BU381 Strategic Management Midterm Master Quizlet

What are the 3 fundamental questions?

What is our present situation?

What is the future mission of the firm and what goals do we need to set?

How do we get there?

What are the five basic strategies? Provide an example for each.

Focused Low-Cost - Spirit Airlines

Focused Differentiation - Ferrari

Broad Low-Cost - Walmart

Broad Differentiation - Apple

What are the six reasons strategy evolves over time? + proactive reactive

Changes in Market Conditions

Changes in Buyer Preferences

Competitors Moving

Emerging Market Opportunities

Change in Technology

New Ideas Internally For Improving the Strategy

- Ideas can be reactive or proactive, minus any abandoned strategies

What is the value-price-cost framework?

The VPC framework is used to find the firm's share and customer's share of value from a product.

Value: the utility that a customer gains from purchasing your product

Price: The price that customers pay for your product

Cost: The cost of production.

V - P is the customers share, P - C is the firm's share (profit)

What are the 3 tests to a winning strategy?

1. The Fit Test: Does the strategy fit the dynamic internal and external environment of your firm?

2. The Competitive Advantage Test: Does the strategy provide a sustainable competitive advantage?

3. The Performance Test: Does the strategy provide superior profitability, market standing, and competitiveness?

What are the 5 steps to strategy?

Developing mission, vision, and core values

Setting Objectives

Planning Strategy

Executing Strategy

Evaluate Performance

What constitutes a good strategic vision?

Language used is differentiating

Tells shareholders what you want the company to become

Answers the question "Where we're going"

Explains why this strategic path makes good sense

What constitutes a good mission statement?

Language used is differentiating

Answers the question who we are, what we do, why we're doing it

Focuses on what's your business, not objectives

Why are core values important, what are they? How does it connect to MS and SV?

Core values are the heartbeat of an organization and drives the values, attitudes and behaviors that employees bring to carry out your strategy.

The core values connect to MS and SV by supporting it.

What is the purpose of setting objectives?

To transfer the firm's mission and vision into measurable, challenging, and specific outcomes.

What 4 characteristics does a well-stated objective have?

Challenging

Specific

Measurable

Time-constrained

What is a stretch objective? What are the advantages and disadvantages to it?

A stretch objective is one that is challenging and pushes employees beyond their capabilities to achieve success.

The advantages are that it drives innovation, creates a more exciting work environment, and attracts top talent.

The disadvantages are that if too ambitious it can kill motivation, performance, and confidence.

What are the two types of objectives that we set? What do they entail?

Financial Objectives and Strategic Objectives

Financial is internally focused on financial performance

Strategic is externally focused on market standing.

What are the 4 components of a balanced scorecard?

Customer

Financial

Organizational Structure

Internal Processes

Why is it important to set strategic goals at every level?

1. It breaks down a broad strategy into smaller parts.

2. It fosters an environment of setting performance targets based on overarching firm goals

3. It extends the objective setting process to every level of employee.

What are the CEOs, senior executives, and managers role in crafting a strategy?

The CEO is the chief architect and strategy leader at the corporate level.

The senior executives curate the strategy to their specific function.

The managers then take their on-scene experience and curate the strategy to their specific operating activities

What is the strategy hierarchy? What does each mean? Use an example to explain.

Example: Apple

Corporate Level: All businesses (iPhone, OS, Mac, AirPods)

Business Level: Specific area of the corporation (iPhone's)

Functional Area Level: A job within the business (Phone Design)

Operating Level: A position within the job (Hardware Engineer)

What are some things you need to execute strategy?

Organizational Direction

Allocation of resources

Development of competencies and capabilities

Install systems to operate

Hire and train employees

Motivate people using rewards/incentives

How can you evaluate your strategy?

The 3 questions of a winning strategy (the fit test)

What are the obligations of the board of directors?

To make sure financial reporting via GAAP standards

Evaluate senior executives

Compensate senior executives

Critically appraise strategy

What are the criteria for the board of directors to have successful corporate governance?

