BUS800 Ch1-5

A capability that is "needed to play" is

a threshold competence.

Strategy is fundamentally about

success in achieving long-term goals

Modern business strategy has evolved across time due to

the needs of business

An organizational process is

a sequence of coordinated actions that performs a task.

The shift in strategy from a plan to a direction leads

an overt reliance on flexibility and responsiveness

Prahalad and Hamel's 1990 paper

kick-started the modern resource-based view of the firm.

The textbook limits attention to

profit-making companies in market economies

Once established, competitive advantage is

subject to erosion by competitors or entrants.

Brand values are a

type of intangible resource.

Unsuccessful firms

are arrogant about current capabilities, relying on past glories.

The basis of entering a new industry at the Introduction phase is

effective product innovation.

When firms develop organizational routines they are

learning by doing.

In many industries the market leaders

manage to reconcile low costs with some effective differentiation.

PESTEL stands

political, economics, social, technological, ecological, legal

Path dependence is

where you are today, with all your knowledge, being a result of how you got here.

The core of a firm's business environment is determined by

its relationships with customers, competitors, and suppliers

The success of Japanese Total Quality Management

refutes the perceived trade-off between low cost products and high quality products.

Success is fundamentally linked to

a soundly formulated and effectively implemented strategy

Business strategy can be summarized as

establishing a competitive advantage over rivals

It is quite natural to combine cost leadership and differentiation strategies

no; porter says they are mutually exclusive and if you do, you will probably end up being 'stuck in the middle'.

Change in an industry is the result of

both external forces and the incumbents' competitive strategies.

Corporate and business strategy differ mainly in that

corporate strategy has a broader scope, including decisions about which industries to operate in

Change in the industry environment faced by a firm is

could be either a or b, depending on the industry

Business strategy is a combination of

intended and emergent strategy

A firm can pre-empt imitation by

introducing new products to fill each niche, investing in capacity ahead of market growth and filing many patents.

Early experiences for some major oil companies

mean some of their modern core competences show path dependency.

The difference between a capability and a competence is

no difference in this textbook where they are taken as interchangeable.

The different stages of the industry life cycles are characterised by

the evolution of the industry growth rate over time.

Barriers to exit are

the non-recoverable costs of quitting or scaling down capacity in an industry.

Because marketing is a threshold capability for Hyundai,

to counter their earlier poor image they have had to catch up to their rivals' capabilities.

Causal ambiguity and uncertain imitability are

two academic phrases to describe a state of confusion, related because causal ambiguity causes uncertain imitability (the rival doesn't know what to imitate) and anyone who tries to imitate something they don't fully understand is asking for trouble.

Is it easy for Sears Holdings (Kmart) to understand Walmart's competitive advantages?

No, it is not that easy.

Dynamic capabilities

are the capacity to learn new capabilities.

In the twenty-first century strategy has become less about sustaining competitive advantage and more about

flexibility and successive temporary advantages

The central task of a differentiation strategy is

to ask how all your customers' interactions with your product could be enhanced even more.

A contemporary phenomenon is known as "winner-take-all markets". This concept is exemplified by

Microsoft (PC software) and Intel (PC core processors)

Analyzing key success factors leads one to ask the following two questions

What do customers want which we could supply profitably and what should the firm do to survive competition?

The seven drivers of cost advantage

can be a useful framework within which to compare a firm's costs with its competitors.

Competitive advantage

emerges from external and internal sources.

A strategy can be describe as

intended, emergent, or realized

By the 1990s, the thinking on strategy had shifted to

resources and capabilities of the firm

The essence of IBM's success in the PC industry in the 1980s was

IBM established a dominant design, IBM had an established access to the business market, which Apple et al. did not have and IBM opted to encourage 3rd parties to write software and provide additional hardware, unlike Apple.

Two basic questions concerning corporate and business strategy are

Where and how to compete?

Is the PC industry in the maturity stage of the life cycle?

Yes - growth has started to decline, and shakeout occurred years ago and Yes - emphasis is on production efficiency, and the PC is being commoditised.

Are barriers to entry effective?

Yes, because long-term empirical evidence shows that industries with high barriers to entry exhibit higher returns on investment on average.

