MGMT Test 2

Chpt. 6-10

Sustainable competitive advantage

competitive advantage that other companies have tried unsuccessfully to duplicate and have, for the moment, stopped trying to duplicate

Example of sustainable competitive advantage

The corporate equivalent of your competitors saying “We give up. You win. We can’t do what you do, and we’re not even going to try to do it anymore”.

What four conditions must be met if a firm’s resources are to be used to achieve a sustainable competitive advantage?

resources must be valuable, rare, imperfectly imitable, and non-substitutable

Valuable resource

a resource that allows companies to improve efficiency and effectiveness

What can make once valuable resources much less valuable?

changes in customer demand and preferences, competitors’ actions, an technology

Rare resource

a resource that is not controlled or possessed by many competing firms

Imperfectly imitable resource

A resource that is impossible or extremely costly or difficult for other firms to duplicate.

Non-substitutable resource

A resource that produces value or competitive advantage and has no equivalent substitutes or replacements.

Success often leads to what?

competitive inertia

Competitive inertia

A reluctance to change strategies or competitive practices that have been successful in the past.

Three steps of the strategy making process

Assess need for strategic change, conduct situational analysis, and choose strategic alternatives

strategic dissonance

discrepancy between a company’s intended strategy and the strategic actions managers take when implementing that strategy

What can also help managers determine the need for strategic change?

Situational analysis

Situational analysis

Also called SWOT analysis is an assessment of the strengths and weaknesses in an organization’s internal environment and the opportunities and threats in its external environment.

What does a SWOT analysis do?

Help determine how to increase internal strengths and minimize internal weaknesses while maximizing external opportunities and minimizing external threats.

Distinctive competence

What a company can make, do, or perform better than its competitors.

Shadow-strategy task force

Committee within a company that analyzes the company’s own weakness to determine how competitors could exploit them for competitive advantage.

Core capabilities

Internal decision-making routines, problem-solving processes, and organizational cultures that determine how efficiently inputs can be turned into outputs.

Environmental scanning

involves searching the environment for important events or issues that might affect the organization (managers use this to identify specific opportunities and threats)

Strategic groups

Companies within an industry against which top managers compare, evaluate, and benchmark strategic threats and opportunities.

Benchmarking

involves identifying outstanding practices, processes, and standards at other companies and adapting them to your own company

When scanning the environment for strategic threats and opportunities, managers tend to categorize the different companies in their industry as

core, secondary, and transient firms

Core firms

central companies in a strategic group

Secondary firms

Firms in strategic group that follow strategies related to but somewhat different from those of the core firms.

Strategic reference point theory

Managers choose between two basic alternative strategies. (conservative risk-avoiding strategy or aggressive risk-seeking strategy)

Strategic reference points

Strategic targets managers use to measure whether a firm has developed the core competencies it needs to achieve a sustainable competitive advantage.

To formulate effective strategies, companies must be able to answer these basic questions:

What business are we in? How should we compete in this industry? Who are our competitors, and how should we respond to them?

Corporate-level strategy

Overall organizational strategy that addresses the question “what business or business are we in or should we be in?”.

Two major approaches to corporate-level strategy that companies use to decide which businesses they should be in

portfolio strategy and grand strategies

Diversification

Strategy for reducing risk by buying a variety of items so that the failure of one stock or one business does not doom the entire portfolio.

Portfolio strategy

Corporate-level strategy to minimize risk by diversifying investment among various business or product lines.

Acquisition

purchase of a company by another company

Unrelated diversification

creating or acquiring companies in completely unrelated business

BCG matrix

portfolio strategy developed by the Boston consulting group that categorizes a corporation’s businesses by growth rate and relative market share and helps managers decide how to invest corporate funds

The matrix separates businesses into four categories

star, question mark, cash cow, and dog

Star

company with a large share of a fast-growing market

question mark

company with a small share of fast-growing market

cash cow

company with a large share of slow-growing market

dog

a company with a small share of a slow-growing market

Related diversification

Creating or acquiring companies that share similar products, manufacturing, marketing, technology, or cultures.

Grand strategy

Broad corporate-level strategic plan used to achieve strategic goals and guide the strategic alternatives that managers of individual businesses or subunits may use.

Three kinds of grand strategies

growth, stability, retrenchment

Growth strategy

Strategy that focuses on increasing profits, revenues, market share, or the number of places in which the company does business.

Stability strategy

Strategy that focuses on improving the way in which the company sells the same products or services to the same customers.

Retrenchment strategy

Strategy that focuses on turning around very poor company performance by shrinking the size or scope of the business.

Steps of retrenchment strategy

making significant cost reductions, recover (strategic actions taken after retrenchment to return to a growth strategy

Industry level strategies

A corporate strategy that addresses the question, “How should we compete in this industry?”

Porter’s five industry forces

character of the rivalry, threat of new entrants, threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers

Character of the rivalry

Measure of the intensity of the competitive behavior between companies in an industry.

Threat of new entrants

Measure of the degree to which barriers to entry make it easy or difficult for new companies to get started in an industry.

Threat of substitute products or services

Measure of the ease with which customers can find substitutes for an industry’s products or services.

