MGMT 425 Exam #1
Economic value
(V-C)
Vision
*vision: A statement about what an organization ultimately wants to accomplish; it captures the company's aspiration. -customer orientated
POPULAR BUSINESS MODELS
-Razor-razor-blades-sold at as a loss or as a complementary good -subscription ex. newspapers -pay-as-you-go ex. cellphone service plan -freemium ex. free until premium -ultra-low cost ex. spirit airline -wholesale ex. retailers selling book at whole price -agency: relies on agent to sell and goes off commission -bundling ex. Microsoft with word and excel bundles
Strategy concerns
-corporate strategy: where to compete? -business strategy: how to compete? -functional strategy: how to implement business strategy?
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.
primary activities and support activities
primary; actives that add value directly ex. operations, supply chain management, marketing/sales support: adds value indirectly but sustain primary activity. ex. hr, finance, accounting
confirmation bias
prior hypothesis bias, is the tendency of individuals to search for information that confirms their existing beliefs.
competitive industry structure
refers to elements and features common to all industries. The structure of an industry is largely captured by ■ ■ -The number and size of its competitors -The firm's degree of pricing power.
mobility barriers
restrict movement between groups and restrict one strategic group from the other. *strategic commitments*
balanced scorecard
strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals
-planned emergence
strategy process in which organizational structure and systems allow bottom-up strategic initiatives to emerge and be evaluated and coordinated by top management
competitive parity
performance of two or more firms at the same level
three important stakeholder attributes:
power, legitimacy, and urgency
direct imitation
A firm that enjoys a competitive advantage, however, attracts significant attention from its competitors.
strategic position
A firm's strategic profile based on the difference between value creation and cost (V − C)
Ch. 4 case study 5 guys
"make the best burgers, don't worry about the cost" as there burger product ended up being expensively made but got them success as they stuck to their price point and provided great quality burgers.
Capital requirements
"price of the entry ticket" into a new industry
market capitalization
A firm performance metric that captures the total dollar market value of a company's total outstanding shares at any given point in time.
AFI Strategy Framework
1. Analysis (A) 2. Formulation (F) 3. Implementation (I)- these 3 tasks are the pillars of research and knowledge for strategic management . It explains and predicts differences in firm performance and helps perform and implement successful strategies.
THE POWER OF SUPPLIERS
1. Powerful suppliers can raise the cost of production by demanding higher prices for their inputs or by reducing the quality of the input factor or service level delivered. 2. Powerful suppliers are a threat to firms because they reduce the industry's profit poten-tial by capturing part of the economic value created
multidimensional perspective for assess-ing competitive advantage
3 standard performance dimensions: 1. accounting profitibility 2. shareholder value 3. economic value
Triple bottom line
A business strategy that includes social, economic, and environmental criteria. *profit, people, and planet (sustainable strategy) ex. Pepsi -performance with a purpose; creating environmentally and humanly sustainable products -leads to sustainable strategy
Representativeness
A cognitive bias in which conclusions are based on small samples, or even from one memorable case or anecdote
Reason by analogy
A cognitive bias in which individuals use simple analogies to make sense out of complex problems
Level-5 leadership pyramid
A conceptual framework of leadership progression with five distinct, sequential levels.
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
stakeholders 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.
behavioral economics
A 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
SWOT analysis
A 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
CH.3 PESTEL model
A framework that catego-rizes and analyzes an important set of external factors (political, economic, sociocul-tural, technological, ecological, and legal) that might impinge upon a firm. These factors can create both opportunities and threats for the firm *scans, monitors, and evaluates external factors*
strategic group model
A framework that explains differences in firm performance within the same industry
Corporate Social Responsibility (CSR)
A framework that helps firms recognize and address the economic, legal, social, and philanthropic expectations that society has of the business enterprise at a given point in time.
five forces model
A framework that identifies five forces that determine the profit potential of an industry and shape a firm's competitive strategy. -competition is viewed more broadly, profit potential is a function of the 5 competitive forces
industry
A group of incumbent companies that face more or less the same set of sup-pliers and buyers
industry analysis
A method to (1) identify an industry's profit potential and (2) derive implications for a firm
resource-based view
A model that sees certain types of resources as key to superior firm performance
industry convergence
A process whereby formerly unrelated industries begin to satisfy the same customer need
top-down strategic planning
A rational, data-driven strategy process through which top management attempts to program future success (derived from military strategy)
Social complexity
A situation in which different social and business systems interact with one another
groupthink
A situation in which opinions coalesce around a leader without individuals critically evaluating and challenging that leader's opinions and assumptions. -cohesive and no diverse groups can lead to flawed decision making and consequences
Causal 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
strategic intent
A stretch goal that pervades the organization with a sense of winning, which it aims to achieve by building the necessary resources and capabilities through continuous learning
VRIO framework.
