MGMT 490: Chapter 1 - Information

Pandora, Sirius XM, and Broadcast Radio: Three contrasting business models

1. Who listens to the radio anymore? 2. How sustainable are the business models of Pandora, Sirius XM and over-the-air broadcasters over the long term? 3. Given the changes in user listening habits, which competitor's present strategy best passes the three tests of a winning strategy? 4. What internal and external factors will create particular difficulties for each competitor in changing its strategy or business model? - While all three provide the same type of entertainment service, the business models employed by Pandora, Sirius XM, and Over-The-Air Broadcast Radio are completely different. - In the area of value proposition, Sirius XM provides commercial-free entertainment with some local content based upon a monthly fee, while Broadcast Radio provides entertainment with some local content, with interruptions for commercials, without a fee. - Pandora bridges these two methods. - In one mode it operates more like Over-the-Air Broadcast Radio, in that it provides entertainment without a fee that includes targeted advertisements, with the added benefit of allowing the listener to customize the music mix. - In the other mode, listeners can elect to go ad-free for a fee, using Pandora One. - For profit, Sirius XM must attract a large enough customer base in order to cover costs and provide profit, while Broadcast Radio must attract a large enough advertiser base to cover costs and provide profit. - Pandora, once again bridging the two, generates profit by either an advertiser base or through ad-free services.

Realized (current) strategy is a blend of:

1. proactive (deliberate) strategy 2. Reactive (emergent) strategy 3. abandoned and superseded strategy elements that no longer fit with the company's ongoing strategy - The evolving nature of a firm's strategy means that its strategy is a blend of: (1) proactive - planned initiatives to improve its financial performance and secure a competitive edge (2) reactive - responses to unanticipated developments and fresh market conditions. - in total, these elements combine to form the firm's realized strategy

Strategic management principle

Changing circumstances and ongoing management efforts to improve the strategy cause a firm's strategy to evolve over time—a condition that makes the task of crafting strategy a work in progress, not a one-time event - A firm's strategy is shaped partly by management analysis and choice and partly by the necessity of adapting and of learning by doing. 1. Every company must be willing and ready to modify the strategy in response to changing market conditions, advancing technology, unexpected moves by competitors, shifting buyer needs, emerging market opportunities, and mounting evidence that the strategy is not working well. 2.Most of the time, a company's strategy evolves incrementally from management's ongoing efforts to fine-tune the strategy and to adjust certain strategy elements in response to new learning and unfolding events. 3. Industry environments characterized by high velocity change require companies to repeatedly adapt their strategies

Focused differentiation

Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals' products

Focused low cost

Concentrating on a narrow price-sensitive buyer segment (or market niche) and outcompeting rivals by having lower costs than rivals, and thus, being able to serve niche members at a lower price

The profit formula:

Creates a cost structure that allows for acceptable profits, given that pricing is tied to the customer value proposition V - the value provided to customers P - the price charged to customers C - the firm's costs - the lower the costs (C) for a given customer value proposition (V-P), the greater the ability of the business model to be a moneymaker - the profit formula describes the company's approach to determining a cost structure that will allow for acceptable profits, given the pricing tied to its customer value proposition

Broad Differentiation

Differentiating the firm's product offering from rivals' with attributes that appeal to a broad spectrum of buyers

The fit test

Does it exhibit good fit with the external and internal aspects of the firm's dynamic situation? - To qualify as a winner, a strategy must be well matched to industry and competitive conditions, a company's best market opportunities, and other aspects of the enterprise's external environment.

