Business Strategy Mid-Term Review (Chapters 1-5)

Comprehensive practice flashcards covering Business Strategy Chapters 1 through 5, including strategy formulation, external/internal analysis, cost advantage, and differentiation.

How would you define strategy according to the lecture notes?

A plan to achieve competitive advantage

In strategy formulation, what four choices must a company make?

1) What markets or industries to pursue? 2) What unique value to offer the customer? 3) What resources and capabilities will deliver unique value better than competitors? 4) How to sustain the advantage and prevent imitation?

What are the two generic strategies companies employ to offer unique value?

Low cost or differentiation

Who is ultimately responsible for a company’s strategy and who do they turn to for guidance?

Strategic leaders develop the strategy and usually turn to the Board of Directors and other top management for guidance.

How does Michael Porter’s “Five Forces” model explain why some firms earn higher profits than others?

Firms with higher profits may be in an industry with higher average profitability.

What is the difference between resources and capabilities?

Resources are tangible and intangible assets; capabilities are the processes and activities a firm develops using those resources.

What must be aligned to ensure the successful implementation of a company strategy?

Functional strategies, structure, systems, staff, skills, style, and shared values must be aligned with delivering unique value.

Who are the four primary stakeholder groups influencing strategic decisions?

Capital market stakeholders, Product market stakeholders, Organizational stakeholders, and Community stakeholders.

What tool should firms use to determine which industry they are in?

The U. S. Government’s NAICS codes.

What are the five major industry forces?

Barriers to (or threat of) Entry, Supplier Power, Buyer Power, Presence of Substitutes, and Competitive Rivalry.

How does increased buyer concentration affect buyer power?

It increases buyer power because firms must compete to sell to fewer buyers, giving those buyers increased pricing leverage.

What does it mean for a supplier to have a credible threat of forward integration?

The supplier can easily compete with the firm because it may have the same technology or distribution system and can produce the same product with little expenditure.

What is the definition of a substitute?

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

What are the eight general environmental factors affecting industry profitability?

Complementary products or services, Technological change, General economic conditions, Population demographics, Global competitive forces, Political/legal/regulatory forces, Social/Cultural forces, and Ecological/Natural Environment.

What are the two major elements of the value chain?

Primary or core activities (logistics, production, and marketing) and support activities (firm infrastructure, human resource management policies, and technology development).

Under what conditions will resources lead to a sustainable competitive advantage?

When resources create value, are rare, are difficult for competitors to imitate, and the firm is organized to capture and exploit those gains.

What are the two rules for data collecting during a Competitive Advantage Pyramid analysis?

1) Garbage in—Garbage out (quality of data determines quality of conclusions); 2) Collect data from multiple sources.

What are the five sources of cost advantage?

Economies of scale, learning and experience, proprietary knowledge, lower input costs, and different business models.

What is the difference between a scale curve and an experience curve?

A scale curve relates unit volume per time period (x-axis) to cost per unit (y-axis); an experience curve relates cumulative unit volume to cost per unit.

What are the four major categories of product differentiation?

1) Different product/service features, 2) Superior quality or reliability, 3) Convenience, and 4) Brand image.

In what three ways can customer segmentation be performed?

Demographics/customer attributes, product attributes, and "job to be done".

What is the consumption chain?

The stages customers pass through from the time they first become aware of a product to the time they dispose of it or discontinue using it.

How is the Net Promoter Score (NPS) calculated?

$$\text{Net Promoter Score} = \% \text{ of Promoters (9-10)} - \% \text{ of Detractors (1-6)}$$