A theoretical framework that explains and predicts firm-level competitive advantage.(valuable, rare, imitate- is costly?, organized to capture the value ) *resource based view*
When performing internal analysis of firms, how would you answer the question, "why do companies exist?" A) Companies exist because they create value for customers in ways that customers are unable to replicate on their own B) Companies exist because they provide a means of investment income for shareholders, who otherwise would be able to invest only in government securities C) Companies exist because they provide a tax base for government to draw upon in creating and maintaining public works projects D) Companies exist because they give college professors something to teach about.
A) Companies exist because they create value for customers in ways that customers are unable to replicate on their own
Jill is exploring multiple suppliers in order to find the best price. However, instead of calling all eight potential suppliers, she only reaches out to the first three and bases her selection on those instead of contacting all suppliers. Jill's action best describes the concept of A) cognitive limitations B) optimal decision making C) the illusion of control D) escalating commitment.
A) cognitive limitations.
6) Tesla is addressing environmental concerns regarding the carbon emissions of gasolinepowered cars by building zero-emission battery-powered vehicles. This best represents which of the following PESTEL categories? A) ecological B) economic C) political D) technological
A) ecological
Core competencies are derived from the combination of A) key strategic resources and a firm's capabilities B) export barriers, trade barriers, and credit barriers faced recently by the company C) tax policy changes driven by federal programs and R&D grants at the state level D) knowledge brought in by new graduates and the mentoring they receive from existing employees.
A) key strategic resources and a firm's capabilities.
Bob is exploring multiple suppliers in order to find the best price. However, instead of calling all eight potential suppliers, he only reaches out to the first three and bases his selection on those instead of contacting all suppliers. Bob's action best describes the concept of A) satisficing B) optimal decision making C) the illusion of control D) escalating commitment.
A) satisficing
In recent years a growing number of U.S. consumers have become more health-conscious about what they eat. According to the PESTEL Framework this trend could best be classified as a ________ trend. A) sociocultural B) healthy eating C) political D) legal
A) sociocultural
Fresher Corp. produces electric bathroom fragrance diffusers and sells the electric outer device at a market rate price. However, they lock their clients into a two-year agreement to purchase the perfume refills solely from them on a monthly basis. Which business models does this best illustrate? A) subscription-based B) peer-to-peer C) crowdsourcing D) freemium
A) subscription-based
Tommy wants to open his own food truck but doesn't know anything about business. He needs help determining who his competition is, how he should craft his strategy to compete and how he'll implement his strategy to achieve a competitive advantage. He's hired you to help him get started. As a result, you know that you will probably use the A) AFI strategy framework B) business model analysis C) Six Sigma tool D) Stakeholder Impact analysis.
AFI strategy framework (analyze, formulate, and implement)
isolating mechanisms
Barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy
trade-offs
Alternatives that must be given up when one is chosen rather than another (strategic positioning requires) ex. Nordstroms and Walmart.-cost leadership vs. differentiation. Nordstroms has superior customer experience by professionals while Walmart provides acceptable service from low skilled employees
strategic initiative
Any activity a firm pursues to explore and develop new products and processes, new markets, or new ventures
emergent strategy
Any unplanned strategic initiative bubbling up from the bottom of the organization.
