MAN 4720 - MidTerm

Strategy

Goal-directed actions a firm takes to gain and sustain competitive advantage.

Competitive advantage

A firm's ability to generate above-average returns relative to competitors.

What does AFI stand for?

Analysis, formulation, and implementation.

What is the central question of external analysis?

How do outside conditions and industry forces affect a firm's opportunities, threats, and profit potential?

What is the central question of internal analysis?

What resources, capabilities, and core competencies can create competitive advantage?

Vision statement

A statement of what an organization hopes to become in the future.

Mission statement

A statement of the organization's present purpose, identity, and reason for existence.

Core values

Fundamental beliefs and principles that guide organizational behavior and decisions.

What does PESTEL analyze?

Macro-level political, economic, sociocultural, technological, environmental, and legal factors.

Political factor examples

Tax policy, tariffs, trade restrictions, government stability, and proposed legislation.

Economic factor examples

Interest rates, inflation, GDP, unemployment, disposable income, and economic growth or decline.

Sociocultural factor examples

Demographics, cultural trends, health attitudes, consumer preferences, and lifestyle changes.

Technological factor examples

Automation, artificial intelligence, innovation, new product development, and service-delivery advances.

Environmental factor examples

Climate change, pollution, natural disasters, weather patterns, recycling, and ecological regulation.

Legal factor examples

Employment, discrimination, health and safety, consumer-protection, and antitrust laws.

What does Porter's Five Forces analyze?

Industry-level competitive pressures and industry profit potential.

What are Porter's Five Forces?

Competitive rivalry, buyer power, supplier power, threat of new entrants, and threat of substitutes.

When is competitive rivalry high?

When there are many similarly sized competitors, slow or negative industry growth, high exit barriers, and similar products or services.

When is supplier power high?

When suppliers are differentiated, switching costs are high, substitutes are unavailable, or suppliers can credibly forward integrate.

When is buyer power high?

When there are few large buyers, buyers purchase large volumes, products are standardized, switching costs are low, or buyers can credibly backward integrate.

When is the threat of new entrants high?

When switching costs and capital requirements are low, incumbents lack scale, brand equity, or proprietary technology, and retaliation is unlikely.

When is the threat of substitutes high?

When an outside-the-industry alternative has an attractive price-performance trade-off and customers can switch easily. (affect on Porter’s 5 Forces)

Substitute

A product or service outside the focal industry that performs the same or a similar function by a different means.

Forward integration

A supplier moving into the buyer's industry.

Backward integration

A buyer moving into the supplier's industry or producing the input itself.

How do high Five Forces generally affect industry profits?

They reduce industry profit potential.

How do barriers to entry relate to the threat of new entrants?

They move in opposite directions: high barriers to entry mean a low threat of new entrants.

What is the main takeaway of Five Forces?

Competition is broader than direct rivals; suppliers, buyers, entrants, and substitutes also matter.

What is SCP (Structure-Conduct-Performance)?

Market structure influences firm conduct, which influences performance.

What are the four market structures in SCP?

Perfect competition, monopolistic competition, oligopoly, and monopoly.

Strategic group

A set of industry competitors that follow similar strategies or share similar characteristics.

What are three uses of strategic group mapping?

Identify closest rivals, reveal alternative strategic paths, and find market gaps or untapped opportunities.

Resource-Based Theory

The view that strategic resources and capabilities can create competitive advantage.

What is the difference between a resource and a capability?

A resource is what a firm owns; a capability is what the firm can do by combining and using resources.

What are tangible resources?

Visible, touchable, measurable assets such as cash, property, plant, equipment, and inventory.

What are intangible resources?

Hard-to-measure assets such as employee skills, reputation, culture, intellectual property, trademarks, and knowledge.

Which resources are more likely to create sustained advantage?

Intangible resources, because they are generally harder for competitors to copy.

Core competency

A deeply embedded, strategically important strength created by resources and capabilities that adds value and can create advantage.

Dynamic capability

The ability to create, upgrade, or reconfigure capabilities as the environment changes.

What does VRIO stand for?

Valuable, Rare, Costly to Imitate, and Organized to capture value.

If a resource is not valuable in VRIO, what is the result?

Competitive disadvantage.

If a resource is valuable but not rare in VRIO, what is the result?

Competitive parity.

If a resource is valuable and rare but easy to imitate, what is the result?

Temporary competitive advantage.

If a resource is valuable, rare, costly to imitate, but not organized, what is the result?

Temporary or unexploited competitive advantage.

If a resource meets all VRIO conditions, what is the result?

Sustained competitive advantage.

What makes a competency costly to imitate?

Path dependence, causal ambiguity, and social complexity.

Path dependence

An advantage built through a unique history or sequence of experiences that rivals cannot quickly reproduce.

Causal ambiguity

Competitors cannot clearly identify why a firm's advantage works.

Social complexity

Value created by hard-to-copy relationships, trust, culture, and social networks.

What are Porter's five primary value-chain activities?

