Strategic Management - Test 1
When analyzing a firm's external environments, we must apply (3):
1) PESTEL 2) Porter's five forces 3) Strategic group mapping
Four main competitive industry structures:
1) Perfect Competition 2) Monopolistic Competition 3) Oligopoly 4) Monopoly
power of buyers is high when:
1) There are a few buyers and each buyer purchases large quantities relative to the size of a single seller 2) The industry's products are standardized or undifferentiated commodities 3) Buyers face low or no switching costs 4) Buyers can credibly threaten to backwardly integrate into the industry
To increase success of an entry, strategic leaders must consider these five questions:
1) Who are the players? direct and indirect-substitute competitors alongside internal/external shareholders. 2) When to enter? there are no first-mover advantages when a firm is entering an existing industry, but the entering firm needs to understand which stage of the industry life cycle it is entering. 3) How to enter? leverage existing assets, reconfigure value chains, establish a niche. 4) What type of entry? product market, value chain activity, geography, and type of business model. 5) Where to enter? high end versus low end product positioning, ricing strategy, potential partners, etc.
Elements of a good strategy:
1) a diagnosis of the competitive challenge 2) a guiding policy to address the competitive challenge 3) a set of coherent actions to implement the firm's guiding policy
Business functions of SBUs (8):
1) accounting 2) finance 3) human resources 4) precut development 5) operations 6) manufacturing 7) marketing 8) customer service
Examples of black swan events:
1) accounting scandal at Enron 2) Fukushima nuclear disaster 3) 9/11 terrorist attacks
The three pillars of knowledge and research of strategic management:
1) analysis 2) formulation 3) implementation Note: these are interdependent tasks
Three step AFI framework:
1) analyze the external and internal environments 2) formulate an appropriate business and corporate strategy 3) implement the formulated strategy through structure, culture, and controls
Strategic initiatives can emerge through (3):
1) autonomous actions 2) serendipity 3) Resource allocation process
Five examples of advantages independent of size:
1) brand loyalty 2) propriety technology 3) preferential access to draw materials and distribution channels 4) favorable geographic locations 5) cumulative learning and experience effects
The five forces plus one model cannot be used to determine (2):
1) change of speed of an industry 2) rate of innovation
Intensity between existing competitors are cause by four factors:
1) competitive industry structure 2) industry growth 3) strategic commitments 4) exit barriers
an oligopolistic industry is (4):
1) consolidated with a few large firms 2) differentiated products 3) high barriers to entry 4) some degree of pricing power
Primary Strategy objectives:
1) control costs 2) create value
Three generic business strategies:
1) cost leadership 2) differentiation 3) value innovation
Follow these five steps to apply the five forces model:
1) define the relevant industry 2) Identify the key players of each of the five forces and and attempt to group them into different categories 3) Determine underlying drivers of each force 4) Assess overall industry structure - focus on what drive industry profit 5) Draw a strategic group map to explain performance difference within the same industry
Examples of external shocks that fragment industries (4):
1) deregulation 2) new legislation 3) technological innovation 4) globalization
Four responsibilities of CSR:
1) economic 2) legal 3) ethical 4) philanthropic
Exit barriers comprise of two factors:
1) economic 2) social
Seven barriers to entry that incumbent firm benefit from:
1) economies of scale 2) network effects 3) customer switch costs 4) capital requirements 5) advantages independent of size 6) government policy 7) creditable threat of retaliation
Common elements of all industries (3):
1) entry and exit barriers 2) number and size of companies 3) types of products and services offered
Organizational core values provide (2):
1) ethical standards and stability to strategy 2) guardrails to keep company on track
dimensions strategic groups differ on (8):
1) expenditures 2) research and development 3) technology 4) product differentiation 5) product and service offerings 6) market segments 7) distribution channels 8) customer service
What needs to be considered during the analysis phase of the AFI framework (4)?
1) external and environmental challenges 2) firm's internal strength and resources 3) role of strategic leadership and strategy making process 4) firm's business model and competitive advantages
PESTEL helps firms to evaluate (2):
1) external factors 2) external trends
A perfectly competitive industry (4):
1) fragmented and has many small firms 2)a commodity product 3) ease of entry 4) and little or no ability for each individual firm to raise its prices
Porter's model helps companies to (2):
1) gain and sustain competitive advantage 2) determine profit potential of different industries
Examples of strategic commitments (3):
1) geographical ties (GM to Detroit, etc.) 2) contractural obligations to suppliers 3) employee healthcare benefits, retirement, and severance pay
What is not strategy (3)?
