MAN 4720 UCF Capstone Midterm

A.F.I Framework

1.) Analysis

2.) Formulation

3.) Implementation

Analysis

-Strategic management process

-External analysis

-Internal analysis

-Competitive Advantage, Firm Performance, and Business Models

Formulation

-Business Strategy & Entrepreneurship

-Corporate Strategy

Implementation

-Organizational Design

Analysis

Diagnosis of the competitive challenge

Formulation

guiding policy to address the competitive challenge

Implementation

A set of coherent actions to implement the firm's guiding policy

Strategy

a set of goal-directed actions a firm takes to gain and sustain a competitive advantage relative to competitors

Competitive advantage

Superior performance relative to competitors; firms ability to generate above average returns relative to competitors

strategic management

an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantages

strategic management process

Method by which managers conceive and implement a strategy that can lead to a sustainable competitive advantage.

What is often considered the 1st step in gaining & sustaining a competitive advantage?

Defining vision, mission, and values

vision statement

paints a picture of where a company wants to be; what to accomplish ultimately

mission statement

Description of what an organization actually does- what its business is- and why it does it; can be customer-oriented or product-oriented.; grounded to past and present; how to accomplish goals

organizational values

ethical standards and norms that govern the behavior of individuals within a firm or organization.

Elements of the External Environment

Industry effects (common to all) and firm effects (actions managers take - more important than industry effects)

Industry

Group of similar competitors, relatively similar suppliers and buyers, similar products

Industry Analysis

(1) define the industry

(2) evaluate relevant external factors - PESTEL analysis

(3) conduct "Five Forces" analysis

(4) determine key success factors

(5) analyze competitors via strategic group mapping

PESTEL Framework

A framework that categorizes and analyzes an important set of external forces that might impinge upon a firm. These forces are embedded in the global environment and can create both opportunities and threats

Political Factors (PESTEL)

Tax policies, changes in trade restrictions and tariffs, and the stability of governments.

Economic Factors (PESTEL)

include elements such as interest rates, inflation rates, gross domestic product, unemployment rates, levels of disposable income, and the general growth or decline of the economy

Sociocultural Factors (PESTEL)

include trends in demographics such as population size, age, and ethnic mix, as well as cultural trends and shifts such as attitudes toward obesity and consumer activism

Technological factors (PESTEL)

include, for example, changes in the rate of new product development, increases in automation, and advancements in service industry delivery.

Environmental/Ecological factors (PESTEL)

include, for example, natural disasters, weather patterns, and/or EPA regulations.

Legal Factors (PESTEL)

include current laws involving issues such as employment, health and safety, discrimination, and antitrust.

Porter's Five Forces

framework proposed by Michael Porter that identifies five forces that determine the profit potential of a firms competitive strategy; answers if industry attractive or not

Include:

-Rivalry among competitors

-Threat of new entrants

-Power of buyers

-Power of suppliers

-Substitutes

Rivalry among existing competitors

takes many familiar forms, including price discounting, new product introductions, advertising campaigns, and service improvements. This limits the profitability of an industry. The degree to which this drives down an industry's profit potential depends, first, on the intensity with which companies compete and, second, on the basis on which they compete.

High levels of rivalry

tend to reduce the profit potential of an industry

Rivalry among existing competitors is high when

-There are many competitors in the industry

-Competitors are roughly the same size

-Industry growth is slow, zero, or even negative

-Exit barriers are high

-Products/ services are direct substitutes - that is little to no differentiation among product offerings

Power of Suppliers

capture more of the value for themselves by charging higher prices, limiting quality or services, or shifting costs to industry participants. These, including this of labor, can squeeze profitability out of an industry that is unable to pass on cost increases in its own prices

The power of suppliers is high when

-Incumbent firms face significant switching costs when changing suppliers

-Suppliers offer products that are differentiated

-There are no readily available substitutes for the products/services offered by the supplier

-Suppliers can credibly threaten to forward-integrate

Power of Buyers

can capture more value by forcing down prices, demanding better quality or more service (thereby driving up costs), and generally playing industry participants off against one another, all at the expense of industry profitability. These are powerful if they have negotiating leverage relative to industry participants, especially if they are price sensitive, using their clout primarily to pressure price reductions.

Power of buyers is high when:

-There are a few buyers and each buyer purchases large quantities relative to the size of a single seller

-The industry's products are standardized or undifferentiated commodities

-Buyers face low or no switching costs

-Buyers can credibly threaten to backwardly integrate into the industry

Threat of new entrants

These to an industry bring new capacity and a desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete. Particularly when new entrants are diversifying from other markets, they can leverage existing capabilities and cash flows to shake up competition

Industries with higher barriers to entry

are in a safer defensive position than industries with lower barriers

Threat of entry is high when

-Customer switching costs are low

-Capital requirements are low

-Incumbents do not possess proprietary technology or established brand equity

-New entrants expect that incumbents cannot / will not retaliate

-Low barriers to entry

Example of new entrant

Pepsi entering water bottle industry

Example of substitute

Plastic for aluminum; e-mail for express mail

Threat of substitutes

This performs the same or a similar function as an industry's product by a different means. Sometimes, this is downstream or indirect, when this replaces a buyer industry's product

Threat of substitutes is high when

-The substitute offers an attractive price-performance trade-off.

-The buyer's cost of switching to the substitute is low

Complement

product, service or competency that adds value to the original product offering when the two are used in tandem

sustainable competitive advantage

outperforming competitors or the industry over a prolonged period

Structure-Conduct-Preformance (SCP) Model

a framework that explains difference in industry performance (market structure, market conduct and market performance). Identifies four different industry types.

