MGT301
Competitive advantage
Always judged relative to other competitors or the industry average. A firm must create more value for customers while keeping its cost comparable to competitors OR it must provide the value equivalent but at a lower cost.
Internal stakeholders
Stockholders, employees, board members.
Competitive parity
Two or more firms that perform at the same level.
Competitive implications of different stages in the industry life cycle
innovations frequently lead to the birth of new industries industries generally follow a predictable industry life cycle, with five distinct stages: 1. introduction 2. growth 3. shakeout 4. maturity 5. decline
How does business-level strategy determine a firm's strategic position?
Strategic positioning requires that managers address strategic trade-offs that arise between value and cost, because higher value tends to go along with higher cost. Differentiation and cost leadership are distinct strategic positions. Besides selecting an appropriate strategic position, managers must also define the scope of competition - wether to pursue a specific market niche or go after the broader market.
What are the three elements of strategy?
1. A diagnosis of the competitive challenge (analysis) 2. A guiding policy to address the competitive challenge (formulate) 3. A set of coherent actions to implement the firm's guiding policy (implement)
Two steps in measuring competitive advantage
1. Accurately assess firm performance 2. Compare and benchmark the focal firm's performance to other competitors in the same industry or the industry average
Evaluate different conditions that allow a firm to sustain a competitive advantage
1. better expectations of future resource value 2. path dependence 3. causal ambiguity 4. social complexity 5. intellectual property protection These barriers to imitation are isolating mechanisms because they prevent rivals from competing away the advantage a firm may enjoy
Competitive disadvantage
A firm that continuously underperforms its rivals or the industry average has a competitive disadvantage.
Firm effects vs. Industry effects
A firm's performance is more closely related to its managers' actions (firm effects) than to the external circumstances surrounding it (industry effects). Firm & industry effects are interdependent.
How do managers become strategic leaders?
A manager needs to develop skills to move sequentially through the five leadership levels: 1. highly capable individual 2. contributing team member 3. competent manager 4. effective leader 5. executive ^ applies to both distinct corporate positions and personal growth
VRIO - rare
A resource is rare if the # of firms that possess it is less than the # of firms it would require to reach a state of perfect competition
VRIO - valuable
A resource is valuable if it allows the firm to take advantage of an external opportunity and/or neutralize an external threat. A valuable resource enables a firm to increase its economic value creation (V - C).
Value chain analysis
Allows managers to obtain a more detailed and fine-grained understanding of how the firm's economic value creation breaks down into a distinct set of activities that helps determine the perceived value and the costs to create it. When a firm's set of distinct activities is is able to generate value greater than the costs to create it, the firm obtains a profit margin (Assuming the market price the firm is able to command exceeds the cost value creation)
Resources
Any assets that a company can draw on when crafting and executing strategy.
How can dynamic capabilities enable a firm to sustain a competitive advantage?
Any fit between a firm's internal strengths and the external environment must be dynamic. Dynamic capabilities allow a firm to create, deploy, modify, reconfigure, or upgrade its resource base to gain and sustain competitive advantage in a constantly changing environment.
How do business models put strategy into action?
Business models detail how the firm conducts its business with its buyers, suppliers, and partners. How companies do business is as important to gaining and sustaining competitive advantage as what they do.
Oligopolistic Industry
Characterized by few large firms, a differentiated product, high entry barriers, and some degree of pricing power.
Monopolistic Industry
Characterized by many firms, a differentiated product, medium entry barriers, and some pricing power.
Perfectly Competitive Industry
Characterized by many small firms, a commodity product, low entry barriers, and no pricing power for individual firms.
Closed vs. open innovation
Closed innovation is a framework for R&D that proposes impenetrable firm boundaries. Key to success in the closed innovation model is that the firm discovers, develops, and commercializes new products internally. Open innovation is a framework for R&D that proposes permeable firm boundaries to allow a firm to benefit form internal ideas and inventions, but also from external ones. The sharing goes both ways: some external ideas and inventions are insourced while others are spun-out.
Co-opetition
Co-operation amongst competitors can create a positive-sum game, resulting in a larger pie for everyone involved
Porter's five competitive forces
Competition must be viewed more broadly to encompass not only direct rivals but also a set of other forces in an industry: buyers, suppliers, the potential new entry of other firms, and the threat of substitutes. 1. threat of entry 2. power of suppliers 3. power of buyers 4. threat of substitutes 5. rivalry among existing competitors
Strategic role of complements in creating positive-sum co-opetition
Complements increase demand for the primary product, enhancing the profit potential for the industry and the firm. Attractive industries for co-opetition are characterized by high entry barriers, low exist barriers, low buyer and supplier power, a low threat of substitutes, and the availability of complements.
Strategic management process - values
Core values define the ethical standards and norms that should govern the behavior of individuals within the firm.
