MGT 449 exam 1

Customer-oriented vision statements

Allow companies to adapt to changing environments Focus employees on problem solving for the customer -Defines a business in terms of providing solutions to customer needs -Customer needs may change• The means of meeting those needs may change also Example: Ford Motor Company• Entered the market in the early 1900's• He didn't build a better horse and buggy• Ford's focus: personal mobility

A(n) ________ is best described as the strategic option that top managers decide most closely matches the current reality and which is then executed.

dominant strategic plan

Given the structure of the automobile industry, entering the auto manufacturing industry seemed risky. Yet Tesla Motors joined the fray. Rather than attempting to compete head-on with internal combustion engines, Tesla Motors entered the all-electric car segment, a much less crowded niche in the overall car industry. Which of the following is Tesla most hoping to benefit from in this market niche?

economies of scale Tesla is hoping to benefit from economies of scale in this market niche. Economies of scale are cost advantages that accrue for firms with larger output because they can spread fixed costs over more units, can employ technology more efficiently, can benefit from a more specialized division of labor, and can demand better terms from their suppliers.

Organizational core values are the ________ that govern the behavior of individuals within a firm or organization.

ethical standards and norms

economies of scale

factors that cause a producer's average cost per unit to fall as output rises

primary activities

firm activities that add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along the internal value chain

support activities

firm activities that add value indirectly, but are necessary to sustain primary activities

Industry Effects

firm performance attributed to the structure of the industry in which the firm competes

Product-oriented vision statements

focus on improving existing products and services example: U.S. Railroad Companies• They were focused on the railroad business• They should have focused on transportation and logistics

Although True Ion Inc. and One Electro Inc. operate in the same consumer electronic industry, True Ion Inc. has better sales and brand equity. This is attributed to True Ion Inc.'s commitment to innovation. The company has adequate financial and human capital to invest in research and development, an area in which One Electro Inc. lags behind. In this scenario, which of the following critical assumptions of the resource-based view of a firm has been illustrated?

resource heterogeneity The scenario illustrates resource heterogeneity. In the resource-based view, a firm is assumed to be a bundle of resources, capabilities, and competencies. The first critical assumption—resource heterogeneity—is that bundles of resources, capabilities, and competencies differ across firms. Resource immobility, the tendency of resources to be "sticky," is not discussed in this example. Value and imitability are aspects of the VRIO framework, not critical assumptions of the resource-based view

monoplistic competition

some pricing power, differentiated product, medium entry barriers

Vincente, a retired CEO, invests capital in a start-up company that creates budgeting software. He mentors the entrepreneur and the employees of the company because he wants the company to perform well and survive in the market. Thus, Vincente is the start-up company's

stakeholder.

Internal Stakeholders

stockholders, employees, and board members

What Is Strategic Leadership?

-Successful use of power and influence -Directing the activities of others -Pursuing an organization's goals -Enabling organizational competitive advantage

What Strategy Is Not

1. Grandiose statements 2. A failure to face a competitive challenge 3. Operational effectiveness, competitive benchmarking, or other tactical tools

Strategic Positioning

A unique position within an industry that allows the firm to provide value to customers, while controlling costs.

What Is a Good Strategy?

A diagnosis of the competitive challenge. • Analysis• A guiding policy to address the competitive challenge. • FormulationA set of coherent actions to implement the firm's guiding policy. • Implementation

resource heterogeneity

A firm is bundle of resources and capabilities that differ across firms

Sustainable Competitive Advantage

A firm that is able to outperform its competitors or the industry average over a prolonged period

Competitive Disadvantage

A firm that underperforms its rivals or the industry average.

Monopoly

A market in which there are many buyers but only one seller. example: energy company

Oligopoly

A market structure in which a few large firms dominate a market example: phone carries

strategic groups

A set of companies that pursue a similar strategy in a specific industry

Strategy

A set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.

Porter's Five Forces

Also known as Industry and Competitive Analysis. A framework considering the interplay between (1) the intensity of rivalry among existing competitors, (2) the threat of new entrants, (3) the threat of substitute goods or services, (4) the bargaining power of buyers, and (5) the bargaining power of suppliers.

AFI strategy framework

Analyze, Formulate, Implement 1. Explains and predicts differences in firm performance 2. Helps managers formulate and implement a strategy

Strategy as planned emergence

Begins with a strategic plan, but is less formal

strategic activity system

Conceives of a firm as a network of interconnected activities

op Down Strategic Plannin

Data-driven strategy process Top management attempts to program future success through• Analysis of:• Prices• Costs• Margins• Market demand• Head count• Production runs• Five-year plans and correlated budgets • Performance monitoring

Corporate Strategy

Decide in which industries, markets, and geographies their companies should compete.

External Analysis

Examining the organization's operating environment to identify strategic opportunities and threats.

