Mgmt 352 exam 1
stock market valuation
(share price X number of outstanding shares)
The power of suppliers is high when
- suppliers' industry is more concentrated than the industry it sells to - suppliers do not depend heavily on the industry for their revenues - incumbent firms face significant switching costs when changing suppliers - suppliers offer products that are differentiated - there are no readily available substitutes for the products or services that the suppliers offer - suppliers can credibly threaten to forward-integrate into the industry
Threat of entry is high when
-Customer switching costs are low -Capital requirements are low -Incumbents do not possess proprietary technology or established brand equity -New entrants expect that incumbents cannot / will not retaliate
Power of buyers is high when:
-There are a few buyers and each buyer purchases large quantities relative to the size of a single seller -The industry's products are standardized or undifferentiated commodities -Buyers face low or no switching costs -Buyers can credibly threaten to backwardly integrate into the industry
Rivalry among existing competitors is high when
-There are many competitors in the industry -Competitors are roughly the same size -Industry growth is slow, zero, or even negative -Exit barriers are high -Products/ services are direct substitutes - that is little to no differentiation among product offerings
Economies of scale allow firms to
-spread their fixed costs over a larger output -employ specialized systems and equipment -take advantage of certain physical properties
Key tasks of AFI framework
1. Analysis of the external and internal environments. 2. Formulation of an appropriate business and corporate strategy. 3. Implementation of the formulated strategy through structure, culture, and control
Competition in the Five Forces Model
1. Competition is viewed more broadly in the five forces model. 2.Profit potential is a function of the five competitive forces.
Strategic group mapping additional insights
1. Competitive rivalry is strongest between firms that are within the same strategic group 2. The external environment affects strategic groups differently. 3. The five competitive forces affect strategic groups differently. 4.Some strategic groups are more profitable than others
Steps to apply the five forces model
1. Define the relevant industry 2. Identify the key players in each of the five forces and attempt to group them into different categories 3. Identify the underlying drivers of each force 4. Assess the overall industry structure 5. Draw a strategic group map. Helps unearth and explain performance differences within the same industry
Good strategy
1. Diagnosis of the competitive challenge. This element is accomplished through analysis of the firm's external and internal environments (Part 1 of the AFI framework). 2. A guiding policy to address the competitive challenge. This element is accomplished through strategy formulation, resulting in the firm's corporate, business, and functional strategies (Part 2 of the AFI framework). 3. A set of coherent actions to implement the firm's guiding policy. This element is accomplished through strategy implementation (Part 3 of the AFI framework).
AFI framework
1. Explains and predicts differences in firm performance. 2. Helps leaders formulate and implement a strategy that can result in superior performance.
Stakeholder Impact Analysis steps
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 have to our stakeholders? 5. What should we do to effectively address the stakeholder concerns?
The level-5 pyramid
1. highly capable individual (Makes productive contributions through talent, skills) 2. contributing team member (Uses high level of individual capability to work effectively with others in order to achieve team objectives) 3. competent manager (efficient & effective in organizing resources to accomplish stated goals and objectives) 4. effective leader (Presents compelling vision and mission to guide groups toward superior performance) 5. executive (builds enduring greatness through a combination of willpower and humility)
SWOT & Strategic Alternatives
1.Focus on the Strengths-Opportunities quadrant (top left) to derive "offensive" alternatives by using an internal strength to exploit an external opportunity. 2. Focus on the Weaknesses-Threats quadrant (bottom right) to derive "defensive" alternatives by eliminating or minimizing an internal weakness to mitigate an external threat. 3. Focus on the Strengths-Threats quadrant (top right) to use an internal strength to minimize the effect of an external threat. 4. Focus on the Weaknesses-Opportunities quadrant (bottom left) to shore up an internal weakness to improve its ability to take advantage of an external opportunity.
representativeness
A cognitive bias resulting from the tendency to generalize inappropriately from a small sample or from a single vivid event or episode.
upper-echelons theory
A conceptual framework that views organizational outcomes—strategic choices and performance levels—as reflections of the values of the members of the top management team.
Intellectual Property (IP) protection
A critical intangible resource that can provide a strong isolating mechanism, and thus help to sustain a competitive advantage
Five Forces Model
A framework that identifies five forces that determine the profit potential of an industry and shape a firm's competitive strategy. 1. Threat of entry 2. Power of suppliers 3. Power of buyers 4. Threat of substitutes 5. Rivalry among existing 6. Strategic role of complements
Top-down strategic planning
A rational, data-driven strategy process through which top management attempts to program future success. Where to use: Military, government, highly regulated & stable industries.
groupthink
A situation in which group members seek unanimous agreement despite their individual doubts
escalating commitment
A source of cognitive bias resulting from the tendency to commit additional resources to a project even if evidence shows that the project is failing.