Role of corporate managers in strategy formulation & implementation
Corporate executives must provide answers to the question of where to compete, whether in industries, markets, or geographies, and how to create synergies among different business units
Define corporate strategy and describe the three dimensions along which it is assessed
Corporate strategy addresses where to compete Business strategy addresses how to compete Corporate strategy concerns boundaries of the firm along three dimensions: 1. industry value chain 2. products and services 3. geography (regional, national, global markets) To gain and sustain competitive advantage, any corporate strategy must support and strengthen a firm's strategic position, regardless of whether it is differentiation, cost-leadership or blue ocean strategy.
Cost drivers & cost-leadership strategy
Cost-leadership strategy is to reduce the firm's cost below that of its competitors. In a cost-leadership strategy, the focus of competition is achieving the lowest possible cost position. This allows the firm to offer a lower price than competitors while maintaining acceptable value. Unique cost drivers are cost of input factors, economies of scale, and learning and experience-curve effects. No matter how low the price, if there is no acceptable value proposition, the product or service will not sell.
Customer-oriented
Customer-oriented vision statements define a business in terms of providing solutions to customer needs.
Product-oriented vs. Customer-oriented
Customer-oriented vision statements provide managers with more strategic flexibility than product-oriented missions. To be effective, visions and missions need to be backed up by hard-to-reverse strategic commitments and tied to economic fundamentals.
External stakeholders
Customers, suppliers, alliance partners, creditors, unions, communities, governments, the media.
Value chain
Describes the internal activities a firm engages in when transforming inputs to outputs. Each activity the firm performs along the horizontal chain adds incremental value and incremental costs.
Business-level strategy
Determines a firm's strategic position in its quest for competitive advantage when competing in a single industry or product market
Activities
Distinct and fine-grained business processes that enable firms to add incremental value by transforming inputs into goods and services.
Crossing-the-chasm framework
Each stage of the industry life cycle is dominated by a different customer group There exists a significant different between these customer groups to overcome the chasm, managers need to formulate a business strategy guided by the who, what, why, and how questions of competition
Strategic management concepts entrepreneurship and innovation
Entrepreneurship describes the process by which change agents undertake economic risk to innovate - to create new products, processes, and sometimes new organizations Strategic entrepreneurship describes the pursuit of innovation using tools and concepts from strategic management Social entrepreneurship describes the pursuit of social goals by using entrepreneurship. Social entrepreneurs use a triple-bottom-line approach to assess performance
Explain why anchoring a firm in ethical core values is essential for long-term success
Ethical core values form a solid foundation on which a firm can build its vision and mission, and thus lay the groundwork for long-term success.
Monopoly
Exists when there is only one large firm supplying the market. IN such instances the firm may offer a unique product, the barriers to entry may be high, and the monopolist usually has considerable pricing power.
Why do firms need to grow and evaluate different growth motives
Firm growth is motivated by the following: increasing profits, lowering costs, increasing market power, reducing risk, managerial motives
PESTEL analysis
Firm's macroenvironment consists of a wide range of political, economic, sociocultural, technological, ecological, and legal factors that can affect industry and firm performance. These external factors have both domestic and global aspects. Political - describe the influence government bodies can have on firms Economic - growth rates, interest rates, levels of employment, price stability, currency exchange rates Sociocultural - society's cultures, norms, values Technological - application of knowledge to create new processes and products Ecological -natural environment, global warming, sustainable economic growth Legal - capture the official outcomes of the political processes that manifest themselves in laws, mandates, regulations, and court decisions
Role of functional managers in strategy formulation & implementation
Functional managers are responsible for implementing business strategy within a single functional area
Role of business managers in strategy formulation & implementation
General managers in strategic business units must answer the strategic question of how to compete in order to achieve superior performance
Relationship between value drivers & differentiation strategy
Goal of differentiation strategy is to increase the perceived value of goods and services so that customers will pay a higher price for additional features. In a differentiation strategy, the focus of competition is on value-enhancing attributes and features while controlling costs. Some of the unique value drivers managers can manipulate are product features, customer service, customization, and complements. Value drivers contribute to competitive advantage only if their increase in value creation exceeds the increase in costs.
Four-step innovation process
Idea - begins w/ an idea Invention - describes transformation of an idea into a new product or process or the modification and recombination of existing ones Innovation - concerns the commercialization of an invention by entrepreneurs (within existing companies or new ventures) Imitation - if its successful, peeps gonna imitate
VRIO - costly to imitate
If firms that do not possess the resource are unable to develop or buy the resource at a comparable cost
Stakeholders
Individuals or groups that have a claim or interest in the performance and continued survival of the firm. They make specific contributions for which they expect rewards in return.
