BUSN 495 - LA Tech - Walters - Exam 1

Sustained Competitive Advantage

When an attractively large number of buyers develop a preference for your products or services over your competitors

Strategy

The set of actions that managers take to outperform the company's competitors and achieve superior profitability.

Business Model

Sets forth how its strategy and operating approaches will create value for customers, while at the same time generating revenues to cover costs and realizing a profit. The two elements are its (1) customer value proposition and (2) its profit formula.

Three Tests of a Winning Strategy:

1. How well does the strategy fit the company's situation?

2. Is the strategy helping the company achieve a sustainable competitive advantage?

3. Is the strategy producing good company performance?

Deliberate Strategy

What you set out to do

Emergent Strategy

Changes made because of things emerging in the market

Abandoned Strategy

Strategy that was left behind

Realized Strategy

Combination of the all three strategies above at any given time

A low-cost provider strategy

Striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals

A broad differentiation strategy

Seeking to differentiate the company's product or service from rivals' in ways that will appeal to a broad spectrum of buyers

A focused low-cost strategy

Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs than rivals and thus being able to serve niche members at a lower price

A focused differentiation strategy

Concentrating on a narrow buyer segment (or niche market) and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals' products

A best-cost provider strategy

Giving customers more value for the money by satisfying buyers' expectations on key quality/features/performance/service attributes while beating their price expectations. The aim is to have the lowest costs and prices among sellers offering products with comparable differentiating attributes.

Vision Statement

Describes "where we are going" - the course and direction management has charted and the company's future product customer-market technology focus.

A well-communicated vision pays off in several respects:

(1) it crystallizes senior executives' own views about the firm's long-term direction (2) it reduces the risk of rudderless decision making by management at all levels (3) it is a tool for winning the support of employees to help make the vision a reality (4) it provides a beacon for lower-level managers in forming departmental missions and (5) it helps an organization prepare for the future.

Mission Statement

Conveys a company's purpose in language specific enough to give the company its own identity. Focuses on the present. Ask who we are, what we do, and why are we here.

Strategic Objectives

Relate to target outcomes that indicate a company is strengthening its market standing competitive vitality, and future business projects.

Financial Objectives

Relate to the financial performance targets, management has established for the organization to achieve.

Strategic Inflection Point

A time period when an organization must respond to disruptive change in the business environment effectively or face deterioration.

Board of Director Obligations:

1. Oversee the company's financial accounting and financial reporting practices.

2. Diligently critique and oversee the company's direction, strategy, and business approaches.

3. Evaluate the caliber of senior executives' strategy formulation and strategy execution skills.

4. Institute a compensation plan for top executives that rewards them for actions and results that serve shareholder interests.

Corporate Strategy

The overall companywide game plan for a managing a set of businesses

Business Strategy

How to strengthen market position and gain competitive advantage. Actions to build competitive capabilities.

Functional-Area Strategies

Add relevant detail to the hows of overall business strategy. Provide a game plan for managing a particular activity in ways that support the overall business strategy.

Operating Strategies

Add detail and completeness to business and functional strategy. Provide a game plan for managing specific lower-echelon activities with strategic significance

Macro-environment

encompasses all of the relevant factors making up the broad environmental context in which a company operates.

PESTEL analysis

an acronym for the six principal components of the macro-environment: Political factors, economic conditions, sociocultural forces, technological factors, environmental forces, and legal/regulatory factors.

Driving Forces

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

Strategic Group Maps

A technique for displaying the different market or competitive positions that rival firms occupy in the industry. (The closer the grouping, the higher the rivalry; Not all positions on the map are equally attractive)

Key Success Factors

The strategy elements, product attributes, competitive capabilities, or intangible assets with the greatest impact on future success in the marketplace.

VRIN Resources

Ask if a resource or capability is valuable, rare, inimitable, and nonsubstitutable.

Social Complexity/Casual Ambiguity

Two factors that inhibit the ability of rivals to imitate a firm's most valuable resources and capabilities.

Competence

Any internal activity performed well

Core Competency

Any internal activity performed well and perform this better than everything else.

Distinctive Competence

Any internal activity performed well and perform this better than everything else and do better than our competitors

Two of the best indicators as to how well a company's strategy is working are:

1. Whether the company is achieving its stated financial and strategic objectives

2. Whether it is gaining customers and increasing its market share

SWOT

A simple but powerful tool for sizing up a company's internal strengths, weaknesses, opportunities, and threats

Value Chain

Identifies the primary activities that create customer value and related support activities.

Benchmarking

A potent tool for learning which companies are best at performing particular activities and then using their techniques to improve the cost and effectiveness of a company's own internal activities.

Best Practice

A method of performing an activity that consistently delivers superior results compared to other approaches.

Ways to remedy a cost:

1. A company's own internal activities

2. The suppliers' part of the industry value chain

3. The forward channel portion of the industry chain

Competitive Strength Analysis

Provide useful conclusions about a company's competitive situation. The ratings show how a company compares against rivals, factor-by-factor or capability-by-capability, thus revealing where it is strongest and weakest. The overall competitive strength scores indicate whether the company is at a net competitive advantage or disadvantage against each rival.