In practice, strategy making is

a combination of centrally-driven rational design and decentralized adaptation

In regard to strategy making, most firms are likely to exhibit

a combination of design and emergence, a process labeled as "planned emergence" and an interaction between strategic design, through formal top-level processes, and strategic enactment through decisions made by all management levels of the organization

In fast changing environments

a firm may define itself by its resources and capabilities.

A typical cost leadership strategy involves

a firm producing a few limited-feature standard products, or providing a very standardised service and a medium or small firm with minimal overheads, and cheaply acquired (sometimes second-hand) assets.

Competitive advantage can be defined as

a firm's ability to earn a persistently higher profit rate than its rivals.

Organizational culture is

a firm's deeply held values and a firm's deeply held traditions and social norms.

A firm with a competitive advantage other than superior profitability may have

a rising market share, strong and rising customer loyalty, or good executive perks, or both, and invested in new technologies its rivals do not have.

The role of strategy today is claimed to be

a unifying role underpinning all consequent decisions, a means by which top management can communicate and gain commitment to a sense of direction and a means by which top management can inspire and motivate the workforce

Understanding the competitive forces in an industry is

a way to enable managers to position the firm where its particular capabilities can be deployed to best advantage

Spending money raising market perceptions of Hyundai's brand was

a worthwhile investment in intangible resources.

Companies' "book values" are generally much less than their stock market valuations because

accountants are generally required by accounting standards to ignore the value of brands and all other reputational assets.

A dominant design is

an emergent de facto industry standard broad product format.

A barrier to entry is

anything that makes entry into an industry as a new competitors more difficult, more costly, slower or even impossible

Tight complex organizational routines

are complex capabilities that are hard for rivals to replicate.

Truly successful firms

are honest enough to recognize their own true strengths and weaknesses themselves.

Alliances are a way to develop new capabilities that

are less permanent than an acquisition/merger and are cheaper than an acquisition or merger.

The analytical tools described in the text

are simply that; just tools. their value depends on the skill with which they are deployed.

Firms in any industry can be said to operate in two major markets

as a buyer in the supplier market, and as a seller in the customer market.

Isolating mechanisms are

barriers that slow or stop the equalization of profits between firms, such as barriers to imitation.

The success of an organization, in general, depends on the following

being consistently focused on an achievable goal, having a strong and in-depth knowledge of the competitive environment, realistic appraisal of its own strengths and weaknesses and the ability to implement strategy with commitment, consistency and determination

The fundamental choice for capability acquisitions is the decision to either

buy them or build them.

How can a firm hide its superior profits?

by masking its results so that rivals fail to see its success, by avoiding disclosing financial performance and by temporarily lowering prices, so that the firm forgoes short-term profits but succeeds in dissuading potential entrants

Internal appraisal of a company's capabilities against the best competitors

can be done using discussion of past successes and failures and can be done using external benchmarking.

Porter's value chain

can be used to look at the current and additional costs of changes in a differentiation strategy and can be used to examine the current and additional service levels offered to customers in a differentiation strategy.

The Decline phase of the industry life cycle is characterised by

ceasing of product and process innovation, incumbents going out of business, and remnant niche-sized players may survive profitably.

As the industry life cycle progresses, overall strategies need to

change in every major aspect e.g., product evolution, the nature of competition.

Firms try to develop resources and capabilities to

create sustainable competitive advantage.

Firms entering a new industry who were already established in a related industry are sometimes known as

de alio entrants.

Start-up firms in a new industry are also sometimes known as

de novo entrants.

Modern strategy applied to the business world shares with military strategy

decisions of significance to overall success, and major resource commitment

Threshold capabilities enable a firm to do what every firm in its industry must do. Distinctive competences

describe those things that an organization does particularly well relative to its competitors.

The fundamental role of strategy is to

determine how the firm will deploy its resources to satisfy its long-term goals, given the conditions in the competitive environment

To forecast industry profitability consistently and accurately, professional analysts have to

develop a deep understanding of how the industry creates value now and in the future, whether they use the tools described in the chapter or not.

Core rigidities can

develop over long periods and inhibit firms' ability to develop new capabilities.

When IBM did enter the PC market, they

did so with a maverick offshoot, and by buying in sub-systems, which went against the IBM usual methods and relied on business users recognising the established IBM reputation.

The key success factor in the Introduction phase of the industry is

effective product innovation i.e., getting new products launched and in front of customers.

