MGMT Chapter 6
Describe the two basic strategic moves (attack, response) involved in direct competition.
Attack: a competitive move designed to reduce a rival's market share or profits Response: a countermove, prompted by a rival's attack, designed to defend or improve a company's market share or profit
Describe what portfolio strategy is
A corporate-level strategy that minimizes risk by diversifying investment among various businesses or product lines
Distinguish between Stars, Cash Cows, Question Marks, and Dogs
Stars are companies that have a large share of a fast-growing market. To take advantage of a star's fast-growing market and its strength in that market (large share), the corporation must invest substantially in it. The investment is usually worthwhile, however, because many stars produce sizable future profits. Question marks are companies that have a small share of a fast-growing market. If the corporation invests in these companies, they may eventually become stars, but their relative weakness in the market (small share) makes investing in question marks more risky than investing in stars. Cash cows are companies that have a large share of a slow-growing market. Companies in this situation are often highly profitable, hence the name "cash cow." dogs are companies that have a small share of a slow-growing market. As the name suggests, having a small share of a slow-growth market is often not profitable
b. How do companies choose strategic alternatives that will allow them to maintain sustainable competitive advantage
Strategic reference points: the strategic targets managers use to measure whether a firm has developed the core competencies it needs to achieve a sustainable competitive advantage
What is direct competition? How is it influenced by market commonality and resource similarity
The rivalry between two companies offering similar products or services that acknowledge each other as rivals and take offensive and defensive positions as they act and react to each other's strategic actions • Market commonality is the degree to which two companies have overlapping products, services, or customers in multiple markets. The more markets in which there is product, service, or customer overlap, the more intense the direct competition between the two companies • Resource similarity is the extent to which a competitor has similar amounts and kinds of resources, that is, similar assets, capabilities, processes, information, and knowledge used to create and sustain an advantage over competitors. From a competitive standpoint, resource similarity means that your direct competitors can probably match the strategic actions that your company takes
Discuss how rare, valuable, inimitable, and non-substitutable resources contribute to a sustainable competitive advantage.
Valuable resources allow companies to improve their efficiency and effectiveness. For a sustainable competitive advantage, valuable resources must also be rare resources. Think about it: How can a company sustain a competitive advantage if all of its competitors have similar resources and capabilities? Rare resources, resources that are not controlled or possessed by many competing firms, are necessary to sustain a competitive advantage. Imperfectly imitable resources are those resources that are impossible or extremely costly or difficult to duplicate. Nonsubstitutable resources, meaning that no other resources can replace them and produce similar value or competitive advantage. Valuable, rare, imperfectly imitable resources can produce sustainable competitive advantage only if they are also nonsubstitutable resources
What are adaptive strategies? Distinguish between the four kinds of adaptive strategies: defenders, prospectors, analyzers, and reactors.
Whereas the aim of positioning strategies is to minimize the effects of industry competition and build a sustainable competitive advantage, the purpose of adaptive strategies is to choose an industry-level strategy that is best suited to changes in the organization's external environment Defenders seek moderate, steady growth by offering a limited range of products and services to a well-defined set of customers. Prospectors seek fast growth by searching for new market opportunities, encouraging risk taking, and being the first to bring innovative new products to market Analyzers blend the defending and prospecting strategies. They seek moderate, steady growth and limited opportunities for fast growth. Reactors do not follow a consistent strategy. Rather than anticipating and preparing for external opportunities and threats, reactors tend to react to changes in their external environment after they occur.
What is the BCG Matrix
is a portfolio strategy that managers use to categorize their corporation's businesses by growth rate and relative market share, helping them decide how to invest corporate funds
2) What are corporate level strategies
: is the overall organizational strategy that addresses the question, what business or businesses are we in or should we be in
a. Discuss the 5 industry forces (e.g., bargaining power of suppliers, bargaining power of consumers) that determine overall levels of competition within an industry.
Character of the rivalry is a measure of the intensity of competitive behavior between companies in an industry The threat of new entrants is a measure of the degree to which barriers to entry make it easy or difficult for new companies to get started in an industry The threat of substitute products or services is a measure of the ease with which customers can find substitutes for an industry's products or services Bargaining power of suppliers is a measure of the influence that suppliers of parts, materials, and services to firms in an industry have on the prices of these inputs. Bargaining power of buyers is a measure of the influence that customers have on a firm's prices
Describe the 3 kinds of grand strategies: growth, stability, and retrenchment/recovery
growth strategy is to increase profits, revenues, market share, or the number of places (stores, offices, locations) in which the company does business. stability strategy is to continue doing what the company has been doing, just doing it better. retrenchment strategy is to turn around very poor company performance by shrinking the size or scope of the business or, if a company is in multiple businesses, by closing or shutting down different lines of the business.
How is a situational analysis (SWOT) conducted
is an assessment for the strengths and weaknesses in an organizations internal environment and the opportunitis and threats in a organizations external environment
What are firm-level strategies
o Addresses the question how should we compete against a particular firm
What are industry level strategies
o Addresses the question how should we compete in this industry
What is a grand strategy
o Broad strategic plans used to help an organization achieve its strategic goals
How do companies formulate or develop strategies (3 steps)?
o S1) assess the need for strategic change s2) conduct situational analysis s3)choose strategic alternatives
What types of strategies are advised for each
o Since the idea is to redirect investment from slow-growing to fast-growing companies, the BCG matrix starts by recommending that the substantial cash flows from cash cows should be reinvested in stars while the cash lasts to help them grow even faster and obtain even more market share. Using this strategy allows current profits to help produce future profits. o As their market growth slows over time, some stars may turn into cash cows. o Cash flows should also be directed to some question marks. Though riskier than stars, question marks have great potential because of their fast-growing market. Managers must decide which question marks are most likely to turn into stars and which ones are too risky and should be sold. Over time, managers hope some question marks will become stars as their small market shares become large ones. o Finally, because dogs lose money, the corporation should "find them new owners" or "take them to the pound." In other words, dogs should either be sold to other companies or be closed down and liquidated for their assets.
What is meant by "competitive advantage
providing greater value for customers than competitors can
Sustainable competitive advantage and Why is it important
when other companies cannot duplicate the value a firm is providing to customers
What are positioning strategies? Distinguish between: cost leadership, differentiation, and focus strategies (focused cost leadership, focused differentiation).
• Cost leadership means producing a product or service of acceptable quality at consistently lower production costs than competitors so that the firm can offer the product or service at the lowest price in the industry. • Differentiation means making your product or service sufficiently different from competitors' offerings so that customers are willing to pay a premium price for the extra value or performance that it provides • focus strategy, a company uses either cost leadership or differentiation to produce a specialized product or service for a limited, specially targeted group of customers in a particular geographic region or market segment.
How do businesses assess the need for strategic change (e.g., competitive inertia, strategic dissonance)?
• competitive inertia: a reluctance to change strategies or competitive practices that have been successful in the past Managers must be aware of strategic dissonance • A discrepancy between a companys intended strategy and the strategic actions managers take when implementing that strategy