Strategies for building competitive advantage

Five of the most frequently used strategic approaches to setting a firm apart from rivals and achieving a sustainable competitive advantage. 1. Low cost provider 2. Broad differentiation 3. Focused low cost 3. Focused differentiation 4. best-cost provider

Best cost provider

Giving customers more value for the money by satisfying buyers' expectations on key quality/features/performance/service attributes while beating their price expectations

Applying what you learned in this chapter

Google's browser-based Chrome operating system and its online applications suite are challenging Microsoft's long-term dominance of the office productivity application marketplace sectors. 1. What should be Microsoft's near-term response to this competitive challenge? 2. How will Microsoft's long-term response to this competitor's actions affect its business model? 3. Which competitor's strategy will likely be the eventual winner in the marketplace? Why? - Discussions of how strongly Microsoft will to respond to Google's growth as a competitor in the maturing office productivity applications marketplace is likely to be influenced by the choice of application suites that a respondent uses. - Emphasizing how rapidly technology changes occur in the electronic communications industry should bring an eventual recognition that, no matter how well a strategy performs in the market in its beginning, the changes in the market will eventually overwhelm its success.

A company's strategy and its business model

How the firm will make money: 1. by providing customers with value - the firm's customer value proposition 2. By generating revenues sufficient to cover costs and produce attractive profits - the firm's profit formula - It takes a proven business model—one that yields appealing profitability—to demonstrate viability of a firm's strategy.

What is our present situation?

Industry conditions and competitive pressures, market standing, competitive strengths and weaknesses, and future prospects in light of changes taking place in the business environment

Strategy is all about choosing How

Normally, companies have a wide degree of strategic freedom in choosing the "hows" of strategy: - how to position the firm in the marketplace - how to attract customers - how to compete against rivals - how to achieve the firm's performance targets - how to capitalize on opportunities to grow the business - how to respond to changing economic and market conditions

Competitive advantage

Requires meeting customer needs either more effectively (with products or services that customers value more highly) or more efficiently (by providing products or services at a lower cost to customers)

The customer value proposition is:

Satisfying buyer wants and needs at a price customers will consider a good value - the greater the value provided (v) and the lower the price (r), the more attractive the value proposition is to customers - recall that any marketplace is simply a place to conduct an exchange of a perceived equality of values and prices for a good or service between a buyer and a seller

Why crafting and executing strategy are important tasks

Strategy provides: - a prescription for doing business - a road map to competitive advantage - a game plan for pleasing customers - a formula for attaining long-term standout marketplace performance - Good strategy + good strategy execution = good management - How well a company performs is directly attributable to the caliber of its strategy and the proficiency with which the strategy is executed by its managers.

Strategy and the quest for competitive advantage

The heart and soul of any strategy is the actions and moves in the marketplace that managers are taking to improve the company's financial performance, strengthen its long-term competitive position, and gain a competitive edge over rivals. - But sustainability is a relative term, with some advantages lasting longer than others. - And regardless of how sustainable a competitive advantage may appear to be at a given point in time, conditions change. - Even a substantial competitive advantage over rivals may crumble in the face of drastic shifts in market conditions or disruptive innovations.

V

The value provided to customers

Is the company's strategy a winner?

Three test of a winning strategy: 1. exhibits good fit with situation 2. results in competitive advantage 3. promotes superior performance - Three questions above can be asked to test the merits of one strategy versus another and distinguish a winning strategy from a losing or mediocre strategy.

the road ahead

Throughout the remaining chapters and the accompanying case collection, the spotlight is trained on the foremost question in running a business enterprise: - What must managers do, and do well, to make a company a winner in the marketplace? - The mission of this book is to provide a solid overview of what every business student and aspiring manager needs to know about crafting and executing strategy.

It is easier for rivals to imitate a company's product line than it is for them to duplicate its capabilities. True False

True

A company's strategy is a blend of proactive initiative and reactive adjustments

Two elements combine to form the company's Realized Strategy. - is a Blend of Proactive Initiatives and Reactive Adjustments, and illustrates the elements of strategy that become the Realized Strategy. - Strategy elements that prove unsuccessful are abandoned to be replaced by newly developed planned initiatives or reactive strategy elements in the current realized strategy. 1. Deliberate strategy (proactive strategy elements) - new planned initiative plus ongoing strategy elements continued from prior periods - they can abandon strategy elements here too 2. Emergent strategy (reactive strategy elements) - new strategy elements that emerge as managers react adaptively to changing circumstances - both of these achieve - A company's current or realized strategy

Strategy is about asking the right questions

What must managers do, and do well, to make a firm a winner in the marketplace?

