MAN4720 (Strategic Management) Exam 1- Chapters, 1, 2, & 3

The Need for Short-term and Long-term Objectives: Short-Term Objectives

- (quarterly or annual) focus attention on delivering performance improvements in the current period and satisfy shareholder expectations for near-term progress.

The Need for Short-term and Long-term Objectives: Long-Term Objectives

-(3 to 5 years off), force managers to consider what to do now to put the company in position to perform better later. -are critical for achieving optimal long-term performance and stand as a barrier to a nearsighted management philosophy and an undue focus on short-term results •Help pose a barrier to overemphasizing achieving just short-term results and postponing/delaying actions needed to achieve long-term performance targets. -should take precedence against short-term objectives

Industry Outlook for Profitability

-An industry environment is fundamentally attractive if it presents a company with good opportunity for above-average profitability. -An industry environment is fundamentally unattractive if a firm's profit prospects in the industry are unappealingly low.

Assessing the Impact of the Factors Driving Industry Change: the 2nd step in driving-forces analysis is to determine whether the prevailing change drivers are acting to make the industry environment more or less attractive. 3 questions are needed:

-Are the driving forces, on balance, acting to cause demand for the industry's product to increase or decrease? -Is the collective impact of the driving forces making competition more or less intense? -Will the combined impacts of the driving forces lead to higher or lower industry profitability?

Wording a vision statement: The Do's

-Be graphic: paint a clear picture of where the company is headed and the market position(s) the company is striving to stake out. -Be forward-looking and directional: describe the strategic course that will help the company prepare for the future -Keep it focused: focus on providing managers with guidance in making decisions and allocating resources -Have some wiggle room: Language that allows some flexibility allows the directional course to be adjusted as market, customer, and technology circumstances change -Be sure the journey is feasible: the path and direction should be within the realm of what the company can accomplish; over time, a company should be able to demonstrate measurable progress in achieving the vision -Indicate why the directional path makes good business sense: the directional path should be in the long-term interests of stakeholders(especially shareholders, employees, and suppliers). -Make it memorable: a well-stated vision is short, easily communicated, and memorable. Ideally, it should be reducible to a few choice lines or a one-phrase slogan

Competitive Pressures Stemming from Buyer Bargaining Power and Price Sensitivity: Buyer bargaining power is stronger when

-Buyer demand is weak in relation to the available supply -Industry goods are standardized or differentiation is weak -Buyers' costs of switching to competing brands or substitutes are relatively low -Buyers are large and few in number relative to the number of sellers -Buyers pose a credible threat of integrating backward into the business of sellers -Buyers are well informed about the product offerings of sellers (product features and quality, prices, buyer reviews) and the cost of production (an indicator of markup) -Buyers have discretion to delay their purchases or perhaps even not make a purchase at all -Low-income and budget-constrained consumers are almost always price sensitive;bargain-hunting consumers are highly price sensitive by nature. Most consumers grow more price sensitive as the price tag of the an item becomes a bigger fraction of their spending budget. Similarly, business buyers besieged by weak sales, intense competition, and other factors squeezing their profit margins are price sensitive. Price sensitivity also grows among businesses as the cost of an item becomes a bigger fraction of their cost structure. rising prices of frequently purchased items heightens the price sensitivity of all types of buyers. On the other hand, the price sensitivity of all types of buyers decreases the more that the quality of the product matters. •Buyers' price sensitivity due to low profits, size of purchase, and consequences of purchase •Product quality not at issue price is primary concern

The following factors increase price sensitivity and result in greater competitive pressures on the industry as a result:

-Buyer price sensitivity increases when buyers are earning low profits or have low income -Buyers are more price-sensitive if the product represents a large fraction of their total purchases -Buyers are more price-sensitive when the quality of the product is not uppermost in their considerations

Competitive Pressure Stemming from Supplier Bargaining Power: Supplier power is stronger when

-Demand for suppliers' product is high and the products are in short supply -Suppliers provide differentiated inputs that enhance the performance of the industry's product -It is difficult or costly for industry members to switch their purchases from one supplier to another -The supplier industry is dominated by a few large companies and it is more concentrated than the industry it sells to -Industry members are incapable of integrating backward to self-manufacture items they have been buying from suppliers -Suppliers provide an item that accounts for no more than a small fraction of the costs of the industry's product -Good substitutes are not available for the suppliers' products -industry members are not major customers of suppliers

Winning Strategy Test: The Fit Test

-Does it exhibit good fit with the external and internal aspects of the firm's dynamic situation? -External fit: prevailing market conditions -Internal fit: winning strategy must be tailored to the company's resources and competitive capabilities and be supported by a complementary set of functional activities(supply chain management, operations, sales and marketing). Must be compatible with a company's ability to execute the strategy in a competent manner. -Dynamic Fit: they evolve over time in a manner that maintains close and effective alignment with the company's situation even as external and internal conditions change.