1) grandiose statements 2) failure to face a competitive challenge 3) operational effectiveness, competitive benchmarking, and other tactical tools
Five economic factors that can effect strategy:
1) growth rates 2) level of employment 3) interstate's rates 4) price stability 5) currency exchange rates
A monopolistic competitive industry (4):
1) has many firms 2) differentiated products 3) some obstacles to entry 4) ability to raise prices while retaining customers
Strategic commitments are effected by (2):
1) high fixed costs 2) noneconomic considerations (subsidies)
Level-1 Leader: Level-2 Leader: Level-3 Leader: Level-4 Leader: Level-5 Leader:
1) highly capable individual 2) contributing team member 3) competent manager 4) effective leader 5) Executive
Two primary determinants fo firm performance:
1) industry effects 2) firm effects
Firm performance is determined by (2):
1) industry in which the firm belongs 2) strategic group memebrship
industry analysis provides (3):
1) insight into a firm's strategic position within an industry 2) a rigorous way to identify an industry's profit potential 3) the level of profitability that can be expected for the average firm in the industry
What are the variables that determine whether a company has a strategic planning, scenario planning, or plan of emergence (3)?
1) internal environment rate of change 2) external environment rate of change 3) firm size
Three major innovations in process technology:
1) lean manufacturing 2) Six Sigma quality 3) biotechnology
Three nonmarket strategies to influence government:
1) litigation 2) lobbying 3) public relations
Two main strategic groups:
1) low cost 2) product differentiation
Ecological factors include (3):
1) natural environment 2) global warming 3) sustainable economic growth
Examples of perfect competition industries (3):
1) natural gas 2) copper 3) iron
Two ways threats of new entrants effects industry profit:
1) new entrants can potentially lower prices 2) incumbent firms spend more to satisfy their customers which results in less profits
A monopoly (4):
1) only one firm 2) often a large firm 3) maybe a unique product 4) high entry barriers
Six segments of the PESTEL:
1) political 2) economic 3) sociocultural 4) technological 5) ecological 6) legal
DeWeapons of retaliation (5):
1) predatory pricing 2) increased product and service innovation 3) advertising 4) sales promotions 5) litigation
business can function as institutions because of two legal rights:
1) property rights 2) contract obligations
Two ways to achieve competitive advantage:
1) prove goods or services that consumers value more highly 2) provide cheaper good or services
To better understand firm performance, we must look inside the firm and study its (3):
1) resources 2) capabilities 3) core competencies
An intended strategy has the out come of a plan with the following characteristics (3):
1) strategic 2) rational 3) top-down
Managers can influence (2):
1) strategic group composition 2) structure of their industry
External Analysis involves (3):
1) strategic groups 2) competition forces 3) industry structure
Approaches used for strategizing for a competitive advantage (3):
1) strategic planning 2) scenario panning 3) strategy as planned emergence
Three approaches to the process of formulating and implementing a strategy:
1) strategic planning 2) scenario planning 3) strategy as planned emergence
Two parts of the strategy process:
1) strategy formulation 2) strategy implementation
Buying power of suppliers is high when:
1) supplier's industry is more concentrated than the buyer's 2) they do not depend on the buyer's industry fro revenues 3) incumbent firms face significant switch costs 4) suppliers offer differentiated products 5) no readily amiable substitutes 6) credibly threaten to forward-integrate into buyer's industry
Structure of an industry (4):
1) the number and size of competitors 2) the firms' degree of pricing power 3) the type of product or service offered 4) the height of entry barriers.
