Chapter 6

functional-level strategy

applies to the key functional departments or units within the business units

business-level strategy

focuses on individual units or product/service lines

cost-leadership strategy

keeping the costs, and hence prices, of a product or service below those of competitors and to target a wide market

cost-focus strategy

keeping the costs, and hence the prices, of a product or service below those of competitors and to target a narrow market

diversification

strategy by which a company operates several businesses in order to spread the risk

When would a company use a VRIO analysis?

when deciding whether or not a new product might work in the marketplace

Which is the second step in the strategic-management process?

Assess the current reality.

True or false: Many small business owners do not engage in strategic planning.

True

Companies pursuing a cost-leadership strategy keep costs/prices _____ those of competitors and target a _____ market.

below; wide

vertical integration

diversification strategy where a firm expands into businesses that provide the supplies it needs to make its products or that distribute and sells its products

corporate-level strategy

focuses on the organization as a whole; can involve acquisitions

To be successful, strategic planning requires a company to have a _____ orientation.

long-term

strategic control

monitoring performance to ensure that strategic plans are being implemented and taking corrective action as needed

strategy implementation

the implementation of strategic plans

What are Porter's four competitive strategies?

-Differentiation -Cost-leadership -Cost-focus -Focused-differentiation

According to Bryan Barry, which of these are things a manager can do to keep a strategic plan on track?

-Keep it simple -Keep moving -Stay focused -Engage people

The second step of the strategic-management process involves assessing the organization's current reality. Which of these are tools for assessing the current reality?

-SWOT analysis -forecasting -VRIO analysis -benchmarking

Which of Porter's competitive strategies are appropriate when addressing a narrow market?

-cost-focus -focused-differentiation

Bryan Barry suggested that you need to do these things to keep a strategic plan on track

-engage people -keep it simple -stay focused -keep moving

Corporate-level strategy:

-focuses on the organization as a whole -answers questions such as "what business are we in?" and "what products and services shall we offer?" -involves senior executives in planning

stability strategy can ...

-go for a no-change strategy (if, for example, it has found that too-fast growth leads to foul-ups with orders and customer complaints) -go for a little-change strategy (if, for example, the company has been growing at breakneck speed and feels it needs a period of consolidation)

growth strategy can ...

-improve an existing product or service to attract more buyers -increase its promotion and marketing efforts to try to expand its market share -expand its operations, as in taking over distribution or manufacturing previously handled by someone else -expand into new products or services -acquire similar or complementary businesses -merge with another company to form a larger company

What two things does the BCG matrix evaluate?

-market share -business growth rates

What four characteristics are being addressed in a VRIO analysis?

-organization -rarity -value -imitability

What are the three core processes of business identified by Bossidy and Charan?

-people -operations -strategy

defensive strategy can...

-reduce costs, as by freezing hiring or tightening expenses -sell off (liquidate) assets such as land, building, inventories, and the like -gradually phase out product lines or services -invest part of its business, as in selling off entire division or subsidiaries -declare bankruptcy -attempt a turnaround; do some retrenching, with a view toward restoring profitability

Which of the following represent competitive forces used in Porter's model for industry analysis?

-threat of substitute products or services -rivalry among competitors -bargaining power of buyers -bargaining power of suppliers -threats of new entrants

three levels of strategy

1. corporate 2. business 3. functional

Porter's four competitive strategies (four generic strategies)

1. cost leadership (wide market) 2. differentiation (wide market) 3. cost-focus (narrow market) 4. focused-differentiation (narrow market)

strategic position emerges from which three sources?

1. few needs, many customers 2. broad needs, few customers 3. bread needs, many customers

three overall types of corporate strategy

1. the growth strategy 2. the stability strategy 3. the defensive strategy

what questions should a strong strategic plan address?

1. what is the assessment of the external environment? 2. how well do you understand the existing customers and markets? 3. what is the best way to grow the business profitably, and what are the obstacles to growth? 4. who is the competition? 5. can the business execute the strategy? 6. are the short term and long term balanced? 7. what are the important milestones for executing the plan? 8. what are the critical issues facing the business? 9. how will the business make money on a sustainable basis?

five steps of the strategic-management process

1.establish the mission, vision, and values statements 2. assess the current reality 3. formulate corporate, business, and functional strategies 4. execute the strategy 5. maintain strategic control: the feedback loop

Pacific Specialty Bikes store gets customized parts for its high-end models from a local manufacturer, Premium Supply. When the manufacturer announced a price increase, the bike store tried to switch to other local manufacturers but learned they that they wouldn't be able to meet delivery schedules. As a result, Pacific Bike chose to pay the higher prices from Premium Supply. Which of Porter's competitive forces does this demonstrate?

Bargaining power of suppliers

Value can be assessed by asking:

Does the resource or capability allow the firm to exploit an opportunity or neutralize a threat?

_____ is the process that helps align the last two phases of the strategic-management process: strategic implementation and strategic control.

Execution

Which of these situations provides an external opportunity that the company may exploit to gain competitive advantage?

Monica's rare book company has weak competition.

In which step of the strategic-management process does an organization establish the mission and vision statements?

Step One

You own a small deli near campus and learn that the university is exploring whether it should open a Subway sandwich franchise in the Student Union. Which of Porter's competitive forces does this represent for you?

Threat of new entrants

True or false: According to Bossidy and Charan, execution is the central part of any company's strategy.

