Management 110 Chapters 1-5, 9-12, & 14

Business strategy

A plan to achieve competitive advantage that involves making four interrelated strategic choices: (1) markets to compete in; (2) unique value the firm will offer in those markets; (3) the resources and capabilities required to offer that unique value better than competitors; and (4) ways to sustain the advantage by preventing imitation

Business Unit Strategy

Decisions about how to gain and sustain advantage, made at the manager level for each standalone business unit within a company

Competitive Advantage

When a firm generates consistently higher profits compared to its competitors

Corporate Strategy

Decisions about what markets to compete in, made by executives at the corporate level of an organization

Cost Advantage

An advantage that a firm has over its competitors in the activities associated with producing a product or service, thereby allowing it to produce the same product or service at a lower cost

Deliberate Strategy

A plan or pattern of action that is formulated through a deliberate planning process that is then carried out to achieve the mission or goals of an organization

Differentiation Strategy

An advantage that a firm has over its competitors by making a product more attractive by offering unique qualities in the form of features, reliability, and convenience that distinguish it from competing products

Emergent Strategy

A plan or pattern of action that develops and emerges over time in an organization despite a mission or goals

External Analysis

Examining the forces that influence industry attractiveness, including opportunities and threats that exist in the environment

Functional Strategy

Decisions about how to effectively implement the business unit strategy within functional areas like finance, product development, operations, IT, sales/marketing, and customer service

Internal Analysis

The analysis of a firm’s resources and capabilities (its strengths and weaknesses) to assess how effectively the firm is able to deliver the unique value (value proposition) that it hopes to provide to customers

Market

The industry, customer segment, or geographic area that a company competes in

Mission

A company’s primary purpose that often specifies the business or businesses in which the firm intends to compete - or the customers it intends to serve

Price Sensitivity

The degree to which the price of a product or service affects consumers’ willingness to purchase.

Resource-Based Review of Firm

Determining the strategic resources available to a company

Segmentation Analysis

Dividing up customers into groups or segments based on similar needs or wants

Shareholders

Owners of a company

Stakeholders

Those who have a share or an interest in the activities and performance of an organization

Strategic Leaders

Organizational leaders charged with formulating and implementing a strategy with the objective of ensuring the survival and success of an organization

Strategic Management Process

The process by which organizations formulate a plan and allocate resources to achieve competitive advantage that involves making four strategic choices

Strategy Implementation

The translation of a chosen strategy into organizational action to as to effectively implement the activities required to achieve strategic goals and objectives

Strategy Vehicles

Activities and strategic choices–such as make vs buy, acquisitions, and strategic alliances–that influence a firm’s ability to enter particular markets, deliver unique value to customers, or create barriers to imitating its product.

Unique Value

The reason a firm wins with customers ot the value proposition it offers to customers, such as a low cost advantage or differentiation advantage or both

Attractiveness of an Industry

The degree to which an average firm in the industry can earn good profits

Backwards Integration

A firm purchases one or more of its suppliers in order to make a product itself rather than buying it from another firm.

Barriers to Entry

The way organizations make it more difficult for potential entrants to get a foothold in the industry

Complementary Products or Services

Products or services that can be used in tandem with those from another industry

Forward Integration

A firm goes into the business of its former buyers, rather than continuing to sell to them

Network Effects

Growth in demand for a firm’s product that results from a growth in the number of existing customers

Opportunities

Ways of taking advantage of conditions in the environment to become more profitable

Rivalry

Competition among firms within an industry. Typically this involves firms putting pressure on each other and limiting each other’s profit potential by attempting to gain profits and/or market share.

Substitute

A product that is fundamentally different yet serves the same function or purpose as another product

Supplier

A firm that provides products that are inputs to another firm’s production process

Switching Costs

Barriers that help keep buyers using the same supplier by imposing extra costs for switching suppliers

Threats

Conditions in the competitive environment that endanger profitability of a firm

Value Chain

A visual description of the steps required to turn raw materials into finished products and/or services. Also describes the key functions of the company linked to each stage and functions that span its productive activities.

Resources

All assets, brands, land, information, knowledge, and so on, controlled by a firm that enable it to conceive of and implement strategies that improve its efficiency and effectiveness

Capabilities

The procedures, processes, and routines firms employ in their activities

Priorities

A firm’s values and rankings of what is most important

Assets

Tangible or Intangible resources or factors of production that create economic value for the firm when employed.

Operating Capabilities

Procedures, processes, or routines for delivering value to customers, employees, suppliers, or investors

Dynamic Capabilities

Procedures, processes, and routines that continuously expand existing resources or improve operating capabilities

Value

Worth or utility

Rarity

To be uncommon, or not available to other competitors

Inimitability

An attribute of a resource that describes the degree of difficulty a competitor would face in copying, imitating, or mimicking the value of that resource

Positive Network Externalities

When the value of a product increases with the number of users

Virtuous Circle

When more sellers attract more buyers, who, in turn, attract more sellers

Organized to Exploit

The degree to which the legal, administrative, and operating structure of the firms allows it to capture the rents generated by resources

Competitive Failure

When firms can’t create value for their stakeholders, they don’t survive

Competitive Parity

When a company survives but has no real competitive advantage over rivals

Sustained Competitive Advantage

When firms combine the legal elements, intellectual property rights, administrative elements, and cultural elements, allowing them to capture high profits that come from their valuable, rare, and inimitable resources, capabilities, or priorities.