A good strategy is a set of actions that enables a firm to achieve its own internal goals without regard to the external environment.

False

Because they are a crucial component of a firm's success, customers are considered internal stakeholders.

False

High demand for online video streaming options is one of Netflix's core competencies.

False

For-profit businesses operating in long-standing fields such as energy and transportation usually operate in an environment of price stability.

False Price stability—the lack of change in price levels of goods and services—is rare. Therefore, companies will often have to deal with changing price levels.

mission

How do we accomplish our goals?

You are the manager in charge of setting the strategy for a new frozen yogurt company. Which of the following questions would be appropriate for you to ask during the analysis phase of the AFI strategy framework?

How have consumer preferences in frozen yogurt flavors changed in the last five years?

InVue, a consumer electronics company, is the leading manufacturer of high-definition (HD) LED televisions. HD technology has been its core competency and the company holds 60 percent shares in that market. However, InVue's competitors have now begun to produce more-advanced technologies like 4K Ultra HD and Internet-enabled Smart televisions. According to the dynamic capabilities perspective, what should InVue do?

InVue should start working on Ultra HD and Smart television technologies to adapt its core competency to suit the external environment. According to the dynamic capabilities perspective, InVue should start working on Ultra HD and Smart television technologies to adapt its core competency to suit the external environment. The essence of dynamic capabilities perspective is that competitive advantage is not derived from static resource or market advantages, but from a dynamic reconfiguration of a firm's resource base.

Cobalt Sodas has seen its market share erode in recent years, as consumers increasingly turn toward healthier beverage choices such as unsweetened sparkling water. Hoping to rekindle interest in sugary sodas, Cobalt decides to produce a limited run of "throwback" cans using labeling first introduced in the 1980s. What is wrong with this strategy?

It fails to face the competitive challenge.

The average cost of production for a bottle of vitamin water in the industry is $4 while its average price is $7. StoreAll Inc. manufactures the same product for $3 per bottle and sells it for $7 per bottle. Which of the following statements is most likely true of StoreAll Inc. in this scenario?

It has a competitive advantage in the industry.

How does causal ambiguity act as an isolating mechanism for organizations?

It makes it difficult for competitors to deploy their resources by creating ambiguity within their organizational structures Causal ambiguity describes a situation in which the cause and effect of a phenomenon are not readily apparent. To formulate and implement a strategy that enhances a firm's chances of gaining and sustaining a competitive advantage, managers need to have a hypothesis or theory of how to compete. Understanding the underlying reasons of observed phenomena is, however, far from trivial.

How does causal ambiguity act as an isolating mechanism for organizations?

It makes it difficult for the competitors to understand why a company has been so successful.

As the strategic manager of CutRite Scissors, you are tasked with producing a strategy for introducing a new line of premium scissors. Your competitor produces a line of similar scissors at a cost of $1 and sells them for $12. Because your company has inferior production capabilities, your scissors will cost $3 each to produce. However, your handle is proven to be more comfortable than your competitors'. Assuming you are guaranteed to sell the same number of units as your competitor, which of the following strategies is most likely to achieve a competitive advantage?

Market CutRite scissors as a higher-quality alternative and sell them for $15.

Upper Echelon's Theory

Organizational outcomes reflect the values of the top management team.

Power of Buyers (Customers)

Pressure customers put on an industry by demanding: -A lower price or -Higher product quality

Power of Suppliers

Pressures that industry suppliers can exert on an industry's profit potential Lowers industry profit potential if:• Suppliers demand higher prices for their inputs• Suppliers reduce quality

Power of Suppliers

Pressures that industry suppliers can exert on an industry's profit potential power relies on dependence

How to Gain a Competitive Advantage

Provide goods or services consumers value more highly than those of its competitors, or Provide goods or services similar to the competitors' at a lower price.

Resource Stocks and Flows

Resource stocks The firm's current level of intangible resources Resource flows The firm's level of investments to maintain or build a resource

Business Strategy

Standalone division of corporateProfit and loss responsibilityWork with corporate to determine business strategy •Cost leadership • Differentiation • Value innovation

Rivalry Among Competitors

The intensity with which companies in the same industry jockey for market share and profitability

Competitive Industry Structure

The number and size of its competitors The firms' degree of pricing power The type of product or service (commodity or differentiated product) The height of entry barriers

the bathtub metaphor

The role of inflows and outflows in building stocks of intangible resources

the value chain

The set of activities through which a product or service is created and delivered to customers.

How do strong ethical values benefit a firm?

They serve as the guardrails put in place to keep the company on track when pursuing its mission.

According to the resource-based view, a firm that differentiates itself from its competitors through its personalized approach to customer service is likely to sustain its competitive advantage for a long time.

True

Core values provide ethical guidelines for how individual employees will behave.

True

Executives whose visions and decisions help their companies achieve competitive advantage can be considered strategic leaders.