Wording a vision statement: The Don'ts

-Don't be vague or incomplete: never skimp on specifics about where the company is headed or how the company is headed or how the company intends to prepare the future -Don't dwell on the present: a vision is not about what a company once did or does now; it's about "where we are going" -Don't use overly broad language: avoid all-inclusive language that gives the company license to pursue any opportunity -Don't state the vision in bland or uninspiring terms: the best vision statements have the power to motivate company personnel and inspire shareholder confidence about the company's future -Don't be generic: a vision statement that could apply to companies in any of several industries (or to any of several companies in the same industry) is not specific enough to provide any guidance -Don't rely on superlatives: visions that claim the company's strategic course is the "best" or "most successful" usually lacks specifics about the path the company is taking to get there -Don't run on and on: a vision statement that is not concise and to the point will tend to lose its audience.

Winning Strategy Test: The Competitive Advanatage Test

-Is it likely to result in a sustainable competitive advantage? -Is the strategy helping the company achieve competitive advantage?

Winning Strategy Test: 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 superior company performance. - 2 kinds of performance indicators tell the most about the caliber of a company's strategy: 1.) competitive strength and market standing, 2.) profitability and financial strength

The Strategy-Making, Strategy-Executing Process

-Stage 1: developing a strategic vision, mission, and core values -Stage 2: Setting objectives -Stage 3: Crafting a strategy to achieve the objectives and the company vision -Stage 4: Executing the strategy -Stage 5: Monitoring developments, evaluating performance, and initiating corrective adjustments

What Should a Current Competitor Decide About Its Industry?

-When a competitor decides an industry is attractive, it should invest aggressively to capture the opportunities it sees and to improve its long-term competitive position in the business. -When a strong competitor concludes its industry is relatively unattractive and lacking in opportunity, it may elect to protect its present position, investing cautiously, if at all, and looking for opportunities in other industries. -A competitively weak company in an unattractive industry may see its best option as finding a buyer, perhaps a rival, to acquire its business.

Basic Strategic Approaches: Low-Cost Provider Strategy

-achieving a cost-based advantage over rivals. Walmart and Southwest Airlines have earned strong market positions because of the low-cost advantages they achieved over their rivals. Low-cost provider strategies can produce a durable competitive edge when rivals find it hard to match the low-cost leader's approach to driving costs out of the business. -(Ryan Air, Southwest, Amazon, Wal-Mart)

Driving forces

-are the major underlying causes of change in industry and competitive conditions -the most powerful change agents because they have the biggest influences in reshaping the industry landscape and altering competitive conditions

Basic Strategic Approaches: Focused Low-Cost Strategy

-concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs and thus be able to serve niche members at a lower price. Private-label manufacturers of food, health and beauty products, and nutritional supplements use their low-cost advantage to offer supermarket buyers lower prices than those demanded by producers of branded products. IKEA's emphasis on modular furniture, ready for assembly, makes it a focused low-cost player in the furniture market. -(Harbor Freight, H&M, Dollar Shave Club)

Basic Strategic Approaches: Focused Differentiation Strategy

-concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by offering buyers customized attributes that meet their specialized needs and tastes better than rivals' products. Lululemon, for example, specializes in high-quality yoga clothing and the like, attracting a devoted set of buyers in the process. Tesla Inc, with its electric cars, LinkedIn specializing in the business and employment aspects of social networking, and Goya Foods in Hispanic speciality food products provide some other examples of this strategy -(Ferrari, Nike, Pendleton clothing)

A Firm's Strategy Making Hierarchy:Functional Area Strategies

-concern the approaches employed in managing particular functions within a business-like R&D, production, marketing and sales, distribution, etc. -orchestrated by the heads of major functional activities within a particular business, often in collaboration with other key people -Represents the game plan for keeping the company's product lineup in tune with what buyers want -flesh out the details of a company's business strategy •Add relevant detail to the "hows" of business strategy. •Provide a game plan for managing a particular activity in ways that support the business strategy.