A technical standard

emerges when there are interconnectivity and interface compatibility issues and can emerge for safety and other reasons from standards bodies eg ISO.

To survive going into the Maturity phase of the industry life cycle, a firm needs to

emphasise cost efficiency.

Tools of strategic change include creating a perception of a crisis and organizational initiatives, reorganization and new blood, and

establishing stretch targets.

Cost leadership means a firm must

exploit all sources of cost advantage in providing customers with a standardised product.

In the U.S., Target appears to have competitive advantages from

fashionable designs/brands at good value.

The development of "collateralized debt obligations", by Drexel Burnham Lambert, shows that

financial products are easily copied so first movers must quickly establish a large track record of successful trades.

To stop rivals acquiring a core resource or capability,

firms need to make that resource or capability immobile.

If an industry has a stable environment and firms pursue similar strategies

firms with similar resources and capabilities should have similar profit rates.

Corporate social responsibility

fits more readily with the continental Europe and Asian legal framework of broader stakeholder obligations, is not seen as an imperative requirement by all influential thinkers, and is becoming more important for all firms to take account of due to the threat of adverse publicity

The shift from Corporate Planning to Strategy Making implies

from the sources of profit outside the firm to the sources of profit within the firm and to the resource-based view the of the firm

The value to managers of understanding key success factors is

generally accepted by the corporate, consulting and academic worlds, but as with most business concepts and models, there are always some detractors.

The hierarchy of capabilities explains

how capabilities to do market research time-effectively and buy advertising cost-effectively, belong under marketing capabilities.

The simplest useful definition of business strategy would be

how to compete within an industry or market

To successfully imitate the strategy of another firm, an organization must

identify and diagnose the rival's advantage, believe in its ability to deliver a superior return, and, finally, acquire the resource.

In addition to just reading published information to identify a firm's strategy you could

identify where the company is making most of its investments, doing most of its business and find out what new products and services the company is putting most effort into

The idea with Porter's 5 Forces is to

identify which forces are relatively more powerful, and to assess their impact on competition and industry profitability

Resources and capabilities can generate higher profits

if the competitive advantage they generate is sustained for some years.

The notion of "strategic fit"

implies coherence between resources, capabilities, structure, and systems and expresses how well a firm's strategy fits its internal and external environment

Human resource capabilities

include the skills to train and develop people.

A "born global" company is one which

interacts across the world from the outset - especially regarding selling.

A value chain analysis

is an alternative framework within which to compare costs with your competitors.

The industry life cycle

is an extension of the concept of the product life cycle, uses the same stages as the product life cycle and nearly always lasts much longer than a typical product life cycle in that industry.

The internal environment

is how a firm's resources and capabilities are deployed to deliver its business strategy.

Maximising shareholder value

is the primary legal obligation in most English-speaking countries and is not the only legal obligation in continental Europe, and in Asia. Firms here are legally obliged to take account of a broad range of stakeholder interests

The PC industry clearly began in the 1970s because

it did not exist at all prior to this time, the introduction phase was typical: no mass market, many product variants, small firms and by the 1980s, the growth phase had begun, with a design standard emerging.

If an industry earns a return on capital in excess of its costs of capital

it is likely to attract the attention of firms looking to enter the industry, which may eventually lead to the return on capital falling

A 6th force—complements—should arguably be added to Porter's 5 Forces Model

it's clear that since Porter devised his model, Complementers have evidently become more important.

The point of 'resource leveraging' is to

limit the range of new capabilities a firm is trying to develop at one time.

The key success factor for firms surviving in the Maturity phase is

maintaining cost efficiency as good as competitors.

In MacDonald's most small firms, a process which is usually routinized is

making a burger.

Porter's firm value chain can be used to

map out a firm's main activities into threshold and distinctive capabilities.

An industry life cycle

may never enter the decline phase, in some industries supplying basic essential products or services.

The question "What do customers want?"

must be asked by managers, and an accurate answer obtained and understood, since it's the driving force behind generating profit.

Often, to succeed in the evolution from Introduction to Growth, a firm

needs to be closely associated with the dominant design which emerges.

