bpol Midterm (Based on Lana's Study Guide)

Strategy

An integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.

Strategic Management Process

The full set of commitments, decisions, and actions that can lead a firm to achieve strategic competitiveness and earn above-average returns.

Strategic Competitiveness

Achieved when a firm successfully formulates and implements a value-creating strategy.

Competitive Advantage

Achieved when a firm implements a strategy that creates superior value for customers and competitors cannot duplicate.

Above-Average Returns

Returns in excess of what an investor expects to earn from other investments with a similar amount of risk.

Risk

An investor's uncertainty about the economic gains or losses that will result from a particular investment.

Business Unit / Strategic Business Unit

A company division focused on a single product offering or market segment to isolate strategy effects.

Corporate Strategy

Strategy for a multi-business corporation, coordinating activities across business units to serve the overall enterprise.

Strategic Management Process: Analysis

Analyzing the external environment and internal organization before strategic choices are made.

Strategic Management Process: Vision and Mission

Developing the firm's vision and mission following external and internal environmental analyses.

Strategic Management Process: Strategy Formulation

Choosing business-level, corporate, competitive, international, acquisition, and cooperative strategies.

Strategic Management Process: Strategy Implementation

Putting strategy into action through governance, organizational structure, controls, leadership, and entrepreneurship.

Vision

An idea of what the firm wants to be and what it ultimately wants to achieve.

Mission

Specifies the current business in which the firm intends to compete and the customers it intends to serve.

Primary Stakeholders

Individuals or groups affected by a firm's outcomes who have enforceable claims or control critical resources.

Capital-Market Stakeholders

Equity shareholders and creditors who influence the firm through investment and financing claims.

Equity Shareholders

Capital-market stakeholders owning equity who seek investment preservation, wealth growth, and acceptable risk-return.

Debt Holders / Creditors

Capital-market stakeholders providing debt financing, critical because default can trigger bankruptcy.

Product-Market Stakeholders

Customers, suppliers, host communities, governments, and unions that interact with the firm in product markets.

Customer as Stakeholder

Product-market stakeholders who demand reliable products at the lowest possible prices.

Supplier as Stakeholder

Product-market stakeholders seeking loyal buyers willing to pay the highest possible prices.

Host Communities as Stakeholders

National, state, and local governments that affect and are affected by the firm's operations.

Unions as Stakeholders

Product-market stakeholders seeking secure jobs and desirable working conditions for represented workers.

Organizational Stakeholders

The firm's employees, who help formulate and implement strategy and are directly affected by strategic change.

Organizational Culture

The complex set of shared ideologies, symbols, and core values that influence how a firm conducts business.

Profit Pool

The total profits earned in an industry across all points along its value chain.

Profit Pool Mapping

Mapping where industry profits are earned along the value chain to focus on overall profitability.

Industrial Organization (I/O) Model

A perspective holding that the external environment is the primary determinant of a firm's strategic actions and returns.

I/O Model Sequence

External environment → attractive industry → strategy formulation → assets/skills → strategy implementation → above-average returns.

Resource-Based Model

A perspective holding that internal resources, capabilities, and core competencies primarily determine strategy and returns.

Five Forces Analysis Pitfall: Cyclical vs. Structural Changes

Confusing short-term or temporary cyclical changes with true long-term structural changes in industry dynamics.

Industry Environment

The external environment of forces directly affecting firms competing in a specific industry.

Porter's Five Forces

A framework for analyzing industry competitive pressures:

• rivalry

• new entrants

• substitutes

• supplier power

• buyer power

Purpose of Porter's Five Forces

To identify competitive pressures in a defined industry or strategic group and guide strategic choices.

First Step in Five Forces Analysis

Define the strategic group or determine what industry is actually being analyzed.

Second Step in Five Forces Analysis

Identify who or what represents each force and determine whether each force is strong or weak.

Five Forces Analysis Pitfall: Wrong Industry Definition

Defining the target industry too broadly or too narrowly during competitive analysis.

Five Forces Analysis Pitfall: Making Lists

Simply listing factors rather than engaging in rigorous analysis of competitive forces.

Five Forces Analysis Pitfall: Equal Attention to All Forces

Paying equal attention to all forces rather than investigating the most important industry pressures.

Five Forces Analysis Pitfall: Ignoring Trends

Failing to account for external industry trends that may alter competitive forces over time.

Five Forces Analysis Pitfall: Industry Attractive or Unattractive

Using the framework only to label an industry rather than to guide strategic decisions.

Cyclical Change in Industry Analysis

A temporary, short-term fluctuation in industry conditions that tends to reverse over macroeconomic cycles.

Structural Change in Industry Analysis

A fundamental, long-term shift in underlying industry forces, economics, or competitive dynamics.

Risk of Confusing Cyclical and Structural Changes

Misinterpreting short-term demand dips as permanent decline, leading to flawed long-term strategic commitments.

Industry Rivalry

The competitive actions and responses among existing firms competing in an industry.

Importance of Industry Rivalry

In most industries, competitive rivalry intensity is the primary determinant of incumbent profitability.

Firm Concentration Ratio

A factor affecting rivalry reflecting how market share is distributed among top industry firms.

Industry Growth and Rivalry

Slow industry growth intensifies rivalry bc firms must take market share to expand.

Low Differentiation and Rivalry

When products are undifferentiated, firms compete primarily on price, increasing rivalry intensity.

