BUSMHR 4490 Exam 1

Superior Firm Performance

- Firm effects up to 55% -Industry effects about 20% -Other effects about 25%

Strategic Positioning

-A firm's ability to: •Create value for customers (V) •Contain costs (C) Goal: Generate a large gap between:•The value the firm's product or service creates•The cost required to produce it

Complements

-A product, service, or competency -Adds value when used with the original product

The strategic group model (framework)

-Clusters different firms into groups -Is based on key strategic dimensions

Value Creation

-Companies with a good strategy are able to provide products or services to consumers: -At a price point that they can afford. -That enables the company to make a profit. -Value creation lays the foundation for a successful economy

Stakeholder management benefits firm performance:

-Cooperative stakeholders reveal important information. -increased trust lowers business transaction cost. -Can lead to greater adaptability and flexibility. -More predictable and stable returns. -Stronger reputation.

Entry Barriers

-Customer switching costs -Economies of scale -Network effects -Capital requirements -Credible threat of retaliation -Advantages independent of size -Government policy -Credible threat of retaliation

The PESTEL Model

-Groups environmental factors into six segments: --Political --Economic --Sociocultural --Technological --Ecological --Legal These factors can create: --Opportunities --Threats

The Power of suppliers is high when:

-Incumbent firms face significant switching costs when changing suppliers -Suppliers offer products that are differentiated -There are no readily available substitutes for the products/services offered by the supplier -Suppliers can credibly threaten to forward-integrate

Economic Factors

-Largely macro-economic, economy-wide phenomena Examples include: --Growth rates --Levels of employment --Interest rates --Price stability --Currency exchange rates

To formulate a strategy that leads to a competitive advantage

-Resources and capabilities must combine to form core competencies. -Firms should consciously work to identify these.

Sociocultural Factors

-Society's cultures, norms, and values: --Are constantly in flux --Differ across groups Demographic trends -Population characteristics- Age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class

What is Strategic Leadership?

-Successful use of power and influence -Directing the activities of others -Pursuing an organization's goals -Enabling organizational competitive advantage -Power: The ability to influence others to do things. Formal authority (their position), informal authority (persuasion).

The power of buyers is high when:

-There are a 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 industry

The rivalry among existing competitors is high when:

-There are many competitors in the industry. -The competitors are roughly of equal size. -Buyers face low or no switching costs. -Products and services are direct substitutes. -Fixed costs are high and marginal costs are low.

Ecological Factors

-broad environmental issues such as the natural environment, global warming, and sustainable economic growth -can provide business opportunities

Insights from Strategic Group Mapping

1. Competitive rivalry: -Strongest between firms in the same strategic group 2. External environment: -Affects strategic groups differently 3. Five competitive forces: -Affect strategic groups differently 4. Profitability: -Some strategic groups are more profitable than others

How to Create a Strategic Group Map

1. Identify important strategic dimensions 2. Choose two key dimensions -For horizontal and vertical axes -Not highly correlated 3. Graph the firms in the strategic group -Each firm's market share indicated by the size of the bubble

4 Main Competitive Industry Structures

1. Perfect Competition 2. Monopolistic Competition 3. Oligopoly 4. Monopoly

Stakeholder Impact Analysis Steps

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

To assess competitive advantage, benchmark:

1.) Compare the firm to competitors in the same industry. 2.) Compare the firm to the industry average.

Strategic Leaders: The Level-5 Pyramid

1.) Highly capable insurance 2.) contributing team member 3.) Competent manager 4.) effective leader 5.) Executive

A Good Strategy Is Based on Three Elements:

1.)A diagnosis of the competitive challenge. 2.) A guiding policy to address the competitive challenge. (formulation) 3.) A set of coherent actions to implement the firm's guiding policy. (implementation)

Resources, Capabilities and Activities

3 things that help deliver Core Competencies

Sustainable Competitive Advantage

A firm that is able to outperform its competitors or the industry average over a prolonged period. Ex. Apple

Which of the following statements about competitive advantage is not true?

A firm's competitive advantage is always absolute, not relative.

Industry analysis

A method to (1) identify an industry's profit potential and (2) derive implications for a firm's strategic position within an industry.

Strategic Activity Systems

A network of interconnected activities -Socially complex and causally ambiguous -Enhance likelihood of sustained competitive advantage Characteristics: -Elements can be easily observed -How activities are managed is not easily observed -Difficult to imitate

Which of the following real-world examples best supports the statement that strategic commitments to a specific industry may be the result of political rather than economic considerations?

A number of European governments created Airbus through direct subsidies to provide a countervailing power to Boeing.

Strategic groups:

A set of companies that pursue a similar strategy in a specific industry

Strategy

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

A Unique Strategic Position

A successful combination of strategic activities. -Competitive advantage has to come from: Performing different activities. Performing the same activities differently than rivals.