VRIO Framework
A theoretical framework that explains and predicts firm-level competitive advantage.
three traditional frameworks to measure and assess firm performance
Accounting profitability Shareholder value creation Economic value creation
advantages independent of size
Advantages based on brand loyalty, proprietary technology, preferential access to raw materials and distribution channels, favorable geographic locations, and cumulative learning and experience effects
Formulation
Business strategy Corporate strategy Global strategy
Blue Ocean Strategy
Business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs.
How to respond to disruptive innovation?
Continue to innovate in order to stay ahead of the competition Guard against disruptive innovation by protecting low end of market Disrupt yourself, dont wait
mission
Description of what an organization actually does—the products and services it plans to provide, and the markets in which it will compete.
economic value created
Difference between value (V) and cost (C), or (V - C). Creating economic value and capturing as much of it as possible
differentiation strategy
Distinguishing an organization's products from the products of competitors on dimensions such as product design, quality, or after-sales service.
Entry barriers
Economies of scale. Network effects. Customer switching costs. Capital requirements. Advantages independent of size. Government policy. Credible threat of retaliation
Oligopoly
Few (large) firms • Some pricing power • Differentiated product • High entry barriers
Growth (life cycle)
High market growth, large market size, costs are falling. Staking out a strong strategic position (early adopters 13.5%)
ppe/revenue
How much of the firms revenues are dedicated to plant property and equipment
A failure to face a competitive challenge is not strategy
If a firm does not define a clear competitive challenge, employees have no way of assessing whether they are making progress in addressing it.
resource
In the resource-based view of the firm, a resource includes any assets as well as any capabilities and competencies that a firm can draw upon when formulating and implementing strategy
Maturity (life cycle)
Largest market size, moderate cost, no market growth Maintaining a strong strategic position (Late majority 34%)
Value innovation
Lower costs (Eliminate, reduce) Increase perceived consumer benefits (raise and create)
Shakeout (life cycle)
Market growth slowing down, Market size large, starting to begin price competition, fewer competitors, Surviving by drawing on deep pockets (early majority 34%)
Decline (life cycle)
Negative market growth, small market size, few competitors Exit, harvest, maintain, or consolidate (laggards 16%)
Grandiose statements
Not a strategy. "Our strategy is to win"
cognitive biases
Obstacles in thinking that lead to systematic errors in our decision making and in our decision making and interfere with our rational thinking
costly-to-imitate resource
One of the four key criteria in the VRIO framework. A resource is costly to imitate if firms that do not possess the resource are unable to develop or buy the resource at a comparable cost. (if no, temporary competitive advantage)
rare resource
One of the four key criteria in the VRIO framework. A resource is rare if the number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition. (if no, competitive parity)
valuable resource
One of the four key criteria in the VRIO framework. A resource is valuable if it helps a firm exploit an external opportunity or offset an external threat. (If no, competitive disadvantage)
organized to capture value
One of the four key criteria in the VRIO framework. The characteristic of having in place an effective organizational structure, processes, and systems to fully exploit the competitive potential of the firm's resources, capabilities, and competencies. (If no, Temporary competitive advantage) If yes, sustainable competitive advantage
Implementation
Organizational design Corporate governance and business ethics
Operational effectiveness, competitive benchmarking, or other tactical tools are not strategy
People casually refer to a host of different policies and initiatives as some sort of strategy: pricing strategy, internet strategy, alliance strategy, operations strategy, IT strategy, brand strategy, marketing strategy, HR strategy, China strategy, and so on.
Platform Business Model
Platform businesses tend to frequently outperform pipeline businesses, because of the following advantages: Platforms scale more efficiently than pipelines by eliminating gatekeepers. Platforms unlock new sources of value creation and supply Platforms benefit from community feedback
PESTEL Analysis (external)
Political Economic Sociocultural Technological Environmental Legal
Triple bottom line
Profits (economic) people (social) Planet (ecological) Positive in all three can lead to a sustainable strategy
Intro (life cycle)
Slow market growth, high cost to enter and small market size. Achieving market acceptance. (Tech enthusiasts 2.5%)
nonmarket strategy
Strategic leaders' activities outside market exchanges where firms sell products or provide services to influence a firm's general environment through, for example, lobbying, public relations, contributions, and litigation in ways that are favorable to the firm
Analysis
Strategic leadership & strategy process external analysis Internal analysis Competitive advantage, firm performance & business models
Scenario planning
Strategy-planning activity in which managers envision different what-if scenarios to anticipate plausible futures. Where to use: fairly stable industries like airlines, larger firms with small number of other large competitors (oligopoly)
strategic activity system
The conceptualization of a firm as a network of interconnected activities.