A Firm's Strategy Making Hierarchy: Operational Strategies

-concern the relatively narrow approaches for managing key operating units (plants, distribution centers, purchasing centers) and specific operating activities with strategic significance (quality control, materials purchasing, brand management, internet sales). -orchestrated by brand managers, plant managers, and the heads of other strategically important activities. •Add detail and completeness to business and functional strategies •Provide a game plan for managing specific operating activities with strategic significance. NOTE: these four strategies all impact each other

Stage 1: Developing a strategic vision, mission and core values: Developing a Strategic Vision

-delineates managements aspirations for the company's future -provides a panoramic view of "where are we going" -sets out a convincing rationale (strategic soundness) for the firm's direction -points the organization in a particular direction -charts a strategic path for it to follow -builds commitment to the future course of action -molds organizational identity -a clearly articulated strategic vision communicates managements aspirations to stakeholders and helps steer the energies of company personnel in a common direction -well-conceived visions are distinctive and specific to a particular organization: they avoid generic, feel-good statements like "We will become a global leader and the first choice of customers in every market we serve" -to be a valuable management tool, it must convey what top executives want the business to look like and provide managers at all organizational levels with a reference point in making strategic decisions and preparing the company for the future. It must say something definitive about how the company's leaders intend to position the company beyond where it is today.

Macro-environment

-encompasses the broad environmental context in which a company's industry is situated -Six principal components (PESTEL Analysis): political factors; economic conditions in the firm's general environment, sociocultural forces; technological factors; environmental factors; legal/regulatory conditions

A Firm's Strategy Making Hierarchy: Corporate Strategy

-establishes an overall game plan for managing a set of businesses in a diversified,multi-business company -is orchestrated by the CEO and other senior executives and establishes an overall strategy for managing a set of businesses in a diversified, multibusiness company -concerns how to improve the combined performance of the set of businesses the company has diversified into by capturing cross-business synergies and turning them into competitive advantage •Multi Business strategy—how to gain synergies from managing a portfolio of businesses together rather than as separate businesses

Basic Strategic Approaches: Best-Cost Provider Strategy

-giving customers more value for the money by satisfying their expectations on key quality features, performance, and/or service attributes while beating their price expectations. This approach is a hybrid strategy that blends elements of low-cost provider and differentiation strategies: the aim is to have lower costs than rivals while simultaneously offering better differentiating attributes. Target is an example of a company that is known for its hip product design (a reputation it built by featuring limited edition lines by designers such as Rodarte, Victoria Beckham, and Jason Wu), as well as a more appealing shopping ambience for discount store shoppers. Its dual focus on low costs as well as differentiation shows how a best-cost provider strategy can offer customers great value for the money -(Publix, Trader Joes, Chipotle)

A Firm's Strategy Making Hierarchy: Business Strategy

-is concerned with strengthening the market position, building competitive advantage, and improving the performance of a single line of business. -is primarily the responsibility of business unit heads;although corporate-level executives may well exert strong influence -Business head has 2 other strategy related roles: 1)seeing that lower-level strategies are well conceived, consistent, and adequately matched to the overall business strategy and; 2.) keeping corporate level officers (sometimes the board of directors) informed of emerging strategic issues. •How to strengthen market position and gain competitive advantage •Actions to build competitive capabilities of single businesses •Monitoring and aligning lower-level strategies

Business Model

-is managements blueprint 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. -sets forth the logic for how its strategy will create value for customers and at the same time generate revenues sufficient to cover costs and realize a profit

Competitive Advantage

-is when a company has some type of edge over rivals in attracting buyers and coping with competitive forces. -Definition: A company has competitive advantage when it provides buyers and suppliers with superior value compared to rival sellers or offers the same value at a lower cost to the firm -is essential for realizing greater marketplace success and higher profitability over the long run -the advantage is sustainable if it persists despite the best efforts of competition to match or surpass this advantage.

Companies in the same strategic group can resemble each other in a variety of ways

-may have comparable product-line breadth -sell in the same price/quality range -employ the same distribution channels -depend on identical technological approaches -compete in much the same geographic area -offer buyers essentially the same product attributes or similar services and technical assistance

Basic Strategic Approaches: Broad Differentiation Strategy

-seeking to differentiate the company's product or service from that of rivals in ways that will appeal to a broad spectrum of buyers. Successful adopters of differentiation strategies include Apple (innovative products), Johnson & Johnson in baby products (product reliability), Rolex (luxury and prestige), and BMW (engineering design and performance). One way to sustain this type of competitive advantage is to be sufficiently innovative to thwart the efforts of clever rivals to copy or closely imitate the product offering. -(Mercedes, Nieman Marcus, Apple)

Well-chosen objectives are:

-specific - quantifiable (measurable) -time-limited -challenging( motivating) -achievable -deadline for achievement