Staying informed

Updating/guiding the chief executive officer

Involved heavily in debating firm elements

Can oppose and cancel decisions seen as bad from the board

What is PESTEL

The framework for macro factors that can affect your firms strategy and performance.

Political

Economic

Technological

Sociocultural

Legal

Environmental

When does rivalry increase?

Demand is in slow or negative growth

Switching costs are low

Barriers to entry are decreased

Barriers to exit are increased

If there are high storage/fixed costs of inventory or excess inventory.

When does threat of entrants increase?

When barriers to entry are low

When incumbent firms are slow/can't react defensively

Market has emerging opportunities

Substitute firms can enter easily at low cost

Entrants have substantial resources and capabilties

When does threat of substitutes increase?

When switching costs to substitutes are low

There are good substitutes available at low cost

Substitute firms competitives is increasing (profits/sales are rising and they are adding capacity)

When does buyer power increase?

Switching costs are low

There are few buyers compared to suppliers

Buyer elasticity is very high

There is high differentatition

The buyers know a lot about the product and costing

When does supplier power increase?

When there are little amount of suppliers versus buyers

When switching costs are high

Probability of backward integration is low

When suppliers represent a large amount of the value chain

Demand for suppliers products are high

What is the value net? How does it differentiate from the five forces?

The value net framework reframes competitors as rival firms, substitutes, and new entrants.

It also introduces complementary firms, ones whose products complement the firms.

It shows that complementary/competitive firms put pressure on buyers and suppliers as well the firm itself, who cannot control complementary/competitive firms.

What is a Strategic Group Analysis process?

Take rivals and plot them on a graph with two random axis to compare.

What are some signs that a rival is readying to make a move?

They are under pressure to improve financially

Gathering a lot of marketable securities or cash

Public statements of the company say they're ready

Competitive intelligence units say they're ready

Rival wants to increase market standing

What is the SOAR Framework? What does it contain?

Tells us what a rivals action is most likely to be

Takes into account

1. Strategy of the rival

2. Objectives of the rival

3. Assumptions that the rival has of itself

4. Resources and capabilities of the rival

How do you assess an industries attractiveness?

Are there strong incumbent firm

How strongly are firms affected by the macro environment

Is a rise in competition decreasing profitability

What should a current competitor decide about an industry?

If attractive: invest capital aggressively to seize opportunities and increase long-term competitiveness

If unattractive: protect your position and look for other industries to penetrate

If unattractive and you have low resources: Look to be bought out by a rival or other firm

What are the six questions to ask to evaluate a firm internally?

1. How well is our current strategy working?

2. What are our SWOT's?

3. What are our resources and capabilities compared to competitors?

4. What value chain activities are costly or inefficient compared to competitors

5. Are we stronger or weaker than rivals?

6. What strategies should we pursue first?

How well is the current strategy working? (3 questions)

Are we achieving our financial and strategic objectives?

Are we performing above the indsutry average?

Are we acquiring more customer and increasing market shares?

What are the 3 types of competencies of a firms strengths?

1. A regular competency is something the firm does with efficiency and up to standard

2. A core competency is a competency that is apart of the core operating activities of the firm

3. A distinctive competency is one that competitors cannot imitate

What is a weakness (two types)?

a weakness is something that A) a process that a firm does poorly or B) something that hinders competitiveness compared to other firms.

What is an example of a market opportunity? What must an opportunity have to be best for a competitive advantage?

Emerging markets and fast changing ones

Opportunities that align with the firms strengths provide most potential for competitive advantage

What are the two types of threats a firm faces?

Normal business threats: increasing competition, price wars, new new entrants

Sudden-Death Threats: throws the firms into survival mode: regulatory changes, polticial upheaveal,

How do you determine if a resource is contributing to a competitive advantage?

Use the VRIN test:

1. is it Valuable

2. is it Rare

3. is it Imitable (hard to copy)

4: is it non-substitutable

What makes it hard for rivals to copy resources?