Value chain
The internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value. (Value - costs)
minimum efficient scale
The lowest rate of output at which a firm takes full advantage of economies of scale
strategy implementation
The part of the strategic management process that concerns the organization, coordination, and integration of how work gets done, or strategy execution.
Threat of substitutes is high when
The substitute offers an attractive price-performance trade-off. The buyer's cost of switching to the substitute is low
Entry choices
Who are the players?(Identify competitors, focus on other external and internal stakeholders necessary to compete in the industry) When to enter? (timing of entry) How to enter? (establish niche, reconfigure value chains, leverage existing assets) What type of entry? (Industry choice) Where to enter? (High end product or low end)
The why, what, who and how of business models framework
Why does the business model create value? What activities need to be performed to create and deliver the offerings to customers? Who are the main stakeholders performing the activities? How are the offering to the customers created?
Balanced scorecard
a combination of performance measures directed toward the company's long and short term goals and used as the basis for awarding incentive pay. For competitive advantage
complementor
a company that provides a good or service that leads customers to value your firm's offering more when the two are combined
Stakeholder Impact Analysis
a decision tool with which managers can recognize, prioritize, and address the needs of different stakeholders, enabling the firm to achieve competitive advantage while acting as a good corporate citizen
Devils advocacy
a decision-making method in which an individual or a subgroup is assigned the role of critic
dynamic capabilities
a firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage
organizational inertia
a firm's resistance to changes in the status quo
core rigidity
a former core competency that turned into a liability because the firm failed to hone, refine, and upgrade the competency as the environment changed
strategic group model
a framework that explains differences in firm performance within the same industry
dynamic capabilities perspective
a model that emphasizes a firm's ability to modify and leverage its resource base in a way that enables it to gain and sustain competitive advantage in a constantly changing environment
Resource-based view
a model that sees certain types of resources as key to superior firm performance
pyramid of corporate social responsibility
a model that suggests corporate social responsibility is composed of economic, legal, ethical, and philanthropic responsibilities and that the firm's economic performance supports the entire structure
industry convergence
a process whereby formerly unrelated industries begin to satisfy the same customer need
complement
a product, service, or competency that adds value to the original product offering when the two are used in tandem
social complexity
a situation in which different social and business systems interact with one another
casual ambiguity
a situation in which the cause and effect of a phenomenon are not readily apparent
path dependence
a situation in which the options one faces in the current situation are limited by decisions made in the past
illusion of control
a source of cognitive bias resulting from the tendency to overestimate one's own ability to control activities and events
confirmation bias
a tendency to search for information that supports our preconceptions and to ignore or distort contradictory evidence
strategic commitments
actions that are costly, long-term oriented, and difficult to reverse
primary activities
add value directly as the firm transforms inputs into outputs—from raw materials through production phases to sales and marketing and finally customer service Supply chain management. Operations. Distribution. Marketing and sales. After-sales service.
support activities
add value indirectly Research and development (R&D). Information systems. Human resources. Accounting and finance. Firm infrastructure including processes, policies, and procedures.
Stakeholder Strategy
an integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage
Emergent Strategy
any unplanned strategic initiative bubbling up from the bottom of the organization
resource immobility
assumption in the resource-based view that a firm has resources that tend to be "sticky" and that do not move easily from firm to firm
resource heterogeneity
assumption in the resource-based view that a firm is a bundle of resources and capabilities that differ across firms
Two integrative frameworks, combining quantitative data with qualitative assessments:
balanced scorecard Triple bottom line
Isolating Mechanisms
barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy (Better expectations of future resource value, Path dependence, Causal ambiguity, social complexity, Intellectual property protection)
long tail
business model in which companies can obtain a large part of their revenues by selling a small number of units from among almost unlimited choices
Market capitalization
captures the total dollar market value of a company's total outstanding shares at any given point in time (Market cap = # of outstanding shares X share price)
reason by analogy
cognitive bias in which individuals use simple analogies to make sense out of complex problems.