Strategy Highlight: Blockbuster example of the consequences of not following with PesTel
Blockbuster was too slow in technology to keep up with the fast and growing Netflix, which led Blockbuster to file for bankruptcy and run out of business.
the threat of substitutes
Substitutes meet the same basic customer needs as the industry's product but in a different way. ex. energy drinks instead of coffee
realized strategy
Combina-tion of intended and emergent strategy.
cognitive limitations
Constraints such as time or the brain's inability to process large amounts of data that prevent us from appropriately processing and evaluating each piece of information we encounter
Network effects
The value of a product or service for an individual user increases with the number of total users. (positive externality)*threat of potential entry decreases w network effects*
Jill is interested in the concept of strategy and decides to create her own. As a result, Jill says that her strategy is to focus on growth and marketing to achieve competitive advantage. How would you evaluate Jill's statement? A) Jill's strategy makes sense and she should move forward with it. B) Jill's strategy reveals a clear strategic position and tradeoff, so she should proceed C) Jill should reevaluate her statement because it fails to mention human resources and finance D) Jill should reevaluate her statement because it fails to meet the principles of what a strategy should be.
D) Jill should reevaluate her statement because it fails to meet the principles of what a strategy should be
9) LinkedIn, a professional social media website, allows its users to create their profiles for free, but charges a premium price for additional services. This is an example of a ________ business model A) subscription-based B) peer-to-peer C) crowdsourcing D) freemium
D) freemium
Mission
Description of what an organization actually does—the products and services it plans to provide, and the markets in which it will compete.
resource-allocation process (RAP)
The way a firm allocates its resources based on predetermined policies, which can be critical in shaping its realized strategy
good strategy
Enables a firm to achieve superior performance and sustainable competitive advantage relative to its competitors. It is based on a strategic management process that consists of three elements: (1) a diagnosis of the competitive challenge (2) a guiding policy to address the competitive challenge (3) a set of coherent actions to implement a firm's guiding policy
organizational core values
Ethical standards and norms that govern the behavior of individuals within a firm or organization
strategic leadership
Executives' use of power and influence to direct the activities of others when pursuing an organization's goals.
Strategic commitments
Firm actions that are costly, long-term oriented, and difficult to reverse.
black swan events
Incidents that describe highly improbable but high-impact events ex. UPs scenario planning exercise: terrorist attack or security breach of IT systems
escalating commitment
It occurs when decision makers continue to support and invest in a project despite hav-ing received feedback that it is likely not going to succeed; a lot of time and money put in
Merck's Stakehold strategy
Mereck's vision is to preserve and improve human life and his value for the company was that the medicine is for the people, not for profit. However, his drug Vioxx caused heart attacks and strokes and Mereck's suppressed evidence on the dangerous side effects. CSR experts claimed that he should have never put on the market or must have provided clear risks on labeling
strategic management process
Method put in place by strategic leaders to formulate and implement a strategy, which can lay the foundation for a sustainable competitive advantage. 1. strategic planning, 2. scenario planning, 3. strategy as planned emergence.
cognitive biases
Obstacles in thinking that lead to systematic errors in our decision making and interfere with our rational thinking.
entry barriers
Obstacles that determine how easily a firm can enter an industry and often significantly predict industry profit potential
exit barriers
Obstacles that determine how easily a firm can leave an industry.
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.
preferential access
Preferential access to raw materials and key components can bestow absolute cost advantages. ex. batteries for electrical cars= expensive and are low supplied
FB Case study part 2
Sandberg's task was to build a big advertising business and gather personal data on their fb users. With all the personal data fb got, this led to controversy that fb was a "surveillance machine". Sandberg's 3rd job was to micro-targeted ads using an algorithm which was very intriguing for businesses to place their ads on. User privacy and proritizing exponential growth over anything, however, became a concern. fb as a "Digital nation state"
strategic business units (SBUs)
Stand-alone divisions of a larger conglomerate, each with their own profit-and-loss responsibility. (business strategy occurs within SBUs) functions: hr, finance, accounting, customer service, operations, product development, manufacturing and marketing.
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.