Business Model

The plan and set of activities implemented by a company to offer unique value and generate revenue and make a profit from operations

Cost Advantage Strategy

A strategy in which the unique value offered to customers is lower-priced products or services

Diseconomies of Scale

An increase in marginal cost when output is increased

Economies of Scale

A reduction in costs per unit due to increases in efficiency of production as the number of goods being produced increases

Economies of Scope

the average total cost of production decreases as a result of increasing the different number of goods produced

Employee Specialization

increased efficiency that results when employees perform a narrow range of tasks over and over again, leading them to acquire specialized knowledge that helps them complete the task more efficiently

Experience Curve

A representation of the relationship between cumulative volume and product cost

Fixed cost of production

costs such as PP&E, which are relatively fixed, meaning that they do not increase with an increase in the number of units produced

General & Administrative Costs

expenses and taxes that are directly related to the general operation of the company and executive salaries, general support, and taxes related to the overall administration of the company

Inputs

Resources such as people, raw materials, energy, information, or financing that are put into a system (such as an economy, manufacturing plant, computer system, etc.) to obtain a desired output

Law of experience

Costs per unit decrease with increases in cumulative volume of production

Learning Curve

The concept that labor costs per unit decrease with increases in volume due to learning. New skills or knowledge can be quickly acquired initially, but subsequent learning becomes much slower

Minimum efficient scale

The smallest level of output (unit volume) that a plant or firm can produce to minimize its long-run average costs. In a graphic presentation of output/input volume (x-axis) and cost per unit (y-axis), it is the output level where costs per unit flatten and longer continue going down with increased output

proprietary knowledge

information that is not public and that is viewed as the property of the holder

relative cost

The costs incurred by one company compared to the costs paid by a competitor

Scale curve

A graphic representation of the relationship between cost per unit and scale (volume) of production in a given time period

Task specialization

breaking a large process into smaller tasks that require specialized knowledge

Brand image

When products are differentiated through marketing, via advertisements, promotions, and other marketing activities

Customer segmentation

Grouping customers based on similar needs

Customer segments

Groups of people who share similar needs and thus are likely to desire the same features in a product

Mapping the consumption chain

Identifying all the steps through which customers pass, from the time they first become aware of your product to the time when they finally have to dispose of it or discontinue using it

Mass customization

When a company mass-produces the various modules of the product and then allows the customer to select which modules will be combined together

Prestige brands

When products are differentiated by being associated with positive qualities in the minds of customers

Product differentiation

A strategy whereby companies attempt to gain competitive advantage by offering value that is not available in other products or services or other products don’t do as well

Administrative arbitrage

Capitalizing on differences in taxes, regulations, and laws between countries by operating where they are lower or more lax

Administrative distance

The degree of differences between the legal and regulatory frameworks of two nations

Alliances

An agreement between two businesses to cooperate on a mutually beneficial project. It usually involves the sharing of resources and/or knowledge

arbitrage strategy

A strategy involving buying where costs are low and selling where prices are high

capital arbitrage

Capitalizing on differences in the cost of capital by acquiring capital where it is less expensive

complementary assets

Assets owned by another company that are needed in order to successfully commercialize and market a product or service

cultural arbitrage

Capitalizing on differences in culture between countries by actively using the culture of one country as a selling point for products being marketed in another country

cultural distance

The degree of difference between the cultures of two nations

demand conditions

The conditions in a market that determine the degree of demand for a product or service

Economic arbitrage

Capitalizing on differences i costs by buying where costs are low and selling where prices are high

Economic distance

The degree of difference between the average income of people in two different countries

Exporting

Sending goods or services to another country for sale

Factor conditions

Land, natural resources, and labor that allow for production of goods and services

Foreign direct investment

Direct investment in production or business in one country by a business from another country

franchising

A license that allows a person or firm access to a business’s proprietary knowledge, processes, or trademarks in order to allow them to sell a product or service under the business’s name

geographic distance

The distance in miles between two countries

global integration

The standardization of processes within a single business in different locations around the world

globalization

the spread of businesses across national borders

global strategy

A strategy involving selling standardized products, using standardized processes, around the world

greenfield investment

A wholly owned subsidiary in which the firm involved builds the facility from the ground up

joint venture

An alliance between firms involving the creation of a new entity where both firms provide assets and/or knowledge, processes, or technology

licensing

Granting another business the permission to use or sell a firm’s product, technology, or process

local responsiveness

A firm’s adjustments to products, services, and processes in order to account for local cultures and needs

modes of international market entry

Methods for entering a foreign market for the purposes of either selling or producing products or services

Multidomestic strategy

A strategy involving tailoring products or services to local markets