BAD 4013 - Exam 1

Understand the steps in the Strategic Management process.

-Establish a vision, mission statement and objectives

-Do Internal and External Analysis

-Formulate Strategy

-Implement Strategy

-Evaluate Performance

What are a company's vision and mission? What are objectives? How do they relate to the strategic management process?

-Vision: A picture of what the firm wants to be and what it wants to ultimately achieve. (10,000 ft. view)

-Mission Statement: Encompasses the purpose of the company and the way the firm competes and its sources of competitive advantage. (1,000 ft. view)

-Objectives: Operationalization of the mission statement

-Vision, mission statement and objectives should be the basis of the strategic mgt process

Understand performance measures and performance referents. Understand how these are used in assessing organizational performance

-A performance measure is a metric along which organizations can be gauged (profits, stock price, and sales) in an attempt to better understand how well their organizations are competing in the market.

-A performance referent is a benchmark (other similar firm) used to make sense of an organization's standing along a performance measure.

Understand how performance is a multidimensional concept.

-No one measure tells everything about how a firm is performing. Each metric tells one piece as to how the firm is performing.

-You need to use multiple measures to fully understand how the firm is doing

Understand what the balanced scorecard and the triple bottom line are and how they can be used to assess performance.

-The balanced scorecard provides a "balance" between financial measures and other measures that are important for understanding organizational activities that lead to sustained, long-term performance.

1. Financial- How are our financial returns (things like ROA, profits, stock price, etc)?

2. Customer- How do our customers feel about us (things like number of new or repeat customers, same store sales, etc)?

3. Internal Business Process- How efficient are we in how we do what we do (things like Speed of serving a customer or time to create new product).

4. Learning and Growth-What new skills learned by each employee (trainings offered to employees, new certifications by employees, advanced degrees achieved by employees)

-The triple bottom line gets at stakeholder's issues, beyond just shareholder issues

1. people (how does the firm act towards its employees and the communities in which it operates),

2. the planet (making sure organizations act in a way that promotes environmental sustainability),

3. profits

Competitive Advantage

-is doing different things or similar things in different ways than competitors

1. Competitive advantage results in high profits, which attract competition which limits duration of competitive advantage

2. Most advantage is temporary for this reason (if competitors can copy the source of the advantage they will)

3. The advantage is sustainable if competitors can't imitate the source or offer something better

4. It is a sustained competitive advantage; not a permanent competitive advantage

Competitive Parity

-Firms offerings are average.

-There's no preference for any firm's offerings.

-There's no cost advantages

-Shareholders are getting the expected return (normal returns)

-Demand curve is flat

-This is not bad because normal returns are being realized, but it's also not optimal

Competitive Disadvantage

-People have aversion to firm's offering,

-Firm may have a cost disadvantage, outdated technology/equipment, and/or negative reputation

-This leads to below normal returns

Understand the five dimensions of an entrepreneurial orientation.

-An entrepreneurial orientation can lead a firm to be more competitive in terms of product offerings, processes

-Autonomy refers to whether an individual or team of individuals within an organization has the freedom to develop an entrepreneurial idea and then see it through to completion.

-Innovativeness is the tendency to pursue creativity and experimentation.

-Risk taking refers to the tendency to engage in bold rather than cautious actions.

-Proactiveness is the tendency to anticipate and act on future needs rather than reacting to events after they unfold.

-Competitive aggressiveness is the tendency to intensely and directly challenge competitors rather than trying to avoid them.

Intended Strategy

-The planned outcome of the Strategic Management Process.

-What a firm plans to do.

Emergent Strategy

-Unexpected opportunities that present themselves after the strategy is enacted.

-Could also be unexpected threats that need strategic action to deal with

Realized Strategy

-These are the strategies the firm actually enacts.

-A combination of emergent and intended strategies.

Know how scanning, monitoring, forecasting and assessing allow a firm to analyze the external environment.

-Scanning is a broad study of all segments in the general environment to identify early signals of change in the external environment.

-Monitoring looks at those trends identified in scanning and watches how those trends evolve.

-Forecasting takes the information gathered from scanning and monitoring and develops projections of the anticipated outcomes of the monitored changes and trends

-Assessing is where a business tries to determine the timing and importance of environmental changes and trends

-Looking to business analysts, the popular press and firm stakeholders (customers, employees, suppliers etc) are great sources of information when examining the external environment

Know how the different environmental segments (political/legal, economic, demographic, sociocultural, technological, sustainable physical environment and global) can be used to analyze the external environment for opportunities and threats. Know what each segment is (what makes them up) and know how to apply them to an external analysis.

-Looking to trends in the external environment allows a firm to identify opportunities for firms to enhance their profitability or threats to their current operations.

-A given trend may be an opportunity for one firm/industry and a threat to another (or could even be a threat and an opportunity for a single firm/industry).

