Strategic Management Midterm

Strategic offensives should, as a general rule, be based on exploiting a company's strongest competitive assets—its most valuable resources and capabilities. instigating and executing the chosen strategy efficiently and effectively. scoping and scaling an organization's internal and external situation. molding an organization's character and identity. satisfying the buyer's needs that the company seeks to meet.

exploiting a company's strongest competitive assets—its most valuable resources and capabilities.

The pattern of actions and business approaches that would not define a company's strategy include actions to strengthen market standing and competitiveness by acquiring or merging with other companies. strengthen competitiveness via strategic coalitions and partnerships. upgrade competitively important resources and capabilities. gain sales and market share with lower prices despite increased costs. strengthen the firm's bargaining position with suppliers and distributors.

gain sales and market share with lower prices despite increased costs.

Hampton by Hilton's focused low-cost strategy in the lodging industry was different from a low-cost leadership strategy in that the company serves buyers in a target market niche at a lower cost and a lower price than rival competitors. created a new reservations system. gave a sense of exclusivity to its customers. coordinated with suppliers to lower its cost of linens and fixtures. emphasized low-wage human resource management policies.

serves buyers in a target niche at a lower cost and a lower price than rival competitors

A company's strategic vision concerns management's storyline of how it intends to make a profit with the chosen strategy who we are and what we do. what future actions the enterprise will likely undertake to outmaneuver rivals and achieve a sustainable competitive advantage. who we are and what we do. a company's directional path and future product-customer-market-technology focus. why the company does certain things in trying to please its customers.

a company's directional path and future product-customer-market-technology focus.

Starbucks's employee management, training, and real estate are also known as Starbucks's productive inputs or competitive assets, while human assets and intellectual capital are considered capabilities or competencies. only representative of Starbucks's physical resources. part of Starbucks's inventory of the firm's strengths, weaknesses, opportunities, and threats. capabilities that Starbucks developed and enabled via the deployment of company resources. considered Starbucks's organizational resources because they consist of processes.

also known as Starbuck's productive inputs or competitive assets, while human assets and intellectual capital are considered capabilities or competencies

Pizza Port, a craft brewing and pizza chain in southern California, manufactures thin-crust pizzas and offers one free pint of beer with the purchase of four large pizzas. What would you advise Pizza Port's owners not to do to craft a strategy that will enhance its future profits? Establish a distribution plan to set up more rapid pizza and beer delivery than any other rivals in the region, Devise a social media marketing plan that aims at mass customer segments, providing them with updates on new releases of beer, attractive advertisements, and offers on products. Implement a diversification plan that aims at eventually adding regions outside of southern California to its existing line of products. Chart an acquisition plan that aims at rebranding and creating franchises with local smaller-scale pizza restaurants and craft beer taprooms that seek funding and offer attractive locations. Create a sales plan that aims to enhance initial sales and market penetration with low prices based on high operational costs.

Create a sales plan that aims to enhance initial sales and market penetration with low prices based on high operational costs.

Everlane (Illustration Capsule 4.1) is a manufacturer and online marketer of slim-fit denim jeans. When Everlane's managers engage in the process of developing a list of questions to evaluate their company's internal situation, which question should be asked first regarding Everlane's resources and competitive position? What strategic issues and problems merit back-burner managerial attention at Everlane? How well is Everlane's present strategy working? Which are Everlane's least profitable geographic market segments? Has Everlane reached competitive parity with its key rivals? To what extent do Everlane's value chain activities need to be more or less transparent?

How well is Everlane's present strategy working?

Which of the following situations does not exemplify the impact of macro-environment on a company's strategic opportunities? Sales of Stolichnaya Vodka in the United States dwindle on account of a boycott of Russian products. Consumer confidence in Volkswagen drops precipitously because of falsified emissions data. Netflix squares off with Amazon Prime as its most potent rival in the streaming television and film industry. Traffic increases at the outlets of Whole Foods following its introduction of stores containing solely generic products. Sales of FitBit surge on account of a new feature that monitors users' blood pressure.

Netflix squares off with Amazon Prime as its most potent rival in the streaming television and film industry

Key functional strategies of SunPower, a solar power manufacturing and installation company (described in Illustration Capsule 4.2) include R&D, technology, and product design. benchmarking against rival firms. diversifying beyond the low-cost, large-scale utility solar market and into residential and commercial markets. divestment of noncore assets. forecasting how solar power prices are likely to fluctuate over time.

