GroupMe BUSI 4940 Exam 2 Review

costly-to-imitate abilities TB definition

the best level of dependency recommended for a strategic alliance is.

global mindset TB definition

the ability to analyze, understand, and manage an internal organization in ways that are not dependent on the assumptions of a single country, culture, or context.

intangible resources TB definition

are assets that are rooted deeply in the firm's history, accumulate over time, and are relatively difficult for competitors to analyze and imitate.

nonsubtitutable capabilities TB definition

are capabilities that do not have strategic equivalents.

outsourcing TB definition

is the capability of a value-creating activity or a support function activity from an external supplier.

rare capabilities TB definition

capabilities that few, if any, competitors possess.

strategic human capital TB definition

allows a firm to develop capabilities through matching the knowledge, skills, and abilities of their employees to particular strategic objectives.

support functions TB definition

include the activities or tasks the firm completes in order to support the work being done to produce, sell, distribute, and service the products the firm is producing.

tangible resources TB definition

assets that can be observed and quantified.

valuable capabilities TB definition

allow the firm to exploit opportunities or neutralize threats in its external environment.

value TB defintion

is measured by a product's performance characteristics and by its attributes for which customers are willing to pay.

value chain activities TB definition

activities or tasks the firm completes in order to produce products and then sell, distribute, and service those products in ways that create value for customers.

value creation TB definition

each part of a system depends on other parts of the system to create value. if one part of the system is not working properly, it can hold back creation of value in the entire system.

resources -> capabilities -> competencies

*ORDER MATTERS HERE*

resources- primary building blocks of an organization (tangible/intangible); unless you learn how to use or deploy them, they don't add a lot of value to the company

capabilities- the ability to combine resources, tangible and/or intangible, to create something that is valuable to the organization

competencies- it is not just having the ability to get it done, it’s also about having proven the skill to do it to a certain level of accomplishment. competencies are kind of like the end result of how we used resources and capabilities.

4 types of competencies

incompetencies
deficiencies
core competencies
distinctive competencies

incompetencies

you’re not very good at something. as a result, your organization is being harmed quickly ---> rapid failure (immediate threat to survival)

deficiencies

you're good at something but at least one competitor is noticeably better at it ---> competitive disadvantage (slower threat to survival)

core competencies

you’re good at something, and no other competitors are any better than you are at it ---> competitive parity

distinctive competencies

you're good at something, and you do it better than all your competitors ---> competitive advantage

ps- these are rare

VRIS framework

value, rare, imitability, substitutability

valuable

does it improve the economic competitiveness of the company? does it at least provide economic value above the investors’ risk adjusted average return expectations? (NO --> RAPID FAILURE AND COMPETITIVE DISADVANTAGE) (YES --> MOVE TO NEXT SECTION)

rare

are you better than all your competitors regarding this specific competency? (NO --> COMPETITIVE PARITY) (YES --> COMPETITIVE ADVANTAGE AND NEXT SECTION)

imitability

is it very difficult or costly for your competitors to imitate your competency? (NO --> SHORT TERM COMPETITVE ADVANTAGE) (YES --> NEXT SECTION)

substitutability

is there a strategically equivalent competency that someone else has that effectively negates your advantage? (NO --> SUSTAINABLE COMPETITIVE ADVANTAGE) (YES --> SHORT TERM COMPETITIVE ADVANTAGE)

who wrote the VRIS framework?

jay barney (purple dinosaur!!!)

what type of economic return will competitive parity have?

average return

what type of economic return will competitive disadvantage have?

below average return

what type of economic return will competitive advantage have?

above average return

value chain

is a representation of the sequential steps involved in producing goods (and services), starting with raw materials and ending with the delivered product. the value chain process is also assisted by a number of 'supporting functions.'

which levels are part of the value chain?

company level (internal environment)
industry level (external environment)

company level primary activities

inbound logistics --> operations --> outbound logistics --> marketing and sales --> customer service

company level supporting activities

finance, human resources, leasing/real estate management, and information systems

industry level primary activities

mining or harvesting --> gathering and processing --> transport for further processing --> manufacture final version --> sell and deliver

industry level supporting activities

risk management, contract management, G&A services

value chain discussion key takeaways from lecture

if your company sits in a certain place along the value chain and you look back towards activities that happened in the supply chain(s) leading to you – back towards the beginning of the value chain, you would be looking “upstream.”

If you are evaluating or looking at activities towards your consumers, you are looking “downstream.”

business level strategy TB definition

is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets

business model TB definition

describes what a firm does to create, deliver, and capture value for its stakeholders

business model innovation TB definition

occurs when a firm determines that its current business model is outdated, and successfully replaces it with a newer one

cost-leadership strategy TB definition

is an integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors

differentiation strategy TB definition

is an integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them

digital platform TB definition

Is an Internet-based location for exchanges of information, goods, or services to occur between producers, consumers, and other members of the platform community

digital strategy TB defintion

uses digital technology to help a firm understand its customers and their needs with greater clarity as a foundation for developing innovations that create more value for those customers

focus strategy TB definition

is an integrated set of actions taken to produce products that serve the needs of a particular segment of customers

integrated cost leadership/differentiation strategy TB definition

finds a firm engaging simultaneously in primary value-chain activities and support functions to achieve a low-cost position with some product differentiation

market segmentation TB definition

is the process of dividing customers into groups based on their needs

total quality management (TQM) TB definition

involves the implementation of appropriate tools/techniques to provide products and services to customers with best quality

business & company level strategies are which step of the strategic planning process?