True

Because competitors in oligopolistic industries are so interdependent, it is especially important for managers in those firms to monitor and respond to changes their competitors make.

True A key feature of an oligopoly is that the competing firms are interdependent. With only a few competitors in the mix, the actions of one firm influence the behaviors of the others. Each competitor in an oligopoly, therefore, must consider the strategic actions of the other competitors.

Vision

What do we want to accomplish ultimately?

industry convergence

When unrelated industries satisfy the same need example: media industries (newspaper, movies, music)

You are the manager of Impromptu Printing, a leading print shop. Impromptu's resources include a highly experienced staff and state-of-the-art printing presses. However, your closest competition has started to cut into your market share by offering same-day turnaround on most orders. Although your staffing and equipment is not optimized for rapid production, you decide to start offering a same-day guarantee to your customers. According to the resource-based view, what is wrong with this decision?

You have failed to take into account resource immobility. One of the critical assumptions of the resource-based view is resource immobility, or the idea that resources are "sticky" and hard to replicate. By offering a service that you do not have the resources to provide, you risk disappointing and alienating your customers, which could lead to further losses of market share.

Which of the following strategies best illustrates a generic business strategy?

a decision to niche market the jewelry sold by a company while the apparel division under the same company sells its products through mass marketing

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

Threats of Substitutes

a firm faces more competition when there are more available substitutes for its products and services energy drinks vs coffee email vs express mail

dynamic capabilities

a firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage

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

VIRO framework

a framework for analyzing a resource or capability to determine its competitive strategic potential by answering four questions about its Value, Rarity, Imitability, and Organization

Resource-based view

a model that sees certain types of resources as key to superior firm performance

double-loop learning

a process of correcting errors by modifying the organization's objectives, policies, and standard routines

single-loop learning

a process of correcting errors using past routines and present policies

strategic commitments

actions that are costly, long-term oriented, and difficult to reverse

Luz manages a chain of bars and restaurants in a tri-county area that has recently experienced an economic boom because of fracking and high oil prices. What is most likely to happen when there is too much money in the tri-county economy?

an increase in prices Too much money in an economy is characterized by rising prices—inflation. Inflation tends to go along with higher interest rates and lower economic growth.

Stakeholder Strategy

an integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage

Internal Analysis

assesses relevant areas involving the product/service offering and the firm itself

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

Firm Effects

attribute firm performance to the actions managers take

Isolating Mechanisms

barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy

Pear Tree Electronics is a large conglomerate that operates in 17 different countries. The corporate executives at the headquarters have decided that the company's objective for the next two years will be to increase its customer equity, or the value of potential future revenues generated by all its customers in a lifetime. Based on this guideline received from the top management team, the product leader of the home audio division has decided to adopt a cost-leadership strategy in all his 17 units. Thus, the decision made by the product leader best illustrates a ________ strategy.

business

Industry Dynamics

changes in competitors, sales and profits in an industry over time

In the five forces model developed by Michael Porter, ________ is not defined narrowly as a firm's closest competitors but rather more broadly to include other factors in an industry like buyers, suppliers, potential new entry of other firms, and the threat of substitutes.

competition In Porter's five forces model, competition is not defined narrowly as a firm's closest competitors but rather more broadly to include other forces in an industry: buyers, suppliers, potential new entry of other firms, and the threat of substitutes.

To help a firm achieve a competitive advantage, each distinct activity performed in the value chain needs to

contribute to the firm's strategic position as either low-cost leader or differentiator.

Co-opetition:

cooperation by competitors to achieve a strategic objective

External Stakeholders

customers, suppliers, alliance partners, creditors, unions, communities, governments, media

Strategies developed at the departmental level, such as the accounting, human resources, production, and marketing departments, within a strategic business unit are referred to as ________ strategies.

functional

Functional Strategy

guides activities within one specific area of operations -accounting -finance -human resources -prod development -operations -manufacturing -marketing -customer service

Task Environment

includes entities that directly affect a firm on a constant basis and include competitors, suppliers, and customers

mobility barriers

industry-specific factors that separate one strategic group from another

Quick Market Inc. is a food supply company that wants to sell its products directly to consumers through mail order instead of going through supermarkets and other stores. However, supermarket chains want to make this transaction either illegal or more difficult for Quick Market. To accomplish this, they are using ________ to influence the political process

lobbying forces Many large companies use powerful lobbying forces to influence the political process.

perfect competition

many small firms, firms are price takers, commodity product, low entry barriers

Fadia Ammunition Inc., a firm controlled and managed by the government of Fadia, is the only company that has the license to produce defense arms in the country. Which of the following industry competitive structures does this best illustrate?

monopoly This best illustrates a monopoly. An industry is a monopoly when there is only one (large) firm supplying the market

exit barriers

obstacles that determine how easily a firm can leave an industry contractual obligations, emotional attachments

Pure Carat Inc. is a company that sells 24-carat gold biscuits to companies that manufacture jewelry. Since the company operates in an industry where many other suppliers sell standardized products, it can most likely

only achieve competitive parity Since the company operates in an industry where many other suppliers sell standardized products, it can most likely only achieve competitive parity. Firms in perfect competition have difficulty achieving even a temporary competitive advantage and can achieve only competitive parity.