What aspect of a company's operations is usually the easiest thing for competitors to duplicate? a. Attributes of the company's products or services b. Expertise of the company's personnel c. Specialized capabilities that the company has developed d. The company's experience

a. Attributes of the company's products or services

A sound company strategy is essentially about ______ in comparison to company rivals. a. competing differently b. being faster to market c. carrying less debt d. having a better trained workforce

a. competing differently

A strategy that changes in response to new market conditions and challenges is known as a. a differentiation strategy. c. a proactive strategy. c. a static strategy. d.an evolving strategy.

a. en evolving strategy - the reason B isn't correct: Proactive strategy elements are both planned and executed as planned, not responding to new market conditions.

What is the purpose of the fit test? a. to determine how well a strategy matches the company's situation b. to identify which employees are qualified for a specific project c. to identify products that will most likely perform well in the company's target market d. to weed out managers who fail to meet the company's standards

a. to determine how well a strategy matches the company's situation

Low cost provider

achieving a cost-based advantage over rivals

Which statement about the connection between good strategy and good execution is true? a. A company can enjoy long-term success with a weak strategy if the execution is strong and aggressive. b. Good management consists of good strategy and good strategy execution. c. As long as a company has a strong strategy, successful execution is a sure thing. d. The marker of good management is a solid strategy that focuses on customer value above all else.

b. goo management consist of good strategy and good strategy execution

What is one key characteristic of a focused low-cost strategy? a. It seeks to sell to a broad market segment. b. It seeks to sell to a narrow market niche. c. It seeks to give customers the most value for their money by meeting key quality features or performance. d. It seeks to differentiate its products from those of rivals

b. it seeks to sell to a narrow market niche - the reason why C isn't correct: This describes a best-cost provider strategy.

What is the purpose of the fit test? a. to identify which employees are qualified for a specific project b. to determine how well a strategy matches the company's situation c. to weed out managers who fail to meet the company's standards d. to identify products that will most likely perform well in the company's target market

b. to determine how well a strategy matches the company's situation

What company invented the business model for fast food restaurants? a. Kentucky Fried Chicken b. McDonald's c. Pizza Hut d. Burger King

c. McDonald's

A blueprint that outlines the means for a company to deliver value to customers in a suitably profitable manner is known as its a. proactive strategy. b. strategic reaction. c. business model. d. emergent strategy.

c. business model

The actions that a company takes in accordance with its established business practices make up its ______ strategy, in contrast with actions the company takes in response to changing market conditions. a. differentiation b. emergent c. deliberate d. realized

c. deliberate

The key for a company to achieve competitive advantage is either to provide superior value to customers or to deliver value more a. subtly. b. forcefully. c. efficiently. d. collaboratively.

c. efficiently

A company's realized strategy is a combination of a. deliberate and proactive elements. b. predictive and responsive strategies. c. proactive and reactive elements. d. emergent and reactive strategies.

c. proactive and reactive elements.

A typical company's strategy is often both ______, meaning that it plans ways to improve the company's competitiveness, and ______, meaning that it responds to unforeseen market conditions. a. reactive; proactive b. proactive; reactive c. emergent; proactive d. reactive; deliberate

c. proactive, reactive

What's our plan for running the company and achieving good results?

challenges managers to craft a series of competitive moves and business approaches - henceforth called a strategy - for heading the firm in the intended direction, staking out a market position, attracting customers, and achieving the targeted outcomes

When a business is more successful than its rivals at attracting customers and handling competition, it is said to have a(n) ______ advantage. a. marketing b. organizational c. long-term d. competitive

d. competitive

A company's approach to meeting or exceeding its customers' needs at a price they consider a good value is called the a. profit formula. b. value-price-cost strategy c. business model. d. customer value proposition.

d. customer value proposition - the reason why B is not correct: The value-price-cost framework uses customer value and the profit formula to reveal how efficiently a company can deliver on the value proposition.