3 --> formulation

business-level strategy lecture definition

An integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core* competencies in specific product markets.

In reality, it includes commitments and actions to:

1. eliminate competitive disadvantages, and

2. leverage distinctive competencies

what are the 5 generic business-level strategies?

cost leadership
differentiation
focused cost leadership
focused differentiation
integrated cost/differentiation

cost-leadership lecture definition

attempt to provide the lowest cost products in their markets to attract very broadly defined set of customers (LOW COST/BROAD TARGET)

i.e.- walmart, mcdonalds

differentiation lecture definition

provides a wide array of designer merchandise for its industry and exceptional service at higher-than-normal prices (UNIQUENESS/BROAD TARGET)

i.e.- nordstrom, harley davidson, apple

focused-cost leadership lecture definition

a more limited selection of consumer goods, but still focused on very low prices (LOW COST/NARROW TARGET)

i.e.- dollar general, spirit airlines

focused differentiation lecture definition

a more limited selection; selling better merchandise with better service than its competitors (UNIQUENESS/NARROW TARGET)

i.e.- anthropologie, hermes, whole foods, bugatti

integrated cost/differentiation strategy lecture discussion

- companies who try to do a little of each often fail because there is no clear basis on which to build a competitive advantage

- somewhat sarcastically, these companies are often described as following a fifth generic strategy known as the “Stuck in the Middle” strategy

i.e.- khols, sephora

another word for narrow target?

niche!

in reality, companies develop multiple strategies using scenarios. three common scenarios are called

base case
upside case
downside case (worst case scenario)

risks to cost leadership strategy

1. processes used to produce and distribute goods or services may become obsolete due to competitors’ innovations i.e.- 3d printing (obsolete)

2. too much focus on cost reductions may occur at expense of customers’ perceptions of you providing an ‘acceptable’ level of quality or service (poor quality; falling below acceptable quality)

3. competitors, using their own core competencies, may successfully imitate the cost leader’s strategy (competitor imitation)

risk to differentiation strategy

1. the price differential between the differentiator’s product and the cost leader’s product becomes too large (you went too high with your prices)

2. differentiation ceases to provide incremental value for which customers are willing to pay (your stuff really isn’t that much better after all)

3. counterfeit goods replicate the differentiated features of the firm’s products

risk to focus strategy

1. a focusing firm may be “out-focused” by its competitors ; competitor has more specialized appeal (better at serving the niche market)

2. a large competitor may set its sights on a firm’s niche market --> overwhelmed

3. customer preferences in a niche market may change to more closely resemble those of the broader market (being specialist can be risky)

valuation

is the analytical process of estimating the current (or projected) worth of an asset or a company

value

only exists if a voluntary transaction occurs

if no one is voluntarily willing to buy (or sell) a given product or service from you then, by definition, it has no price you can attach to it

utility

essentially focuses on the ‘satisfaction’ or ‘usefulness’ of a good or service to meet the needs of a given consumer\

utility (drives behavior) --> demand --> prices --> value and valuation

total utility

can be generally defined as the total satisfaction received from consuming a good or service

law of diminishing marginal utility

as consumption of a good or service increases (usually within a limited period of time), the marginal utility derived from each additional unit declines

snickers bar overconsumption example!!

economics

the study of human behavior as it relates to the allocation of scarce resources

economic value

maximum amount of money or resources an economic agent will pay for a good or service in a voluntary transaction

the preferred proxy to measure economic value is cash flows instead of accounting metrics

WACC

weighted average cost of capital ; the average cost of all the types of money ('capital') that the company received from its investors

IRR

the discount rate that makes the net present value (NPV) of all cash flows from a particular project investment equal to zero

if the IRR is greater than the company’s WACC, the company shouldn’t lose economic value

if the IRR is greater than the hurdle rate, then the project investors should be happy

NPV

net present value ; is simply measuring the difference between the present value of future net cash inflows over a period of time minus the initial outlay of investment capital

hurdle rate

the minimum level of risk adjusted return investors require for a specific investment or project

*what % of return investor wants

WACC vs hurdle

WACC: all the investments
hurdle: specific investments

If the NPV < 0 …

don't do the deal

if WACC is < 0 -->

don't do the deal

if hurdle is > 0 -->

do the deal

if WACC > 0 , but hurdle is < 0 -->

don't do the deal

if IRR > WACC -->

do the deal

if IRR > hurdle -->

do the deal

if IRR bigger (>) than WACC, but IRR is smaller (<) than Hurdle Rate

don't do the deal

free market conditions

prices are set by supply and demand once a minimum cost is covered

any interventions by third parties (i.e. government regulations), fundamentally reduces optimal balance to supply and demand --> leads to loss of total utility

4 free market conditions

voluntary transactions
private property
competitions (monopolies are illegal
laws against fraud and theft

WACC calculation example

50% debt 50% equity
cost of debt = 6% cost of equity = 12%

.50.6 + .50.12 = 9%

who can put your company in default/bankruptcy?

debt holders and lawsuits (but VERY big ones)

your cost of debt is = to what?

interest rate