Stakeholder Impact Analysis Steps
Step 1. Identify stakeholders Step 2. Identify stakeholders interest Step 3. Identify opportunities and threats Step 4. Identify social responsibilities Step 5. Address stakeholder concerns
business model
Stipulates how the firm conducts its business with its buyers, suppliers, and partners in order to make money.
autonomous actions
Strategic initiatives undertaken by lower-level employees on their own volition and often in response to unexpected situations
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, contri-butions, and litigation in ways that are favor-able to the firm ex. hotels challenged airbnb in court
scenario planning
Strategy planning activity in which top management envisions different what-if scenarios to anticipate plausible futures in order to derive strategic responses. UPS ex. climate change, terrorist attack
CH.2 strategy highlight
Teach for America is a non profit organization for future leaders that works towards educating underprivileged kids. 21 Wendy Kopp began advertising this leadership opportunity to college kids because she felt that young kids sought for meaning in their lives and this opportunity could help them create meaning by positively impacting society. struggles: applicant numbers dropped and the struggle with a long boot camp training for leaders
Tesla's study case
Tesla's secret strategy was the key to their success. 1. build sports cars 2. use that $ to build an affordable car 3. use THAT $ to build a even more affordable car 4. while doing ^^, provide zero-emission electric power generation options 5. Don't tell anyone
Starbuck's Frappuccino Strategy Highlight: autonomous actions by lower-level employees
The Frappuccino was unapproved by the Starbucks headquarters because it is "what what they do" because it was not coffee and they sell coffee. However, Diana(internal champion) , a store manager, proved them wrong and it became 20% of their revenue in 2019.
strategic activity system
The conceptualization of a firm as a network of intercon-nected activities.
consumer surplus
The consumer captures the difference between what she would have been willing to pay (V) and what she actually paid (P)
producer surplus/ profit
The difference between the price charged (P) and the cost to produce (C)
resource stocks
The firm's current level of intangible resources.
resource flows
The firm's level of investments to maintain or build a resource.
risk capital
The money provided by shareholders in exchange for an equity share in a company; it cannot be recovered if the firm goes bankrupt
intended strategy
The outcome of a rational and structured top-down strategic plan.
strategy formulation
The part of the strategic management process that concerns the choice of strategy in terms of where and how to compete.
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 entry
The risk that potential competitors will enter an industry
Twitter Strategy Highlight
Twitter's market capitilization has fallen by 50 % and user growth has declined. The question is does Twitter have a strategy? strategy is no strategy with their goal being to have "the largest audience in the world" and not considering strategic trade offs after FB has taken over.
core competencies
Unique strengths, em-bedded deep within a firm, that are critical to gaining and sustaining competitive advantage.
theory of bounded rationality
When individuals face decisions, their rationality is confined by cognitive limitations and the time available to make a decision. Thus, individuals tend to "satisfice" rather than to optimize.
complementor
a company that provides a good or service that leads customers to value your firm's offering more when the two are combined
devil's advocacy
a decision-making method in which an individual or a subgroup is assigned the role of critic
resource heterogeneity
a firm is a bundle of resources and capabilities that differ across firms.
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
6th force- complement
a product, service, or competency that adds value to the original product offering when the two are used in tandem.
strategic group
a set of companies that pursue a similar strategy within a specific industry in their quest for competitive advantage ex. Delta and American Airlines *Competitive rivalry is strongest between firms that are within the same strategic group* *The external environment affects strategic groups differently.* *The five competitive forces affect strategic groups differently*
illusion of control
an inclination by managers to overestimate their ability to control events.
stakeholder strategy
an integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage
Strategic management
an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage.
Resources
any assets such as cash, buildings, machinery, or intellectual property that a firm can draw on when crafting and executing a strategy.
CH.2 FB case study
as fb was always behind myspace, Zuckerberg called on Sheryl Sandberg to bring better business skills to the table that Z did not have and brought in money with her leadership skills. fb's share price plummeted and a crisis in leadership occurred. -inferior quality of the mobile app/ now a mobile advertising powerhouse
strategic positioning
attempts to achieve sustainable competitive advantage (through value and cost) by preserving what is distinctive about a company
competition in 5 forces model
buyers, suppliers, potential new entry of other firms, and the threat of substitutes
SOCIOCULTURAL FACTORS
capture a society's cultures, norms, and values. ex. U.S. becoming more health-conscious in what they consume
Case study part 2 airbnb
complaints about airbnb: laws about having a minimum 30 day stage in NY. complaints and court dates due to rentals being used for illegal activity like drug uses.
Strategy process
consists of two parts: strategy formulation (results of strategy analysis) and strategy implementation.
