MGMT - CH1. Strategic Management & Strategic Competitiveness

Why is data and information vital to firms' efforts?

- Helps understand customers and their needs - helps implement strategies in ways that satisfy customers' needs - helps implement strategies in ways to satisfy the interests of all other stakeholders

How is knowledge acquired by firms?

By hiring educated and experienced employees

What influences the formation of the vision statement?

Conditions in the firm's external environment and internal organization.

How to does a firm choose a strategy?

Firms make choices among competing alternatives as the pathway for deciding how they will pursue strategic competitiveness.

What is a global economy?

It is one in which goods, services, people, skills, and ideas move freely across geographic borders.

What does a global economy do?

It significantly expands and complicates a firm's competitive environment.

Knowledge is the basis of what?

Technology and its application

What are the risks with Globalization?

- "Liability of foreignness" - The amount of time required to learn to compete in new markets - Entering too many global markets either simultaneously or too quickly

What do product market stakeholders seek?

- Customers seek reliable products at the lowest possible prices - Suppliers seek loyal customers who are willing to pay the highest sustainable prices for products. - Host communities (the national, state/province, and local gov. entities with which the firm interacts) want companies willing to be long-term employers and providers of tax revenue without placing excessive demands on public support services. - Unions seek secure jobs and desirable working conditions for members. - Product market stakeholders are generally satisfied when a firm's profit margin reflects at least a balance between the returns to capital market stakeholders and the returns in which they share.

What are the qualities of strategic leaders?

- Decisive - Committed to nurturing those around them - Committed to helping the firm create value for all stakeholder groups

What is Globalization?

- It is the increasing economic interdependence among countries and their organizations as reflected in the flow of products, financial capital, and knowledge across country borders. - It is a product of a larger # of firms competing against one another in an increasing # of global economies.

What does the 5 forces model suggest?

- It suggests that an industry's profitability is a function of interactions among: 1. Suppliers 2. Buyers 3. Competitive rivalry among firms currently in the industry 4. Product substitutes 5. Potential entrants to the industry - It also suggests that firms can earn above-average returns by producing either: a. a cost leadership strategy --> standardized products at costs below those of competitors b. a differentiation strategy --> differentiated products for which customers are willing to pay a price premium

Hypercompetition is a condition of rapidly escalating competition based on what?

- Price-quality positioning - Competition to create new know-how and establish first-mover advantage - Competition to protect or invade established product and/or geographic markets

What traits define success as a strategic leader?

- hard work - thorough analyses - a willingness to be brutally honest - a penchant for wanting the firm and its people to achieve success - tenacity

What are the 3 different types of stakeholders? Examples?

1. Capital market stakeholders - shareholders - major suppliers of capital (e.g., banks) 2. Product market stakeholders - primary customers - suppliers - host communities - unions 3. Organizational stakeholders - Employees - Managers - Nonmanagers

What are the 4 underlying assumptions of the resource-based model?

1. Differences in firms' performances across time are due primarily to their unique resources and capabilities rather than the industry's structural characteristics. 2. Firms acquire different resources and develop unique capabilities based on how they combine and use the resources. 3. Resources and capabilities are not highly mobile across firms. 4. Differences in resources and capabilities are the basis of competitive advantage.

What are the industry characteristics?

1. Economies of scale 2. Barriers of market entry 3. Diversification 4. Product differentiation 5. The degree of concentration of firms in the industry 6. Market frictions

Managers must adopt a new mind-set that values what?

1. Flexibility 2. Speed 3. Innovation 4. Integration 5. The challenges flowing from constantly changing conditions

What are the 3 categories of resources?

1. Physical capital 2. Human capital 3. Organizational capital

Describe the I/O Model of Above-Average Returns

1. Study the external environment, especially the industry environment. - The External Environment --> general environment, industry environment, competitor environment 2. Locate an industry with high potential for above-average returns. - An Attractive Industry --> An industry whose structural characteristics suggest above-average returns. 3. Identify the strategy called for by the attractive industry to earn above-average returns. - Strategy Formulation --> Selection of a strategy linked with above-average returns in a particular industry. 4. Develop or acquire assets and skills needed to implement the strategy. - Assets and Skills --> required to implement a chosen strategy 5. Use the firm's strengths (its developed or acquired assets and skills) to implement the strategy. - Strategy Implementation--> Selection of strategic actions linked with effective implementation of the chosen strategy. Leads to Superior Returns --> Earning above-average returns

What are the three categories of technology-related trends and conditions that affect today's firms?

