Midterm Study guide, Chapter 1 - What Is Strategy and Why Is It Important?, Chapter 2 - Charting a Company's Direction Its Vision, Mission, Objectives, and Strategy, Chapter 3 - Evaluating a Company's External Environment, Chapter 4 - Evaluating a C...

Not well conveived visions are

Long, vague, generic, not feasable

An analysis of the impact of the external (macro-environment) factors is often referred to as

PESTEL, (political, economic, sociocultural, technological, environmental, legal/regulatory).

VRIN is

Valuable, Rare, Inimitable, and Nonsubstitutable

Vision vs MIssion

Vision is future (aspirational), mission is now

The macro-environment encompasses

broad environmental context in which a company's industry is situated.

A company's resources and capabilities represent its

competitive assets and are determinants of its competitiveness and ability to succeed in the marketplace.

A company deliberate strategy

consist of proactive strategy elements

what determines the extent of the downward pressure on an industry's profitability.

the strongest of the five forces

Explain how to face disruptive changes

But whenever a company encounters disruptive changes in its environment, questions need to be raised about the appropriateness of its direction and strategy. If a company experiences a downturn in its market position or persistent shortfalls in performance, then company managers are obligated to ferret out the causes—do they relate to poor strategy, poor strategy execution, or both?—and take timely corrective action. A company's direction, objectives, and strategy have to be revisited anytime external or internal conditions warrant.

New entrants threat barriers

Economy of scale Complex product, patents Loyalty High capital requirements Hard to find distributor Regulation and trade

five forces model to determine the nature and strength of competitive pressures in a given industry involves three steps

Step 1: For each of the five forces, identify the different parties involved, along with the specific factors that bring about competitive pressures. page 52Step 2: Evaluate how strong the pressures stemming from each of the five forces are (strong, moderate, or weak). Step 3: Determine whether the five forces, overall, are supportive of high industry profitability.

How starbuck did gain a competitive advantage?

Train baristas for individual pref Store ambiance Top quality coffee Commitment to corporate responsability Expand globally Refresh offering Exploit brand image

Specific indicators of how well a company's strategy is working include

Trends in the company's sales and earnings growth. Trends in the company's stock price. The company's overall financial strength. The company's customer retention rate. page 85The rate at which new customers are acquired. Evidence of improvement in internal processes such as defect rate, order fulfillment, delivery times, days of inventory, and employee productivity.

Analyzing the five competitive forces

Using the five forces model to determine the nature and strength of competitive pressures in a given industry involves three steps: Step 1: For each of the five forces, identify the different parties involved, along with the specific factors that bring about competitive pressures. Step 2: Evaluate how strong the pressures stemming from each of the five forces are (strong, moderate, or weak). Step 3: Determine whether the five forces, overall, are supportive of high industry profitability.

Identifying capability

Virtually all organizational capabilities are knowledge-based, residing in people and in a company's intellectual capital, or in organizational processes and systems, which embody tacit knowledge looking over the firm's resources and considering whether (and to what extent) the firm has built up any related capabilities. managers to survey the various functions a firm performs to find the different capabilities associated with each function. (Thompson 90)

A competence is

an activity that a company has learned to perform with proficiency.

Some strategic groups are more favorably positioned than others because

they confront weaker competitive forces and/or because they are more favorably impacted by industry driving forces.

Company values are

4 to 8, beliefs, traits, and behaviors the employees must display

resource bundle

linked and closely integrated set of competitive assets centered around one or more cross-functional capabilities. they often pass the four tests of a ressource competitive power when 1 resource in the bundle cannot

resource vs capability?

Capability (perform activity) is developed and enable through the deployment of a company resource (compatitive asset)

What link mission and vision

The company values

emergent strategy?

reactive strategy elements

Setting Objectives for Every Organizational Level

top down process

the two variables selected as axes for the map should not be highly correlated

true

A company achieves a -competitive advantage how?

whenever it has some type of edge over rivals in attracting buyers and coping with competitive forces. Customers must perceive superior value The advantage is sustainable if it persists despite the best efforts of competitors to match or surpass this advantage.

A strategic vision describes

management's aspirations for the company's future and the course and direction charted to achieve them.

The three best indicators of how well a company's strategy is working are

(1) whether the company is achieving its stated financial and strategic objectives, (2) whether its financial performance is above the industry average, and (3) whether it is gaining customers and gaining market share.