State 4: Executing The Strategy: Converting strategic plans into actions requires:

-testing a manager's ability to direct organizational change (action) -motivate company personnel -build and strengthen competitive capabilities -create and nurture a strategy-supportive work climate -meet or beat performance targets

The Five Forces Framework

-the most powerful and widely used tool for diagnosing the principal competitive pressures in a market -The Five Competitive Forces: •Competition from rival sellers •Competition from potential new entrants •Competition from producers of substitute products •Supplier bargaining power •Customer bargaining power

Key Success Factors

-the strategy elements, product and service attributes, operational approaches, resources, and competitive capabilities that are essential to surviving and thriving in the industry -Vary from industry to industry, and even from time to time within the same industry, as change drivers and competitive conditions change

Competitive Advantage routes involve 1 of 2 routes:

-they provide the customer with a product or service that the customer values more highly than others (higher perceived value)(requires meeting customer needs more effectively) -or they produce their product or service more efficiently (lower costs)(by providing products or services at a lower cost to customers.)

Strategy Making Involves Managers At All Organizational Levels: CEO

-ultimately responsible for leading the strategy-making, strategy-executing process. -is always fully accountable for the results the strategy produces, whether good or bad •Has ultimate responsibility for leading the strategy-making process as the strategic visionary and chief architect of strategy. -personally decides what the key elements of the company's strategy will be

Five of the most frequently used and dependable strategic approaches to setting a company apart from its rivals, building strong customer loyalty, and gaining competitive advantage are:

1. low-cost provider strategy 2. broad differentiation strategy 3. focused low-cost strategy 4. focused differentiation strategy 5. best-cost provider strategy

Competitive Pressures from the Sellers of Substitute Products: 3 factors determine whether the competitive pressures from substitute products are strong or weak. Competitive pressures are stronger when:

1.) Good substitutes are readily available and attractively priced 2.) Buyers view the substitutes as comparable or better in terms of quality, performance, and other relevant attributes 3.) The costs that buyers incur in switching is low

All businesses face 3 questions that go into developing the strategy

1.) 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 2.)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? 3.) 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

Crafting and executing a company's strategy is an ongoing process that consists of five interrelated stages:

1.) developing a strategic vision that charts the company's long-term direction, a mission statement that describes the company's purpose, and a set of core values to guide the pursuit of the vision and mission 2.)Setting objectives for measuring the firm's performance and tracking its progress in moving in the intended long-term direction 3.) Crafting a strategy to move the firm along its strategic course and achieve its performance objectives 4.) Executing the chosen strategy efficiently and effectively 5.) Monitoring developments, evaluating performance, and initiating corrective adjustments in the company's vision and mission statements, objectives, strategy, or approach to strategy execution in light of actual experience, changing conditions, new ideas, and new opportunities.

Ideally, a company mission statement:

1.) identifies the company's products/or services 2.) specifies the buyer needs that the company seeks to satisfy and the customer groups or markets that it serves 3.) gives the company its own identity •Clarifies the firm's purpose and business makeup to stakeholders

A well-thought out, forcefully communicated strategic vision pays off in several respects:

1.) it crystalizes senior executives' own views about the firm's long-term direction 2.) it reduces the risk of rudderless decision making 3.) it is a tool for winning the support of organizational members to help make the vision a reality 4.) it provides a beacon for lower-level managers in setting departmental objectives and crafting departemental strategies that are in sync with the company's overall strategy 5.) it helps an organization prepare for the future

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

1.) its 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.) its 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.

The evolving nature of a company's strategy means that the typical company strategy is a blend of:

1.) proactive (deliberate strategy),new planned initiatives to improve the company's financial performance and secure a competitive edge. 2.) reactive (emergent strategy) responses to unanticipated developments and fresh market conditions.

Extreme stretch goals are successful depending on two conditions being met

1.) the company must have ample resources available 2.)its recent performance must be strong

3 tests can be applied to determine whether a strategy is a winning strategy

1.) the fit test 2.) the competitive advantage test 3.) the performance test -a winning strategy must pass all 3 tests

Guidelines for creating strategic group maps

1.) the two variables selected as axes for the map should not be highly correlated(e.g., don't use price and performance); if they are the circles on the map will fall along a diagonal and reveal nothing more about the relative positions of competitors than would be revealed by comparing the rivals on just one of the variables 2.) the variables chosen as axes for the map should reflect important differences among rival approaches-when rivals differ on both variables, the location of the rivals will be scattered, thus showing how they are positioned differently. 3.) the variables used as axes don't have to be either quantitative or continuous;rather, they can be discrete variables, defined in terms of distinct classes and combinations 4.) drawing the sizes of the circles on the map proportional to the combined sales of the firms in each strategic group allows the map to reflect the relative sizes of each strategic group 5.) if more than two good variables can be used as axes for the map, then it is wise to draw several maps to give different exposures to the competitive positioning relationships present in the industry structure.