Three instances where a firm's performance and vision statements share a positive relationship:
1) the vision are customer oriented 2) internal stakeholders are invested in defining the vision 3) Organizational structures align with the firm's vision statement
Shortcomings of PESTEL, Porter's five, and strategic mapping:
1) they are static models 2) they do not allow strategic leaders to fully understand why there are performance differences among firms in the same industry or strategic group
Porter's five forces that shape competition:
1) threat of entry 2) power of suppliers 3) power of buyers 4) threat of substitutes 5) rivalry among existing firms
Rivalry among competitors can be driven by (4):
1) threat of new entrants 2) power of suppliers 3) power of buyers 4) threat of substitutes
Corporate strategy formulation considers (3):
1) which market to compete in 2) which geographic location to compete in 3) which industry to compete in
Level-5 leadership pyramid
5. Executive 4. Effective leader 3. Competent manager 2. Contributing team member 1. Highly capable individual
The external environment can determine roughly ______% of performance differences across firms
50
_________% of from performance is determined by industry and firm effects
75
Upper-echelons theory:
A conceptual framework that views organizational outcomes—strategic choices and performance levels—as reflections of the values of the members of the top management team.
Natural monopolies:
A market in which competition is inconvenient and impractical, and thus efficiency is best achieved by a single seller.
Industry analysis:
A method to (1) identify an industry's profit potential and (2) derive implications for a firm's strategic position within an industry.
Top-down strategic planning:
A rational, data-driven strategy process through which top management attempts to program future success.
How do you assess competitive advantage?
Compare firm performance to a benchmark.
Mision asks:
How do we accomplish our goals?
Most useful to calculate a companies performance:
NET PROFIT MARGIN AND RETURN ON EQUITY
Functional manager:
Responsible for decisions and actions within a single functional area of SBUs
Scenario planning:
Strategy-planning activity in which managers envision different what-if scenarios to anticipate plausible futures.
Near monopolies:
accrued significant market power, for example, by owning valuable patents or proprietary technology
Strategic commitments:
actions that are costly, long-term oriented, and difficult to reverse
Rivalry within strategic groups is more intense than rivalry __________________________
among strategic groups intra-group rivalry exceeds inter-group rivalry
Stakeholder strategy:
an integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage
Strategic Management:
an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage
Diagnosis of the competitive challenge is accomplished through ___________________________________
analysis of the firm's external and internal environments
Strategic initiative:
any activity a firm pursues to explore and develop new products and processes, new markets, or new ventures
Emergent strategy:
any unplanned strategic initiative bubbling up from the bottom of the organization
Internal champions are needed for ________________________________
autonomous actions to be successful
Porter suggest competition be viewed more _______________
broadly
Powerful buyers and suppliers are threats to firms because they can both _______________________________
capture some of the firm's profits generated through economic value created
Vision:
captures an organization's aspiration and spells out what is ultimately wants to accomplish
Customer-oriented companies to can adapt better to ___________________________
changing environments
You need a good strategy to deal with ______________________
competition
Companies in the same strategic group are direct ________________________
competitors
The sixth force not mentioned in Porter's model:
complements
Corporate strategy:
concerns questions relating to where to compete in terms of industry, markets, and geography
Strategy formulation:
concerns the choice of strategy in terms of where and how to compete
Strategy implementation:
concerns the organization, coordination, and integration of how work gets done ie. the execution of strategy
Business strategy:
concerns the question of how to compete
Functional strategy:
concerns the question of how to implement a chosen business strategy
consolidated industry:
consists of a few firms, or even just one firm, that can be highly profitable
fragmented industry:
consists of many small firms and tends to generate low profitability
Co-opetition:
cooperation by competitors to achieve a strategic objective
Executives of a firm formulate the ____________________ strategy
corporate
SBUs will formulate their own ______________________________________
cost leadership, differentiation, and value innovation in the quest of competitive advantage
Strategic commitments are ______________________________________
costly, long-term, and difficult to reverse
Competitive advantage flows to the firm that _______________________________
creates the largest gap between value created and cost to do so (V-C)
What is the consequence of filling a need and providing a product, service or experience?
creating shareholder value and making money
First step to gain and sustain a competitive advantage:
define missions, vision, and values.
Product-oriented vision statements:
defines a business in terms of a good or service provided
Customer-oriented vision statements:
defines a business in terms of providing solutions to customer needs
Strategic position:
difference between value created and cost to create product (V-C)
External environment effect strategic groups _____________
differently
The five competitive forces affect strategic groups _______________
differently
External factors in the task environment are ones that managers __________________________
do have some influence on
Threat of entry is high when government polices __________________________________
do not exist or deregulate industries
Society and shareholders require which two responsibilities of the CSR framework?