Tangible resource

(Financial, physical, technological (patents), organizational (workstation, communication satellite))

Driving-forces analysis has three steps:

* Identifying driving forces * assessing the impact on the market of each one, * Adjusting the Strategy to Prepare for the Impacts of Driving Forces Goal: whether the collective impact of the driving forces will increase or decrease market demand

Identifying a company's ranking in a market (E)

-A comprehensive assessment needs to be made of the company's overall competitive strength. The answers to two questions are of particular interest: First, how does the company rank relative to competitors on each of the important factors that determine market success? Second, all things considered, does the company have a net competitive advantage or disadvantage versus major competitors? An easy-to-use method for answering these two questions involves developing quantitative strength ratings for the company and its key competitors on each industry key success factor and each competitively pivotal resource, capability, and value chain activity. Much of the information needed for doing a competitive strength assessment comes from previous analyses. Step 1 in doing a competitive strength assessment is to make a list of the industry's key success factors and other telling measures of competitive strength or weakness (6 to 10 measures usually suffice). Step 2 is to assign weights to each of the measures of competitive strength based on their perceived importance. (The sum of the weights for each measure must add up to 1.) Step 3 is to calculate weighted strength ratings by scoring each competitor on each strength measure (using a 1-to-10 rating scale, where 1 is very weak and 10 is very strong) and multiplying the assigned rating by the assigned weight. Step 4 is to sum the weighted strength ratings on each factor to get an overall measure of competitive strength for each company being rated. Step 5 is to use the overall strength ratings to draw conclusions about the size and extent of the company's net competitive advantage or disadvantage and to take specific note of areas of strength and weakness. Industry and competitive analyses reveal the key success factors and competitive forces that separate industry winners from losers. Benchmarking data and scouting key competitors provide a basis for judging the competitive strength of rivals on such factors as cost, key product attributes, customer service, image and reputation, financial strength, technological skills, distribution capability, and other factors.

How to evaluate a standout vs. low-performing company's strategy (E)

1. The Fit Test (external and internal): How well does the strategy fit the company's situation? To qualify as a winner, a strategy has to be well matched to industry and competitive conditions, a company's best market opportunities, and other pertinent aspects of the business environment in which the company operates. No strategy can work well unless it exhibits good external fit with respect to prevailing market conditions. At the same time, a winning strategy must be tailored to the company's resources and competitive capabilities and be supported by a complementary set of functional activities (i.e., activities in the realms of supply chain management, operations, sales and marketing, and so on). That is, it must also exhibit internal fit and be compatible with a company's ability to execute the strategy in a competent manne. Unless a strategy exhibits good fit with both the external and internal aspects of a company's overall situation, it is likely to be an underperformer and fall short of producing winning results. Winning strategies also exhibit dynamic fit in the sense that they evolve over time in a manner that maintains close and effective alignment with the company's situation even as external and internal conditions change. 2. The Competitive Advantage Test: Is the strategy helping the company achieve a sustainable competitive advantage? Strategies that fail to achieve a persistent competitive advantage over rivals are unlikely to produce superior performance for more than a brief period of time. Winning strategies enable a company to achieve a competitive advantage over key rivals that is long-lasting. The bigger and more durable the competitive advantage, the more powerful it is. 3. The Performance Test: Is the strategy producing superior company performance? The mark of a winning strategy is strong company performance. Two kinds of performance indicators tell the most about the caliber of a company's strategy: (1) competitive strength and market standing and (2) profitability and financial strength. Above-average financial performance or gains in market share, competitive position, or profitability are signs of a winning strategy. Strategies—either existing or proposed—that come up short on one or more of the preceding tests are plainly less appealing than strategies passing all three tests with flying colors. New initiatives that don't seem to match the company's internalpage 13 and external situations should be scrapped before they come to fruition, while existing strategies must be scrutinized on a regular basis to ensure they have good fit, offer a competitive advantage, and are contributing to above-average performance or performance improvements. Failure to pass one or more of the three tests should prompt managers to make immediate changes in an existing strategy. (Thompson 12-13) Thompson, Arthur. Crafting & Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases, 21st Edition. McGraw-Hill Higher Education, 20170127. VitalBook file.

A Strategic Plan

A Strategic Vision + Mission + Objectives + Strategy

What helps rally organization members to maintain their focus and hurdle whatever obstacles lie in the company's path