R&D, technology, and product design.

An example of a company that does not use blue-ocean market strategy is eBay in the online auction industry. Tune Hotels in the lodging industry. Uber and Lyft in the ridesharing industry. Cirque du Soleil in the live entertainment industry. Walmart's logistics and distribution in the retail industry.

Walmart's logistics and distribution in the retail industry.

Managers of all types of business organizations must develop a clear answer for which of the following questions? What approaches do we need to take in order to gain a competitive advantage in the marketplace? What is the set of actions that we need to take to outperform competitors and achieve superior profitability? Where are we now? Where do we go from here? When will we know that we are there?

What is the set of actions that we need to take to outperform competitors and achieve superior profitability?

A boutique hotel chain provides upscale rooms and superior customer service at value prices. What strategy is the hotelier using to gain competitive advantage? a low-cost provider strategy a broad differentiation strategy a focused low-cost strategy a focused differentiation strategy a best-cost provider strategy

a best-cost provider strategy

TOMS Shoes' company values are directly linked to this company's strategic vision, whereas its mission is tied to other valuable underlying assets. marginally distinguishable among those of other rivals in the footwear industry. an integral part of this company's DNA, but only if executives decide to ingrain designated core values into corporate culture. strictly limited in number (not more than two per company). focused on the wealth maximization of shareholders.

an integral part of this company's DNA, but only if executives decide to ingrain designated core values into corporate culture.

Etsy promotes its ability to connect thoughtful consumers with artisans selling unique hand-crafted items online. Etsy's strategy is a good example of an offensive strategy to seek uncharted waters and compete in blue oceans. an offensive strategy to offer an equally good or better product at a lower price. an offensive strategy to leapfrog competitors by being the first adopter of next-generation technologies or being the first to market with next-generation products. a defensive strategy to capture occupied territory by maneuvering around rivals. a defensive strategy to minimize the competitive advantages of rivals.

an offensive strategy to seek uncharted waters and compete in blue oceans.

5 Competitive strategies

broad low-cost, broad differentiation, best cost, focused differentiation, and focused low cost.

Using the five forces model of competition to determine the character and strength of the competitive forces within a given industry involves building the picture of competition in three steps: (1) identify the different parties involved, along with specific factors that bring about competitive pressures; (2) evaluate how strong the pressures stemming from each of the five forces are (strong, moderate or weak); and (3) determine whether the collective impact of the five competitive forces is conducive to earning attractive profits in the industry. building the picture of competition in two steps: (1) determine which rival has the biggest competitive advantage and (2) assess whether the competitive advantages possessed by various industry members allow most industry members to earn above-average profits. evaluating whether competition is being intensified or weakened by the industry's driving forces and key success factors. assess whether the collective impact of all five forces is weak enough to allow industry members to go on the offensive or use a defensive strategy to insulate against fierce competitive pressures. gauging the overall strength of competition based on how many industry rivals are operating with a competitive advantage and how many are operating at a competitive disadvantage.

building the picture of competition in three steps: (1) identify the different parties involved, along with specific factors that bring about competitive pressures; (2) evaluate how strong the pressures stemming from each of the five forces are (strong, moderate or weak); and (3) determine whether the collective impact of the five competitive forces is conducive to earning attractive profits in the industry.

An offensive to yield good results can be short if buyers respond immediately (to a dramatic cost-based price cut or imaginative ad campaign). competition creates an appealing new product. the technology needs debugging. new production capacity needs to be installed. consumer acceptance of an innovative product takes time.

buyers respond immediately (to a dramatic cost-based price cut or imaginative ad campaign).

A cleverly crafted and well-executed strategy precludes the capture of emerging opportunities. produces mediocre financial performance. immunizes a business from changing macro-economic and market conditions. provides direction only in terms of what the company should do. can withstand the competitive challenges from rival firms.

can withstand the competitive challenges from rival firms.

Management's strategic vision for an organization charts a strategic course for the organization (where we are going) and provides a rationale for why this directional path makes good sense. describes in fairly specific terms the organization's strategic objectives and strategy. spells out how the company will become a big moneymaker and boost shareholder value. addresses the critical issue of why our business model needs to change and how we plan to change it. spells out the organization's strategic intent and the actions and moves that will be undertaken to achieve it.

charts a strategic course for the organization (where we are going) and provides a rationale for why this directional path makes good sense.