Inbound logistics, operations, outbound logistics, marketing and sales, and service.

What are Porter's four support value-chain activities?

Firm infrastructure, human resource management, technology development, and procurement.

Inbound logistics

Receiving, storing, and moving inputs into the firm.

Procurement

Purchasing inputs and selecting or managing suppliers.

What is the difference between procurement and inbound logistics?

Procurement obtains inputs and suppliers; inbound logistics receives, stores, and moves those inputs internally.

What is SWOT used for?

Synthesizing internal and external analysis to assess strategic fit and guide action.

What are the internal elements of SWOT?

Strengths and weaknesses.

What are the external elements of SWOT?

Opportunities and threats.

What are the three approaches to measuring competitive advantage?

Economic value creation, accounting profitability, and shareholder wealth or value.

Economic value creation

Customer willingness to pay minus the firm's cost to produce and deliver the offering: V minus C.

What do V, P, and C mean?

V is willingness to pay, P is price paid, and C is the firm's cost.

How can a firm create more economic value than rivals?

By increasing perceived value at similar cost or lowering cost at similar value.

Consumer surplus

The difference between willingness to pay and the actual price: V minus P.

What is the firm's profit per unit in the V-P-C framework?

Price minus cost: P minus C.

What are common accounting profitability measures?

ROIC, ROA, ROE, and return on revenue.

What is the main limitation of accounting profitability measures?

They are backward-looking and often understate or omit intangible assets and capabilities.

Total shareholder return

Stock-price appreciation plus dividends received over a period.

What is the main limitation of shareholder-value measures?

Stock prices can be volatile and influenced by macroeconomic conditions and investor sentiment.

Balanced Scorecard

A framework that translates mission, vision, and strategy into measurable objectives across multiple perspectives.

What are the four Balanced Scorecard perspectives?

Customer, internal process or value creation, learning and growth or core competencies, and financial or shareholder.

Triple bottom line

A sustainability approach that evaluates profit, people, and planet.

Sustainable strategy

A strategy that creates positive economic, social, and ecological results over time.

Business model

How a firm makes money and conducts business with customers, suppliers, and partners.

Business model vs business strategy

A business model explains how the firm makes money; business strategy explains how the firm competes.

What question does business-level strategy answer?

How will the firm compete within its industry?

What two dimensions determine generic business-level strategies?

Source of advantage: cost or differentiation; and competitive scope: broad or focused.

What are the five business-level strategies emphasized in this course?

Broad cost leadership, focused cost leadership, broad differentiation, focused differentiation, and integration or best-cost.

Broad cost leadership

Offering acceptable value at a low price to a broad market through efficiency and lower relative costs.

Broad differentiation

Offering unique, valued features to a broad market so customers will pay a premium price.

Focused cost leadership

Providing low-cost products or services to a narrowly defined customer group, geography, or specialized segment.

Focused differentiation

Providing highly specialized, unique offerings to a narrow market segment.

What is integration or best-cost strategy?

Combining relatively low costs or prices with meaningful differentiation.

Stuck in the middle

A firm is neither low-cost enough to win on price nor differentiated enough to justify a premium.

What does focus mean in a business-level strategy?

Targeting a narrow customer segment, geographic region, sales channel, or specialized market.

What is a key requirement of cost leadership?

Acceptable minimum value; a firm cannot cut costs so far that customers reject the product or service.

What are common cost drivers that support cost leadership?

Economies of scale, efficient operations or process technology, tight cost controls, standardized offerings, and efficient supply-chain management.

What are common value drivers that support differentiation?

Superior customer service, product quality, innovation, brand or marketing, customization, and attractive features.

What are economies of scale?

Average cost falls as output rises because fixed costs are spread over more units.

Which strategy is most associated with economies of scale?

Cost leadership.

What are economies of scope?

Cost advantages from using shared resources or processes to produce multiple products or services.

Which strategy is most associated with economies of scope in this course?

Integration or best-cost strategy.

Price leadership

Charging the lowest price regardless of the firm's cost structure; it is not automatically cost leadership.

What is a loss leader?

A product sold at little or no profit to attract customers who may buy other profitable items.

Strategy versus tactic

Strategy is a coordinated set of goal-directed choices across the value chain; a tactic is a single, narrower action used to implement strategy.

Why is operational efficiency alone usually a tactic rather than strategy?

It is often an industry best practice that competitors can also adopt, so it does not by itself create a unique competitive position.

Why is Southwest's one-aircraft model a strategy?

It is a reinforcing set of value-chain choices that lowers training, maintenance, and turnaround costs.

NPV

The present value of future project cash flows minus the initial investment.

NPV acceptance rule

Accept a project when NPV is zero or positive; reject it when NPV is negative.

IRR

The discount rate that makes a project's NPV equal to zero.

IRR acceptance rule

Accept when IRR exceeds the hurdle rate, WACC, or cost of capital; reject when IRR is lower.

Hurdle rate

The minimum required return used to evaluate a project, usually WACC adjusted upward for additional risk.