A slogan, help effectively conveing the company vision

Explaining advantages/disadvantages of alliances

A strategic alliance is a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective. Most alliances that aim at sharing technology or providing market access turn out to be temporary, lasting only a few years. This is not necessarily an indicator of failure, however. Strategic alliances can be terminated after a few years simply because they have fulfilled their purpose; indeed, many alliances are intended to be of limited duration, set up to accomplish specific short-term objectives. Longer-lasting collaborative arrangements, however, may provide even greater strategic benefits. Alliances are more likely to be long-lasting when (1) they involve collaboration with partners that do not compete directly, such as suppliers or distribution allies; (2) a trusting relationship has been established; and (3) both parties conclude that continued collaboration is in their mutual interest, perhaps because new opportunities for learning are emerging. The principal advantages of strategic alliances over vertical integration or horizontal mergers and acquisitions are threefold: 1. They lower investment costs and risks for each partner by facilitating resource pooling and risk sharing. This can be particularly important when investment needs and uncertainty are high, such as when a dominant technology standard has not yet emerged. 2. They are more flexible organizational forms and allow for a more adaptive response to changing conditions. Flexibility is essential when environmental conditions or technologies are changing rapidly. Moreover, strategic alliances under such circumstances may enable the development of each partner's dynamic capabilities. 3. They are more rapidly deployed—a critical factor when speed is of the essence. Speed is of the essence when there is a winner-take-all type of competitive situation, such as the race for a dominant technological design or a race down a steep experience curve, where there is a large first-mover advantage. While strategic alliances provide a way of obtaining the benefits of vertical integration, mergers and acquisitions, and outsourcing, they also suffer from some of the same drawbacks. Anticipated gains may fail to materialize due to an overly optimistic view of the synergies or a poor fit in terms of the combination of resources and capabilities. When outsourcing is conducted via alliances, there is no less risk of becoming dependent on other companies for essential expertise and capabilities—indeed, this may be the Achilles' heel of such alliances. Moreover, there are additional pitfalls to collaborative arrangements. The greatest danger is that a partner will gain access to a company's proprietary knowledge base, technologies, or trade secrets, enabling the partner to match the company's core strengths and costing the company its hard-won competitive advantage. This risk is greatest when the alliance is among industry rivals or when the alliance is for the purpose of collaborative R&D, since this type of partnership requires an extensive exchange of closely held information.

Subsitute factors

Already available subsitutes better features low cost

Resource and capabilities analysis

Analyse to see if that segment will be competitive and sustainable on the long term, done by finding all your resources than pplying the four tests of a resource power.

Evaluating and operationalizing offensive strategy options (scope of the firm?) (E)

Apart from considerations of competitive moves and their timing, there is another set of managerial decisions that can affect the strength of a company's market position. These decisions concern the scope of a company's operations—the breadth of its activities and the extent of its market reach. Decisions regarding the scope of the firm focus on which activities a firm will perform internally and which it will not. The scope of the firm refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses. Several dimensions of firm scope have relevance for business-level strategy in terms of their capacity to strengthen a company's position in a given market. These include the firm's horizontal scope, which is the range of product and service segments that the firm serves within its product or service market. Mergers and acquisitions involving other market participants provide a means for a company to expand its horizontal scope. Expanding the firm's vertical scope by means of vertical integration can also affect the success of its market strategy. Vertical scope is the extent to which the firm engages in the various activities that make up the industry's entire value chain system, from initial activities such as raw-material production all the way to retailing and after-sale service activities. Outsourcing decisions concern another dimension of scope since they involve narrowing the firm's boundaries with respect to its participation in value chain activities.

Analyzing and changing a value chain (E)

As a consequence, accurately assessing a company's competitiveness entails scrutinizing the nature and costs of value chain activities throughout the entire value chain system for delivering its products or services to end-use customers. A typical value chain system that incorporates the value chains of suppliers and forward-channel allies (if any) is shown in Figure 4.4. As was the case with company value chains, the specific activities constituting value chain systems vary significantly from industry to industry. The primary value chain system activities in the pulp and paper industry (timber farming, logging, pulp mills, and papermaking) differ from the primary value chain system activities in the home appliance industry (parts and components manufacture, assembly, wholesale distribution, retail sales) and yet again from the computer software industry (programming, disk loading, marketing, distribution). Benchmarking is a potent tool for improving a company's own internal activities that is based on learning how other companies perform them and borrowing their "best practices." Improving Internally Performed Value Chain Activities Managers can pursue any of several strategic approaches to reduce the costs of internally performed value chain activities and improve a company's cost-competitiveness. They can implement best practices throughout the company, particularly for high-cost activities. They can redesign the product and/or some of its components to eliminate high-cost components or facilitate speedier and more economical manufacture or assembly. They can relocate high-cost activities (such as manufacturing) to geographic areas where they can be performed more cheaply or outsource activities to lower-cost vendors or contractors.

Intangible resource

Brand, relationship, human resource, company culture, human and intellectual capital

Explain reactive/emergent strategies

But managers must always be willing to supplement or modify the proactive strategy elements with as-needed reactions to unanticipated conditions. Inevitably, there will be occasions when market and competitive conditions take an unexpected turn that calls for some kind of strategic reaction. Hence, a portion of a company's strategy is always developed on the fly, coming as a response to fresh strategic maneuvers on the part of rival firms, unexpected shifts in customer requirements, fast-changing technological developments, newly appearing market opportunities, a changing political or economic climate, or other unanticipated happenings in the surrounding environment. These adaptive strategy adjustments make up the firm's -emergent strategy. A company's strategy in toto (its realized strategy) thus tends to be a combination of proactive and reactive elements, with certain strategy elements being abandoned because they have become obsolete or ineffective. A company's realized strategy can be observed in the pattern of its actions over time, which is a far better indicator than any of its strategic plans on paper or any public pronouncements about its strategy.

