MGMT 4513 - Exam 1

diversification

- initiatives must create value for shareholders - tactics include: mergers and acquisitions, strategic alliances, joint ventures and internal development - 2 types: related and unrelated

threats

- unfavorable environmental changes - hostile takeovers (M&As) - competitors new product launches - competitors superior resources - new entrants - competitive rivalry

Think about Netflix before they started streaming. Where would you classify these in the value chain? 1 - Mailing the DVD to the customer 2 - hiring general employees 3 - advertising campaigns

1 - outbound logistics (primary) 2 - Human Resources (support) 3 - sales and marketing (primary)

Porters 5 Forces

1 - threat of new entrants 2 - bargaining power of buyers 3 - bargaining power of suppliers 4 - threat of substitutes 5 - rivalry amongst existing competitors

acquisitions

1 firm buying another either through stock purchase, cash or the issuance of debt

SWOT Analysis

- basic technique for analyzing firm and industry conditions (strength, weaknesses, opportunities and threats) - benefits: forces managers to consider both internal and external factors, makes firms act proactively, raises awareness about role of strategy (a firm strategy must build on its strengths, remedy the weaknesses or work around them, take advantage of the opportunities presented by the environment, protect the firm from threats))

Generic Business Strategies (how these deal with the 5 forces)

- business level strategies require a choice: how best to overcome the 5 forces and achieve competitive advantage? (which segments will we compete in and how will we compete)

2 - buyer power

- buyers have bargaining power (buyers can force down pricers, bargain for higher quality or more services, play competitors against each other) - buyer groups are powerful when: purchasing standard products in large volumes, profits are low and switching costs are few, backward integration is possible, buyers product quality is not affected by industry product

intro

- characterized by poor defined market segments; differentiation (focus) work well

overall cost leadership

- creating a low cost position relative to a firms peers - managing relationships throughout the entire value chain to lower costs - aggressive pursuit of efficiency and cost minimization (economies of scale, value chain activities, overhead and fixed costs, the experience curve) - to effectively implement MUST have competitive parity (With general industry average): product offerings, quality, differentiation, or other strategic product characteristics pros: protects against rivalry from competitors, protects against powerful buyers, increase entry barriers, puts the firm in a favorable position with respect to substitute products cons: too much focus on one or a few value chain activities, increase in the cost of inputs on which the advantage is based, strategy is imitated too easily, lack of parity on differentiation, obsolescence of the basis of cost advantage examples: walmart

the general environment

- demographic (aging population, rising affluence, changes in ethnic composition, geographic distribution of population) - sociocultural (women in workforce, concern for health and fitness, concern for environment, postponement of marriage and family) - political/legal (Affordable care act, ADA, increasing minimum wages, immigration reform) - technological (automation, genetic engineering, pollution/global warming, digital technology) - economic (interest rates, unemployment, trends in GDP, consumer purchasing power) - global (exchange rates, increasing global trade agreements) this can impact multiple industries (tech, demo, sociocultural, economic, political and global)

What strategy does Starbucks use? How can you tell?

- differentiation - focus on providing quality coffee at a premium price

limits of porters 5 forces

- don't always avoid low profit industries (these can still yield high returns) - five force analysis implicitly assumes zero sum game (mutually beneficial relationships can be established with buyers and suppliers) - five forces analysis is essentially a static analysis (yet external forces can still change the structure of all industries)

opportunities

- favorable environmental change - collaborative partnerships (M&As, joint ventures, strategic alliances) - attractive new product market segments - attractive new geo-graphical segments - competitors exiting the market

Resource Based View (RBV)

- integrates 2 perspectives: an internal analysis of phenomena within a company, and an external analysis of the industry and its competitive environment - resources can lead to a competitive advantage if: they are valuable, rare or hard to duplicate, they are combined and making it hard to substitute for or duplicate - firm resources must have 4 attributes to have a sustainable competitive advantage: VRIN (Valuable, Rare, Inimitable, Non Substitutable) Sources of inimitability: - physical uniqueness - path dependency(hard to duplicate bc of all that has happened along the path followed in the development and/or accumulation of resources) -causal ambiguity (impossible to explain what caused a resource to exist or how to recreate it) - social complexity (resources that result from social engineering such as interpersonal relations, culture)

