MGMT 490: Ch. 1

Competitive Advantage Test

-Can the strategy help the company achieve a sustainable competitive advantage? -Strategy must enable a company to achieve a competitive advantage over key rivals that is long-lasting.

The Fit Test

-How well does the strategy fit the company's situation? -Must exhibit goos external, internal, and dynamic fit.

The Performance Test

-Is the strategy producing good company performance? -2 kinds of performance indicators that tell the most about the caliber of a company's strategy: 1. competitive strength and market standing 2. profitability and financial strength

2 elements of a company's business model:

1. Customer value proposition 2. Profit formula

6 strategy questions about how to compete:

1. How to attract and please customers 2. How to compete against rivals 3. How to position the company in the marketplace 4. How best to respond to changing economic and market conditions 5. How to capitalize on attractive opportunities to grow the business 6. How to achieve the company's performance targets

4 strategic approaches to setting a company apart from rivals, building strong customer loyalty, and winning a competitive advantage:

1. Striving to be the industry's low-cost provider, thereby aiming for a cost-based competitive advantage over rivals. 2. Outperforming rivals on the basis of differentiating features, such as higher quality, wider product selection, added performance, value-added services, more attractive styling, and technological superiority. 3. Developing an advantage based on offering more value for the money; best-cost provider strategy. 4. Focusing on narrow market niche within an industry.

3 tests to determine whether a strategy is a winning strategy:

1. The Fit Test 2. The Competitive Advantage Test 3. The Performance Test

3 signs of a winning strategy:

1. above-average financial performance or gains in market share 2. competitive position 3. profitability

Realized strategy

A combination of proactive and reactive elements, with certain strategy elements being abandoned because they have become obsolete of ineffective.

Competitive advantage

A company achieves a competitive advantage when it provides buyers with superior value compared to rival sellers or offers the same value at a lower cost to the firm. The advantage is sustainable if it persists despite the best efforts of competitors to match or surpass this advantage.

Deliberate strategy

A company's deliberate strategy consists of proactive strategy elements that are both planned and realized as planned.

Strategy

A company's strategy is its action plan for outperforming its competitors and achieving superior profitability. Strategy is about competing differently from rivals - doing what competitors don't do or doing what they can't do.

Proactive initiatives

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

Reative adjustments

Responses to unanticipated developments and fresh market conditions.

Emergent strategy

Consists of reactive strategy elements that emerge as changing conditions warrant.

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 lower the costs, given the customer value proposition, the greater the ability of the business model to be a moneymaker.

Customer value proposition

Lays out the company's approach to satisfying buyer wants and needs at a price customers will consider a good value. The greater the value delivered and the lower the price, the more attractive is the company's value proposition.

Business model

Management's blueprint for delivering a valuable product or service to customers in a manner that will generate revenues sufficient to cover costs and realize a profit.

External fit

Must be in sync with prevailing market conditions.

Internal fit

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, marketing, etc). Must be compatible with a company's ability to execute the strategy in a competent manner.

Dynamic fit

Must evolve over time in a manner that maintains close and effective alignment with the company's situation even as external and internal conditions change.

What does the profit formula reveal about a company?

The profit formula reveals how efficiently a company can meet customer wants and needs and deliver on the value proposition.