Most common driving forces

Changes in the long-term industry growth rate Increasing globalization Emerging new Internet capabilities and applications Shifts in buyer demographics Technological change and manufacturing process innovation Product and marketing innovation Entry or exit of major firms Diffusion of technical know-how across companies and countries Changes in cost and efficiency Reductions in uncertainty and business risk Regulatory influences and government policy changes Changing societal concerns, attitudes, and lifestyles

The managerial purpose of setting objectives

Convert mission and vision into specific performance target

Using cost drivers to manage value chain activities cost

Cost-Efficient Management of Value Chain Activities For a company to do a more cost-efficient job of managing its value chain than rivals, managers must diligently search out cost-saving opportunities in every part of the value chain. No activity can escape cost-saving scrutiny, and all company personnel must be expected to use their talents and ingenuity to come up with innovative and effective ways to keep down costs. Particular attention must be paid to a set of factors known as cost drivers that have a strong effect on a company's costs and can be used as levers to lower costs. Figure 5.2 shows the most important cost drivers. Cost-cutting approaches that demonstrate an effective use of the cost drivers include: Revamping of the Value Chain System to Lower Costs Dramatic cost advantages can often emerge from redesigning the company's value chain system in ways that eliminate costly work steps and entirely bypass certain cost-producing value chain activities. Such value chain revamping can include: 1. Selling direct to consumers and bypassing the activities and costs of distributors and dealers. 2. Streamlining operations by eliminating low-value-added or unnecessary work steps and activities. 3. Reducing materials handling and shipping costs by having suppliers locate their plants or warehouses close to the company's own facilities.

Mission statement identifies

Current products, buyer needs, own identity

Elements of a business model?

Customer value proposition Profit formula (Value Price Per unit costs)

Using strategies to deliver superior value to customers

Delivering Superior Value via a Broad Differentiation Strategy Differentiation strategies depend on meeting customer needs in unique ways or creating new needs through activities such as innovation or persuasive advertising. The objective is to offer customers something that rivals can't—at least in terms of the level of satisfaction. There are four basic routes to achieving this aim. * The first route is to incorporate product attributes and user features that lower the buyer's overall costs of using the company's product. This is the least obvious and most overlooked route to a differentiation advantage. * A second route is to incorporate tangible features that increase customer satisfaction with the product, such as product specifications, functions, and styling. This can be accomplished by including attributes that add functionality; enhance the design; save time for the user; are more reliable; or make the product cleaner, safer, quieter, simpler to use, more portable, more convenient, or longer-lasting than rival brands. * A third route to a differentiation-based competitive advantage is to incorporate intangible features that enhance buyer satisfaction in noneconomic ways. Toyota's Prius appeals to environmentally conscious motorists not only because these drivers want to help reduce global carbon dioxide emissions but also because they identify with the image conveyed. The fourth route is to signal the value of the company's product offering to buyers. Typical signals of value include a high price (in instances where high price implies high quality and performance), more appealing or fancier packaging than competing products... For the strategy to result in competitive advantage, the company's competencies must also be sufficiently unique in delivering value to buyers that they help set its product offering apart from those of rivals. They must be competitively superior.

Crafting and executing a company's strategy is an ongoing process that consists of five interrelated stages

Developing a strategic vision, mission, core values Setting objectives for measuring the company's performance and tracking its progress Crafting a strategy for advancing the company objectives and company vision Executing the chosen strategy efficiently and effectively. Monitoring developments, evaluating performance, and initiating corrective adjustments

Strategizing to create a differentiation advantage (E)

Differentiation is not something hatched in marketing and advertising departments, nor is it limited to the catchalls of quality and service. Differentiation opportunities can exist in activities all along an industry's value chain. The most systematic approach that managers can take, however, involves focusing on the value drivers, a set of factors—analogous to cost drivers—that are particularly effective in creating differentiation. Figure 5.3 contains a list of important value drivers. Ways that managers can enhance differentiation based on value drivers include the following (see image). A value driver is a factor that can have a strong differentiating effect. Revamping the Value Chain System to Increase Differentiation Just as pursuing a cost advantage can involve the entire value chain system, the same is true for a differentiation advantage. Activities performed upstream by suppliers or downstream by distributors and retailers can have a meaningful effect on customers' perceptions of a company's offerings and its value proposition. Approaches to enhancing differentiation through changes in the value chain system include: 1. Coordinating with channel allies to enhance customer value. 2. Coordinating with suppliers to better address customer needs. When a Differentiation Strategy Works Best 1. Buyer needs and uses of the product are diverse. 2. There are many ways to differentiate the product or service that have value to buyers. 3. Few rival firms are following a similar differentiation approach. 4. Technological change is fast-paced and competition revolves around rapidly evolving product features. Differentiation strategies can fail for any of several reasons. 1. A differentiation strategy keyed to product or service attributes that are easily and quickly copied is always suspect. 2. Differentiation strategies can also falter when buyers see little value in the unique attributes of a company's product. 3. The third big pitfall is overspending on efforts to differentiate the company's product offering, thus eroding profitability.

