MGMT 449 Exam #1
Strategic Group
A cluster of industry rivals that have similar competitive approaches and market positions.
LO: Five basic strategic approaches for setting a company apart from rivals and winning a sustainable competitive advantage.
A company achieves a competitive advantage when it provides buyers with superior value compared to rival sellers or offers the same value at a lower cost to the firm. The advantage is sustainable if it persists despite the best efforts of competitors to match or surpass this advantage.
Competitive Assets
A company's resources and capabilities which are determinants of its competitiveness and ability to succeed in the marketplace.
Balanced Scorecard
A widely used method for combining the use of both strategic and financial objectives, tracking their achievement, and giving management a more complete and balanced view of how well an organization is performing.
Low-cost provider
Achieving a cost-based advantage over rivals. Walmart and Southwest Airlines have earned strong market positions because of the low-cost advantages they have achieved over their rivals.
Dynamic Capability
An ongoing capacity of a company to modify its existing resources and capabilities or create new ones.
Objectives
An organization's performance targets - the specific results management wants to achieve.
LO: Why the strategic initiatives taken at various organizational levels must be tightly coordinated to achieve company wide performance targets.
Crafting a strategy to achieve the objectives and move the company along the strategic course that management has charted. Masterful strategies come from doing things differently from competitors where it counts - out-innovating them, being more efficient, being more imaginative, adapting faster - rather than running with the herd. In large diversified companies, the strategy-making hierarchy consists of four levels, each of which involves a corresponding level of management: corporate strategy (multibusiness strategy), business strategy (strategy for individual businesses that compete in a single industry), functional-area strategies within each business (e.g., marketing, R&D, logistics), and operating strategies (for key operating units, such as manufacturing plants). Thus, strategy making is an inclusive collaborative activity involving not only senior company executives but also the heads of major business divisions, functional-area managers, and operating managers on the frontlines.
Strategic Vision
Describes "where we are going" - management's aspirations for the company and the course and direction charted to achieve them.
Mission
Describes the scope and purpose of its present business ("who we are, what we do, and why we are here")
LO: Why is it critical for companies to have a clear strategic vision of where a company needs to head and why?
Developing a strategic vision of the company's future, a mission statement that defines the company's current purpose, and a set of core values to guide the pursuit of the vision and mission. This stage of strategy making provides direction for the company, motivates and inspires company personnel, aligns and guides actions throughout the organization, and communicates to stakeholders management's aspirations for the company's future.
Rivalry
1) Rivalry increases when buyer demand is growing slowly or declining. 2) Rivalry increases as it becomes less costly for buyers to switch brands. 3) Rivalry increases as the products of rival sellers become less strongly differentiated. 4) Rivalry is more intense when there is excess supply or unused production capacity, especially if the industry's product has high fixed costs or high storage costs. 5) Rivalry intensifies as the number of competitors increases and they become more equal in size and capability. 6) Rivalry becomes more intense as the diversity of competitors increases in terms of long-term directions, objectives, strategies, and countries of origin. 7) Rivalry is stronger when high exit barriers keep unprofitable firms from leaving the industry.
Five Forces
1) Substitutes 2) Rivalry Among Competing Sellers 3) Suppliers 4) Competitive Pressures from Potential Entrants 5) Buyers
LO: What we mean by a company's strategy?
A company's strategy is its game plan to attract and please customers, outperform its competitors, and achieve superior profitability.
Sustainable
A competitive advantage is this if it persists despite the best efforts of competitors to match or surpass this advantage.
Resource
A competitive asset that is owned or controlled by a company.
Resource Bundle
A linked and closely integrated set of competitive assets centered around one or more cross-functional capabilities.
Best Practice
A method of performing an activity that consistently delivers superior results compared to other approaches.
Benchmarking
A potent tool for improving a company's own internal activities that is based on learning how other companies perform them and borrowing their "best practices.
SWOT Analysis
A simple but powerful tool for sizing up a company's strengths and weaknesses; its market opportunities, and the external threats to its future well-being.
Strategic Group Mapping
A technique for displaying the different market or competitive positions that rival firms occupy in the industry.
PESTEL Analysis
Can be used to assess the strategic relevance of the six principal components of the macro-environment: Political, Economic, Social, Technological, Environmental, and Legal/Regulatory forces.
Focused low-cost
Concentrating on a narrow buyer segment (or market niche) and out competing rivals by having lower costs and thus being able to serve niche members at a lower price. Private-label manufacturers of food, health and beauty products, and nutritional supplements use their low-cost advantage to offer supermarket buyers lower prices than those demanded by producers of branded products.