For a manufacturer, access to distribution is a barrier to entry because

new entrants face a disadvantage from retailers who are reluctant to carry their new products

Economies of scales are barrier to entry because

new entrants face the cost and risk of creating large scale capacity to start with or a severe cost disadvantage if they enter on a smaller scale

A new industry life cycle begins when

new knowledge manifests itself in the guise of a sufficiently radical product innovation.

"Strategic innovation" means introducing

new products, new markets and new technologies.

Once value is created, it is, in general

not equally shared between customers and producers

To succeed as a leading player in the Growth phase, a firm should

offer a product or service which is designed to be "scaled up" in volume, obtain sufficient resources and build capabilities to support effective scaling-up of operations and have sufficient market access or commercial muscle to sell scaled-up volume.

Differentiation is when a firm

offers customers something valuable and unique other than a low price.

An industry's current profitability

on its own tends to be a poor predictor of future profitability.

Apple and 3M's ability to develop genuinely new products are

one of their core research and development capabilities.

To survive the Growth phase profitably, a firm NOT having all the attributes of a leading player could

operate as a specialist, niche player, thus avoiding the necessity to fully "scale up".

Two factors contribute to the efficiency and effectiveness with which teams of individuals perform repetitive patterns of activity

organizational learning and culture

Barriers to change include

organizational routines, social and political structures and conformity.

We need to appraise our resources and capabilities against

our competitors' resources and capabilities.

"Strategic innovation" involves

pioneering in at least one of the three dimensions: new industry, new customer segment, or new source of competitive advantage.

The approach taken in the textbook primarily assumes that

profit making firms are seeking to maximise profits for the owners over the long term

Appraising a firm's resources consists of

protecting the firm from its weaknesses and trying to reduce or eliminate them and leveraging the firm's strengths to increasing market share and profit

Requirements for quick organizational response to a turbulent environment are

quick, accurate information, and short product launch cycle times.

Hyundai overcame the most difficult competitive advantages held by the incumbent automakers by

recruiting experts from other auto companies, benchmarking the key capabilities needed to succeed, then making clear commitments to achieve them and making long-term financial and business commitments to the auto industry.

Strategy and tactics

relate to achievement of overall long-term objectives, and multiple short-term objectives, respectively

A cost leadership strategy

requires a firm to commoditize their product - i.e. no frills - even if the industry's product is differentiable (e.g. cars or airlines).

The question "What does a firm need to survive competition?"

requires an understanding of the current and future basis of competition specific to the industry.

The final appraisal of the strengths and weaknesses of a firm's resources & capabilities

requires insight and understanding of a firm's industry, and its position within the industry.

Strategic goals should be

simple, consistent, and long term

The difference between intended and realized strategy is

so great that arguable only 30% of intended strategy becomes realized

Market and industry are

somewhat flexible in scope depending on what aspect of business you are considering.

If a firm's strategy ensures it is consistent with both its internal and external environment, it achieves

strategic fit

As the environment becomes more turbulent, or unpredictable

strategy remains just as vital a tool navigate the firm through "stormy seas"

A market's boundaries are defined by

substitutability on both the demand side and the supply side, combined with an element of judgment depending on context and purpose.

Some firms introduce products into specific countries in a sequence The more a company outsources its value chain activities to a network of alliance partners, the more it needs to develop

systems integration capability.

In the military field, we generally make the following distinction between strategy and tactics

tactics are a scheme of specific everyday actions, practices, and techniques whereas strategy relates to the top-level plan

The typical cause of the Decline phase in an industry is

technological substitution e.g., the horse and cart replaced by the car, local regional decline due to low-cost foreign competition and changing consumer tastes e.g., tobacco.

Industries such as pharmaceuticals earn very high returns on investment. Such industries

tend to have high entry barriers and differentiated products

With the onset of the maturity stage, the number of firms in most industries

tends to decrease significantly

IBM sold its PC division to a Chinese company because

the PC market in the developed world was saturated, so was no longer attractive to IBM and the PC was increasingly becoming a multimedia consumer product, whereas IBM is a business-oriented firm.

The overall bargaining power of buyers depends on

the buyer's price sensitivity and the relative bargaining power between the seller and the buyer

The decline phase of the industry life cycle is caused by

the emergence of a radically better substitute product, representing a new industry.

Being 'stuck in the middle' gives low profits because

the firm loses those customers who want the lowest prices, the firm loses those customers who want the best product on the market and employees become confused about what the firm's goals and strategy really are.