What's the most important with the swot analisys

Draw conclusion and draft strategic actions

Explain conditions in a competitive marketplace

Every company operates in a broad "macro-environment" that comprises six principal components: political factors; economic conditions in the firm's general environment (local, country, regional, worldwide); sociocultural forces; technological factors; environmental factors (concerning the natural environment); and legal/regulatory conditions. Each of these components has the potential to affect the firm's more immediate industry and competitive environment, although some are likely to have a more important effect than others. PESTEL analysis can be used to assess the strategic relevance of the six principal components of the macro-environment: Political, Economic, Social, Technological, Environmental, and Legal/Regulatory forces. The most powerful and widely used tool for diagnosing the principal competitive pressures in a market is the five forces framework.1 This framework, depicted in Figure 3.3, holds that competitive pressures on companies within an industry come from five sources. These include (1) competition from rival sellers, (2) competition from potential new entrants to the industry, (3) competition from producers of substitute products, (4) supplier bargaining power, and (5) customer bargaining power. Thinking strategically about a company's industry and competitive environment entails using some well-validated concepts and analytic tools. These include the five forces framework, the value net, driving forces, strategic groups, competitor analysis, and key success factors. Proper use of these analytic tools can provide managers with the understanding needed to craft a strategy that fits the company's situation within their industry environment.

Creating financial objectives (characteristics)

Financial objectives relate to the financial performance targets management has established for the organization to achieve. Strategic objectives relate to target outcomes that indicate a company is strengthening its market standing, competitive position, and future business prospects. Examples: An x percent increase in annual revenues Annual increases in after-tax profits of x percent Annual increases in earnings per share of x percent A company's set of financial and strategic objectives should include both near-term and longer-term performance targets. Short-term (quarterly or annual) objectives focus attention on delivering performance improvements in the current period and satisfy shareholder expectations for near-term progress. Longer-term targets (three to five years off) force managers to consider what to do now to put the company in position to perform better later. Long-term objectives are critical for achieving optimal long-term performance and stand as a barrier to a nearsighted management philosophy and an undue focus on short-term results.

Crafting and executing strategy are top-priority managerial tasks for two big reasons

First, a clear and reasoned strategy is management's prescription for doing business, its road map to competitive advantage, its game plan for pleasing customers, and its formula for improving performance Second, even the best-conceived strategies will result in performance shortfalls if they are not executed proficiently. The processes of crafting and executing strategies must go hand in hand if a company is to be successful in the long term.

Good Management =

Good strategy and execution

Determining a net competitive advantage or disadvantage (E)

High-weighted competitive strength ratings signal a strong competitive position and possession of competitive advantage; low ratings signal a weak position and competitive disadvantage. The overall competitive strength scores indicate how all the different strength measures add up—whether the company is at a net overall competitive advantage or disadvantage against each rival. The higher a company's overall weighted strength rating, the stronger its overall competitiveness versus rivals. The bigger the difference between a company's overall weighted rating and the scores of lower-rated rivals, the greater is its implied net competitive advantage. Thus, Rival 1's overall weighted score of 7.70 indicates a greater net competitive advantage over Rival 2 (with a score of 2.10) than over ABC Company (with a score of 5.95). Conversely, the bigger the difference between a company's overall rating and the scores of higher-rated rivals, the greater its implied net competitive disadvantage. Rival 2's score of 2.10 gives it a smaller net competitive disadvantage against ABC Company (with an overall score of 5.95) than against Rival 1 (with an overall score of 7.70).

Broadly, what do we define when building a strategy

How to position the company in the marketplace How to attract customers How to compete against rivals how to achieve the company's performance targets How to capitalize on the opportunities to grow the business How to respond to economic and market conditions

Comparing the five forces and effects on an industry's profitability (E)

Is the Collective Strength of the Five Competitive Forces Conducive to Good Profitability? Assessing whether each of the five competitive forces gives rise to strong, moderate, or weak competitive pressures sets the stage for evaluating whether, overall, the strength of the five forces is conducive to good profitability. Is any of the competitive forces sufficiently powerful to undermine industry profitability? Can companies in this industry reasonably expect to earn decent profits in light of the prevailing competitive forces? The most extreme case of a "competitively unattractive" industry occurs when all five forces are producing strong competitive pressures. Strong competitive pressures coming from all five directions drive industry profitability to unacceptably low levels, frequently producing losses for many industry members and forcing some out of business. But an industry can be competitively unattractive without all five competitive forces being strong. In fact, intense competitive pressures from just one of the five forces may suffice to destroy the conditions for good profitability and prompt some companies to exit the business. As a rule, the strongest competitive forces determine the extent of the competitive pressure on industry profitability. Thus, in evaluating the strength of the five forces overall and their effect on industry profitability, managers should look to the strongest forces. Having more than one strong force will not worsen the effect on industry profitability, but it does mean that the industry has multiple competitive challenges with which to cope. In that sense, an industry with three to five strong forces is even more "unattractive" as a place to compete. Effectively matching a company's business strategy to prevailing competitive conditions has two aspects: 1. Pursuing avenues that shield the firm from as many of the different competitive pressures as possible. 2. Initiating actions calculated to shift the competitive forces in the company's favor by altering the underlying factors driving the five forces.