The key for a company to achieve competitive advantage is either to provide superior value to customers or to deliver value more a. collabortively b. subtly c. forcefully d. efficiently

d. efficiently

Actions taken in response to new strategic maneuvers by rival firms or other unanticipated market circumstances make up a company's ______ strategy. a. deliberate b. abandoned c. proactive d. emergent

d. emergent - the reason why C isn't correct: Proactive strategy elements, which compose a company's deliberate strategy, are planned initiatives and ongoing strategies.

Reactive (emergent) strategy

elements developed on the fly in response to unanticipated developments and fresh market conditions - consists of reactive strategy elements that emerge as changing conditions warrant.

Proactive (deliberate) strategy

elements that include planned initiatives to improve the company's financial performance and secure a competitive edge - consists of proactive strategy elements that are both planned and realized as planned

The profit _____is the company's approach to determining a cost structure that will allow for acceptable profits, given the pricing tied to its customer value proposition.

formula

The business model and the value price cost framework

illustrates the elements of the business model in terms of what is known as the Value-Price-Cost Framework highlighting the relationship between the Customer's Value Proposition (V-P) and the Profit Formula (P-C). 1. Customer value (V) - customer's share (customer value proposition) 2. Product price (P) - firm's share (profit formula) 3. Per-unit cost (c)

Strategy as a choice:

is deciding to compete differently from rivals - pressuring rivals by doing what they do not do or, even better doing what they cannot do - guides the company in what it must do and also in knowing what it must not do - is successful when its actions, business approaches and competitive moves appeal to buyers in ways that: 1. set it apart from its rivals by either providing products with higher perceived values or efficiently producing at lower costs 2. stake out a market position that is not crowded with strong competitors

the competitive advantage test

is it likely to result in a sustainable competitive advantage? - The bigger and more durable the competitive edge that a strategy helps build, the more powerful and appealing it is

The performance test

is it producing superior performance, as indicated by the firm's profitability, financial and competitive strengths, and market standing? - Is the strategy producing good company performance? - Which measures are reliable indicators of good strategic performance? - Be careful of measures that can be influenced by external factors or manipulated by internal actions (high sales with low margins).

Business Model

is management's plan for delivering a valuable product or service to customers in a manner that will generate revenues sufficient to cover costs and yield an attractive profit. - A firm's business model sets forth the logic for how its strategy will create value for customers, while at the same time generate revenues sufficient to cover costs and realize a profit.

Strategy

is the coordinated set of actions that its managers take in order to outperform the company's competitors and achieve superior profitability - Understanding what is meant by strategy is essential to grasping the entirety of the strategy-making and implementation process. - Managers must eventually achieve success to continue as managers. - Success in strategic management requires a firm foundation of business knowledge, independent initiative, a broad-ranging intellect, strong intuitive and critical forward thinking, coordinated and sustained competitive effort (tasks are larger than individuals), and, most importantly, unimpeachable ethics and personal integrity.

Identifying a firm's strategy - what to look for

shows what to look for in identifying the substance of a company's overall strategy - these are the visible actions taken that signal what strategy the company is pursuing - The pattern of actions and business approaches that define a company's strategy: 1. Actions to gain slaes and market share with lower prices based on lower costs 2. Actions to enter new product or geographic markets or to exit existing ones 3. Actions to capture emerging market opportunities and defend against external threats to the company's business prospects 4. Actions to strengthen market standing and competitiveness by acquiring or merging with other companies 5. Actions to strengthen competitiveness via strategic alliances and collaborative partnerships 6. Actions and approaches used in managing R&D, production, sales and marketing, finances and other key activities 7. Actions to upgrade, build, or acquire competitively important resources and capabilities 8. Actions to strengthen the firm's bargaining position with suppliers, distributors and others 9. Actions to gains ales and markets share via more performance features, more appealing design, better quality or customer service, wider protect selection, or other such actions

