MGT 449 Chapters 1 - 4 UWL Exam 1

Core Competencies

unique strengths, embedded deep within the firm, and allows differentiation of products and services from rivals

Resources

any asset that a firm can draw on

Capabilites

Organizational and managerial skills

Activities

Distinct and fine-grained business processes

Resource based view

They are key to superior performance and aid in identifying core competencies

Resources can be:

Tangibles or intangibles

Resource heterogeneity

A firm is a unique bundle of resources and capabilities and they differ across firms

Resource immobility

1. Resources don't move easily from firm to firm

2. Resources are difficult to replicate

3. Resources can last a long time

VRIO Framework

Tool for evaluating firm resource funding and resources must be:

1. Valuable

2. Rare

3. Costly to imitate

4. Organized to capture the value of resource

Valuable

Helps exploit an opportunity or offset a threat

Rare

only one firm or few firms possess it

Costly to imitate

Competitors can't develop the resources for a reasonable price

The firm is organized to capture value through:

Effective organizational structure and coordinating systems

Isolating mechanism

Barriers to imitation and prevents rivals from competing away firm advantage

- Better expectations of future resource value

- Path dependency

- Causal ambiguity

- Social complexity

- Intellectual Property protection

Core Rigidity

A former core competency

- turned into a liability

- Results of an environmental change

- No longer fits in the external environment

Dynamic capabilities

A firm's ability to:

- Adapt resource over time

1. create, deploy, modify, reconfigure, upgrade

2. External environment

Goal of dynamic capabilities

1. Develop resources, capabilities, and competencies

2. Create a strategic fit with the firm's environment

3. Change in a dynamic fashion

Dynamic markets are due to:

1. Technological change

2. Deregulation

3. Globalization

4. Demographic shifts

The dynamic capabilities Perspective

A model that emphasizes a firm's ability to:

- modify and leverage its resource base

- Gain and sustain a competitive advantage in a constantly changing environment

Resource stocks

A firm's current level of intangible resources

- New product development

- Engineering expertise

- innovation capabilities

- Reputation for quality

Resource flows

the firm's level of investments to maintain or build a resource

The value chain

Internal activities a firm engages in when transforming inputs into outputs

-incremental values

* Raw materials, components, products

- incremental costs

Primary activities

Firms activities add value directly and they transform inputs into outputs as the firm moves a product or service horizontally along the internal value chain

5 primary activities

1. Supply chain management

2. Operations

3. Distribution

4. Marketing and sales

5. After-sales service

Support activities

Firm activities that add value indirectly and are necessary to sustain primary activities

Examples of support activities

R&D, information systems, HR, accounting and finance

Strategic Activity Systems

A network of interconnected activities

- socially complex and causally ambiguous

- Likelihood of sustainable competitive advantage

Characteristics of a Strategic Activity System

1. Elements can easily observes

2. How activities are managed is not easily observed

3. Difficult to imitate

Strategic Activity Systems Must Evolve

External components changes and competitors develop their activity system

How activity systems are updated:

1. Add new activities

2. Remove activities that are no longer relevant

3. Upgrade activities that have become stale

Strategy

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

What is a good Strategy?

Analysis, Formulation, Implementation

Analysis

A diagnosis of a competitive challenge; analysis of a firm's internal/external environment

Formulation

A guiding policy to address the competitive challenge; Backed by strategic commitments (investment and changes)

Implementation

A coherent set of actions to implement a firm's guiding policy

Competitive advantage

Superior performance relative to other companies in the industry or the industry average

Assess competitive advantage

1. Compare firm competitors in the same industry

2. Compare fire to the industry average

Sustainable competitive advantage

a firm is able to outperform its competitors or the industry average over a prolonged period of time (Apple over Samsung)

Competitive disadvantage

A firm that underperforms its rivals or the industry average

Competitive parity

two or more firms that perform at the same level

How to gain competitive advantage

1. Provide goods or services consumers value more highly than those of competitors, or

2. Provide goods or services similar to the competitors' at a lower price

* Walmart compared to Amazon

*Perceived value of the customer

Profitability and Market Share

The rewards of superior value creation and capture

EXAMPLE: TESLA, Spanx, and Walmart

Strategic Positioning

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

*Value creation-Costs= Economic contributions

Strategic Positioning Requires Trade-offs

Managers must make conscious trade-offs:

1. How to allocate resources

2. Which activities to pursue

*Walmart-cost leader

*Nordstrom-Differentiator

unique strategic position

1. The key to successful strategy

2. Requires combining activities

Competitive advantage comes from:

1. Performing different activities

2. Performing same activities differently than rivals

Grandiose statements

"We will be No. 1"

- How do you measure?

- Does not mean much

A failure to face competitive challenge

Blockbusters not facing Netflix

Operational effectiveness, competitive benchmarking, or tactical tools (Pricing strategy, operations strategy, brand strategy)

Not a strategy

Vision

What do we want to accomplish ultimately? (Future)

- captures organization's aspirations

- Long-term objective

- forward-looking and inspiring

Mission

How do we want to accomplish goals? (Actually does)

- products or services provide

- Markets to compete in

- How vision is accomplished

Values

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

- Helps employees and Organizational core values

An effective vision:

1. Pervades the organization

2. Sense of winning

3. Motivates employees same target

Vision: Strategic Intent

Outlines a firm's stretch goals; based on firm's vision

Actions based on vision:

1. Build necessary resources

2. Build capabilities

3. Ensure continuous learning

4. Learning from failure

Mission: Strategic Commitments

Credible actions that back up the vision and mission

- Costly

- Hard to reverse

- long-term oriented

Customer-oriented vision statement (better option)

allows companies to adapt to the external environment

- problem-solving for customer

* Ford motor company

Product-oriented vision statement

often constrains the ability to adapt to the external environment

- Improving existing products or services

* U.S Railroad company

Vision and competitive advantage

Research shows that vision statement and firm performance are related.