1. Technology diffusion and disruptive technologies 2. The information age 3. Increase knowledge intensity

What are the 4 underlying assumptions of the I/O model?

1. The external environment imposes pressures and constraints that determine the strategies that would result in above-average returns. 2. Most firms competing with an industry or within a segment of that industry are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources. 3. Firms assume that their resources are highly mobile, meaning that any resource differences that might develop between firms will be short-lived 4. Organizational decision makers are rational individuals who are committed to acting in the firm's best interests, as shown by their profit-maximizing behaviors.

What are the two primary drivers of hypercompetition?

1. the emergence of a global economy 2. rapid technological change

What is strategic flexibility?

A set of capabilities firms use to respond to various demands and opportunities existing in today's dynamic and uncertain competitive environment.

When earning above-average returns, a firm generally has the resources to satisfy the interests of which stakeholders?

All stakeholders

The most successful firms envision information technology-derived innovations as what?

An opportunity to identify and serve new markets.

When does a firm have a competitive advantage?

By implementing a chosen strategy, it creates superior value for customers and when competitors are not able to imitate the value the firm's products create or find it expensive to attempt imitation.

What do organizational stakeholders expect?

Employees: - Expect the firm to provide a dynamic, stimulating, and rewarding work environment - Generally prefer to work for a growing company in which they can develop their skills - Are critical to organizational success when they learn how to use new knowledge productively Leaders: - Must use the firm's human capital successfully to serve the day-to-day needs of stakeholders - Help a firm's employees understand competition in the global competitive landscape through international assignments

T/F: As a source of competitive advantage, a capability must be easily imitated but also not too complex to understand and manage.

False: As a source of competitive advantage, a capability must not be easily imitated but also not too complex to understand and manage.

T/F: Managers are responsible for making certain that their firms use the strategic management process properly.

False: CEOs are responsible for making certain that their firms use the strategic management process properly.

T/F: Entry into international markets, even for firms with substantial experience in the global economy, requires effective use of strategy.

False: Entry into international markets, even for firms with substantial experience in the global economy, requires effective use of the strategic management process.

T/F: Hypercompetition makes it easy for firms to maintain a competitive advantage.

False: Hypercompetition makes it difficult for firms to maintain a competitive advantage.

T/F: Competitive advantage is permanent.

False: No competitive advantage is permanent.

T/F: Resources have a lesser likelihood of being a competitive advantage when integrated to form a capability.

False: Resources have a greater likelihood of being a competitive advantage when integrated to form a capability.

T/F: Strategic flexibility decreases the probability of dealing successfully with uncertain, hypercompetitive environments.

False: Strategic flexibility increases the probability of dealing successfully with uncertain, hypercompetitive environments.

T/F: Strategic flexibility is easy to build, largely because of inertia that can build over time.

False: Strategic flexibility is not easy to build, largely because of inertia that can build over time.

What does knowledge consist of?

Information, intelligence, and expertise

What does a vision statement state?

It articulates the ideal description of an organization and gives shapes to its intended future It tends to be relatively short and concise

What does the Resource-Based Model assume?

It assumes that each organization is a collection of unique resources and capabilities.

How long does competitive advantage last?

It depends on how quickly competitors can acquire the skills needed to duplicate the benefits of a firm's value-creating strategy.

What does perpetual innovation describe?

It describes how rapidly and consistently new information-intensive technologies replace older ones.

What has Globalization led to?

It has led to higher performance standards with respect to: - Quality - Cost - Productivity - Product introduction time - Operational efficiency

What does a strategy indicate?

It indicates what the firm will or will not do.

What is Hypercompetition?

It is a condition where competitors engage in intense rivalry, markets change quickly and often, and entry barriers are low.

What is a vision?

It is a picture of what the firm wants to be and, in broad terms, what the firm wants to achieve.