The heart and soul of a company's strategy-making effort is determining how to become the industry's low-cost provider. maximize profits and shareholder value. improve the efficiency of its business model. maximize profits while simultaneously operating in a socially responsible manner that keeps the company's prices as low as possible. come up with moves and actions that produce a durable competitive edge over rivals.

come up with moves and actions that produce a durable competitive edge over rivals.

In evaluating how well a company's strategy is working, the two best indicators are SWOT and value chain analyses. Porter's five forces and Value Net analyses. value chain and PESTEL analyses. competitive strength and financial ratio analyses. SWOT and PESTEL analyses.

competitive strength and financial ratio analyses.

Choose the analytical tool that you would use to evaluate how well Apple Inc.'s strategy and competitive approach are currently working. PESTEL analysis Porter's five forces analysis Value Net analysis Porter's three tests for evaluating diversification outside the core business competitive strength assessment

competitive strength assessment

Warby Parker is an online retailer of prescription eyewear. Warby Parker's capabilities in market research and engineering as well as the company's relations with suppliers and manufacturing companies are considered Warby Parker's resources to competently perform some internal activity. Warby Parker's core competence. by Warby Parker as resources or some combination of those resources. a competitively valuable resource for Warby Parker. cross-functional capabilities for Warby Parker that draw on a number of different kinds of resources and are multidimensional in nature.

cross-functional capabilities for Warby Parker that draw on a number of different kinds of resources and are multidimensional in nature

Integral parts of the managerial process of crafting and executing strategy include developing a strategic vision, strategic management, and crafting a strategy. developing a proven business model, deciding on the company's strategic intent, and crafting a strategy. strategic management, crafting a strategy, implementing and executing the chosen strategy, and deciding how much of the company's resources to employ in the pursuit of sustainable competitive advantage. coming up with a statement of the company's mission and purpose, strategic management, choosing what business approaches to employ, selecting a business model, and monitoring developments. deciding on the company's strategic intent, setting financial objectives, crafting a strategy, and choosing what business approaches and operating practices to employ.

developing a strategic vision, strategic management, and crafting a strategy.

The rideshare-on-demand industry is affected by such macro-influences as the strengths and weaknesses of competing transportation companies. the resources and capabilities of rival firms. the distinctive competences of incumbent firms. disasters, pandemics, and other unanticipated events in the natural environment. changes in the financial health of the firm.

disasters, pandemics, and other unanticipated events in the natural environment.

Low-cost leaders who have the lowest industry costs are likely to have outmanaged rivals in finding ways to perform value chain activities more cost effectively. be considering exiting the current product market and use their competitive low-cost strength to gain a competitive advantage in other product arenas. be favorites to win the game of strategy in the long run. understand that driving costs to the lowest possible level is the only way to sell cheap products to consumers. understand that they have lower bargaining power with suppliers than rivals who employ a different strategy.

have outmanaged rivals in finding ways to perform value chain activities more cost effectively.

Tangible resources do not include physical resources. financial resources. human assets. technological assets. organizational resources.

human assets

A blue-ocean strategy is an offensive strike employed by a market leader that is directed at pilfering customers away from unsuspecting rivals to boost profitability. involves an unexpected (out-of-the-blue) preemptive strike to secure an advantageous position in a fast-growing market segment. works best when a company is the industry's low-cost leader. involves abandoning efforts to beat out competitors in existing markets and instead inventing a new industry or new market segment that renders existing competitors largely irrelevant and allows a company to create and capture altogether new demand. involves the use of highly creative, never-used-before strategic moves to attack the competitive weaknesses of rivals.

involves abandoning efforts to beat out competitors in existing markets and instead inventing a new industry or new market segment that renders existing competitors largely irrelevant and allows a company to create and capture altogether new demand.

The managerial task of developing a strategic vision for a company concerns deciding what approach the company should take to implement and execute its business model. entails coming up with a fairly specific answer to who are we, what do we do, and why are we here? is chiefly concerned with addressing what a company needs to do to successfully outcompete rivals in the marketplace. involves deciding upon what strategic course a company should pursue in preparing for the future and why this directional path makes good business sense. entails coming up with a concrete plan for how the company intends to make money.

involves deciding upon what strategic course a company should pursue in preparing for the future and why this directional path makes good business sense.