C

the firm's costs

P

the price charged to customers

Managers modify strategy in response to:

- Changing market conditions - Advancing technology - Fresh moves of competitors - Shifting buyer needs - Emerging market opportunities - New ideas for improving the strategy

Good strategy + good strategy execution = good management

- Crafting and executing strategy are core management functions. - Among all the things managers do, nothing affects a company's ultimate success or failure more fundamentally than how well its management team charts the company's direction, develops competitively effective strategic moves and business approaches, and pursues what needs to be done internally to produce good day-to-day strategy execution and operating excellence.

Key elements of apple's successful strategy are:

- Designing and developing its own operating systems, hardware, application software and services. - Continuously investing in R&D and frequently introducing products. - Strategically locating its stores and staffing them with knowledgeable personnel. - Maintaining a quality brand image, supported by premium pricing. - Committing to corporate social responsibility and sustainability through supplier relations. - Cultivating a diverse workforce rooted in transparency. - Apple Inc. is one of the most profitable companies in the world, with revenues of more than $225 billion. - For more than ten consecutive years, it has ranked number one on Fortune's list of the "World's Most Admired Companies." - Given the worldwide popularity of its products and services, along with its reputation for superior technological innovation and design capabilities, this is not surprising.

Which performance indicators are signs of a winning strategy? - Growing number of employees - Gains in competitive position - Above-average financial performance - Increased market share

- Gains in competitive position - Above-average financial performance - Increased market share

Components of a fit test, used to evaluate how well a company's strategy matches its situation, include which of the following? - Internal fit -Aesthetic fit -External fit -Dynamic fit

- Internal fit -External fit -Dynamic fit

What are the two basic ways that companies achieve competitive advantage over their business rivals? - Produce products or services at a lower cost. -Design more effective advertisements. -Appeal to a larger target market. -Deliver higher perceived value to customers.

- Produce products or services at a lower cost. -Deliver higher perceived value to customers.

Why are crafting and executing strategy important managerial tasks? - They lay out the means for pleasing customers. -They establish a formula for improving performance. -They define a company's best practices. -They provide a path to competitive advantage.

- They lay out the means for pleasing customers. -They establish a formula for improving performance. -They provide a path to competitive advantage.

Which three companies have broad differentiation strategies that have allowed them to maintain long-term competitive advantages? - Apple -Johnson & Johnson -Walmart -BMW

- apple - johnson and johnson - BMW - the reason why walmart isn't is because it purses a low-cost provider strategy

What are some of the ways that companies typically implement a competitive strategy? - by isolating the managerial staff - by diversifying product lines -by focusing on quality -by delivering superior customer service

- by diversifying product lines -by focusing on quality -by delivering superior customer service

Sustainable competitive advantage requires:

- giving buyers lasting reasons to prefer a firm's products or services over those it its competitors - developing expertise and long-term competitive capabilities that cannot be readily overcome - putting the constant quest for sustainable competitive advantage at center stage in crafting your strategy

Strategy requires getting the right answers

- good strategic thinking and good management of the strategy-making, strategy- executing process are important - first-rate capabilities and skills in crafting and executing strategy are essential to managing successfully

What choices must managers consider when committing to a company strategy for competing against rival companies? (can me multiple answers) - how to hide the company's structural weaknesses - how to attract customers - how to capitalize on growth opportunities - how to respond to market conditions

- how to attract customers - how to capitalize on growth opportunities - how to respond to market conditions

Which of the following are impediments to a company's long-term industry success? - inadequate attempts to improve -proactive strategy making -illogical strategies -imitative strategies

- inadequate attempts to improve -illogical strategies -imitative strategies

What are three of the most reliable ways a company can distinguish itself in the marketplace, build customer loyalty, and achieve a competitive advantage? (Select all that apply.) - low cost provider - focused low cost strategy - board imitation strategy -board differentiation strategy

- low cost provider - focused low cost strategy - broad differentiation strategy

What should the company's future direction be and what performance targets should we set?