-Strongest when:

1. Vision is customer-oriented

2. Internal stakeholders define vision

3. Organizations align with vision

The AFI Strategy Framework

Helps managers craft and execute a strategy and enhances chances of achieving superior performance.

General environment

1. Managers have little control (No direct relationship)

- Macroeconomic factors

*interest/currency exchange rates

Task environment

1. Managers can influence (1 to 1 relationship w/ customer)

- composition of strategic groups

- Industry structure

PESTEL Model

1. Political

2. Economic

3. Sociocultural

4. Technological

5. Ecological

6. Legal

*scan, monitor, and evaluate

Political Factors

1. Processes and actions of govt bodies

2. Shaped through:

- Lobbying

- Public relations

- Contributions

- Litigation

* Example of Airbnb

Economic Factors

- Largely macro-economic

- Economy-wide phenomena

Examples: Growth rates, levels of employment, interest rates, price stability, currency exchange.

Sociocultural Factors

1. Society's cultures, norms, and values

- Are constantly in flux

- Different across groups

2. Demographic trends

- Population characteristics

Technological Factors

1. Application of knowledge

- New processes and products

2. Innovation in process technology:

- Lean manufacturing and Six sigma quality

3. innovation in product technology

- Smartphones and wearable tech

Ecological Factors

1. Broad environmental issues

- Natural environment

- Global warming

- Sustainable economic growth

2. Can provide business opportunities

Legal Factors

1. Official outcomes of political processes:

a. Laws

b. Mandates

c. Regulations

d. Court decisions

2. Many industries have been deregulated

Industry Effects

- Elements in common to ALL

*Entry and Exit barriers, number and size of company, and types of products and services offered

Firm Effects

- Actions managers take

- More important than industry

What coding system should be used?

NAICS

Superior firm performance

1. Firm Effects-55%

2. Other Effects-25%

3. Industry Effects-20%

Industry

1. Group of incumbent companies

2. Relatively similar supplier and buyers

3. Similar products and services

Industry analysis

1. Identify an industry's profit potential

2. Derive implications for a firm's strategic position

Strategic positioning

1. A firm's ability to:

- Create value for customers

- Contain costs

Porter's Five Forces Model

1. Threat to Entry

2. Bargaining power of the buyer

3. Bargaining power of the seller

4. Threat of Substitution

5. Rivalry among existing competitors

Threat of entry

The risks that potential competitors will enter an industry

Lowers industry profit potential: incumbents lower prices

Threat of Entry

Entry Barriers

- Obstacles blocking others from entering

- A significant predictor of industry profit potential

- Economies of scale

- Network effects

- Customer switching costs

- Capital requirements

- Advantages independent of size

- Govt policy

- Credible threat of retaliation

Power of Supplier

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

- Lowers industry profit potential if:

1. Suppliers demand higher prices for their inputs

2. Suppliers reduce quality

Power of Buyers (Customers)

Pressure customers put on an industry

- Lowers industry profit potential if

1. Buyers obtain price discounts

a. reduces revenue

2. Buyers demand higher quality/ service

b. Raises production costs

Threat of Substitutes

Meet the same basic customer needs

- In a different way

- From outside a given industry

Rivalry Among Competitors

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

Competitive Industry Structure

1. Number and size of competitors

2. Firm's degree of pricing power (Walmart)

3. Type of product or service

4. Height of new entry

Perfect competition

- Price takers

- many small firms

- commodity product

- low entry barrier

Monopolistic competition

- many firm

- small differentiation

- same pricing power

- medium entry barrier

Oligopoly

- Few (large) Firms

- High Entry to Barrier

- Differentiation

- Some pricing power

Monopoly

- One firm

- Considerable pricing power

- unique product

- Very High Entry to Barrier

4 main competitive industry structures

1. Perfect competition

2. Monopolistic Competition

3. Oligopoly

4. Monopoly

Industry growth

Affects intensity of rivalry among competitors

During period of high growth:

1. Customer demand rises

2. Price competition among firms decreases

During period of negative growth:

1. Rivalry is fierce

2. Rivals can only gain at the expense of one another

Strategic Commitments

Firms actions that are:

1. Costly

2. long-term

3. difficult to reverse

Exit Barriers

Obstacles that determine how easily a firm can leave that industry; mainly economic and social factors

Examples of Exit Barriers:

1. Contractual obligation

2. Emotional attachments

3. Reputation

4. Customer satisfaction

Complements

A product, service, or competency that adds value when used with the original product

Co-operation

cooperation by competitors to achieve a strategic objective; compete but work together for a common benefit

Entry choices

Who, what, when, where and how

Industry dynamics

Provides insight about:

- changing speed of an industry

- Rate of innovation

*Constantly changing

Analysis must repeat over time

- Industry structure is not stable it is dynamic