Stakeholders

organizations, groups, and individuals that can affect or are affected by a firm's actions

Burke Furnishings is a company that manufactures and sells home furniture. It sources its materials from another country to keep costs low. An assembly line worker in one of its manufacturing centers noticed that there was increasing concern regarding the potential toxicity of the flame-resistant materials used in the furniture. In response, she compiled a list of nontoxic flame-resistant materials that the company could use. When her manager learned about this, he presented the prospect and got it approved from the top management team. This is an example of the

planned emergence approach

Power of Buyers

pressure an industry's customers can put on producer's margins in the industry by demanding a lower price or higher product quality -lowers industry profit potential -buyers obtain price discounts -reduces revenue -buyers demand higher quality = higher production costs

During market testing, Sensation Cosmetics (SC) realized that the cosmetics industry was dominated by multiple, well-established brands. These brands mostly sold their products in exclusive outlets and departmental stores. SC management realized that a new entrant would require a different business model to be successful. Thus, SC started selling its products through direct marketing. In this scenario, Sensation Cosmetics accomplished substitution primarily through

strategic equivalence In this scenario, Sensation Cosmetics accomplished substitution primarily through strategic equivalence. An avenue of imitation for a firm's valuable and rare resource is through substitution. This is often accomplished through strategic equivalence.

A traditional top-down strategic planning process typically begins with

strategic leaders adjusting a company's vision and mission based on environmental analysis.

Which of the following tasks in the AFI strategy framework involves putting the formulated strategy into practice through organizational structure, culture, and controls?

strategy implementation

SWOT analysis

strengths, weaknesses, opportunities, threats

GN Corp. and BC Inc. are two competing firms in the same industry. GN Corp.'s tangible assets are valued at $15 billion and its intangible assets are valued at $35 billion. BC Inc.'s tangible assets are valued at $5 billion and its intangible assets are valued at $45 billion. What can be concluded from this information?

t is likely that BC Inc. is better enabled than GN Corp. to gain and sustain a competitive advantage. It can be concluded that BC Inc. is better positioned than GN Corp. to gain and sustain a competitive advantage. Competitive advantage is more likely to spring from intangible rather than tangible resources. Tangible assets, like buildings or computer servers, can be bought on the open market by any comers who have the necessary cash. However, a brand name must be built, often over long periods of time.

Strategic Leadership

the ability to anticipate, envision, maintain flexibility, think strategically, and work with others to initiate changes that will create a positive future for an organization

Which of the following external forces is a part of a firm's task environment?

the composition of the strategic group to which the firm belongs External factors in a firm's task environment are ones that managers do have some influence over, such as the composition of their strategic groups (a set of close rivals) or the structure of the industry.

General Environment

the economic, technological, sociocultural, and political/legal trends that indirectly affect all organizations

Threat of Substitutes

the idea that products or services available from outside the given industry will come close to meeting the needs of current customers

strategy formulation

the process of choosing among different strategies and altering them to best fit the organization's needs

The management of a company is assessing the value of all the tangible resources the company owns. Which of the following will be included in this assessment?

the punch presses that produce parts

Threat of Entry

the risk that potential competitors will enter an industry entry barriers Economies of scale, Network effects, Customer switching costs• Capital requirements• Advantages independent of size• Government policy

Peerless Inc., a large conglomerate, wants to liquidate its business in certain industries to improve its overall profitability. Which of the following industries would Peerless Inc. find it most difficult to exit?

the steel industry in which the company has obligations like severance pay toward employees Peerless Inc. would find it most difficult to exit the steel industry in which the company has obligations like severance pay toward employees. Exit barriers are comprised of both economic and social factors. A company exiting an industry may still have contractual obligations to suppliers, such as employee health care and retirement benefits, as well as severance pay.

Which of the following vision statements is most likely to produce a sustainable competitive advantage for an auto dealership?

to help our customers find the perfect car for their individual needs.

Complements:

two goods that are bought and used together

Competitive Parity

two or more firms that perform at the same level

The CEO of Mabel Automobiles was the child of parents who had difficulty making enough money to support their family. As a result, he and his siblings did not have access to many advantages that children from wealthier families had. This CEO, therefore, emphasized making affordable, low-maintenance vehicles that could be bought by low-income households. Which of the following does this example demonstrate?

upper-echelons theory

Values

what commitments do we make, and what guardrails do we put into place, to act both legally and ethically as we pursue our vision and mission?