Strategic Positioning

A unique position within an industry that allows the firm to provide value to customers, while controlling costs. -Value creation minus costs equal economic contribution.

Which of the following statements is true of strategy?

Actions that allow a firm to address a competitive challenge are strategy.

Industry Growth

Affects intensity of rivalry among competitors During periods of high growth: -Consumer demand rises -Price competition among firms decreases --They focus on capturing new customers --They are not focused on taking profitability away from each other During periods of negative growth: -Rivalry is fierce -Rivals can only gain at the expense of one another

resources

Any assets that a firm can draw on •Cash•People•Buildings

Technological Factors

Application of knowledge -To create new processes -To create new products Innovations in process technology: -Lean manufacturing, Six Sigma quality, and biotechnology Innovations in product technology: -Smartphones, computer tablets, and high-performing electric cars such as the Tesla Model S

________ tends to be more fierce when exit barriers in the industry are high, resulting in some firms being locked into the industry.

Competitive rivalry

Strategic Activity Systems Must Evolve

Competitors develop their activity systems External environment changes How activity systems are updated: -Upgrade activities that have become stale -Remove activities that are no longer relevant -Add new activities

Co-opetition:

Cooperation by competitors to achieve a strategic objective

Activities

Distinct and fine-grained business processes •Supply chain •Delivery

Which of the following explains how dynamic capabilities are different from the resource-based view?

Dynamic capabilities deal with applying resources over time.

Which of the following statements is true of the Level-5 leadership pyramid?

Each level of leadership builds upon the previous one in the pyramid.

AFI Framework

Effectively managing the strategy process is the result of: Analysis (A). Formulation (F). Implementation (I). -Explains and predicts differences in firm performance. -Helps leaders formulate and implement a strategy that can result in superior performance.

Industry vs. Firm Effects

Industry Effects -Elements in common to all -Entry and exit barriers, number and size of companies, and types of products and services offered Firm Effects -The actions managers take -More important than Industry effects

The Value Chain

Internal activities a firm engages in when transforming inputs into outputs •Through primary and support activities Each activity adds incremental value•Raw materials components, products Each activity adds incremental costs

Which of the following is a feature of a fragmented industry?

It consists of many small firms.

Stan has been recently promoted to the position of a team lead at an insurance company. This promotion was based on his boss's assessment that Stan is capable of conveying the company's vision and mission to groups. As a result, he can guide groups to superior performance. From this scenario, we can say that Stan is currently at __________ of the Level-5 leadership pyramid.

Level 4

Strategic Positioning Requires Trade-Offs

Managers must make conscious trade-offs. How to allocate resources? Which activities to pursue?

Threat of Substitutes

Meet the same basic customer need •But in a different way •Available from outside the given industry •The substitute offers an attractive price-performance trade-off. •The buyer's cost of switching to the substitute is low.

What Strategic Leaders Do

Mostly face-to-face meetings

When asked to explore the strengths and weaknesses of a firm, which of the following would be the best framework to employ?

None of these answers are correct.

Legal Factors

Official outcomes of political processes: -Laws -Mandates -Regulations -Court decisions Many industries have been deregulated: -Airlines, telecom, energy, and trucking

Capabilities

Organizational and managerial skills •Org. Structure •Culture

Stakeholders

Organizations, groups, and individuals: -Can affect or can be affected by a firm's actions. -Have an interest in the performance or survival of the firm.

Three important stakeholder attributes: power, legitimacy, and urgency:

Power: when the stakeholder can get the company to do something that it would not otherwise do. Legitimate claims: perceived to be legally valid or otherwise appropriate. Urgent claims: require a company's immediate attention and response.

Power of Suppliers

Pressures that industry suppliers can exert on an industry's profit potential Lowers industry profit potential if: -Suppliers demand higher prices for their inputs -Suppliers reduce quality

Political Factors

Processes & actions of government bodies can be shaped through: -Lobbying -Public Relations -Contributions -Litigation

Industry Dynamics

Provides insight about: -Changing speed of an industry -Rate of innovation Analysis must repeat over time -Industry structures aren't stable -They are dynamic

Two Critical Assumptions of the RBV

Resource Heterogeneity -A firm is bundle of resources and capabilities that differ across firms Resource Immobility -A firm has resources that tend to be "sticky" and that do not move easily from firm to firm,Resources are difficult to replicate,Resources can last for a long time

The Resource Based View

Resources are key to superior firm performance. Aids in identifying core competencies

________ is best described as executives' use of power and influence to direct the activities of others when pursuing organizational competitive advantage.

Strategic leadership

When the Alta Velocidad Española (AVE) was completed, it impacted Spain's local airline industry. Which of the following statements about the five forces does this reflect?

Substitutes made it difficult for generating a profit potential in Spain's airline industry.