Value Chain Analysis

- looks at the sequential process of value creating activities: - value is the amount buyers are willing to pay for what a firm provides - how is value created within the organization? - how is value created for other organizations in the overall supply chain distribution channel? - the value received must exceed the costs of production - managers MUST NOT ignore the important of interrelationships among value chain activities (within the firm and between firms) - expand the value chain by exchanging resources primary activités (contribute to the physical creation of the product or service; the sale and transfer to buyer; and service after the sale: inbound logistics, operations, outbound logistics, marketing and sales, service support activities (either add value by themselves or add value through important relationships with both primary activities and other support activities: procurement, tech development, HR management, general admin inbound (primary)- receiving, storing and distributing inputs operations (primary) - transforming inputs in to the final product outbound logistics (primary)- collecting, storing, and distributing the product or service to buyers marketing and sales (primary) - purchases of products and services by end users and includes how to induce buyers to make those purchases service (primary)- all actions associated with providing service to enhance or maintain the value of a product procurement (support) - how the firm purchases inputs used in its value chain tech development (support) - R&D for product and process, collaborative relationships between R&D and other departments, facilities and equip HR mgmt (support) - recruiting, hiring, training and development and compensation of all types of personnel general admin (support) - overall goals and obj, relations and diverse stakeholder groups, IT to coordinate value creating activities, act on key environmental trends and events, etc

what strategy does Walmart use? How can you tell?

- low cost because they compete on price

focus

- narrow product lines, buyer segments, or targeted geographic markets - advantages obtained either through differentiation or cost leadership - firm selects a segment or group of segments and tailors its strategy to serve them - achieves comp adv by dedicating itself to these segments exclusively - segments can be geographic or product segments - focus strategy has 2 variants: cost focus (create a cost adv in its target segment - exploits difference in cost behavior) and differentiation focus (differentiates itself in its target market- exploits the special needs of buyers) pros: higher entry barriers due to cost leadership or differentiation or both, reduce supplier power, reduces buyer power, reduces threat of sub example: IKEA

1- threat of new entrants

- new competitors entering the industry and have the potential to upset the status quo - possibility that the profits established firms in the industry may be eroded by new competitors - the degree of the threat of new entrants depends on the existing barriers to entry

differentiation

- products and/or services that are unique and valued - emphasis on nonprime attributes for which customers will gladly pay a premium - involves a level of cost parity relative to competitors, integration of multiple points along the value chain and differentiation along several different dimensions at once pros: creates higher entry barriers, reduces supplier power, reduces buyer power, reduces threat of substitutes cons: uniqueness that is not valuable, too much differentiation, too high a price premium, differentiation that is easily imitated, dilution of brand ID through product line extensions, perceptions of differentiation may vary between buyers and sellers examples: broad diff = apple differ focus = Harley davidson

4- threat of substitutes

- substitutes come from another industry - can perform the same function as the industries offerings - reduce profitability of an industry

3 - supplier power

- suppliers have bargaining power too - they have something you want or need - suppliers exert bargaining power by: threatening to raise prices, reduce the quality of purchased goods and services - supplier groups are powerful when: only a few firms dominate the industrys supply, limited competition from substitute products, suppliers sell to several industries, buyer quality is affected by industry product, products are differentiated and have switching costs, forward integration is possible

What is an example of a tangible resource for Netflix? What about intangible resource? Competitive advantage?

- tangible would be inventory (DVDs) or content - intangible would be the brand - intangible has a higher likelihood of leading to a competitive advantage

Supplier power is one of Porters 5 Forces. Think about Wendys suppliers. How much supplier power do these suppliers have? What factors would increase supplier power?

-medium to lower supplier power -factors that increase supplier power are: limited number of suppliers, product quality is affected by the quality of supply, suppliers have many different buyers

BCG Matrix

-stars (high growth and high market share) - question markets (high market growth and low market share) - dogs (low market growth and low market share - consider divesting) - cash cows ( low market growth and high market share - maintain positioning)

Where do we spend the least?