Concrete, measurable objectives are managerially valuable for three reasons:

1.) they focus organizational attention and align actions throughout the organization 2.) they serve as yardsticks for tracking a company's performance and progress 3.) they motivate employees to expend greater effort and perform at a high level

Some signs that the competitive strength of substitute products is increasing include:

1.) whether the sales of substitute are growing faster than the sales of the industry being analyzed 2.)whether the producers of substitutes are investing in added capacity 3.) whether the producers of substitutes s are earning progressively higher profits

Identification of an industry's key success factors can always be determined by asking the same 3 questions:

1.)What crucial product attributes and service characteristics do buyers of the industry's product consider when choosing among competing brands of sellers? 2.)Given the nature of competitive rivalry prevailing in the marketplace, what resources and competitive capabilities must a firm have to be competitively successful? 3.)What shortcomings are almost certain to put a firm at a significant competitive disadvantage?

These individuals oversee top management, financial reporting practices, and evaluate the firm's strategy, but they do not craft or execute strategies for the firm themselves.

Board of Directors

A firm's environment that is characterized by Porter's 5 forces.

Competitive or Specific Environment

Ideally, a vision statement describes what a firm has done in the past and what it is doing well in the present.

False

Examples of this type of objective include: earning AAA bond ratings, increasing ROA by 2%, increasing profit margins by 5%, and so forth

Financial objectives

The car maker Spyker builds high-end luxury sports cars. They make only two-seated vehicles, and draw heavily from aeronautical design to inspire their cars. For example, they use numerous of analog gauges in addition to lots of exposed aluminium in the interior, and at one point, they even made a steering wheel that looked like an airplane propeller. What generic strategic approach is Spyker most likely using?

Focused Differentiation

Good Strategic Performance is the key to better financial performance

Good financial performance is not enough. •Current financial results are lagging indicators and do not assure the development of competitive capabilities for delivering better financial results in the future. •Setting and achieving stretch strategic objectives signal improvements in a firm's competitiveness and strength in the marketplace. •Ongoing good strategic performance is a leading indicator of a firm's increasing capability to deliver improved future financial performance.

The grocery store Aldi is known for its efficiency and low prices in selling typical items. They are able to reduce costs by cutting back on labor through offering limited customer service (e.g., you have to bag your groceries and they use a clever system that requires you to return your buggy after shopping). They also cut cost by stocking seasonal and generic products that can be purchased cheaply in large quantities. What generic strategic approach is Aldi most likely using?

Low-Cost

Factors outside a company's industry boundaries—economic conditions, political factors, sociocultural forces, technological factors, environmental factors, and legal/regulatory conditions

Macro-Environment or General Environment

The value of strategic group maps

Maps are useful in identifying which industry members are close rivals and which are distant rivals.

Planned initiatives to improve the company's financial performance and secure a competitive edge.

Proactive, Intended, or Deliberate Strategy

Using the five forces model to determine the nature and strength of competitive pressures in a given industry involves 3 steps:

STEP 1: For each of the five forces, identify the different parties involved, along with the specific factors that bring about competitive pressures. STEP 2: Evaluate how strong the pressures stemming from each of the five forces are (strong, moderate, or weak). STEP 3: Determine whether the five forces, overall, are supportive of high industry profitability.

This serves as management's narrative tool for giving the organization a sense of direction.

Strategic Vision

Assessing a Company's Industry and Competitive Environment

Thinking strategically about the competitive environment requires managers to use some well validated concepts and analytical tools .•Five forces framework •The value net •Driving forces •Strategic groups• Competitor analysis •Key success factors

PESTEL is a framework suited for discussing forces that exist external to the industrial environment.

True

The board of director's duty is to act on behalf of shareholders not management.

True

Objectives

are an organization's performance targets - the specific results management wants to achieve

A company's realized strategy is often a combination of a(n)_____ and a(n)_____

deliberate strategy; emergent strategy

Strategic Vision

describes managements aspirations for the company's future and the course and direction charted to achieve them ("where we are going")

Mission statement

describes the enterprises present business and purpose-"who we are, what we do, and why we are here". It is purely descriptive.