Competitive Advantage

Superior performance relative to other competitors in the same industry or the industry average. Its relative, no absolute

How External Factors Impact a Firm

Task Environment: -Managers can influence -Composition of strategic groups -Industry structure General Environment: -Managers have little control -Macroeconomic factors -Interest / currency exchange rates

Rivalry Among Competitors

The intensity with which companies in the same industry jockey for market share and profitability Other forces pressure this rivalry: •Price discounting •After sales service

VRIO Framework

The resource-based framework that focuses on the value (V), rarity (R), imitability (I), and organizational (O) aspects of resources and capabilities.

The Bathtub Metaphor

The role of inflows and outflows in building stocks of intangible resources

Incumbent firms can benefit from several important sources of entry barriers. Economies of scale are one such source. Which of the following is an implication of economies of scale for incumbent firms?

They can demand better terms from their suppliers.

Which of the following firms most likely has the lowest bargaining power as a buyer?

a cell phone company that requires highly customized software for its phones

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

How to Gain a Competitive Advantage

a firm needs to provide either goods or services consumers value more highly than those of its competitors, or goods or services similar to the competitors' at a lower price The rewards of superior value creation: Profitability, Market share.

Competitive Disadvantage

a firm that underperforms, Its rivals, The industry average.

Dynamic Capabilities

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

Core Rigidity

a former core competency that turned into a liability because the firm failed to hone, refine, and upgrade the competency as the environment changed

The 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

Strategic Commitments

actions that are costly, long-term oriented, and difficult to reverse Affects intensity of rivalry among competitors

Stakeholder Strategy

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

Strategic Management

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

A diagnosis of the competitive challenge, an element of a good strategy, is primarily accomplished through strategy

analysis

Porter's Five Forces Model

analyzes the competitive forces within the environment in which a company operates to assess the potential for profitability in an industry

In a perfectly competitive industry structure

any competitive advantage that one firm has will be short-lived.

Isolating Mechanisms

barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy

How has Walmart staked out a unique strategic position?

by cutting costs to offer lower prices than competitors

What term is used to describe cooperation by competitors who want to achieve a strategic objective?

co-opetition

In the context of the SWOT matrix, which of the following best exemplifies an external opportunity for a firm?

decreasing government interference in the target market

For a firm to sustain its competitive advantage, any fit between its internal strengths and the external environment must be

dynamic.

In the context of SWOT analysis, a firm can develop a defensive strategic option primarily by

eliminating an internal weakness to mitigate an external threat.

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

Support Activities

firm activities that add value indirectly, but are necessary to sustain primary activities

Resource stocks

firm's current level of intangible resources •New product development •Engineering expertise •Innovation capability •Reputation for quality

Product-oriented vision statements provide managers with

goals to improve service.

Mobility Barrier

industry-specific factors that separate one strategic group from another, based on hard-to-reverse investments, Restrict movement between strategic groups

A Generic Value Chain

is an algorithm showing the interconnected activities required to create value for customers.

Entry barriers:

obstacles that determine how easily a firm can enter an industry and often significantly predict industry profit potential

Exit Barriers

obstacles that determine how easily a firm can leave an industry Mainly economic and social factors Contractual obligations Emotional attachments

Restrictions imposed by the government, such as export quotas on certain products, are a part of the ________ environment of the PESTEL framework.

political

A firm is likely to have a competitive advantage when it

provides services that consumers will value more than those of its rivals.

According to the value chain analysis, which of the following is a support activity?

research and development

A firm decides to retain $20,000 from its annual earnings and invest it in developing an advanced manufacturing system. According to the dynamic capabilities perspective, the $20,000 would most likely be referred to as the firm's

resource flow.

Which of the following is an example of a firm's capabilities?

skills involved in training and managing a workforce

Which of the following SWOT factors are internal to the firm?

strengths and weaknesses

All of the following are examples of internal stakeholders except.

suppliers.

Which of the following does a firm possess when it can outperform other firms in the same industry or the industry average over a prolonged period of time?

sustainable competitive advantage

According to the resource-based view, a firm's competitive advantage often stems from its ___________ opposed to its ___________.

tangible resources; intangible resources

Resource flows

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

Threat of Entry

the risk that potential competitors will enter an industry

Competitive Parity

two or more firms that perform at the same level.

Core Competencies

unique strengths embedded deep within a firm, 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

Using the _______, managers can see how competitive advantage flows from a firm's distinct set of activities.

value chain analysis

The _______ describes the internal activities a firm engages in when transforming inputs into outputs.

value chain view

Which of the following is not one of the VRIO characteristics of competitive advantage?

variable

Entry Choices

who, where, when, why, what

Pressure customers put on an industry lowers industry profit potential if:

•Buyers obtain price discounts •Reduces revenue •Buyers demand higher quality / service •Raises production costs

Industry

•Group of incumbent companies •Relatively similar suppliers and buyers •Similar products and services

Lowers industry profit potential:

•Incumbents lower prices •Incumbents spend more to satisfy existing customers.

Industry Convergence

•When unrelated industries satisfy the same need Caused by technological advances