Realized Strategy
combination of intended and emergent strategy
co-opetition
cooperation by competitors to achieve a strategic objective
Product-Oriented Vision Statements
defines a business in terms of a good or service provided. Tends to force managers take myopic view of the competitive landscape
customer orientated vision
defines a business in terms of providing solutions to customer needs. More effective
activities
distinct and fine-grained business processes that enable firms to add incremental value by transforming inputs into goods and services
System 1 Decision Making
fast, unconscious, automatic, everyday snap decisions, error prone/ higher likelihood of biases
behaviroal economics
field of study that blends research findings from psychology with economics to provide valuable insights showing when and why individuals do not act like rational decision makers, as assumed in neo-classical economics.
firm effects
firm performance attributed to the actions managers take
Industry Effects
firm performance attributed to the structure of the industry in which the firm competes
SWOT analysis
framework that allows managers to synthesize insights obtained from an internal analysis of the company's strengths and weaknesses (S and W) with those from an analysis of external opportunities and threats (O and T) to derive strategic implication
Strategy canvas
graphical depiction of a company's relative performance vis-a-vis its competitors across the industry's key success factors
Four I's
idea, invention, innovation, imitation
COGS/Revenue
indicates how efficiently a company can produce a good
R&D/Revenue
indicates how much of each dollar that the firm earns in sales is invested to conduct research and development
mobility barriers
industry-specific factors that separate one strategic group from another
Strategic Group Mapping
is a technique for displaying the different market or competitive positions that rival firms occupy in the industry.
cost leadership strategy
keep the costs, and hence prices, of a product or service below those of competitors and to target a wide market
cognitive limitations
limits on what we are able to know at any point in time
serendipity
luck, finding good things without looking for them. Can have profound impact on firms strategy initiatives
Exit barriers
obstacles that determine how easily a firm can leave an industry
value creation
occurs when an organization can provide products at a lower cost or with superior benefits to the customer
capabilities
organizational and managerial skills necessary to orchestrate a diverse set of resources and deploy them strategically
Planned emergence
organizational structure and systems allow bottom-up strategic initiatives to emerge and be evaluated and coordinated by top management Where to use: New ventures/small firms, internet companies (amazon), biotech companies
theory of bounded rationality
people rely on a simple set of possible solutions leading to less ideal or "irrational" decisions
competitive parity
performance of two or more firms at the same level
Dialect Inquiry
randomly split in rough halves, after each team decides top two options; attack others' option forces cognitive (good) type of conflict
SG&A/Revenue
ratio that indicates how much of each dollar that the firm earns in sales is invested in sales, general, and administrative (SG&A) expenses
competitive industry structure
refers to elements and features common to all industries The number and size of its competitors. The firm's degree of pricing power. The type of product or service (commodity or differentiated product). The height of entry barriers.
total return to shareholders
return on risk capital that includes stock price appreciation plus dividends received over a specific period
System 2 Decision Making
slow,conscious, effortful, complex/analytical decisions, reliable/lower likelihood of biases
core values statement
statement of principles to guide an organization as it works to achieve its vision and fulfill its mission, for both internal conduct and external interactions; it often includes explicit ethical considerations
Strategic Management Process
strategy analysis, strategy formulation, and strategy implementation Rely on three approaches (Strategic planning, Scenario planning, Strategy as planned emergence.)
competitive advantage
superior performance relative to other competitors in the same industry or the industry average
Strategic Leadership
the ability of the CEO and top managers to convey a compelling vision of what they want the organization to achieve to their subordinates
consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it (V-P)
producer surplus
the amount a seller is paid for a good minus the seller's cost of providing it. (P-C)
innovation
the commercialization of any new product or process, or the modification and recombination of existing ones
resource stocks
the firm's current level of intangible resources (Dynamic capabilities, New product development, Patents)
resource flows
the firm's level of investments to maintain or build a resource Inflows (Investments in resources) Outflows (Leakage, forgetting)
business level strategy
the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market. (who will we serve, what do the customers need, why do we want to satisfy them, how will we satisfy them)
reservation price
the maximum price a consumer is willing to pay for a product or service based on the total perceived consumer benefits
Intended Strategy
the outcome of a rational and structured top-down strategic plan
strategy formulation
the process of choosing among different strategies and altering them to best fit the organization's needs
diseconomies of scale
the property whereby long-run average total cost rises as the quantity of output increases
Profit potential
the stronger the five forces, the lower the industry's profit potential—making the industry less attractive for competitors. The reverse is also true: the weaker the five forces, the greater the industry's profit potential—making the industry more attractive.
resource-allocation process (RAP)
the way a firm allocates its resources based on a predetermined policies, which can be critical in shaping its realized strategy
core competencies
unique strengths, embedded deep within a firm, that are critical to gaining and sustaining competitive advantage
monopolistic competition
• Many firms • Some pricing power • Differentiated product • Medium entry barriers
perfect competition
• Many small firms • Firms are price takers • Commodity product • Low entry barriers
Monopoly
• One firm • Considerable pricing power • Unique product • Very high entry barriers