A firm can create a competitive advantage by employing the same strategy as its competitors.

false

Generally, when there are ___________ suppliers to an industry relative to the firms within the industry being supplied, then the firms within the focal industry will be in a ________ bargaining position.

fewer; weaker

Strategic Group

is a cluster of industry rivals that have similar competitive approaches and market positions

Strategic group mapping

is a technique for displaying the different market or competitive positions that rival firms occupy in the industry

The Balanced Scorecard

is a widely used method for combining the use of both strategic and financial objectives, tracking their achievement, and giving management a more complete and balanced view of how well an organization is performing.

Strategic Plan

lays out a company's direction, business model, competitive strategy, and performance targets for some specified period of time

Which of the following is not a barrier to entry?

low levels of customer loyalty

Strategic plan

maps out where a company is headed, establishes strategic and financial targets, and outlines the competitive moves and approaches to be used in achieving the desired business results

Making a profit could best described as part of a firm's _________.

objectives

Vision statements help firm leadership to ____________.

reduce the risk of making decisions without a clear direction

When building strategic group maps the axis should ____________.

represent competitive characteristics that delineate strategic approaches used in the industry

Stretch Objectives

set performance targets high enough to stretch an organization to perform at its full potential and deliver the best possible results

Imagine your boss addresses the company and states that a new objective of the firm is to take marketshare back from a rival and grow the firm's market share by 10% over the next year. This is an example of a(n)_________ objective.

strategic

A company's ____ is (are) the coordinated set of actions that its managers take in order to outperform the company's competitors and achieve superior profitability.

strategy

A craft brewery using high quality citra hops as an ingredient faces a greater threat from __________ than a macro brewery such as Bud that uses low quality generic hops.

suppliers

A company's Strategy is

the coordinated set of actions that its managers take in order to outperform the company's competitors and achieve superior profitability

Market Entry Barriers Facing New Entrants: Entry Barriers are High under the following conditions

• There are Sizable economies of scale in production, distribution, advertising, or other activities •Hard-to-replicate learning curve and industry relationship cost advantages of incumbents •Customers have Strong brand preferences and high customer loyalty •Patents and other intellectual property protection are in place •Strong "network effects" in customer demand •High capital requirements •There are difficulties in Building a network of distributors and/or dealer networks and securing adequate space on retailers' shelves •Restrictive regulatory and trade policies

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. -Even the best-conceived strategies will result in performance shortfalls if they are not executed proficiently -Good Strategy + Good Strategy Execution =Good Management

Stage 3: Crafting a Strategy: Strategy Making

•Addresses a series of strategic hows. •Requires choosing among strategic alternatives .•Promotes actions to do things differently from competitors rather than running with the herd .•Is a collaborative team effort that involves managers in various positions at all organizational levels.

Cautions about Stretch Goals: Realistic stretch goals

•Are definitely reachable, with a strong and coordinated effort on the part of company personnel.

Linking Vision and Mission with Core Values: Core Values

•Are the beliefs, traits, and behavioral norms that employees are expected to display in conducting the firm's business and in pursuing its strategic vision and mission. •Become an integral part of the firm's culture and what makes it tick when strongly espoused and supported by top management. •Match the firm's vision, mission, and strategy, contributing to the firm's business success.

Strategic Objectives

•Are the firm's goals related to market standing and competitive position. •Are focused externally on competition in relation to the firm's rivals. -lay out target outcomes concerning a company's market standing, competitive position, and future business prospects

Cautions about Stretch Goals: Overly ambitious stretch goals (Extreme stretch goals)

•Are usually beyond the organization's capabilities to reach, regardless of the level of effort. •Involve radical expectations and often go unachieved, and run the risk of killing motivation, eroding employee confidence, and damaging both worker and company performance.

A balanced scorecard strives to place:

•Balanced emphasis on achieving both financial and strategic objectives by tracking measures of both financial performance and the competitiveness of its market position.

Competitive Pressures That Increase Rivalry among Competing Sellers

•Buyer demand is growing slowly or declining. •It is becoming less costly for buyers to switch brands. •Industry products are becoming less differentiated .•There is unused production capacity, or products have high fixed costs or high storage costs. •The number of competitors is increasing, or they are becoming more equal in size and competitive strength. •The diversity of competitors is increasing. •High exit barriers keep firms from exiting the industry.

How the firm will make money:

•By providing customers with value •(The firm's customer value proposition) •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.