-Sometimes a change in one segment can cause a change in another (i.e. a change in values that are a part of the sociocultural segment can lead to pressure to change the laws that are a part of the Political/Legal).

-Political/Legal looks to the role of government in shaping business

-Economic

-Demographic

-Sociocultural

-Technological

-Global

-Physical Environment

Threat of Entry

-Economics of Scale

-Production Differentiation

-Capital Requirements

-Switching Costs

-Access to distribution channels

-Cost Advantages independent of scale

-Government Policies

-Incumbent reaction

Threat of Rivalry

-Numerous Competitors

-Equally balanced competitors

-Slow or declining growth

-High fixed/storage costs

-Low product differentiation

-Lack of switching costs

-Industry capacity added in large increments

-High Exit casts

-Perishable product

Threat of Substitutes

-Looks to other industries that satisfy the same core need as your industry but in a different way.

-Most important when that substitute is a close substitute with low switching costs and a lower price.

-Puts a ceiling on what your industry can charge, because if there is a close substitute with a lower price and low switching costs, customers will switch to that substitute.

Threat of Suppliers

-A powerful supplier could pass along price increases(due to material costs), may retain price decreases (due to efficiencies), could offer poor service, reduced quality refusal to offer credit terms/JIT delivery, supplier extracts value from the transaction

-Small number of suppliers

-No close substitutes for the suppliers product

-Industry is an insignificant customer

-Suppliers goods are important to the industry

-High switching costs

-Highly differentiated goods

-The supplier could integrate forward

Threat of Buyers

-Just a few buyers/volume purchases

-Buyer industry earns low profits

-Industry's goods don't affect quality or price of buyers output

-Few switching costs

-Undifferentiated product

-Integrating backwards

Understand the implications of the various threats

-Barriers to entry are important regardless of if you are in the industry

-The major concern with threat of rivalry is price wars or increasing features without an increase in price (zero sum competition)

-Substitutes fill the same need in a different way

-Capturing more value from the firms activities is the major concern of threat of buyers and suppliers

-An industry with a low threat for all five forces is one where above normal profits is possible while one with a high threat for all five forces is likely to have low profitability.

Understand the difference between rivals and substitutes.

-Rivals satisfy the core need in the same way as your firm. Substitutes satisfy that same core need in a different way.

Understand the role of complements in assessing an industry.

-Complements are products or services provided by another industry that increase the value of an industry's products or services.

-A firm that provides complementary products can also be a competitor product (but generally when firms in one industry also compete in the same industry as its complementors).

Understand what strategic groups are and how understanding strategic groups can affect strategy.

-Strategic groups are sets of firms that follow similar strategies to each other.

-It consists of a set of industry competitors that have similar characteristics to each other but different in important ways from the members of other groups.

Understand what mobility barriers are and why they're important to strategy.

-Mobility barriers that make it difficult or illogical for a particular firm to change strategic groups over time

-Oftentimes this has to do with a firm not being seen as a legitimate competitor in a different group (i.e. McDonalds as a high end restaurant, Levi's selling men's suits).

-Important because a firm should understand the difficulties in being successful in a different strategic group. This would keep a firm from unsuccessfully trying to move to a different strategic group.

Understand how Industry Growth Rate and Technology and Innovation are factors that might affect competition

-If industry growth is high, newcomers can gain volume from new customers

-If industry growth is low, newcomers can gain volume only from existing firms

-Higher technology and innovative industries attract more competitors while mundane industries have higher barriers of entry limiting competition

Understand changes to the forces

-You must understand if there's a temporary/cyclical change or a structural change.

-New Entry is affected by changes to barriers

-Supplier/Buyer power changes based on changes to clout

-Substitution changes due to tech advances creating new substitutes or shifting price-performance comparisons in one direction or another

-Rivalry changes naturally as growth slows

Understand implications for strategy

-Guides managers to fruitful possibilities

-Shaping the balance of forces to create new structure

-Shifting threat of new entry

-Changing supplier or buying power

-Shifting threat of substitution

-New rivalry

-Identify which force or forces are most constraining profitability and address them

-Threat of substitute, barriers of entry, rivalries

-Expanding overall profit pool

Understand how to define an industry

-Defining industry too broadly obscures differences important to competition, positioning and profitability

-Defining industry too narrowly overlooks commonalities and linkages crucial to competitive advantage

-If structure for two products is the same or very similar (with regards to suppliers, entry, etc), then the products are likely the same industry

-If structure is markedly different, better as separate industries

-Can be defined by geographic scope

Understand the resource based view and its critical assumptions (resource heterogeneity and immobility)

-Resource heterogeneity suggests that all firms are different, different assumption from SCP model that any firm differences would be dissipated through competition

-Resource immobility suggests that some resources are so costly, it doesn't make economic sense to acquire them

Tangible Resources

-Resources than can be readily seen, touched, and quantified such as physical assets, property, plant, equipment and cash

-Financial-The money available to the firm (debt, equity etc.)