Pitfall of Low Cost Provider Strategy

Getting carried away with overly aggressive price cutting and ending up with lower profitability. Relying on an approach to reduce costs that can be easily copied by rivals. Becoming too fixated on cost reduction.

Pitfall of Differentiation Strategy

Keyed to product or service attributes that are easily and quickly copied are always suspect. Can falter when buyers see little value in the unique attributes of a company's product. Overspending on efforts to differentiate is a strategy flaw that can erode profitability. Failing to open up meaningful gaps in quality or service or performance. Over-differentiating so that product quality or service levels exceed buyers' needs. Trying to change too high a premium price.

Pitfall of Focused Low-Cost or Focused Differentiation Strategy

The chance that competitors will find effective ways to match the focused firm's capabilities in serving the target niche. The potential for the preferences and needs of niche members to shift over time toward the product attributes desired by the majority of the buyers.

Pitfall of Best-Cost Provider Strategy

Not having the requisite core competencies and efficiencies in managing value chain activities to support the addition of differentiating features without significantly increasing costs.

When Low-Cost Provider Strategy Works Best:

1. Price competition among rival sellers is especially vigorous

2. The products of rival sellers are essentially identical and are readily available from several sellers.

3. There are few ways to achieve product differentiation that have value to buyers.

4. Buyers incur low costs in switching their purchases from one seller to another.

5. The majority of industry sales are made to a few, large-volume buyers.

6. Industry newcomers use introductory low prices to attract buyers and build a customer base.

When Differentiation (Unique) 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 feature.

When Low-Cost or Focused Differentiation Strategy Works Best:

1. The target market niche is big enough to be profitable and offers good growth potential.

2. Industry leaders have chosen not to compete in the niche—focusers can avoid battling head-to-head against the industry's biggest and strongest competitors.

3. It is costly or difficult for multisegment competitors to meet the specialized needs of niche buyers and at the same time satisfy the expectations of mainstream customers.

4. The industry has many different niches and segments, thereby allowing a focuser to pick a niche suited to its resource strengths and capabilities.

5. Few, if any, rivals are attempting to specialize in the same target segment.

When Best-Cost Provider Strategy Works Best: (when you mix low cost with differentiation)

1. In markets where product differentiation is the norm and attractively large numbers of value-conscious buyers can be induced to purchase midrange products rather than the basic products of low-cost producers or the expensive products of top-of-the-line differentiators.

2. In recessionary times when great masses of buyers become value-conscious and are attracted to economically priced products and services with especially appealing attributes.

Cost Driver

A factor having a strong effect on the cost of a company's value chain activities and cost structure.

Value Driver

A value chain activity or factor that can have a strong effect on customer value and creating differentiation.

1. Developing a strategic vision mission statement.

2. Setting objectives.

3. Crafting a strategy.

4. Implementing and executing the chosen strategy.

5. Evaluating and analyzing the external environment and the company's internal situation and performance

What are the steps of the Strategy Formulation, Strategy Execution Process?

strategic vision

describes "where we are going" - the course and direction management has charted and the company's future product-customer-market-technology focus sv

strategic plan

lays out the future direction, performance targets, and strategy of a company

Buyer Bargaining Power

Influence buyers have over pricing and terms.

substitute products

products whose uses are similar enough that one can replace the other

supplier bargaining power

Influence suppliers have over pricing and terms.

threat of new entrants

the possibility that the customers/profits of an established firms in an industry may be eroded by new competitors

rivalry among competing sellers

competitive pressures coming from other firms in the industry; usually the strongest of the 5 forces.

1. List the industry's KSFs and other measures of strengths and weaknesses.

2. Assign a weight to each measure of competitive strength.

3. Calculate weighted strengths ratings by scoring each competitor on each strength measure.

4. Sum the weighted strength ratings on each factor to get an overall measure.

5. Us the overall strength measure to draw conclusions about the size and extent of a company's net competitive advantage/disadvantage and note areas of strengths and weaknesses.

What are the steps of a competitive strength assessment?

2 types of objectives

financial- financial performance targets (ex: annual increase in earnings per share) —> lagging indicators based on past results of management decisions

strategic- target outcomes that strengthens company's market standing (ex: acquire x amount of new customers in the market) —> leading indicator of firms future financial performance

Industry suppliers can exert substantial bargaining power or

leverage when:

does not make good economic sense for industry members to vertically integrate backward.

one of the entry barriers:

if you know someone is about to launch a very strong attack (threat of retaliation)

want to be in a business that:

threats of entry are high

bargaining power

Bargaining power refers to the relative capacity of each party in a negotiation to influence the terms of an agreement

intangible resources

(cant touch) longer term competitive advantage

porters five forces

1. rivalry

2. potential of new market entrants

3. suppliers strength

4. customers strength

5. threat of substitution