Some drivers of change are unique and specific to a particular industry situation, but most drivers of industry and competitive change fall into one of the following categories:

•Changes in the long-term industry growth rate•Increasing globalization •Emerging new Internet capabilities and applications •Shifts in buyer demographics •Technological change and manufacturing process innovation •Product and marketing innovation •Entry or exit of major firms •Diffusion of technical know-how across firms and countries •Changes in cost and efficiency •Reductions in uncertainty and business risk •Regulatory influences and government policy changes •Changing societal concerns, attitudes, and lifestyles

Why a Company's Strategy Changes Over Time: 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.

Financial Objectives

•Communicate top management's goals for financial performance. •Are focused internally on the firm's operations and activities.

Business Model Elements: 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.

Stage 5: Evaluating Performance and Initiating Corrective Adjustments: Evaluating Performance

•Deciding whether the enterprise is passing the three tests of a winning strategy—good fit, competitive advantage, strong performance

Stage 5: Evaluating Performance and Initiating Corrective Adjustments: Initiating Corrective Adjustment

•Deciding whether to continue or change the firm's vision and mission, objectives, strategy, and strategy execution methods •Applying lessons based on organizational learning.

Competitive Pressures Associated with the Threat Of New Entrants: Entry Threat Considerations

•Expected defensive reactions of incumbent firms •Strength of barriers to entry •Attractiveness of a particular market's growth in demand and profit potential •Capabilities and resources of potential entrants •Entry of existing competitors into market segments in which they have no current presence

Strategy Making Involves Managers At All Organizational Levels: Senior Executives

•Fashion the major strategy components involving their areas of responsibility. -have influential strategy-making roles and help fashion the chief strategy components

The four dimensions of a Balanced Scorecard:

•Financial objectives •Strategic objectives that signal greater competitive strength (and thus greater capability to achieve higher levels of financial performance)/Customer:objectives relating to customers and the market •Internal process: objectives relating to productivity and quality •Organizational: objectives concerning human capital, culture, infrastructure, and innovation

Analyzing the company's macro-environment: PESTEL Analysis

•Focuses on principal components of strategic significance in the macro-environment •Political factors •Economic conditions (local to worldwide) •Sociocultural forces •Technological factors •Environmental factors (the natural environment) •Legal and regulatory conditions

Why communicate the vision?

•Fosters employee commitment to the firm's chosen strategic direction •Ensures understanding of its importance •Motivates, informs, and inspires internal and external stakeholders •Demonstrates top management support for the firm's future strategic direction and competitive efforts

Sustainable competitive advantage requires:

•Giving buyers lasting reasons to prefer a firm's products or services over those of 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.

Factors to Consider in Assessing Industry Attractiveness

•How the firm is impacted by the state of the macro-environment •Whether strong competitive forces are squeezing industry profitability to subpar levels •Whether the presence of complementors and the possibility of cooperative actions improve the company's prospects •Whether industry profitability will be favorably or unfavorably affected by the prevailing driving forces •Whether the firm occupies a stronger market position than rivals •Whether this is likely to change in the course of competitive interactions •How well the firm's strategy delivers on industry key success factors

The objective of a well-crafted strategy is not merely temporary competitive success and profits in the short run, but rather the sort of lasting success that can support growth and secure the companies future over the long term. Achieving this entails making a managerial commitment to a coherent array of well-considered choices about how to compete. Strategy is all about choosing How

•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

Constructing a strategic group map

•Identify the competitive characteristics that delineate strategic approaches used in the industry. •Plot the firms on a two-variable map using pairs of competitive characteristics .•Assign firms occupying about the same map location to the same strategic group .•Draw circles around each strategic group, making the circles proportional to the size of the group's share of total industry sales revenues.

Driving-forces analysis has 3 steps:

•Identifying what the driving forces are •Assessing whether the drivers of change are acting to make the industry more or less attractive •Determining what strategy changes are needed to prepare for the impact of the driving forces -typically only 3 or 4 forces will be relevant

Strategy is about competing differently- 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: •Set it apart from its rivals by either providing products with higher perceived values or efficiently producing at lower costs. •Stake out a market position that is not crowded with strong competitors.

Is the Collective Strength of the Five Competitive Forces Conducive to Good Profitability? Answer the following 3 questions

•Is the state of competition in the industry stronger than normal? •Can industry firms expect to earn decent profits given prevailing competitive forces? •Are some of the competitive forces sufficiently powerful to undermine industry profitability? -Even one powerful competitive force may be enough to make the industry unattractive in terms of its profit potential. - an industry with 3 to 5 strong forces is even more "unattractive" as a place to compete -when the overall impact of the 5 competitive forces is moderate to weak, an industry is attractive in the sense that the average industry member can reasonably expect to earn good profits and a nice return on investment

Achieving Effective Corporate Governance: A strong, independent board of directors:

•Is well informed about the firm's performance.•Guides and judges the CEO and other executives. •Can curb management actions the board believes are inappropriate or unduly risky. •Can certify to shareholders that the CEO is doing what the board expects. •Provides insight and advice to top management. •Is intensely involved in debating the pros and cons of key strategic decisions and actions.