- what buyer needs to try to satisfy - which growth opportunities to emphasize? - where to head and what outcomes to strive to achieve ?

What are two characteristics of a broad differentiation strategy? -Offering products at the lowest possible prices -Appealing to a wide range of consumers -Offering products or services that are difficult to imitate -Appealing to a niche market

-Appealing to a wide range of consumers -Offering products or services that are difficult to imitate

What are two basic approaches in company strategy to improve chances of success in competing against rivals? (two answers) - Always aim for a low-cost strategy. - Soften ethical guidelines. -Clearly differentiate a company from its rivals. - Establish a position in an uncrowded market.

-Clearly differentiate a company from its rivals. - Establish a position in an uncrowded market.

Which strategic actions fall into the "should not do" category and are probably unethical? -They cause the company to capture so much market share that business rivals can barely compete. -They cause a public backlash and accusations of being irresponsible. -They make the company look bad. -They have a negative effect on customers, employees, and the surrounding community.

-They cause a public backlash and accusations of being irresponsible. -They make the company look bad. -They have a negative effect on customers, employees, and the surrounding community.

A business strategy becomes unethical when it involves what elements? -deceitfulness -unusual competitive advantage -unreasonable damage to the environment -disreputable behavior

-deceitfulness -unreasonable damage to the environment -disreputable behavior

A company's ultimate success or failure is fundamentally tied to how well its management team does which of the following? -develops competitively effective strategies -charts the company's direction -facilitates internal operating excellence -copies other companies' successful strategies

-develops competitively effective strategies -charts the company's direction -facilitates internal operating excellence

In what ways does a competitive advantage benefit a business?(two answers) - smaller payroll -larger profits -greater success in the marketplace -more extensive product line

-larger profits -greater success in the marketplace

Which circumstances commonly require the modification of a company's strategy? -meeting financial targets -new market opportunities -technological advances - shift in buyer needs

-new market opportunities -technological advances - shift in buyer needs

What performance indicators reveal the most about the merits of a company's strategy? -resources and capabilities -short-term competitive advantage -profitability and financial strength -competitive strength and market standing

-profitability and financial strength -competitive strength and market standing

The general profit formula for fast-food restaurants as invented by McDonald's involves which of the following? -strict specifications for ingredients -standardized store design -commitment to corporate responsibility -advertising and in-store promotions

-strict specifications for ingredients -standardized store design -advertising and in-store promotions

A company's business model is comprised of which of the following? -the cost of goods sold -the profit formula -the competitive assets -the customer value proposition

-the profit formula -the customer value proposition

Two kinds of performance improvements tell the most about the caliber of a company's strategy

1. Gains in profitability and financial strength 2. Gains in the company's competitive strength and market standing

Crafting and executing strategy are top priority managerial tasks for two big reasons:

1. High-performing enterprises are nearly always the product of astute, creative and proactive strategy making 2. Even the best-conceived strategies will result in performance shortfalls if they are not executed proficiently

The relationship between a company's strategy and its business model

1. Realized strategy - competitive initiatives - business approaches 2. Business Model - value proposition - profit forumla

The two elements of a company's business model are:

1. The customer value proposition lays out the company's approach to satisfying buyer wants and needs at a price customers will consider a good value. 2. The profit formula describes the company's approach to determining a cost structure that will allow for acceptable profits, given the pricing tied to its customer value proposition.

Three questions used to test the merits of one strategy versus another and to distinguish a winning strategy from a losing or mediocre strategy:

1. The fit test 2. The competitive advantage test 3. the performance test

3 central questions businesses face

1. What is our present situation? 2. What should the company's future direction be and what performance targets should we set? 3. What's our plan for running the company and achieving good results?