Appraise industry dynamics and industry convergence in shaping the firm's external environment
Industries are dynamic, different conditions prevail in different industries, directly affecting the firms competing in these industries and their profitability. In industry convergence, formerly unrelated industries begin to satisfy the same customer need. Such convergence is often brought on by technological advances.
Shareholder value creation to assess and evaluate competitive advantage
Investors are primarily interested in total return to shareholders, which includes stock price appreciation plus dividends over a specific period From shareholders' perspective, key metrics to measure and assess the competitive advantage are the return on risk capital and market capitalization. Shareholder value creation is a better measure of competitive advantage over the long term due to the noise introduced by market volatility, external factors, and investor sentiment.
Value and cost drivers that may allow a firm to pursue a blue ocean strategy
Lowering a firm's costs is primarily achieved by eliminating and reducing the taken-for-granted factors on which the firm's industry rivals compete. Increasing perceived buyer value is primarily achieved by raising existing key success factors and by creating new elements that the industry has not yet offered. Managers track their opportunities and risks for lowering a firm's costs and increasing perceived value with their competitors by use of a strategy canvas.
Strategic management process - mission
Mission statement describes what an organization actually does - what its business is - and why and how it does it.
Triple bottom line to assess and evaluate competitive advantage
Noneconomic factors can have a significant effect on a firm's financial perforamnce. Profits - Economic People - Social Planet - Ecological
Capabilities
Organizational and managerial skills necessary to orchestrate a diverse set of resources to deploy them strategically.
VRIO - organized
Organized to capture the value of the resource if it has an effective organizational structure, processes, and systems in place to fully exploit the competitive potential
Product-oriented
Product-oriented vision statements define a business in terms of a good or service provided.
Measure accounting profitability
ROA - return on assets ROE - return on equity ROIC - return on invested capital ROR - return on revenue All accounting data is historical and thus backward-looking. They focus mainly on tangible assets and do not consider intangibles that are hard or impossible to measure and quantity, such as innovation competency.
Critical assumptions behind the resource-based view
Resource heterogeneity - bundles of resources, capability, and competencies differ across firms. The resource bundles of firms competing in the same industry (or even the same strategic group) are unique to some extent. Resource immobility - resources tend to be "sticky" and don't move easily from firm to firm. Because of that stickiness, the resource differences that exist between firms are difficult to replicate, and therefore, can last for a long time.
VRIO framework
Resource must be: VALUABLE RARE costly to IMITATE and the firm must be able to ORGANIZE in order to capture the value of the resource
Stakeholder impact analysis
Stakeholder impact analysis considers the needs of different stakeholders which enables the firm to perform optimally and to live up to the expectations of good citizenship. Five step process: 1. Who are our stakeholders? 2. What are our stakeholders' interests and claims? 3. What opportunities and threats do our stakeholders present? 4. What economic, legal, ethical, and philanthropic responsibilities do we ave to our stakeholders? 5. What should we do to effectively address the stakeholder concerns?
What is strategy?
Strategy is the set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.
SWOT analysis
Strength (internal) Weakness (internal) Opportunity (external) Threat (external)
Tangible vs. intangible resources
Tangible resources have physical attributes and are visible. Intangible resources have no physical attributes and are invisible. Competitive advantage is more likely to be based on intangible resources.
How does competitive industry structure shape rivalry amongst competitors?
The competitive structure of an industry is largely captured by the # and size of competitors in the industry, whether the firm possess some degree of pricing power, the type of product or service the industry offers, and the height of entry barriers.
Balanced scorecard to assess and evaluate competitive advantage
The goal of balanced-scorecard is to harness multiple internal and external performance dimensions to balance financial and strategic goals. Managers develop strategic objectives for the balanced scorecard by answering four key questions: 1. How do customers view us? 2. How do we create value? 3. What core competencies do we need? 4. How do shareholders view us?
Economic value creation & different sources of competitive advantage
Three components are critical to evaluating any good or service: Value Price Cost EVC is V - C A firm has competitive advantage when it is able to create more economic value than its rivals. The source of competitive advantage can stem from higher perceived value creation (assuming equal cost) or lower cost (assuming equal value creation).
What options do firms have to organize economic activity
Transaction cost economics help managers decide what activities to do in-house versus what services and products to obtain from the external market
Core competencies
Unique, deeply embedded, firm-specific strengths that allow companies to differentiate their products and services and thus create more value for customers than their rivals, or offer products and services of acceptable value at a lower cost.
Strategic management process - vision
Vision captures an organization's aspirations. An effective vision inspires and motivates members of the organization.
Risks of a blue ocean strategy
trade-offs between differentiation and low cost be reconciled difficult because the two distinct strategic positions require internal value chain activities that are fundamentally different from one another When firms fail to resolve strategic trade-offs between differentiation and cost, they end up being "stuck in the middle"