Focused differentiation
Concentrating on a narrow buyer segment and out competing rivals by offering buyers customized attributes that meet their specialized needs and tastes better than rivals' products. Lululemon in high-quality yoga clothing, Jiffy Lube International in quick oil changes, McAfee in virus protection software, The Weather Channel in cable TV.
Deliberate Strategy
Consists of proactive strategy elements that are planned.
Emergent Strategy
Consists of reactive strategy elements that emerge as changing conditions warrant.
Macro Environment
Encompasses the broad environmental context in which a company's industry is situated.
VRIN Tests
For sustainable competitive advantage ask whether a resource is Valuable, Rare, Inimitable, and Nonsubstitutable. We did an in class example of this with Panera.
Best-cost provider
Giving customers more value for the money by satisfying their expectations on key quality features, performance, and/or service attributes while beating their price expectations. Blends elements of low-cost provider and differentiation strategies. Example includes Target.
Fit Test
How well does the strategy fit the company's situation? To qualify as a winner, a strategy has to be well matched to industry and competitive conditions, a company's best market opportunities, and other pertinent aspects of the business environment in which the company operates. No strategy can work well unless it exhibits good external fit and is in sync with prevailing market conditions. A company must also exhibit good internal fit and be compatible with a company's ability to execute the strategy in a competent manner. Winning strategies also exhibit dynamic fit in the sense that they evolve over time in a manner that maintains close and effective alignment with the company's situation even as external and internal conditions change.
LO: How to take stock of how well a company's strategy is working.
How well is the present strategy working? This invloves evaluating the strategy in terms of the company's financial performance and market standing. The stronger a company's current overall performance, the less likely the need for radical strategy changes. The weaker a company's performance and/or the faster the changes in its external situation (which can be gleaned from PESTEL and industry analysis), the more its current strategy must be questioned.
Value Chain
Identifies the primary activities and related support activities that create customer value.
LO: How to assess the company's strengths and weaknesses in light of market opportunities and external threats.
Is the company able to seize market opportunities and overcome external threats to its future well-being? The answer to this questions comes from performing a SWOT analysis. The two most important parts of SWOT analysis are (1) drawing conclusions about what strengths, weaknesses, opportunities, and threats tell about the company's overall situation and (2) acting on the conclusions to better match the company's strategy to its internal strengths and market opportunities, to correct the important internal weaknesses, and to defend against external threats. A company's strengths and competitive assets are strategically relevant because they are the most logical and appealing building blocks for strategy; internal weaknesses are important because they may represent vulnerabilities that need correction. External opportunities and threats come into play because a good strategy necessarily aims at capturing a company's most attractive opportunities and at defending against threats to its well-being.
Competitive Advantage Test
Is the strategy helping the company achieve a sustainable competitive advantage? Strategies that fail to achieve a durable competitive advantage over rivals are unlikely to produce superior performance for more than a brief period of time. Winning strategies enable a company to achieve a competitive advantage over key rivals that is long-lasting. The bigger and more durable the competitive advantage, the more powerful it is.
Performance Test
Is the strategy producing good company performance? The mark of a winning strategy is strong company performance. Two kinds of performance indicators tell the most about the caliber of a company"s strategy: (1) competitive strength and market standing and (2) profitability and financial strength. Above-average financial performance or gains in market share, competitive position, or profitability are signs of a winning strategy.
Strategic Plan
Lays out its future direction, performance targets, and strategy.
Casual Ambiguity
Makes it very hard to figure out how a complex resource contributes to competitive advantage and therefore exactly what to imitate.
LO: The role and responsibility of a company's board of directors in overseeing the strategic management process.
Monitoring developments, evaluating performance, and initiating corrective adjustments in light of actual experience, changing conditions, new ideas, and new opportunities. This stage of the strategy management process is the trigger point for deciding whether to continue or change the company's vision and mission, objectives, strategy, and/or strategy execution methods.
LO: How a comprehensive evaluation of a company's competitive situation can assist managers in making critical decisions about their next strategic moves.
On an overall basis, is the company competitively stronger or weaker than key rivals? The key appraisals here involve how the company matches up against key rivals on industry key success factors and other chief determinants of competitive success and whether and why the company has a net competitive advantage or disadvantage. Quantitative competitive strength assessments, using the method presented in Table 4.4, indicate where a company is competitively strong and weak and provide insight into the company's ability to defend or enhance its market position. As a rule, a company's competitive strategy should be built around its competitive strengths and should aim at shoring up areas where it is competitively vulnerable. When a company has important competitive strengths in areas where one or more rivals are weak, it makes sense to consider offensive moves to exploit rivals' competitive weaknesses. When a company has important competitive weaknesses in areas where one or more rivals are strong, it makes sense to consider defensive moves to curtail its vulnerability.