-Physical, the tangible resources of the firm-machinery, factories, offices, raw materials, geographic location

-Technological-trade secrets, innovative processes, patents, copyrights, trademarks

-Organizational-reporting structures, reward systems, coordinating systems, relationships

Intangible Resources

-Resources that are difficult to see, touch, or quantify such as the knowledge and skills of employees, a firm's reputation, and a firm's culture.

-Human- training, experience, individual intelligence, judgment, work ethic, trust

-Reputation- brand name, perceptions of product quality, durability and reliability, reputation with suppliers and customers.

-Innovation and creativity- technological and scientific skills, innovation capacities

Capabilities

-A bundling of resources that creates a resource that is greater than the sum of its parts

-Goes back to the idea of "fit" in "What is Strategy.

Dynamic Capability

-A firm that is skilled at continually updating its array of capabilities in order to keep pace with changes in its environment.

-Good at creating, building and reinforcing its capabilities

Know the definition of core competence.

-Resources that are the key driver of your competitiveness

-Important to understand the underlying drivers

-Should allow the firm to compete and succeed in a number of different businesses

-Should make whatever the end product is more valuable

Understand the VRIN framework and how it can be applied. This includes costs of imitability (physical uniqueness, path dependence, causal ambiguity and social complexity). Understand its impact on the advantage and returns of a firm

-Value-A resource or capability should allow the firm to exploit opportunities or neutralize threats

-Rarity- A resource or capability that is possessed by few enough other firms in the industry that there is still a competitive advantage.

-Difficult to imitate - A resource or capability is so costly (due to physical uniqueness, path dependence, causal ambiguity and social complexity) to imitate that no one would try to imitate it.

-Physical Uniqueness- resources that are by definition difficult to copy because there are very few (or one) of those resources (patents, trademarks, copyrights)

-Path dependence-

Resources are scarce because they are built up due to a unique set of events. They are built over time due to sequential investments in a way that is difficult to accelerate.

-Casual Ambiguity-

It's unclear WHICH resources must be imitated for the effect to be the same.They don't know what aspect to imitate. Similar to Porter's "fit".

-Social Complexity-Resource created by the relationships between people.Powerful because competitors can't hire away an entire department (or more)

Understand how organization affects competitive advantage.

-If a firm is not organized to exploit a resource or capability, that resource of capability may not be able to generate a competitive advantage.

-Structure, control and reward systems are used by an organization to reinforce effective use of resources.

Understand how SWOT Analysis can be used to analyze a firm.

-SWOT is an effective way to look at our Internal and External Analysis

-Strengths and Weaknesses reflect the Internal Analysis

-Opportunities and Threats reflect the External Analysis

Collis & Montgomery Article

Know the Collis tests for competitive advantages (inimitability, durability, appropriability, substitutability and comparative superiority)

How resources are maintained

Imitability

-Physical uniqueness

-Path dependency

-Casual ambiguity

-Economic deterrence

Durability

-How quickly does this resource depreciate

Appropriability

-Who captures the value that the resource creates

Substitutability

-Can a unique resource be trumped by a different resource

Competitive superiority

-Whose resource is really better

Because all resources depreciate, an effective corporate strategy requires continual investment in order to maintain and build valuable resources

Pralahad & Hamel Article

Their definition of core competence

Three tests for core competencies (access to a wide variety of markets, significant contribution to perceived customer benefits, difficult to imitate)

In general the philosophy of the article (firms are bundles of competencies, not a collection of discrete businesses).

-Core competence: a harmonized combination of multiple resources and skills that distinguish a firm in the marketplace

-Access to a wide variety of markets

-Companies like Casio are able to make calculators, TVs, monitors and car dash boards

-Significant contribution to perceived customer benefits

-Honda's very reliable engine

-Difficult to imitate

-JVC created a videotape competence and passed all 3 tests while RCA's decision to create the same did not pass all 3 tests

Porter-What is Strategy?

1. What is the relationship between operational effectiveness and strategy?

2. How does strategy use unique activities to develop a strategy?

3. How are tradeoffs relevant in strategy?

4. What are causes of tradeoffs?

5. How can the fit of activities create sustainable competitive advantage?

6. What are the different orders of fit?

1. Operational effectiveness and strategy are both essential to superior performance, but they work in different ways.

Operational effectiveness is performing similar activities better than rivals while strategy is doing unique activities that other firms are not doing.

2. Competitive strategy is about being different, it means deliberately choosing a different set of activities to deliver a unique mix of value ex. Southwest

3. Strategic positions are not sustainable unless they are tradeoffs with other positions ex. Southwest adding meals to attract customers but adding costs

4. Incompatible activities

Inconsistencies in image or reputation

Limits on internal coordination and control

5. Fit locks out competitors by creating a chain that is as strong as its strongest link

6. Simple consistency between each activity and strategy

Activities are reinforcing

Optimization of effort