economic and legal
Competitive industry structure:
elements and features common to all industries
Organizational core values:
ethical standards and norms that govern the behavior of individuals within a firm or organization
Low exit barriers removes _______________________ which are causing low industry profits
excess capacity
Strategic leadership:
executives' use of power and influence to direct the activities of others when pursuing an organization's goals
CEOs spend most of their time in ____________________________
face-to-face meetings
Scenario planning framework of the AFI is a constant _______________________
feedback loop
Key feature of oligopoly:
firms are interdependent
Complements increase demand _____________________________
for the primary product
Two shortcomings of the top-down approach are that _____________________________________
formulation is separate from implementation and we cannot predict the future
A strategic leader will want to leverage weak forces and relax strong ones in order to __________________________
gain competitive advantage
A strategy will define how a firm __________________________________________
gains and sustains a competitive advantage
Managers have little influence over ______________________________
general environment factors such as macroeconomic fluctuations
Industry:
group of incumbent companies facing more or less the same set of suppliers and buyers
Strategic commitments can lead to:
high fixed costs and increased rivalry
One way to make an industry more consolidated ,thus more profitable, is through _____________________________
horizontal mergers and acquisitions
Black swan events:
incidents that describe highly improbable but high-impact events
With monopolies, the one firm is the __________________
industry
rivalry among existing competitors has a direct relationship with the ____________________________________
industry's exit barriers
Mobility barriers:
industry-specific factors that separate one strategic group from another
Upper-echelons theory favors the idea that effective strategic leadership is the result of both _________________________________________
innate abilities and learning
Critics of strategic planning suggest that a strategy should be based on ___________________________ and not just hard data
inspiring vision
High exit barriers lead to _________________________
intense rivalry
The natural and business worlds are ____________________
interdependent (inextricably linked)
Capital, unlike proprietary technology and industry know how, __________________________________
is mobile and can be easily acquired
Destructive price competition can lead to _____________________________________________________________
limited choices, lower product quality, and higher prices for consumers in the long-run if only a few competitors survive
Nonmarket strategies:
lobbying, public relations, contributions, litigation
Vision is the __________________ objective of a firm
long-term
Competing to similar and and just a bit better than your competitor will likely result with ____________________________
low profits and cut-throat competition
Strategic management process:
method put in place by strategic leaders to formulate and implement a strategy, which can lay the foundation for a sustainable competitive advantage
Core value statements provide a _____________________________ to employees
moral compass
Actions of strategic leaders have ___________ impact on firm performance than forces from external environment
more
Firms competing in the same industry tend to ________________________
offer similar products
Switching costs are incurred when moving from _________________________
one supplier to another
Stakeholders:
organizations, groups, and individuals that can affect or are affected by a firm's actions
Visionary competitors often ____________________ their competitors over time
outperform
Substitutes can exist _________________________
outside the industry
illusion of control:
overestimating ability to control events
unrealized strategy:
part or all of a firm's strategic plan that falls by the wayside due to unexpected events
Competitive parity:
performance of two or more firms at the same level
Strategic intent:
pervades the organization with a sense of winning through building resources and continuously learning
Legal factors coexist with or result from ________________________
politcal factors
The strong Porter's five forces are, the lower the industry's ___________________________
potential profits (converse is true)
Three important stakeholder attributes:
power, legitimacy, urgency
Top-down strategic framework relies on the fact that we can _____________________________________
predict future from the past
Monopolies have the most ____________________
price power
Degree of pricing power depends on degree of ________________________
product differentiation
Complements:
product, service, or competency that adds value to the original product offering when the two are used in tandem
Some strategic groups are more __________________ than others
profitable
Successful firms share value with customers through ___________________________
profits (received by firm) and innovative or societal or personal benefit (received by customer)
How do business leaders create an environment in which autonomous action and serendipity can flourish?
provide time and resources for employees to pursue other interests
Without commitment and involvement from top managers, any statement of values is simply a ____________________________
public relations exercise
Serendipity:
random events, pleasant surprises, and accidental happenstance that impact a firm's static initiatives
Competitive advantage is always _____________________, not absolute
relative
To achieve superior performance, companies compete for _________________________.
resources
industry analysis is the most ________________ means of analyzing profit potential within a specific industry.