DOGS

Threat of substitutes is another of Porters 5 Forces. How high is the threat of substitutes in the fast food industry?

HIGH - lots of comparable substitute products like being able to cook from...?

How much sense does self ordering kiosks make for Starbucks?

Not much - it takes away from what they are going for. It MAY make little sense but only if it would allow them to added to their differentiation strategy and encourage customers to customize their order with add ons and upgrades

AT&T bought DirectTV in 2015, what type of diversification is this?

RELATED

Where do we spend most of our money?

STARS

External Environment

SWOT Analysis, Porters 5 Forces, The General Environment

New legislation passed nationwide and the minimum wage for hourly workers to $16 per hour. Is this a threat or opportunity to Wendys? Why?

THREAT It raises the price of key suppliers (labor) and since Wendy's competes on a low cost strategy, which is based on its ability to keep its own costs down this will impact the viability of its current strategy

Internal Environment

Value Chain Analysis, SWOT, Resource Based View (RBV)

sharing activities

achieve synergy by sharing activities across their business units - sharing tangible and value creating activities can provide payoffs: cost savings, revenue enhancements

parenting and restructuring

allows corporate office to create value through mgmt expertise and competent central functions

Walmart uses self check out kiosks. Why does that make sense for Walmart?

because it lowers their costs. The initial investment is costly but automation allows them to achieve economies of scale by reducing their cost per customer by cutting down on the reoccurring labor costs

vertical integration

becoming its own supplier or distributor through: - backward integration - forward integration minimizes transaction costs: - search, negotiation, contract, monitoring and enforcement, admin

SWOT

benefits: -IDs which resources MAY = competitive advantage -IDs areas that need to be cultivated -simple and effective tool limits: - strengths don't always = competitive advantage - static tool - overemphasizes a single dimension of strategy

diversification tactics

can be accomplished via: - mergers - acquisitions - strategic alliance & joint ventures (collaborate pooling of resources) - internal development through corporate entrepreneurship, new venture development

market power

can lead to creation of value and synergy if: - pooled negotiating power - gaining greater bargaining power with suppliers and cusotmers

decline

characterized by declining sales; overall cost leadership works well

maturity

characterized by market saturation; overall cost leadership OR diff works well

growth

characterized by rapid growth; differeintaiton works well

mergers

combo or consolidation of 2 firms to forma new legal entity - relatively rare - relatively equal basis

Corporate level strategy

diversification, the BCG matrix, ways to diversify

related diversification

firm may diversify into related business - benefits derive from horizontal relationships - sharing intangible resources such as core competencies in marketing, sharing tangible resources such as production facilities, distribution channels via vertical integration -economies of hope allow business to leverage core competencies, sharing related activities, enjoy greater revenues and enhance diversification - gain market power by pooled negotiating power and vertical integration

unrelated diversification

firm may diversify into unrelated business - benefits derive from hierarchical relationships - value creation derived from the corporate office, leveraging support activities in the value chain - corporate parenting advantage - restructuring to redistribute assets - portfolio management

Business Level Strategy

generic business level strategies, and industry life cycles

industry life cycles

intro, growth, maturity, decline

portfolio mgmt

involves a better understanding of the competitive position of an overall portfolio or family of businesses

turnaround strategy

involves revering performance decline and reinvigorating growth toward profitability through: asset/cost surgery, selected market and product pruning, piecemeal, productivity improvements

3 generic business level strategies

overall cost leadership, differentiation, focus

leveraging core competencies

reflect the collective learning in organizations - can lead to the creation of value and synergy if: - create superior customer value - value charm elements in separate businesses require similar skills - they are difficult for competitors to imitate or find sub for

5 - rivalry

rivalry = price competition, advertising battles, new product introductions or increased customer service or warranties - factors lead to intense rivalry are: numerous or equally balanced competitors, slow industry growth, high fixed costs, lack of differentiation or switching costs, capacity augmented in large increments, high exit barriers, price sensitive buyers