MAN 4720 Chapter 1
LO 1-3 Explain the role of firm effects and industry effects in determining firm performance.
- A firm's performance is more closely related to its managers' actions (firm effects) than to the external circumstances surrounding it (industry effects). - Firm and industry effects, however, are interdependent and thus both are relevant in determining firm performance.
LO 1-1 Define competitive advantage, sustainable competitive advantage, competitive disadvantage, and competitive parity.
- Competitive advantage is always judged relative to other competitors or the industry average. - To obtain a competitive advantage, a firm must either create more value for customers while keeping its cost comparable to competitors, or it must provide value equivalent to competitors but at lower cost. - A firm able to dominate competitors for prolonged periods of time has a sustained competitive advantage. - A firm that continuously underperforms its rivals or the industry average has a competitive disadvantage. - Two or more firms that perform at the same level have competitive parity.`
LO 1-4 Describe the role of corporate, business, and functional managers in strategy formulation and implementation.
- Corporate executives must provide answers to the question of where to compete (in industries, markets, and geographies), and how to create synergies among different business units. - General (or business) managers must answer the strategic question of how to compete in order to achieve superior performance. They must manage and align all value-chain activities for competitive advantage. - Functional managers are responsible for implementing business strategy within a single functional area.
LO 1-7 Critically evaluate the role that different stakeholders play in the firm's quest for competitive advantage.
- Stakeholders are 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. - Internal stakeholders include stockholders, employees, (including executives, managers, and workers), and board members. - External stakeholders include customers, suppliers, alliance partners, creditors, unions, communities, and governments at various levels. - Some stakeholders are more powerful than others, and may extract significant rewards from a firm, so much that any firm-level competitive advantage may be negated.
LO 1-2 Define strategy and explain its role in a firm's quest for competitive advantage.
- Strategy is the set of goal-directed actions a firm intends to take in its quest to gain and sustain competitive advantage. - An effective strategy requires that strategic trade-offs be recognized and addressed=e.g., between value creation and the cost to create value. -Managers' strategic assumptions are an outflow of their theory of how to compete. Successful strategy requires 3 integrative management tasks-analysis, formulation, and implementation. -When managers align their assumptions closely with competitive realities, they can create and implement successful strategies, resulting in value creation and superior firm performance. - When managers' theories about how to gain and sustain competitive advantage do not reflect reality, the firm's strategy will destroy rather than create value, leading to inferior firm performance.
LO 1-6 Describe and assess the opportunities and challenges managers face in the 21st century.
- The competitive landscape of the 21st century is characterized by ever-faster technological change in a truly gl0bal marketplace. - Examples of industries seem likely to provide good future opportunities are health care, the green economy, and Web 2.0.
AFI Strategy Framework
A model that links three interdependent strategic management tasks-analyze, formulate, and implement-that, together, help firms conceive of and implement-that, together, help firms conceive of and implement a strategy that can improve performance and result in competitive advantage.
Crowdsourcing
A process in which a group of people voluntarily performs tasks that were traditionally completed by a firms employees.
Strategic Business Unit (SBU)
A standalone division of a larger conglomerate, with its own profit-and-loss responsibility.
Strategic Management
An integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage.
Co-opetition
Cooperation by competitors to achieve a strategic objective.
Stakeholders
Individuals or groups who can effect or are affected by the actions of a firm.
Business Model
Organizational plan that details the firm's competitive tactics and initiatives; in short, how the firm intends to make money.
Sustainable Competitive Advantage
Outperforming competitors or the industry average over a prolonged period of time.
Competitive Parity
Performance of two or more firms at the same level.
Externalities
Side-effects of production and consumption that are not reflected in the price of a product.
Competitive Advantage
Superior performance relative to other competitors in the same industry or the industry average.
Strategy
The goal-directed actions a firm intends to take in its quest to gain and sustain competitive advantage.
Bottom of the Pyramid
The largest but poorest socioeconomic group of the world's population.
Industry Effects
The results attributed to the choice of industry in which to compete.
Firm Effects
The results of managers' actions to influence firm performance.
LO 1-5 Outline how business models put strategy into action.
To put a firm's strategy into action, a business model must: (1) translate the firm's strategy into competitive tactics and initiatives, and (2) implement the strategy through effective structures, processes, culture, and procedures.
Competitive Disadvantage
Underperformance relative to other competitors in the same industry or the industry average.