High Exit Barriers and Rivalry

High costs of leaving an industry force firms to stay and compete even during low profitability.

Threat of New Entrants

The risk that new competitors will enter an industry and capture market share from incumbents.

Barriers to Entry

Obstacles that make entering an industry difficult, costly, or unattractive for prospective competitors.

Economies of Scale as an Entry Barrier

Cost advantages from large-scale production that compel entrants to enter at scale or suffer cost disadvantages.

Capital Requirements as an Entry Barrier

The large financial resources required to enter an industry and establish operations.

Switching Costs as an Entry Barrier

One-time costs buyers face when changing suppliers, making market entry more difficult.

Threat of Substitutes

The risk that products from alternative industries will satisfy the same underlying customer need.

Relative Price-Performance of a Substitute

A comparison evaluating whether a substitute offering provides acceptable performance at a competitive price.

Bargaining Power of Suppliers

The ability of suppliers to raise prices or lower product quality, reducing firm profitability.

Bargaining Power of Buyers

The ability of customers to demand lower prices, higher quality, or superior service terms.

Strategic Group

A set of industry firms emphasizing similar strategic dimensions and executing similar strategies.

Second Step in Five Forces Analysis

For each force, identify who or what represents the force and determine whether the force is strong or weak.

Industry Rivalry

The competitive actions and responses among existing firms in an industry.

Importance of Industry Rivalry

For most industries, the intensity of rivalry among competitors is the biggest determinant of competitiveness for an existing company.

Firm Concentration Ratio

A factor affecting rivalry

• it reflects how concentrated an industry is among a small number of firms.

Advertising Budget and Rivalry

Large advertising budgets can affect the intensity of competitive rivalry.

Technological Innovation and Rivalry

Innovation and transparency can increase or change the nature of rivalry.

Online vs. Brick-and-Mortar Rivalry

The competitive relationship between online and physical business models can affect industry rivalry.

Industry Growth and Rivalry

Slow growth generally intensifies rivalry because firms compete more directly for existing demand.

Low Differentiation and Rivalry

When products are not differentiated, firms compete more directly, often increasing rivalry.

Low Switching Costs and Rivalry

Low switching costs make it easier for customers to change suppliers, increasing rivalry.

High Strategic Stakes and Rivalry

When firms have much to gain or lose, competitive rivalry may intensify.

High Exit Barriers and Rivalry

High costs of leaving an industry can keep firms competing even when returns are poor, increasing rivalry.

Threat of New Entrants

The risk that new firms will enter an industry and take market share from existing firms.

Barriers to Entry

Obstacles that make it harder for new firms to enter an industry.

Economies of Scale as an Entry Barrier

Cost advantages gained from producing at large volume; they make entry harder for smaller entrants.

Product Differentiation as an Entry Barrier

Established brand loyalty or uniqueness that makes it harder for new entrants to attract customers.

Capital Requirements as an Entry Barrier

The large financial investment needed to enter an industry.

Switching Costs as an Entry Barrier

The costs customers face when changing from one supplier or product to another.

Distribution Access as an Entry Barrier

Difficulty obtaining access to channels needed to reach customers.

Cost Disadvantages Independent of Scale

Advantages incumbents possess that do not come from size

• such as proprietary technology, favorable locations, learning effects, or access to inputs.

Government Policy as an Entry Barrier

Laws, regulations, licensing, tariffs, or policies that can limit entry.

Weak Entry Barriers

Weak barriers to entry create a strong threat of new entrants.

Strong Entry Barriers

Strong barriers to entry create a weak threat of new entrants.

Threat of Substitutes

The risk that alternative products, services, or methods will take sales from an industry by meeting the same underlying customer need.

Buyer Propensity to Substitute

The likelihood that customers will choose an alternative offering.

Relative Price-Performance of a Substitute

How the substitute's price and performance compare with the current industry offering.

Switching Costs and Substitutes

Low switching costs make it easier for buyers to move to substitute products or services.

Perceived Differentiation and Substitutes

High perceived differentiation makes substitutes less attractive

• low differentiation increases substitution risk.

Number of Substitutes

A greater number of available substitute products generally increases the threat of substitutes.

Operational Effectiveness

Performing similar activities better than rivals, leading to lower cost, higher quality, or faster execution.

Operational Effectiveness vs. Strategy

• Operational effectiveness means doing similar activities better

• strategy means performing different activities or doing them differently.

Why Operational Effectiveness Is Necessary

It improves productivity, quality, speed, and efficiency, allowing a firm to remain competitive.

Why Operational Effectiveness Is Not Sufficient

Best practices, technology, and management techniques are rapidly copied by competitors, eroding individual competitive advantages.

Competitive Convergence

The tendency for firms to become more alike as they benchmark and imitate each other's best practices.

Productivity Frontier

The maximum value a company can create at a given cost using the best available technologies and practices.

Moving Toward the Productivity Frontier

Improving operational effectiveness by utilizing superior technology, skills, capital investments, or management practices.

Strategic Positioning

Performing different activities from rivals or performing similar activities in different ways to deliver a unique mix of value.

Porter's Definition of Strategy

The creation of a unique and valuable position involving a different set of activities.

Why Activities Matter in Strategy

Activities are the basic units of competitive advantage;

• cost and differentiation stem from which activities are performed.

Four Linked Ideas in Porter's Strategy

• Distinct position,

• trade-offs,

• activity fit,

• strategic continuity.