Industry effects
describe the underlying economic structure of the industry- attribute firm performance to the industry in which the firm competes
value chain
describes the internal activities a firm engages in when transforming inputs into outputs. each activity adds incremental value
Economic value created
difference between value (V) and cost to produce(C), or (V - C).
Combining Imitation and Substitution
ex. Samsung Galaxy. Samsung has been able to imitate successfully the look and feel of Apple's iPhones. Samsung's Galaxy smartphones use Google's Android operating system and apps from Google Play as an alternative to Apple's iOS and iTunes Store
price performance trade off
ex. red box is $2 for a movie, instead of buying a $20 dvd (Redbox offers an attractive price trade-off)
Unethical behavior by top managers
example: VW where forced resignation of VW CEO Martin Winterkorn (engines causing pollution) occurred in the fall of 2015—a conse-quence of an emissions cheating scandal dubbed Dieselgate.
Economies of scale
factors that cause a producer's average cost per unit to fall as output rises ex. Tesla slowly lowering the price of their vehicle after they outperformed traditional sports cars with their first ever sports car
satisfice
finding a brand that satisfies a need even though the brand may not be the best brand
strategy highlight: rise and fall of Groupon
grabbing low prices and deals for customers made Groupon very valuable* and rare* with local market makings however not a market leader as many other businesses do the same thing. It turned down Google and struggled to stay competitive as it is not costly to imitate.
valuable resource
helps firm exploit an external opportunity or offset an external threat
PPE/ revenue
indicates how much of a firm's revenues are dedicated to cover plant, property, and equipment, which are critical assets to a firm's operations but cannot be liquidated easily.
Shareholders
individuals or organizations that own one or more shares of stock in a public company—are the legal owners of public companies
dialectic inquiry
key element is that two teams each generate a detailed but alternate plan of action (thesis and anti-thesis). The goal, if feasible, is to achieve a synthesis between the two plans.
too much information
leads to a wealth of information, but scarcity of attention
Customer Switching costs
moving from one supplier to another
value creation
occurs when companies with good strategy are able to provide products or services to consumers at a price point that they can afford while keeping their costs in check. In return, they make a profit at the same time. Both parties benefit from this trade and they both capture a part of this value created
stakeholders
organizations, groups, and individuals that can effect or are affected by a firm's actions.
Sustainable competitive advantage
out-performing competitors or the industry average over a prolonged period of time
Intellectual property (IP) protection
patents, design -sustains competitive advantage
Competitive Advantage
superior performance relative to other competitors in the same industry or the industry average
Two Distinct Modes of Decision Making
system 1: fast, unconscious, automatic, error prone, higher likelihood of biases system 2: slow, conscious, effortful, complex, lower biases
resource immobility
that a firm has resources that tend to be "sticky" and that do not move easily from firm to firm.
interest rates
the amount that creditors are paid for use of their money and the amount that debtors pay for that use, adjusted for inflation.
reservation price/value
the maximum price a consumer is willing to pay for a product or service based on the total perceived consumer benefits
Opportunity costs
the most desirable alternative given up as the result of a decision
Capabilities
the organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically. Capabilities are by nature intangible
Firm effects
the results of managers' actions to influence firm performance
Tesla Case Study part 2
the second part of his plan to "accelerate the advent of sustainable energy" 1. create stunning solar roofs with seamlessly integrated battery storage 2. expand the electric vehicle product line to address all major segments 3. develop a self-driving capability that is 10 times safer than manual 4.enable your car to make money for you when you aren't using it (uber)
Strategy
the set of goal directed actions a firm takes to gain and sustain superior performance relative to competitors.
dominant strategic plan
the strategic option that top managers decide most closely matches the current reality and which is then executed (implementation stage)
*profit potential in 5 forces model
threat of entry, power of suppliers, power of buyers, threat of substitutes, and rivalry among existing firms.
competitive disadvantage
under-performance relative to other competitors in the same industry or the industry average
co-opetition
which is cooperation by competitors to achieve a strategic objective.
Microsoft case study
why does the business model create value for Microsoft? -microsoft's "mobile first, cloud first" business model creates value for both customer and stockholder. They are also making big investments to create and deliver new offerings to customers using Nadella's leadership as CEO, Microsoft's stock market valuation has almost tripled as it has began using more newer appliances.