True

VRIO

a framework for analyzing a resource or capability to determine its competitive strategic potential by answering four questions about its value, rarity, imitability, and organization

trend analysis

a hypothetical extension of a past series of events into the future

BCG matrix

a management strategy by which companies evaluate their strategic business units on the basis of (1) their business growth rates and (2) their share of the market

Benchmarking is defined as

a process by which a company compares its performance with that of high-performing organizations.

forecast

a vision or projection of the future

A forecast is defined as

a vision or projection of the future.

benchmarking

a way to measure something against a standard, the benchmark

The second step of the strategic management process involves

assessing the current reality

current reality assessment (organizational assessment)

assessment to look at where the organization stands and see what is working and what could be different so as to maximize efficiency and effectiveness in achieving the organization's mission

The process by which a company compares its performance with that of other high-performing organizations is known as _______.

benchmarking

Strategic _____ involves monitoring the execution of strategy and taking corrective action when necessary.

control

Which level of strategic management focuses on the organization as a whole?

corporate-level

If you focus on (1) keeping costs, and hence prices, of a product or service below those of your competitors and (2) targeting a wide market, you are using a __________ strategy.

cost-leadership

The strategy of moving into new lines of business is called _____.

diversification

Business growth rate, as used in the BCG matrix, is concerned with how fast the _____ is(are) growing.

entire industry

organizational threats

environmental factors that hinder an organization's achieving a competitive advantage

organizational opportunities

environmental factors that the organization may exploit for competitive advantage

sustainable competitive advantage

exists when other companies cannot duplicate the value delivered to customers

According to the BCG matrix, a company will do better in a _____ market in which it has a high market share.

fast-growing

A _____ is a vision or projection of the future that is made following a SWOT analysis.

forecast

innovation strategy

grows market share or profits by innovating improvements in products or services

A business that wants to reach more customers and hires more employees to get this done is focusing on a _____ strategy.

growth

A grand strategy that involves expansion of things like sales revenues, market share, or number of employees is known as a(n) _____ strategy.

growth

star

have high growth, high market share; definite keepers

dogs

have low growth, low market share; should be gotten rid of

cash cows

have slow growth but high market share; income finances stars and question marks

Porter's five competitive forces form a model for _____ analysis.

industry

Porter's model for industry analysis

model proposes that business-level strategies originate in five primary competitive forces in the firm's environment: 1. threats of new entrants 2. bargaining power of suppliers 3. bargaining power of buyers 4. threats of substitute products of services 5. rivalry among competitors

Diversification involves

moving into new lines of business.

When considering SWOT analysis, what is an example of an organizational weakness?

obsolete technology

unrelated diversification

occurs when a company acquires another company in a completely unrelated businesses

focused-differentiation strategy

offering products or services that are of unique and superior value compared to those of competitors and to target a narrow market

differentiation strategy

offering products or services that are of unique and superior value compared with those of competitors but to target a wide market

stability strategy

one of the three grand strategies, this strategy involves little or no significant change

defensive strategy (retrenchment strategy)

one of the three grand strategies, this strategy involves reduction in the organization's efforts

growth strategy

one of three grand strategies, this strategy involves expansion - as in sales revenues, market share, number of employees, or number of customers or (for nonprofits) clients served

Sustainable competitive advantage exists when

other companies cannot duplicate the value that an organization delivers to customers.

Within a SWOT analysis, an organizational threat will come from _____ the company.

outside

Of the three core processes of business identified by Bossidy and Charan, which do they believe is the most important?

people

Strategic positioning attempts to achieve sustainable competitive advantage by:

preserving what is distinctive about a company

question marks

risky new ventures; some will become stars, some dogs

The first step in the strategic-management process is to establish the mission, vision, and values statements. The firm's vision statement:

states what the organization wants to become and where it wants to go strategically

Michael Porter defined _____ as an attempt to achieve sustainable competitive advantage by preserving what is distinct about a company.

strategic positioning

strategic positioning

strategy that attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company

The skills and capabilities that give an organization special competencies and competitive advantages in executing strategies in pursuit of its mission are called organizational ______.

strengths

Within a SWOT analysis, the letter "S" represents a company's _____.

strengths

When a company is readily able to switch to another company in order to get the raw materials it needs to make products, Porter would say that the bargaining power of ______ goes down.

suppliers

When other companies cannot duplicate the value provided by a competitor, then the competitor has established a(n) _____ competitive advantage.

sustainable

contingency planning (scenario planning and scenario analysis)

the creation of alternative hypothetical but equally likely future conditions

organizational weaknesses

the drawbacks that hinder an organization in executing strategies in pursuit of its mission

strategy formulation

the process of choosing among different strategies and altering them to best fit the organization's needs (take long time)

SWOT analysis (situational analysis)

the search for the strength, weaknesses, opportunities, and threats affecting the organization

organizational strengths

the skills and capabilities that give the organization special competencies and competitive advantages in executing strategies in pursuit of its mission

Newly-implemented government regulations have reduced the availability of raw materials for Blair Woodworking Corp. This would be considered an external organizational ______ in a SWOT analysis.

threat

In terms of a SWOT analysis, organizational _____ are environmental factors that hinder an organization from achieving a competitive advantage.

threats

Within a SWOT analysis, the letter "T" represents a company's _____.

threats

Sasha has run a small diner near the train station for the past ten years. Six months ago, a chain restaurant serving gourmet burgers and sandwiches opened up near him and he has had to re-think his menu. He added some specialty sandwiches and free fries with every burger in order to retain his customers. Which of Porter's five competitive forces has affected Sasha's business?

threats of new entrants

execution

using questioning, analysis, and follow-through in order to mesh strategy with reality, align people with goals, and achieve the results promised

When you ask "does this resource or capability allow our firm to exploit an opportunity or neutralize a threat?" you are assessing the resource or capability's _________.

value

related diversification

when a company purchases a new business that is related to the company's existing business portfolio