key success factors can always be deduced by asking the same three questions:

On what basis do buyers of the industry's product choose between the competing brands of sellers? That is, what product attributes and service characteristics are crucial? Given the nature of competitive rivalry prevailing in the marketplace, what resources and competitive capabilities must a company have to be competitively successful? What shortcomings are almost certain to put a company at a significant competitive disadvantage?

THE ROLE OF THE BOARD OF DIRECTORS IN THE STRATEGY-CRAFTING, STRATEGY-EXECUTING PROCESS

Oveersee financial, Appraise company direction and strategy evaluate caliber of execs create compensation plan for top execs

Developing a competitive advantage through resources

Resource and capability analysis provides managers with a powerful tool for sizing up the company's competitive assets and determining whether they can provide the foundation necessary for competitive success in the marketplace. The competitive power of a resource or capability is measured by how many of four specific tests it can pass.4 These tests are referred to as the VRIN tests for sustainable competitive advantage—VRIN is a shorthand reminder standing for Valuable, Rare, Inimitable, and Nonsubstitutable. Resources and capabilities must be continually strengthened and nurtured to sustain their competitive power and, at times, may need to be broadened and deepened to allow the company to position itself to pursue emerging market opportunities. Organizational resources and capabilities that grow stale can impair competitiveness unless they are refreshed, modified, or even phased out and replaced in response to ongoing market changes and shifts in company strategy. Management's challenge in managing the firm's resources and capabilities dynamically has two elements: (1) attending to the ongoing modification of existing competitive assets, and (2) casting a watchful eye for opportunities to develop totally new kinds of capabilities.

Identifying opportunities in light of a company's strengths

SWOT analysis is a simple but powerful tool for sizing up a company's strengths and weaknesses, its market opportunities, and the external threats to its future well-being. A strength is something a company is good at doing or an attribute that enhances its competitiveness in the marketplace. A company's strengths depend on the quality of its resources and capabilities. Resource and capability analysis provides a way for managers to assess the quality objectively. While resources and capabilities that pass the VRIN tests of sustainable competitive advantage are among the company's greatest strengths, other types can be counted among the company's strengths as well. A capability that is not potent enough to produce a sustainable advantage over rivals may yet enable a series of temporary advantages if used as a basis for entry into a new market or market segment. A resource bundle that fails to match those of top-tier competitors may still allow a company to compete successfully against the second tier.

Driving forces example

Shift in the industry Increase globalization Increase in technology Innovations Risks reduction Laws and regulations change

Suppliers bargainning power

Short supplies Not profitable for suppliers No fast alternative Switch supplier is costly

Explaining strategic group mapping and maps' usefulness (E)

Strategic group mapping is a technique for displaying the different market or competitive positions that rival firms occupy in the industry. A strategic group is a cluster of industry rivals that have similar competitive approaches and market positions.Several guidelines need to be observed in creating strategic group maps. First, the two variables selected as axes for the map should not be highly correlated; if they are, the circles on the map will fall along a diagonal and reveal nothing more about the relative positions of competitors than would be revealed by comparing the rivals on just one of the variables. Second, the variables chosen as axes for the map should reflect important differences among rival approaches—when rivals differ on both variables, the locations of the rivals will be scattered, thus showing how they are positioned differently. Third, the variables used as axes don't have to be either quantitative or continuous; rather, they can be discrete variables, defined in terms of distinct classes and combinations. Fourth, drawing the sizes of the circles on the map proportional to the combined sales of the firms in each strategic group allows the map to reflect the relative sizes of each strategic group. Fifth, if more than two good variables can be used as axes for the map, then it is wise to draw several maps to give different exposures to the competitive positioning relationships present in the industry's structure—there is not necessarily one best map for portraying how competing firms are positioned. ---- Strategic group maps are revealing in several respects. The most important has to do with identifying which industry members are close rivals and which are distant rivals. Firms in the same strategic group are the closest rivals; the next closest rivals are in the immediately adjacent groups. Often, firms in strategic groups that are far apart on the map hardly compete at all. For instance, Walmart's clientele, merchandise selection, and pricing points are much too different to justify calling Walmart a close competitor of Neiman Marcus or Saks Fifth Avenue. For the same reason, the beers produced by Yuengling are really not in competition with the beers produced by Pabst. The second thing to be gleaned from strategic group mapping is that not all positions on the map are equally attractive.7 Two reasons account for why some positions can be more attractive than others: 1. Prevailing competitive pressures from the industry's five forces may cause the profit potential of different strategic groups to vary. 2. Industry driving forces may favor some strategic groups and hurt others. Likewise, industry driving forces can boost the business outlook for some strategic groups and adversely impact the business prospects of others.

