

Equity Alliance

Partnership in which at least one partner takes partial ownership in the other partner

Competitive parity

Performance of two or more firms at the same level

Discontinuities

Periods of time in which the underlying technological standard changes.

Globalization

Process of closer integration and exchange between different countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs.

Structural holes

Spaces where two organizations are connected to the same organization, but are not connected to one another. Firms that bridge structural holes (brokers) gain information and control benefits over the nonconnected firms

Productivity frontier

Relationship that captures the result of performing vest practices at any given time; the function is convex (bowed outward) to capture the trade-off between value creation and production cost.

Intangible resources

Resources that do not have physical attributes and thus are invisible

Tangible resources

Resources with physical attributes, which thus are visible

Total return to shareholders

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

Focused cost-leadership strategy

Same as the cost leadership strategy except with a narrow focus on a niche market.

Focused differentiation strategy

Same as the differentiation strategy except with a narrow focus on a niche market.

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.

Externalities

Side effects of production and consumption that are not reflected in the price of a product

Small-world phenomenon

Situation in which a network exhibits local clusters, each with high degree centrality

Principle-agent problem

Situation in which an agent performing activities on behalf of a principle pursues his or her own interests.

Diversification discount

Situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units

Diversification premium

Situation in which the stock price of related diversification firms is valued at greater than the sum of their individual business units

Learning races

Situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which the firms learn may vary; the firm that accomplishes its goal more quickly has an incentive to exit the alliance or reduce its knowledge sharing.

Rational view of competitive advantage

Strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries.

Global-standardization strategy

Strategy attempting to reap significant economies scale and location economies by pursuing a global division of labor based on wherever best of class capabilities reside at the lowest cost.

Balanced scorecard

Strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goal How do *customers* view us? How do *shareholders* view us? What *core competencies* do we need? How do we create *value*?

Transnational strategy

Strategy that attempts to combine the benefits of a localization strategy (high local responsiveness) with those of a global standardization strategy (lowest cost position attainable); sometimes called glocalization.

Scenario planning

Strategy-planning activity in which managers envision different what-if scenarios to anticipate plausible futures

Competitive advantage

Superior performance relative to others competitors in the same industry or the industry average

Business-level strategy

The actions managers take in their quest for competitive advantage when competing in a single product market.

Strategic leadership

The behaviors and styles of executives that influence others to achieve organizational goals.

Scope of the firm

The boundaries of the firm along three dimensions; industry value chain, products and services, and geography (regional, national, or global markets).

Board of directors

The centerpiece of corporate governance, composed of inside and outside directors, who are elected by the shareholders to represent their interests.

National culture

The collective mental and emotional "programming of the mind" that differentiates human groups.

Organizational culture

The collectively shared values and norms of an organization's members; a key building block of organizational design.

Innovation

The commercialization of any new product, process, or idea, or the modification and recombination of existing ones. To drive growth, innovation also needs to be useful and successfully implemented.

Strategic activity system

The conceptualization of a firm as a network of interconnected activities

Corporate-level strategy

The decisions that senior management makes and the actions it takes in the quest for competitive advantage in several industries and markets simultaneously; addresses where to compete

What are the strategic implications of "the long-tail phenomenon"?

The disruptive force of the internet provides an opportunity for online retailers marketing the long tail. Online retailers can "sell less for more" by taking advantage of low-cost virtual shelf space, which is basically unlimited. The internet, combined with sophisticated search engines and inventory management software, allows firms to drive down transaction costs to match individual consumer demand with supply. The long tail has a wide variety of implications as books, newspapers, and magazines are all going digital quickly.

Value

The dollar amount (V) a consumer would attach to a good or service; the consumer's maximum willingness to pay; sometimes also called reservation price.

Resource stock

The firm's current level of intangible resources.

Resource flows

The firm's level of investments to maintain or build a resource.

Verticle integration

The firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.

Industry life cycle

The four different stages -- introduction, growth, maturity, and decline -- that occur in the evolution of an industry over time.

Strategic group

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

Value chain

The internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value. Primary activities directly add value; support activities add value indirectly.

Merger

The joining of two independent companies to form a combined entity.

Bottom of the pyramid

The largest but poorest socioeconomic group of the world's population. They live on less than $2,000 a year ($5.50 a day)

Mass customization

The manufacture of a large variety of customized products or services at relatively low unit cost.

Degree centrality

The number of direct ties a firm has in a network, out of the possible direct ties; the more centrally located the firm is.

Span of control

The number of employees who directly report to a manager.

Capabilities

The organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically.

Intended strategy

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

Strategy implementation

The part of the strategic management process that concerns the organization, coordination, and integration of how work gets done. It is key to gaining and sustaining competitive advantage.

Strategy

The planned and realized set of actions a firm takes to achieve its goals. The set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.

Network effects

The positive effect (externality) that one user of a product or service has on the value of the product for other users

Entrepreneurship

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

Horizontal integration

The process of acquiring and merging with competitors, leading to industry consolidation

Organizational design

The process of creating, implemental, monitoring, and modifying the structure, processes, and procedures of an organization.

Acquisition

The purchase or takeover of one company by another; can be friendly or unfriendly

Strategic entrepreneurship

The pursuit of innovation using the tools and concepts available in strategic management.

Industry effects

The results attributed to the choice of industry in which to compete. Tends to have less impact than firm effects. (~20%)

Firm effects

The results of managers' actions to influence firm performance. Tends to have more impact than industry effects. (~30-45%)

Strategic intent

The staking out of a desired leadership position that far exceeds a company's current resources and capabilities. Setting goals that stretch individuals and organizations which leads to higher performance.

Dominant strategic plan

The strategic option that managers think most closely matches reality at a given point in time (Used in the implementation stage of AFI)

How does a large firm like Procter & Gamble engage in strategic entrepreneurship? Isn't entrepreneurship about starting new companies?

The text notes that entrepreneurship is about changing innovations into market realities. This can happen at both established and new firms. P&G uses strategic management processes in continuing to innovate in products such as detergents, and is therefore engaging in strategic entrepreneurship. Entrepreneurship encompasses change agents, and this activity can occur in large multinational firms as well as new startups.

Opportunity cost

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

Competitive disadvantage

Underperformance relative to others competitors in the same industry or the 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.

National competitive advantage

World leadership in specific industries.

Sustainable competitive advantage

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

Information asymmetries

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