Social complexity: when the resource is rooted in culture and interpersonal relationships.

Casual ambiguity: when how a firm uses its resources is ambigous so you can't copy it

What are some threats to resources and capabilities?

Rivals developing substitutes at all times.

Current capabilities if neglected will decay over time.

Disruptive changes to competitive environment

How do you alleviate the threats to resources and capabilties? (What is a dynamic capability)

Continously modify your capabilities

Develop new capabilties

What does the value change allow us to see?

1. the primary and secondary activities of the firm

2. the cost structure of the firm

3. the CVP's inner workings

4. what activities have greater emphasis

What is a value chain analysis?

It compares a competitor's value chain to yours to see the discrepancy in each of the activities

To do a value chain analysis you seperate primary and secondary activities, then conduct ABC analysis, then compare it to competitors

How do you internally improve value chain activities?

1. Implement best practices for high value activities

2. Allocate more resources to high value activities

3. Outsource non-core activities

4. Buy innovative technologies to improve costs

5. Redesign our activities

How do you improve the supplier value chain?

1. Coordinate with them to increase quality

2. Pressure them to lower costs

3. Threaten to switch to substitutes

4. Give them incentives for high quality

5. Switch to suppliers with higher quality

What's the process of transferring a proficient value chain into a competitive advantage? (5)

1. Decide to perform VC activities in a proficient manner (either low-cost or quality)

2. Develop competencies based on your chosen strategy

3. Those competencies become core competencies

4. Those core compentencies become distinctive

5. Those distinctive become a competitive advantage

How do you determine what strategies to pursue? (2)

Use the Strategic "How to" and "Should we" questions

What are the strategic "How To" Question? (5)

How to compete with foreign market substitutes

How to combat price discounting of rivals

How to reduce costs to prepare for price war

How to sustain growth even through slow buyer demand

How to adapt to a change in demographics

What are the strategic "Should We" questions? (4)

Should we expand into foreign markets

Should we expand into another strategic group

Should we counter the substitution market

Should we expand the product line

When is it good to be a first mover? (5)

When pioneering grants loyalty increases brand image

When there will be high switching costs for customers

When moving first grants patent and IP rights

When you can create economies of scale

When you can set high technical standards for product

When is it good to be a late mover (bad first mover)? (5)

Low switching costs from buyers

High product innovation allows for leapfrogging

When you can build off of what first movers do efficiently

When uncertainty makes it difficult to gauge success

When being a first mover includes making risky investments

What are the five questions to determine if you should be a first mover?

Does the market takeoff rely on complementary products that are not yet available?

Is new infrastructure needed to succeed in the market?

Must buyer incur high switching costs to move to my product?

Are there competitors in the industry that can delay/derail my stratic move?

Must buyer learn new skills to use my product?

What are the objectives of a horizontal merger/acquisition?

To lower costs throughout the value chain through economies of scale

To expand geographically

To expand the product line

To secure new technologies

Succeed at blending industries together

Why does M&A fail? (strategic (2) & org (3) issues)

Stratgeic:

1. Financial objectives are not met

2. Capabiltiies are not realized as quickly as assumed

Organizational:

1. Culture clash

2. Key employees from acquired firm leaves

3. On-the-scene managers adjust operations poorly

What are the 3 types of vertical integration?

1. Partial

Where only part of the firms value chain is outsourced

2. Full

Where the firm owns its entire value chain

3. Tapered

Where any activity in the value chain is a mix of outsourced and owned by the firm.

What are the objectives to vertical integration? (3)

1. Decrease costs in the value chain

2. Strengthen competitive position

3. Add to the technology stack

What are the reasons to backward integrate? (4)

Decreased cost of major inputs

Assurance that supply will come through

Decrease supplier power

Production know-hows

What are the reasons to forward integrate? (5)

Be closer to your end-user

Lower costs by increasing efficiency

Strengthen brand awareness

Increase bargaining power

Increase differentiation

What are the disadvantages of vertical integration? (5)

If two different parts don't match in size there is a decrease in efficiency

Slow acceptance of technological advancements

Harder to adjust to consumers changing preferences

Increase risk because more money at stake

Internal production may not yield economies of scale

When should you outsource? (5)

When someone else can do it with better quality or cheaper

When the outsource isnt attached to sustainable competitive advantage

When it reduces your risk exposure to new tech

When it allows for more concentration on your core activities

When it decreases time to market

What are the benefits to a strategic alliance?