Elements of a strategic plan

•Its strategic vision, business mission, and core values •Its strategic and financial objectives •Its chosen strategy

Setting Objectives for Every Organizational Level

•Needs to Breaks down overall performance targets into targets for each of the organization's separate businesses, product lines, functional departments, and individual work units •Fosters setting lower-level performance targets or outcomes that support achievement of firm-wide strategic and financial objectives •Extends the top-down objective-setting process to all organizational levels

The Role of The Board of Directors in Corporate Governance: 4 Obligations of the Board of Directors

•Oversee the firm's financial accounting and reporting practices compliance with GAAP principles. •Critically appraise the firm's direction, strategy, and business approaches. •Evaluate the caliber of senior executives' strategic leadership skills. •Institute a compensation plan that rewards top executives for actions and results that serve stakeholder interests—especially shareholders

Two reasons account for why some map positions can be more attractive than others

•Prevailing competitive pressures from the industry's five forces may cause the profit potential of different strategic groups to vary. •Industry driving forces may favor some strategic groups and hurt others.

Typical variables used in creating strategic group maps:

•Price or quality range (high, medium, low) •Geographic coverage (local, regional, national, global)•Product-line breadth (wide, narrow) •Degree of service offered (no frills, limited, full)•Distribution channels (retail, wholesale, Internet, multiple) •Degree of vertical integration (none, partial, full) •Degree of diversification into other industries (none, some, considerable)

Realized (current) strategy is a blend of:

•Proactive (deliberate) strategy elements that include planned initiatives to improve the company's financial performance and secure a competitive edge. •Reactive (emergent) strategy elements developed on the fly in response to unanticipated developments and fresh market conditions. •Abandoned and superseded strategy elements that no longer fit with the company's ongoing strategy.

Matching Company Strategy to Competitive Conditions: Effectively matching a firm's business strategy to prevailing competitive conditions has two aspects:

•Pursuing avenues that shield the firm from as many competitive pressures as possible •Initiating actions calculated to shift competitive forces in the firm's favor by altering underlying factors driving the five forces

Setting Stretch Objectives: Setting stretch objectives promotes better overall performance because stretch targets:

•Push a firm to be more inventive .•Increase the urgency for improving financial performance and competitive and business position. •Cause the firm to be more intentional and focused in its actions. •Create an exciting work environment and attract the best people. •Help prevent internal inertia and contentment with modest gains in organizational performance.

Putting the Strategic Vision in place: what needs to be done

•Put the vision ("where are we going and why") in writing and distribute it, and is accessible to everyone •Hold meetings to personally explain the vision and its rationale. •Create a memorable slogan or phrase that effectively expresses the essence of the vision. •Emphasize the positive payoffs for making the vision happen.

Business Model Elements: 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 (P), the more attractive the value proposition is to customers

Stage 2: Setting Objectives: The purpose of setting objectives

•To convert the vision and mission into specific, measurable, challenging yet achievable, deadline performance targets •To focus efforts and align actions throughout the organization •To serve as yardsticks for tracking a firm's performance and progress •To provide motivation and inspire employees to greater levels of effort

A well-conceived company mission statement:

•Uses specific language to give the firm its own unique identity •Describes the firm's current business and purpose—"who we are, what we do, and why we are here" •Focuses on describing the firm's business, not on "making a profit"—earning a profit is an objective, not a mission

Strategy Making Involves Managers At All Organizational Levels: Managers of subsidiaries, divisions, geographic regions, plants, and other operating units (and key employees with specialized expertise)

•Utilize on-the-scene familiarity with their business units to orchestrate their specific pieces of the strategy -on the scene managers who oversee specific operating units can be reliably counted on to have more detailed command of the strategic issues for the particular operating unit under their supervision since they have more intimate knowledge of the prevailing market and competitive conditions, customer requirements and expectations, and all other relevant aspects affecting the several strategic options available

Driving forces analysis 3rd step: what strategy adjustments will be needed to deal with the impacts of the driving forces?

•What adjustments must be made immediately? •What actions currently being taken should be halted or abandoned? •What can we do now to prepare for adjustments we anticipate making in the future?