Bargaining power of suppliers

Measure of the influence that suppliers of parts, materials, and services to firms in an industry have on the prices of these imputs.

Bargaining power if buyers

Measure of the influence that customers have in firm’s prices.

Positioning strategies

cost leadership, differentiation, and focus

Cost leadership

a positioning strategy of producing a product or service of acceptable quality at consistently lower production costs than competitors can so that the firm can offer the product or services at the lowest price in the industry

Differentiation

Positioning strategy of providing a product or service that is sufficiently different from competitors’ offerings that customers are willing to pay a premium price for it.

Focus strategy

Positioning strategy of using cost leadership or differentiation to produce a specialized product or service for a limited, specially targeted group of customers in a particular geographic region or marketsegment.

The purpose of adaptive strategies is…

to choose an industry-level strategy that is best suited to changes in the organization

What is the purpose of positioning strategies?

minimize the effects of industry competition and build sustainable competitive advantage

What are the four kinds of adaptive strategies?

defenders, prospectors, analyzers, and reactors

Defenders

Aimed at defending strategic positions by seeking moderate, steady growth and by offering a limited range of high-quality products and services to a well-defined set of customers.

Prospectors

Seek fast growth by searching for a new market opportunities, encouraging risk-taking, and being the first to bring innovative new products to markets.

Analyzers

Seek to minimize risk and maximize profits by following or imitating the proven successes of prospectors.

Reactors

Companies that do not follow a consistent adaptive strategy but instead react to changes in the external environment after they occur. Tend to be poorer performers than defenders, prospectors, or analyzers.

Firm-level strategy

A corporate strategy that addresses the question “How should we compete against a particular firm?”

Direct competition

Rivalry between two companies that offer similar products and services, acknowledge each other as rivals and act and react to each other’s strategic actions.

Two factors that determine firms in a direct competition with each other:

market commonality and resource similarity

Market commonality

Degree to which two companies have overlapping products, services, or customers in multiple markets.

Resource similarity

Extent to which a competitor has similar amounts and kinds of resources.

Firms in a direct competition can make two basic strategic moves:

attack or response

Attack

Competitive move designed to reduce a rival’s market share or profits.

Response

Competitive countermove, prompted by a rivals attack, to defend or improve a company’s market share or profit.

Organizational innovation

Successful implementation of creative ideas in an organization.

S-curve pattern of innovation

A pattern of technological innovation characterized by slow initial progress, then rapid progress, and then slow progress again as a technology mature and reaches its limit.

Technology

The knowledge, tools, and techniques used to transform inputs into outputs.

Innovation streams

Patterns of innovation over time that can create sustainable competitive advantage.

Technological discontinuity

The first phase of an innovation stream in which a scientific advance or unique combination of existing technologies creates a significant breakthrough in performance or function.

Discontinuous change

Following technological discontinuity, this phase of a technological cycle is characterized by technological substitution and design competition.

Technological substitution

The purchase of new technologies to replace older ones.

Design competition

Competition between old and new technologies to establish a new technological standard or dominant design.

Dominant design

New technological design or process that becomes the accepted market standard.

Technological lockout

Inability of a company to competitively sell its products because it relies on old technology or a non-dominant design.

Incremental change

Phase of a technology cycle in which companies innovate by lowering costs and improving the functioning and performance of the dominant technology.

Creative work environments

Workplace cultures in which workers perceive that new ideas are welcomed, valued, and encourages.

Work is challenging when…

it requires effort, demands attention and focus, and is perceived as important to others in the organization.

Flow

Psychological state of effortlessness, in which you become completely absorbed in what you’re doing, and time seems to pass quickly. Can’t be achieved when employees constantly interrupt their work or are frequently distracted.

Components of a creative work environment

Organizational encouragement, supervisory encouragement, work group encouragement, freedom, lack of organization impediments, challenging work

Organizational encouragement

Occurs when management encourages, supports and fairly evaluates risk-taking and new ideas, rewards and recognizes creativity.

Supervisory encouragement

Occurs when supervisors provide clear goals, encourage open interaction with subordinates, and actively support development teams’ work and ideas.

Work group encouragement

Occurs when group members have diverse experiences, education, and backgrounds.

Freedom

Having autonomy over one’s day to day work and sense of ownership and control over one’s ideas.

Experiential approach to innovation

Assumes that innovation occurs within a highly uncertain environment and that the key to fast product innovation is to use intuition, flexible options, and hands-on experience to reduce uncertainty and accelerate learning and understanding.

Five aspects to the experiential approach

Design iteration, testing, milestones, multifunctional teams, and powerful leaders.

Design iteration

Cycle of repetition in which a company tests a prototype of a new product or service, improves on that design, and then builds and tests the improved prototype.

Product prototype

A full-scale working model that is being tested for design, function, and reliability

Testing

Systematic comparison of different product designs or design iterations.

Milestones

Formal project review points used to assess progress and performance.

Multifunctional teams

Work teams composed of people from different departments. Accelerate learning and understanding by mixing and integrating technical, marketing, and manufacturing activities.

Powerful leaders

Provide the vision, discipline, and motivation to keep the innovation process focused, on time, and on target.

Compression approach to innovation

Assumes that incremental innovation can be planned using a series of steps and that compressing those steps can speed innovation.