Strategic Objectives
Relate to target outcomes that indicate a company is strengthening its market standing, competitive position, and future business prospects.
Financial Objectives
Relate to the financial performance targets management has established for the organization to achieve.
Broad differentiation
Seeking to differentiate the company's product or service from that of rivals in ways that will appeal to a broad spectrum of buyers. Successful adopters of this include Apple, Johnson & Johnson, and BMW.
Stretch Objectives
Set performance targets high enough to stretch an organization to perform at its full potential and deliver the best possible results.
Business Model
Sets forth the logic for how its strategy will create value for customers and at the same time generate revenues sufficient to cover costs and realize a profit.
LO: The importance of setting both strategic and financial objectives.
Setting objectives to convert the vision and mission into performance targets that can be used as yardsticks for measuring the company's performance. Objectives need to spell out how much of what kind of performance by when. Two broad types of objectives are required: financial objectives and strategic objectives. A balanced-scorecard approach for measuring company performance entails setting both financial objectives and strategic objectives.
Values
The beliefs, traits, and behavioral norms that company personnel are expected to display in conducting the company's business and pursuing its strategic vision and mission.
Capability or Competence
The capacity of a firm to perform some internal activity competently. Capabilities are developed and enabled through the deployment of a company's resources.
LO: Concept of sustainable competitive advantage.
The central thrust of a company's strategy is undertaking moves to build and strengthen long-term competitive position and financial performance by competing differently from rivals and gaining a sustainable competitive advantage over them.
Driving Forces
The major underlying causes of change in industry and competitive conditions.
Complementors
The producers of complementary products, which are products that enhance the value of the focal firm's products when they are used together.
Strategy
The set of actions that a company's managers take to outperform the company's competitors and achieve superior profitability.
Key Success Factors
The strategy elements, product and service attributes, operational approaches, resources, and competitive capabilities that are essential to surviving and thriving in the industry.
Social Complexity
Two factors that inhibit the ability of rivals to imitate a firm's most valuable resources and capabilities.
LO: How to recognize factors in a company's broad macro-environment that may have strategic significance.
What are the strategically relevant factors in the macro-environment, and how do they impact an industry and its members? industries differ significantly as to how they are affected by conditions in the broad macro-environment. Using PESTEL analysis to identify which of these factors is strategically relevant is the first step to understanding how a company is situated in its external environment.
LO: How to map the market positions of key groups of industry rivals.
What cooperative forces are present in the industry, and how can a company harness them to its advantage? Interactions among industry participants are not only competitive in nature but cooperative as well. This is particularly the case where complements to the products or services of an industry are important. The value net framework assists managers in sizing up the impact of cooperative as well as competitive interactions on their firm.
LO: How to use multiple frameworks to determine whether an industry's outlook presents a company with sufficiently attractive opportunities for growth & profitability.
What factors are driving changes in the industry, and what impact will they have on competitive intensity and industry profitability? Industry and competitive conditions change because certain forces are acting to create incentives or pressures for change. The first step is to identify the three or four most important drivers of change affecting the industry being analyzed (out of a much longer list of potential drivers). Once an industry's change drivers have been identified, the analytic task becomes one of determining whether they are acting, individually and collectively, to make the industry environment more or less attractive.
LO: How to use analytic tools to diagnose the competitive conditions in a company's industry.
What kinds of competitive forces are industry members facing, and how strong is each force? The strength of competition is a composite of five forces: (1) rivalry within the industry, (2) the threat of new entry into the market, (3) inroads being made by the sellers of substitutes, (4) supplier bargaining power, and (5) buyer bargaining power. All five must be examined force by force, and their collective strength evaluated. One strong force, however, can be sufficient to keep average industry profitability low. Working through the five forces model aids strategy makers in assessing how to insulate the company from the strongest forces, identify attractive arenas for expansion, or alter the competitive conditions so that they offer more favorable prospects for profitability.
Competitive Advantage
When a company provides buyers with superior value compared to rival sellers or offers the same value at a lower cost to the firm.
Strategic Intent
When a company relentlessly pursues an ambitious strategic objective, concentrating the full force of its resources and competitive actions on achieving that objective.
