MGMT Chapter 8

potential new entrants

Capital requirements and economies of scale are examples of barriers to entry that can keep out new competitors. Internet technology has made it easier for new companies to enter an industry by curtailing the need for an established sales force, buildings and machinery, or access to existing supplier and sales channels.

strategic partnerships

Collaboration with other organizations, sometimes even with competitors, is an important part of how today's successful companies enter new areas of business. The Internet is both driving and supporting the move toward partnership thinking. The ability to rapidly and smoothly conduct transactions, communicate information, exchange ideas, and collaborate on complex projects via the Internet means that companies have been able to enter entirely new businesses by partnering in business areas that were previously unimaginable.

strategic business units (SBUs)

Corporations like to have a balanced mix of business divisions; has a unique business mission, product line, competitors, and markets relative to others in the corporation. Senior corporate managers generally define the grand strategy and then bring together a portfolio of these to achieve the strategy

Competitive Strategies

Differentiation; Cost Leadership; Focus

strategic flexibility

In many industries today, things change so fast that managers have to be ready to shift course on the fly. Many companies are developing adaptive strategies that take into account multiple scenarios. Managers must find the right balance between strategic stability and this to keep their organizations healthy during good times and bad.

bargaining power of buyers

Informed customers become empowered customers. The Internet provides easy access to a wide array of information about products, services and competitors, thereby greatly increasing the bargaining power of end consumers.

Candid communication

Managers openly and avidly promote their ideas, but they also listen to others and encourage disagreement and debate

Porter's Five Competitive Forces

Potential new entrants; Bargaining power of buyers; Bargaining power of suppliers; Threat of substitute products; Rivalry among competitors

bargaining power of suppliers

The concentration of suppliers and the availability of substitute suppliers are significant in determining the bargaining power of suppliers. Procurement over the web gives a company greater power over suppliers, but the web also gives suppliers access to a greater number of customers as well as the ability to reach end users.

Appropriate human resource practices

The human resource function recruits, selects, trains, compensates, transfers, promotes, and lays off employees to achieve strategic goals

Strategy

The plan of action that describes resource allocation and activities for dealing with the environment, achieving a competitive advantage, and attaining the organization's goals

threat of substitute products

The power of alternatives and substitutes for a company's product may be affected by cost changes or trends that will deflect buyer loyalty. The Internet has created a greater threat of new substitutes by enabling new approaches to meeting customer needs

diversification

The strategy of moving into new lines of business

Strategy execution

The use of managerial and organizational tools to direct resources toward achieving strategic outcomes. Managers may use persuasion, new equipment, changes in organization structure, or a revised reward system to ensure that employees and resources are used to make formulated strategy a reality.

Clear roles and accountability

To execute strategy effectively, top executives clearly define roles and delegate authority to individuals and teams who are accountable for results

related diversification

When the new business is similar to the company's existing business activities

dog

a poor performer with small market share in a slow growth industry; provides little profit and may be targeted for divestment or liquidation

Differentiation

an attempt to distinguish the firm's products or services from others in the same industry

Opportunities

are characteristics of the external environment that have the potential to help the organization achieve or exceed its strategic goals

Threats

are characteristics of the external environment that may prevent the organization from achieving its strategic goals

Cash Cow

exists in a mature, slow-growth industry but has a large market share and has a positive cash flow and can be milked to feed riskier businesses

Question Mark

exists in a new, rapidly growing industry but only has small market share; risky and could become a star or it could fail

Star

has a large market share in a rapidly growing industry; has additional growth potential and profits should be reinvested for future growth and profits. It will generate a positive cash flow as industry matures and market growth slows.

Strategy formulation

includes the planning and decision making that lead to the establishment of the firm's goals and the development of a specific strategic plan. It includes assessing the external environment and the internal problems and integrating the results into goals and strategy.

rivalry among competitors

influenced by the preceding four forces, as well as by cost and product differentiation. With the leveling force of the Internet and information technology, it has become more difficult for many companies to find ways to distinguish themselves from their competitors, so rivalry has intensified.

Weaknesses

internal characteristics that may inhibit or restrict the organization's performance

Vertical integration

means the company expands into businesses that either produce the supplies needed to make products or that distribute and sell those products to customers

Visible leadership

means using persuasion, motivating employees, shaping culture and values to support the new strategy

Unrelated diversification

occurs when an organization expands into a totally new line of business

Synergy

occurs when organizational parts interact to produce a joint effect that is greater than the sum of its parts acting alone

BCG (Boston Consulting Group) Matrix

organizes business along two dimensions—business growth rate and market share

Business-level strategy

pertains to each business unit or product line within the organization. Strategic decisions focus on advertising, direction and extent of R&D, product changes and development, equipment and facilities, and expansion or contraction of product and service lines.

Functional-level strategy

pertains to the major functional departments within the business unit. involve all of the major functions, including finance, research and development, marketing, and manufacturing

Portfolio strategy

pertains to the mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage for the corporation

Corporate-level strategy

pertains to the organization as a whole and the combination of business units and product lines that make up the corporate identity. Strategic actions at this level usually relate to acquisition of new businesses, additions or divestment of business units, plants, or product lines, and joint ventures with other corporations in new areas.

Strengths

positive internal characteristics organizations can exploit to achieve strategic performance goals

globalization

product design and advertising strategies are standardized throughout the world

multidomestic strategy

product design, marketing, and advertising are modified to suit the specific needs of each country

Competitive advantage

refers to what sets the organization apart from others and provides it with a distinctive edge in the marketplace

transnational strategy

seeks to achieve both global integration and national responsiveness. This is difficult to achieve, as one goal requires close global coordination while the other goal requires local flexibility

core competence

something the organization does especially well in comparison to its competitors. represents a competitive advantage because the company acquires expertise that competitors do not have. This may be in the area of superior research and development, expert technological know-how, process efficiency, or exceptional customer service

focus

the organization concentrates on a specific regional market or buyer group

Cost Leadership

the organization seeks efficient facilities, pursues cost reductions, and uses tight cost controls to produce products more efficiently than competitors

strategic management

the set of decisions and actions used to formulate and implement strategies that provide a superior fit between the organization and its environment to achieve organizational goals

Purpose of diversification

to expand the firm's business operations to produce new kinds of valuable products and services

Situation analysis

typically includes a search for SWOT (strengths, weaknesses, opportunities, and threats) that affect organizational performance. This is important to all companies but is crucial to those considering globalization because of the diverse environments in which they will operate