1.) Perfect Competition

2.) Monopolistic competition

3.) Oligopoly

4.) Monopoly

Industry Concentration

the extent to which a small number of firms dominate an industry

Perfect Competition

(Structure Conduct Performance)

-Many Small Firms

-Firms are price takers

-Commodity product

-Low entry barriers

Monopolistic Competition

(Structure Conduct Performance)

-Many Firms

-Some Pricing Power

-Differentiated Product

-Medium Entry Barriers

Oligopoly

(Structure Conduct Performance)

-Few (large) Firms

-Some Pricing Power

-Differentiated Product

-High Entry Barriers

Monopoly

(Structure Conduct Performance)

-One firm

-Considerable pricing power

-Unique Product

-Very High Entry barriers

strategic group

the set of companies that pursue a similar strategy within a specific industry

strategic group map

A framework that explains firm differences in performance in the same industry by clustering different firms into groups based on a few strategic dimensions

reasons why mapping strategic groups is important

1. these firms are usually its closest rivals

2. highlight alternative paths to success

3. can reveal gaps in the industry that represent untapped opportunities

mobility barriers

industry specific factors that separate one strategic group from another

Key Success Factors

Rules of thumb for doing business in an industry that reflect the structural conditions of the industry; areas of critical performance necessary for success in a given industry

entry barriers

obstacles that determine how easily a firm can enter an industry. These are often one of the most significant predictors of industry profitability

exit barrier

obstacles that determine how easily a firm can leave an industry

industry convergence

process whereby formerly unrelated industries begin to satisfy the same customer need

core competencies

unique strengths embedded deep within a firm, that allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost.

Resource-based theory

the possession of strategic resources provides an organization with a golden opportunity to develop competitive advantages over its rivals

Types of Resources

-tangible

-intangible

tangible resources

resources with physical attributes, which thus are visible (property, plant, equipment)

intangible resources

resources that do not have physical attributes and thus are invisible (knowledge, skills)

resource heterogeneity

Assumption in the resource-based view that a firm is a bundle of resources and capabilities that differ across firms.

resource immobility

assumption that in then resource-based view that a firm has resources that tend to be "sticky" and that do not move easily from firm to firm

Capabilities

processes the firm develops to coordinate human activity in order to achieve goals

dynamic capability

a firms ability to create new capabilities

VRIO Framework

a theoretical framework that explains and predicts firm level competitive advantage. a firm can gain a competitive advantage if it has resources that are valuable (V), Rare (R), and costly to imitate (I), the firm must also organize (O) to capture the value of the resources

valuable resource

one of the 4 key criteria in the VRIO framework; a resource is this if it allows the firm to take advantage of an external opportunity and/or neutralize an external threat

rare resource

one of the four criteria in the VRIO framework; a resource is this if the number of that possess it is less than the number of firms that would require to reach a state of perfect competition.

costly to imitate resource

one of the 4 in VRIO, resource is this if firms that do not possess the resource are unable to develop or buy the resource at a comparable cost

organized to capture value

characteristic of having this in place as an effective structure and coordinating systems is to fully exploit the competitive potential of the firm's resources and capabilities

Isolating mechanisms

barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy

value chain

charts the path by which products and services are created and eventually sold to customers (value is added at each step); internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value. Primary activities directly add value; support activities add value indirectly.

primary activities

actions that are directly involved in creating & distributing goods & services

List of primary activities

1. inbound logistics

2. operations

3. outbound logistics

4. marketing and sales

5. service

inbound logistics

The arrival of raw materials.

operations

refers to the actual production process

outbound logistics

tracks the movement of a finished product to customers

marketing and sales

Attracting potential customers and convincing them to make purchases

service

refers to the extent to which a firm provides assistance to their customers

support activities

firm activities that add value indirectly, but are necessary to sustain primary activities; supplementary aids to primary activities

List of support activities

1. firm infrastructure

2. human resource management

3. technology

4. procurement

firm infrastructure

refers to how the firm is organized and led by executives.

Human Resource Management

involves the recruitment, training, and compensation of employees

technology

refers to the use of computerization and telecommunications to support primary activities

procurement

the process of negotiating for and purchasing raw materials

Strategic Activity system

conceptualization of a firm as a network in interconnected activities.

Dynamic Capabilities Perspective

a model that emphasizes a firm's ability to modify and leverage its resource base in a way that enables it to gain and sustain competitive advantage in a constantly changing environment.

SWOT Analaysis

a framework that allows managers to synthesize insights obtained from an internal analysis of the company's strengths and weaknesses (SW), with those from an analysis of external opportunities and threats (OT)

-analysis tool used last

value

the dollar amount (V) a consumer would attach to a good or service; the consumers maximum willingness to pay; sometime also called reservation price

multidimensional perspective

economic value creation, accounting profitability, and shareholder value creation

economic value creation

-Value (v), price (p), cost (c)

-Created by difference between value (v) and cost (c), or (v-c)

-firm has a competitive advantage when it is able to create more economic value than its rivals

profit (product surplus)

difference between price charged (P) and the cost to produce (C), (P-C)

consumer surplus

(V-P)

skimming pricing strategy

pricing strategy involving the use of a high price relative to competitive offerings

penetration pricing

setting a low initial price on a new product to appeal immediately to the mass market

cost-based pricing

setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk

demand-based pricing

a price-setting method based on estimates of demand at different prices

dynamic pricing

adjusting prices continually to meet the characteristics and needs of individual customers and situations

prestige pricing

charging a high price to help promote a high-quality image

odd-even pricing

setting prices a few dollars or cents under an even number

loss leaders

selected items sold at a loss to attract customers to buy costlier goods

bundling

grouping two or more products together and pricing them as a unit

Accounting Profitability

(Internal) using standardized accounting metrics to assess financial position compared to competitors