Market maneuvering among industry rivals determines whether the industry's strategic group map will be static or dynamic. centers around collaborative efforts to overcome the bargaining power of powerful suppliers and powerful buyers. is usually an industry's strongest driving force. is usually one of the two or three weakest competitive forces because of the close familiarity that rivals have for one another's likely next moves. is ongoing and dynamic, with moves and countermoves of rivals producing a continually evolving competitive landscape that delivers winners and losers.

is ongoing and dynamic, with moves and countermoves of rivals producing a continually evolving competitive landscape that delivers winners and losers.

You have been asked to evaluate Kampus Kombucha's mission statement, "To heal and refresh everyone we touch." You would most likely observe that Kampus Kombucha's mission statement specifies the buyer needs that it seeks to satisfy and the customer groups or markets it serves. specifically informs customers and employees who we are, what we do, and why we are here. is vague, fairly uninformative, and blurs the essence of this company's business activities. describes more of an objective and a result of what this company does instead of its purpose. portrays this company's aspirations for the future.

is vague, fairly uninformative, and blurs the essence of this company's business activities.

All other things being equal, the "best" generic competitive strategy for a company to employ is a strategy that seeks to underprice rivals on comparable products that attract a broad spectrum of buyers. seeks to differentiate product offerings from rivals by offering superior attributes that attract a broad spectrum of buyers. concentrates on a narrow buyer segment and outcompetes rivals by offering niche members customized attributes. concentrates on value-conscious buyers and outcompetes rivals by offering products at attractive prices. is well matched to a company's internal situation; underpinned by an appropriate set of resources, know-how, and competitive capabilities; and difficult for rivals to match.

is well matched to a company's internal situation; underpinned by an appropriate set of resources, know-how, and competitive capabilities; and difficult for rivals to match.

Avon Products at one point secured information about its biggest rival, Mary Kay Cosmetics, by having its personnel search through the garbage bins outside MKC's headquarters. This is an example of how companies in an industry can sustain good track records for revenue growth and profitability. strategic moves rivals are likely to make next. industry key factors for future competitive success. lawful gathering of competitive intelligence. lawful but probably unethical gathering of competitive intelligence.

lawful but probably unethical gathering of competitive intelligence.

A low-cost leader can translate its low-cost advantage over rivals into superior profit performance by underpricing rivals and attracting quality-sensitive buyers in great enough numbers. maintaining the present price and using the lower-cost edge to earn a higher profit margin on each unit sold. going all out to use its cost advantage to capture a dominant share of the market. spending heavily on advertising to promote its cost advantage to build strong customer loyalty. outproducing rivals and thus having more available units for sale.

maintaining the present price and using the lower-cost edge to earn a higher profit margin on each unit sold.

A low-cost leader's basis for competitive advantage is lowest possible prices for comparable products. a low-cost/moderate price approach to gain the biggest market share. high buyer switching costs. meaningful lower overall costs than rivals on comparable products. higher unit sales than rivals.

meaning lower overall costs than rivals on comparable products

Societal shocks are not among the principal components of strategic significance in the PESTEL analysis because they are caused by political factors including the extent to which government intervenes in the economy in an ongoing manner. dictated by foreseeable economic conditions that include the general economic climate and specific factors such as interest rates, inflation rate, and unemployment rate, as well as conditions in the stock and bond markets that can affect consumer confidence. associated with anticipated sociocultural forces that include societal values, attitudes, cultural factors, and lifestyles that impact business. the result of technological factors that include the pace of change and technical developments that have the potential for improving society. much harder for companies to anticipate and prepare for because they often begin with little warning.

much harder for companies to anticipate and prepare for because they often begin with little warning.

In crafting a company's strategy, managers face the biggest challenge of how closely to replicate strategies of successful companies in the industry. have comparatively little freedom in choosing the hows of strategy. are wise not to decide on concrete courses of action in order to preserve maximum strategic flexibility. need to come up with a sustainable competitive advantage that draws in customers and produces a competitive edge over rivals. are well-advised to be risk-averse and develop a conservative strategy—dare-to-be-different strategies are rarely successful.

need to come up with a sustainable competitive advantage that draws in customers and produces a competitive edge over rivals.