One can view the connection between the general environment and the industry environment as

the industry environment includes customers, competitors, and suppliers, whereas the general environment matters to the extent that it affects the industry environment

The basic premise of industry analysis is that

the level of profitability within an industry is largely determined by the industry structure

Understanding the external environment of a firms requires one ultimately to identify

the opportunities to make profit in the industry

Bargaining power rests, ultimately, on

the perceived or real threat for one party to refuse to deal with the other party.

Value is created when

the price that the customer is willing to pay for a product exceeds the firm's costs

The text claims that two factors are fundamental to the industry life cycle. One of these is

the production and diffusion of knowledge.

The relative bargaining power of buyers depends on

the size and concentration of buyers relative to suppliers, a buyer's access to information about products and costs and the ability or threat to integrate vertically

The balance between designed strategy and emergent strategy depends mostly on

the stability and predictability of a firm's environment

"Consumer surplus" is

the total of all the differences between the price each customer actually pays and the maximum price they would haven been willing to pay, all other things being equal

In an industry, the profits earned by firms are determined by

the value of the product for customers, the intensity of competition, and the relative bargaining powers of producers, their suppliers and their buyers

Business strategy defines

the way a firm competes in a particular industry or market and how a firm gains a competitive advantage over its rival within a specific industry or market

The determining factors of how calamitous the Decline phase turns out to be are

the way capacity is dismantled as demand declines, and how dramatic is the decline in demand.

Resources and capabilities need to be appraised against two key criteria

their importance and strengths and weaknesses compared with the competition.

Rivals can be pre-empted from entering a firm's markets using the above methods only if

there is significant first-mover advantage in this industry.

The 1950s/60s style of corporate planning assumed that

there would be almost no difference between the intended strategy and the realized strategy, the business world is essentially a predictable environment and there was unlikely to be anything unexpected to occur of sufficient importance to disrupt the strategic plan

Profit-making firms are about creating value

they must create value for several stakeholder groups if this is to result in sustainable long-term profit generation and value to some stakeholders (e.g. customers) may be difficult to quantify in money terms

If top management understands the customer, suppliers, competitors, and how the general environment affects the firm's industry environment, then

they will have a sound basis for developing an effective strategy

The underlying purpose of studying strategy is

to better understand the issues facing top managers and to work out how to best create value in the future

The value to managers of understanding key success factors is

to help maintain a strategic perspective of what needs to be done to survive, and help them avoid degenerating into a fire fighting approach.

A good starting point to identity a large firm's strategy is

to read the annual corporate report

To imitate the competitive advantage of another company, a firm must first

understand the basis of its rival's success.

Regarding change, a firm really needs to

understand, predict, manage change, and adapt its strategy to it.

Given the plethora of external influences, understanding the external environment requires manager to

use a framework or a system that allows them to organize information and rank factors

The bargaining power of suppliers is likely to be high

when the suppliers' industry is concentrated, when suppliers are supplying differentiated products and when "our" (the customer's) industry is relatively fragmented.

Porter's 5 Forces model was based on a static, stable view of industry which ignores dynamic forces

which can easily be dealt with by taking a dynamic perspective of the forces e.g. Innovation is a consequence of Rivalry.

BMW's core competence is its ability to integrate

world-class engineering, design excellence, and effective marketing.

Superior capabilities are often traced to staff skills and efforts

you need to pay a good market rate to attract and retain top talent and having the right corporate culture and being set the right challenges motivates good staff.

IBM initially ignored the PC market because

IBM had seen the PC as a tiny, hobbyist's niche within the computer industry, not worth IBM's attention.

The key success factor for leading firms in the Growth phase is

being able to scale up volume production and operations effectively and efficiently.

In the automobile industry resources such as brand strength

cannot be easily acquired.

We can define the following general resources for a firm

human, intangible and tangible.

Taking an external focus to identify a firm's key resources and capabilities, we begin with industry

key success factors.

In practice, drawing the boundaries of industries and markets is

largely a matter of judgment and experience contingent on the purpose of the analysis.

"The market" and "the industry" are

related but not the same thing

Suppose that an industry's profitability is zero or negative overall

then even so it's entirely possible that some firms are making very good profits.

To value a firm's tangible resources

we need to know how they could be used optimally.