rigorous
The PESTEL model provides an important way to _____________________________________________
scan, monitor, and evaluate important external factors that effect a firm
Firms in same strategic group tend to follow _______________________________
similar strategy
Ethical and philanthropic responsibilities of the CSR result from ______________________________
societies expectations towards business
sociocultural refers to:
society's culture, values, norms, and demographics
The five forces plus one model is useful for understanding an industry's profit potential at a ________________________ thus making it a ___________________
specific point in time, static model
Core values statement:
statement of principles to guide an organization as it works to achieve its vision and fulfill its mission, for both internal conduct and external interactions; it often includes explicit ethical considerations
dynamics are important to overcome ____________________
static models
Business strategy occurs within ___________________________________
strategic business units
The dimensions to determine a strategic group are mobility barriers, which are ________________________
strategic commitments
To be effective, firms need to back up their visions and missions with ______________________
strategic commitments
Competitive rivalry is strongest between firms within the same _________________________
strategic group
Autonomous actions:
strategic initiatives undertaken by lower-level employees on their own volition and often in response to unexpected situations
Power is defined as:
strategic leader's ability to influence the behavior of other organizational members to do things, including things they would not do otherwise
Strategic planning is not the same as __________________________
strategic thinking
A guiding policy to address the competitive challenge is accomplished through _______________________________
strategy formulation
A set of coherent actions to implement the firm's guiding policy is accomplished through ________________________________
strategy implementation
When a firm uses top-down or scenario planning, lower level employees re mainly focused on _________________________________
strategy implementation
Planned emergence:
strategy process in which organizational structure and systems allow bottom-up strategic initiatives to emerge and be evaluated and coordinated by top management
Strategy is the art and science of ___________________________
success and failure
Strategic positioning:
taking a positing in an industry to control costs while providing value to consumers
Firm effects:
the actions strategic leaders take
Managerial actions can effect _________________________________________
the economic well being of large groups of people around the world
What determines the number of strategic groups in an industry?
the number of business strategies
Potential entrants must weigh the ______________________________________________
the required capital investments, cost of capital, and expected return
PESTEL and industry analysis as not ________________
the same
Strategic group:
the set of companies that pursue a similar strategy within a specific industry to achieve competitive advantage
Strategy:
the set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors
Dominate strategic plan:
the strategic option that top managers decide most closely matches the current reality and which is then executed
Industry effects:
the underlining economic structure of the industry
Network effects:
the value of a product or service for an individual user increases with the number of total users
Resource allocation process (RAP):
the way a firm allocates its resources based on a predetermined policies, which can be critical in shaping its realized strategy
Economic contribution is greatest when _____________________________________
there is a greater difference between value creating and cost
PESTEL helps us to identify __________________________
threats and opportunities
A vision is introduced with the word __________ and a mission is introduced with the word ____________.
to ... by
Scenario planning also starts with a __________________________
top-down approach
A firm's realized strategy is a combination of _________________________________
top-down intentions and bottom-up emergent strategies
Strategic initiative can be a result of _____________________________________________________
top-down planning or bottom-up process
Competitive disadvantage:
under performance relative to other competitors in the same industry or the industry average
Putting shareholder interest above all else can _____________________________________
undermine economic performance and threaten the survival of the the firm
Single-minded focus on shareholders alone will expose a firm to __________________
undue risk
Mission:
what an organization actually does: its products, services, and market in which it will compete
Because of trade-offs, strategy is about what do to as much as it is about ____________________________
what not to do
Strategy is not a ______________________________
zero sum game
Sustainable competitive advantage:
a firm that can outperform its computers for a prolonged period of time
Strategic group model:
a framework that explains differences in firm performance within the same industry
Corporate social responsibility (CSR):
a framework that helps firms recognize and address the economic, legal, social, and philanthropic expectations that society has of the business enterprise at a given point in time
Superior performance is the consequence of ___________________________
a good strategy
Top-down strategic planning parallels the approach of ____________________________________
a military general giving orders to subordinates
Industry convergence:
a process whereby formerly unrelated industries begin to satisfy the same customer need
Strategic business units:
a standalone division of a larger conglomerate, with its own profit-and-loss responsibility
Bottom-up strategies start with ______________________________ and result with a unrealized strategy due to ________________________
a top-down intended strategy ... unpredictable events
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
Competitive advantage:
a firm that achieves superior performance relative to other competitors in the same industry or the industry average
Values asks:
What commitments and legal alongside ethical guardrails do we put in place to pursue our vision and mission?
Vision asks:
What do we want to ultimately accomplish?