Identifying strategies to improve sales performance

Strategy Is about Competing Differently Mimicking the strategies of successful industry rivals—with either copycat product offerings or maneuvers to stake out the same market position—rarely works. Rather, every company's strategy needs to have some distinctive element that draws in customers and provides a competitive edge. Strategy, at its essence, is about competing differently—doing what rival firms don't do or what rival firms can't do. Discounting prices, holding clearance sales Lowers price (P), increases total sales volume and market share, lowers profits if price cuts are not offset by large increases in sales volume Offering coupons, advertising items on sale Increases sales volume and total revenues, lowers price (P), increases unit costs (C), may lower profit margins per unit sold (P − C) Advertising product or service characteristics, using ads to enhance a company's image Boosts buyer demand, increases product differentiation and perceived value (V), increases total sales volume and market share, but may increase unit costs (C) and lower profit margins per unit sold Innovating to improve product performance and quality Increases product differentiation and value (V), boosts buyer demand, boosts total sales volume, likely to increase unit costs (C) Introducing new or improved features, increasing the number of styles to provide greater product selection Increases product differentiation and value (V), strengthens buyer demand, boosts total sales volume and market share, likely to increase unit costs (C) Increasing customization of product or service Increases product differentiation and value (V), increases buyer switching costs, boosts total sales volume, often increases unit costs (C) Building a bigger, better dealer network Broadens access to buyers, boosts total sales volume and market share, may increase unit costs (C) Improving warranties, offering low-interest financing Increases product differentiation and value (V), increases unit costs (C), increases buyer switching costs, boosts total sales volume and market share

Evaluating and executing? offensive strategy options (E)

The best offensives use a company's most powerful resources and capabilities to attack rivals in the areas where they are competitively weakest. The principal offensive strategy options include the following: 1. Offering an equally good or better product at a lower price. 2. Leapfrogging competitors by being first to market with next-generation products. 3. Pursuing continuous product innovation to draw sales and market share away from less innovative rivals. 4. Pursuing disruptive product innovations to create new markets. 5. Adopting and improving on the good ideas of other companies (rivals or otherwise). 6. Using hit-and-run or guerrilla warfare tactics to grab market share from complacent or distracted rivals. 7. Launching a preemptive strike to secure an industry's limited resources or capture a rare opportunity The following are the best targets for offensive attacks: 1. Market leaders that are vulnerable. 2. Runner-up firms with weaknesses in areas where the challenger is strong. 3. Struggling enterprises that are on the verge of going under. 4. Small local and regional firms with limited capabilities. A blue-ocean strategy offers growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand. First-Mover or late mover? Any company that seeks competitive advantage by being a first mover thus needs to ask some hard questions: Does market takeoff depend on the development of complementary products or services that currently are not available? Is new infrastructure required before buyer demand can surge? Will buyers need to learn new skills or adopt new behaviors? Will buyers encounter high switching costs in moving to the newly introduced product or service? Are there influential competitors in a position to delay or derail the efforts of a first mover? When the answers to any of these questions are yes, then a company must be careful not to pour too many resources into getting ahead of the market opportunity—the race is likely going to be closer to a 10-year marathon than a 2-year sprint.14 On the other hand, if the market is a winner-take-all type of market, where powerful first-mover advantages insulate early entrants from competition and prevent later movers from making any headway, then it may be best to move quickly despite the risks.

Define deliberate strategies

The biggest portion of a company's current strategy flows from previously initiated actions that have proven themselves in the marketplace and newly launched initiatives aimed at edging out rivals and boosting financial performance. This part of management's action plan for running the company is its deliberate strategy, consisting of proactive strategy elements thatpage 9 are both planned and realized as planned (while other planned strategy elements may not work out and are abandoned in consequence) A company's deliberate strategy consists of proactive strategy elements that are planned; its emergent strategy consists of reactive strategy elements that emerge as changing conditions warrant.

How to do the four tests of a resource power

The competitive power of a resource or capability is measured by how many of four specific tests it can pass.4 These tests are referred to as the VRIN tests for sustainable competitive advantage—VRIN is a shorthand reminder standing for Valuable, Rare, Inimitable, and Nonsubstitutable.

3 Tests to see if this is a winning strategy?

The fit test -> Externa (market)l, internal (operation), dynamic fit (can evolve over time) the competitive advantage test The performance test, competitive and financial strengh

How to use analytic tools to diagnose the competitive conditions in a company's industry.

The five forces framework, 1. competition from rival sellers, (2) competition from potential new entrants to the industry, (3) competition from producers of substitute products, (4) supplier bargaining power, and (5) customer bargaining power.