What is the 5 forces model of competition?

It is an analytical tool firms use to find the industry that is most attractive.

What is a risk?

It is an investor's uncertainty about the economic gains or losses that will result from a particular investment.

What is a capability?

It is the capacity for a set of resources to perform a task or an activity in an integrative manner.

What is technological diffusion?

It is the speed at which new technologies become available to firms and when firms choose to adopt them.

When earning below-average returns, the firm must do what?

It must make trade-offs to minimize the amount of support it loses from unsatisfied stakeholders.

What does the vision and mission provide?

It provides the foundation the firm needs to choose and implement one or more strategies

What does an organizational culture refer to?

It refers to the complex set of ideologies, symbols, and core values that individuals throughout the firm share and that influence how the firm conducts business. It is the social energy that drives - or fails to drive - the organization.

What does a mission specify?

It specifies the businesses in which the firm intends to compete and the customers it intends to serve.

What does the I/O model suggest?

It suggests that returns are influenced more or so by the characteristics of the external environment than a firm's unique internal resources and capabilities.

What is a strategy?

It's an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.

What is the logic of the I/O model?

Logic is that the profitability potential of an industry or a segment of it as well as the actions firms should take to operate profitably are determined by a set of industry characteristics.

What is the key purpose of vision and mission statements?

Purpose is to inform stakeholders of: - what the firm is - what it seeks to accomplish - who it seeks to serve

What are disruptive technologies? Examples?

Technologies that destroy the value of an existing technology and create new markets. Examples: Wi-Fi, iPads, the web browser.

What is the strategic management process?

The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns.

What does the strategic management process involve?

The process involves analysis, strategy, and performance (the A-S-P model).

What are core competencies?

They are capabilities that serve as a source of competitive advantage for a firm over its rivals.

Who are stakeholders?

They are individuals, groups, and organizations that can affect the firm's vision and mission, are affected by the strategic outcomes achieved, and have enforceable claims in the firm's performance.

What are resources?

They are inputs into a firm's production process, such as capital equipment, the skills of individual employees, patents, finances, and talented managers.

Who are strategic leaders?

They are people located in different areas and levels of the firm using the strategic management process to select actions that help the firm achieve its vision and fulfill its mission.

What are above-average returns?

They are returns in excess of what an investor expects to earn from other investments with a similar amount of risk.

What do capital market stakeholders expect?

They expect a firm to preserve and enhance their wealth.

How is knowledge acquired by an individual?

Through experience, observation, and inference

How is knowledge developed by firms?

Through training programs

T/F: A firm analyzes the external environment and its internal organization, then formulates and implements strategies to achieve a desired level performance.

True

T/F: Firms must understand the strategic implications and integrate digitalization (the process of converting something to digital form) effectively into their strategies.

True

T/F: Greater dependence gives the stakeholders more potential influence over a firm's commitments, decisions, and action.

True

T/F: Strategic flexibility requires developing the capacity of continuous learning and applying quickly the new and up-to-date skill sets achieved from learning.

True

T/F: The I/O model challenges firms to find the most attractive industry in which to compete.

True

T/F: The most effective CEOs and top-level managers delegate strategic responsibilities to people throughout the firm.

True

T/F: The uniqueness of resources and capabilities is the basis of a firm's strategy and its ability to earn above-average returns.

True

When do resources and capabilities have the potential to be the foundation for a competitive advantage?

When they are: - Valuable (allows a firm to take advantage of opportunities or neutralize threats in its external environment) - Rare (possessed by few, if any, current, and potential competitors) - Costly to imitate (are difficult for other firms to obtain) - Non-substitutable (have no structural equivalents)

How does a firm achieve strategic competitiveness?

by formulating and implementing a value-creating strategy

How can investors reduce uncertainty about the outcomes of their investment?

by learning how to manage risk effectively

When earning only average-returns, the firm must do what?

satisfy each stakeholder group's minimal expectations

Within the strategic management process, what does a firm analyze?

the external environment and its internal organization

Why is it important to integrate knowledge into the organization?

to create capabilities and then apply it to gain a competitive advantage

Why is knowledge necessary?

to create innovation