1. Minimize problems associated with vertical integration and outsourcing.

2. Easier to extend scope of operations with expansion

3. Reduces the need to be independent and self-sufficient

4. Easier to combat high industry innovation growth

5. Better flexibility with changing resources/goals

What are the drawbacks to strategic alliances?

1. Culture Clash

2. Anticipated gains not quickly realized because of overconfidence

3. Risk of being dependent on resources and capabilites of partner

4. Technologies and other IP's are merged with rivals

Digital Platform

A constellation of interdependent actors organized around a technological infrastructure for value co-creation.

Three Types of Platforms

Transaction-based, innovation-based, and hybrid platforms.

Transaction based Platforms

enable exhnage; Uber, Airbnb, Amazon

Innovation based platfomrs

enable innovation; android, IOS, intel

Hybrid Platforms

mean platforms that combine features of multiple types of systems (for example, web + mobile, online + offline, or marketplace + social networking); microsoft temas

Pipeline Business Characteristics

Linear value chain, control internal resources, and supply-side economies of scale.

Platform Business Characteristics

Value through interactions, orchestrate external resources, and demand-side economies of scale.

3 shifts from piple to platforms

resource control to resource orchestration.

internal optimization to external interactions

customer value to ecosystem value

Shift 1: resource control to resource orchestration.

Instead of owning physical assets and internal capabilities (pipelines), platform firms coordinate, facilitate, and mobilize valuable resources owned by external network participants (e.g., Airbnb leveraging properties it does not own).

Shift 2: Internal optimization to external interactions

Rather than maximizing the efficiency of internal processes and supply chains, platform firms focus on facilitating, curating, and reducing friction for high-value interactions among outside producers and consumers.

Shift 3: Customer value to ecosystem value

Instead of focusing solely on the lifetime value of individual consumers through direct product sales, platform firms maximize the total value generated across the entire multi-sided ecosystem of participants.

Direct Network Effects

A phenomenon where the value of a service increases for a user as more participants within that exact same user group join the platform.

Indirect (cross-side) network effects

A phenomenon where an increase in participants on one side of a platform enhances the value of the platform for a different group of users on the other side.

3 ways platforms change nature of competition

1) Competition can emerge from within the ecosystem. Complementors, producers, or
other participants may eventually compete directly with the platform owner

(2) Competition can cross traditional industry boundaries. A platform with an established
user base can leverage existing relationships and data to enter seemingly unrelated
industries.

3) Suppliers and customers can create rather than merely capture value. In traditional Five
Forces analysis, powerful suppliers and buyers are generally threats to profitability. On
platforms, these same actors can strengthen the ecosystem

Platform governance

The set of rules, access controls, incentives, and quality standards implemented by platform orchestrators to secure ecosystem behavior and protect trust.

Blue Ocean Strategy

A business framework centered on creating uncontested market space and making the competition irrelevant by simultaneously pursuing differentiation and low cost to unlock new demand.

Differences Between Red Oceans and Blue Oceans

The former focuses on competing in existing market space, fighting rivals, and exploiting current demand; the latter focuses on creating uncontested market space, making competition irrelevant, and generating new demand.

Value Innovation

innovations pushes efficiency, allowing greater value tom be offered through superior differentiation at a lower cost than was though possible

The ERRC Framework

1. Eliminate: Which factors taken for granted by the industry should be completely removed?

2. Reduce: Which factors should be reduced well below industry standards?

3. Raise: Which factors should be raised well above industry standards?

4. Create: Which factors should be created that the industry has never offered?