Michael Porter's Framework for Competitor Analysis points to four indicators of a rival's likely strategic moves and countermoves

These include a rival's current strategy, objectives, resources and capabilities, and assumptions about itself and the industry

The Choice of Competitive Weapons

They may also compete through the rapid introduction of next-generation products, the frequent introduction of new or improved products, and efforts to build stronger dealer networks, establish positions in foreign markets, or otherwise expand distribution capabilities and market presence.

A distinctive competence

a capability that enables a company to perform a particular set of activities better than its rivals.

A core competence

activity that a company performs proficiently and that is also central to its strategy and competitive success.

A dynamic capability is

an ongoing capacity of a company to modify its existing resources and capabilities or create new ones.

Company's Strategy-Making Hierarchy

corporate (overall game plan), Business (market position and competitive advantage), functional-area stratigies (r&d, production), operation (operating units + activity strat like quality control)

Driving forces are

the major underlying causes of change in industry and competitive conditions.

An industry's key success factors (KSFs) are those competitive factors that most affect industry members' ability to survive and prosper in the marketplace:

the particular strategy elements, product attributes, operational approaches, resources, and competitive capabilities that spell the difference between being a strong competitor and a weak competitor—and between profit and loss.

Complementors are

the producers of complementary products, which are products that enhance the value of the focal firm's products when they are used together.

Comparing a business vs. a corporate strategy (E)

corporate strategy is orchestrated by the CEO and other senior executives and establishes an overall strategy for managing a set of businessespage 34 in a diversified, multibusiness company. Corporate strategy concerns how to improve the combined performance of the set of businesses the company has diversified into by capturing cross-business synergies and turning them into competitive advantage. It addresses the questions of what businesses to hold or divest, which new markets to enter, and how to best enter new markets Business strategy is concerned with strengthening the market position, building competitive advantage, and improving the performance of a single line of business unit. Business strategy is primarily the responsibility of business unit heads, although corporate-level executives may well exert strong influence; in diversified companies it is not unusual for corporate officers to insist that business-level objectives and strategy conform to corporate-level objectives and strategy themes. The business head has at least two other strategy-related roles: (1) seeing that lower-level strategies are well conceived, consistent, and adequately matched to the overall business strategy; and (2) keeping corporate-level officers (and sometimes the board of directors) informed of emerging strategic issues.

Well-conceived visions are

distinctive and specific to the org. memorable, focused, graphic, Forward-looking, makes good business sense

What Kinds of Objectives to Set

financial (short, long term), strategic

Objectives are important because

focus, track, motivate

Why a Sound, Well-Communicated Strategic Vision Matters

help Senior executives see their own view on the company future, reduce chance of employees drifting away from the vision, Can be a beacon low managers can refer to Help prepare for the future

SWOT analysis

is a simple but powerful tool for sizing up a company's strengths and weaknesses, its market opportunities, and the external threats to its future well-being.

Strategic group mapping

is a technique for displaying the different market or competitive positions that rival firms occupy in the industry

A company exhibits strategic intent when

it relentlessly pursues an ambitious strategic objective, concentrating the full force of its resources and competitive actions on achieving that objective.

Company business model?

l sets forth the logic for how its strategy will create value for customers and at the same time generate revenues sufficient to cover costs and realize a profit.

What are the five basic strategic approach to to gain sustainable competitive advantage

low-cost provider strategy Broad differentiation (more innovative, reliable, prestige) focused low-cost strategy (niche, unbranded food) focused differentiation (niche, specialised stores) best-cost strat.

Does mimicking other company strategies works?

no, Strategy is about competing differently from rivals—doing what competitors don't do or, even better, doing what they can't do!

What should you do to get your new vision accepted by low manager and employees

putting "where we are going and why" in writing, distributing the statement organization-wide, and having top executives personally explain the vision and its rationale to as many people as feasible. Needs to be enegaging

How long-standing real values can help

senior managers are careful to craft a vision, mission, strategy, and set of operating practices that match established values; moreover, they repeatedly emphasize how the value-based behavioral norms contribute to the company's business success.

why are stretch objectives important?

set performance targets high enough to stretch an organization to perform at its full potential and deliver the best possible results

Strategic group maps are revealing in several respects

show close rivals and distant rivals Firms in the same strategic group are the closest rivals; the next closest rivals are in the immediately adjacent groups. Often, firms in strategic groups that are far apart on the map hardly compete at all

Well-stated objectives must be

specific, quantifiable or measurable, and challenging and must contain a deadline for achievement.

What is strategy

strategy is the set of actions that its managers take to outperform the company's competitors and achieve superior profitability. The objective of a well-crafted strategy is not merely temporary competitive success and profits in the short run, but rather the sort of lasting success that can support growth and secure the company's future over the long term

COMPETITOR ANALYSIS

studying competitors' past behavior and preferences provides a valuable assist in anticipating what moves rivals are likely to make next and outmaneuvering them in the marketplace.

mission statement describes

the enterprise's present business and purpose—"who we are, what we do, and why we are here."