The biggest strategy-shaping impact on on-demand transportation providers such as Uber and Lyft is most likely to be Yellow Cab companies launching mobile app campaigns for community connection and awareness. Amazon launching a mobile delivery service via drones. new government regulations that require all drivers to be hired as employees rather than as contingent workers. Tesla and ZipCar announcing a joint venture for electric automobile sharing services. DoorDash and GrubHub developing and marketing a mobile app for their customers to share rides on delivery vehicles.

new government regulations that require all drivers to be hired as employees rather than as contingent workers.

Teresa is CFO of a company that sells prescription eyeglasses online. Key financial ratios that could help her measure her company's profitability include operating profit margin, return on stockholders' equity, and return on assets. times interest earned, current ratio, and acid-test ratio. total debt to assets, debt to equity, and long-term debt to equity. inventory turnover, accounts receivable collection period, and fixed asset turnover. dividend yield on common stock, price to earnings ratio, and dividend payout ratio.

operating profit margin, return on stockholders' equity, and return on assets.

A company's strategic plan maps out the company's history. links the company's financial targets to control mechanisms. outlines the competitive moves and approaches to be used in achieving the desired business results. focuses on offering a more appealing product than rivals. lists methods of making money in its chosen business.

outlines the competitive moves and approaches to be used in achieving the desired business results.

In order to be successful with a low-cost leadership strategy, company managers have to eliminate wholesale and retail intermediaries and instead sell directly to users of their product or service. perform value chain activities more cost-effectively than rivals and be proactive in revamping the firm's overall value chain to eliminate or bypass nonessential cost-producing activities. outsource the majority of value chain activities to nations that have lower wage rates and fewer regulations. develop and market products and services at that absolute lowest possible cost. pursue backward or forward integration to deter suppliers or buyers with considerable bargaining power and leverage.

perform value chain activities more cost-effectively than rivals and be proactive in revamping the firm's overall value chain to eliminate or bypass nonessential cost-producing activities.

The objective of a competitive strategy is to establish a competitively powerful value chain. grow revenues at a faster annual rate than rivals are able to grow their revenues. lend greater detail to the company's business model. provide buyers superior value relative to the offerings of rival sellers in order to attain a competitive advantage. get the company into the best strategic group and then dominate it.

provide buyers superior value relative to the offerings of rival sellers in order to attain a competitive advantage

The objective of a competitive strategy is to establish a competitively powerful value chain. grow revenues at a faster annual rate than rivals are able to grow their revenues. lend greater detail to the company's business model. provide buyers superior value relative to the offerings of rival sellers in order to attain a competitive advantage. get the company into the best strategic group and then dominate it.

provide buyers superior value relative to the offerings of rival sellers in order to attain a competitive advantage.

Bumble, a digital dating site where women make the first move, specifically uses which strategic weapon in its offensive arsenal? pursuing disruptive product innovations to create new markets adopting and improving on the good ideas of other companies or rival firms using hit-and-run guerilla warfare tactics to grab market share from distracted or complacent rivals launching a preemptive strike to capture an industry's limited resources or capture a rare opportunity offering an equally good or better product at a lower price than rivals

pursuing disruptive product innovations to create new markets

5 forces

suppliers, buyers, potential new entrants, firms in other industries offering substitute products, and rivalry among competing sellers

A company's resources and capabilities represent the firm's net working capital and related determinants for measuring operating performance and capabilities. the firm's competitive assets that determine its competitiveness and ability to succeed in the marketplace. whether the firm has the industry's most efficient value chain. management's sources and uses of funding for new strategic initiatives. positive trends with relevant cultural factors related to buyers' choices and product modifications.

the firms' competitive assets that determine its competitiveness and ability to succeed in the marketplace

The most powerful and widely used conceptual tool for diagnosing the principal competitive pressures in a market is the five forces framework. PESTEL. the driving forces model. strategic group mapping. SWOT analysis.

the five forces framework.

The biggest and most important differences among the competitive strategies of different companies boil down to how they go about building a brand name image that buyers trust and whether they are a risk-taker or risk-avoider. the different ways the companies try to cope with the five competitive forces. whether a company's market target is broad or narrow and whether the company is pursuing a competitive advantage linked to low cost or differentiation. the kinds of actions companies take to improve their competitive assets and reduce their competitive liabilities. the relative emphasis they place on offensive versus defensive strategies.

whether a company's market target is broad or narrow and whether the company is pursuing a competitive advantage linked to low cost or differentiation.