Seminar Exam 1

What is strategy?

Strategy is the overall plan for deploying resources to attain its goals and to establish a favorable competitive position

Big Strategic Questions

1. Where are we now?

2. Where do we want to go?

3. How will we get there? -strategy

Past Strategy flows into..

what a company might do (TO)

wants to do (management values)

can do (strengths/weaknesses)

might do, wants to do, and can do flows into….

strategy and goals

strategy and goals goes in what process?

execution (after communication and motivation)

control

performance

feedback

back into strategy and goals

characteristics of strategic decisions

important

involve a significant commitment of resources

not easily reversible

criticisms of formal planning model

unpredictability of the real world

excessive improtance attached to the role of top management

successful strategies are result of serepndipity rather than rational strategizing

market capitalization

stock price x shares outstanding

planned strategy goes into what when an unpredicted change?

unrealized strategy

realized strategy is from

deliberate and emergent strategies

emergent strategy is a result of

serendipity

unplanned shift by top level managers

autonomous action by lower-level managers

what is necessary for emergent strategy?

corporate culture

managers need what kind of strategy to be successful?

both deliberate and emergent

compound annual growth rate

CAGR = (Ending value/Beg Value)^(1/n) - 1

why can CAGR be misleading?

hides year to year voltality, treats growth as if ocured smoothly over time

understates risk and overstates stability

look at year over year growth rates to see

voltality and turning points

look at revenue variance or standard deviation for

instability

look at operating profit or cash flow to

assess whether growth was profitable

look at customer retention or market share

to understand the drivers behind the revenue swings

look at events in

context for explanations like product failures, market shocks, strategic pivots

stakeholders

any constituencies in the organization’s environment that are affected by an organization’s decisions and actions.

satisying stakeholders is

a constraint, not a strategy objective

key stakeholders

suppliers

shareholders

employees

customers

why is satisfying key stakeholders a constraint?

they are infinitely greedy

managing stakeholder relationships steps

idenitfy stakeholders

determine their interests

determine criticality of the interests

determine specific approach managers should use to manage these relationships based on

a. environmental uncertainity

b. importance of the stakeholder to the organization

strategy

a set of related actions managers take to improve company performance

strategic leadership

creating competitive advantage through effect management of the strategy-making process

strategy formulation

selecting strategies based on analysis of an oragnization’s external and internal environment

strategy implementation

putting strategies into action

shareholder value

returns that shareholders earn from purchasing shares in a company (capital appreciation and dividend payments)

risk capital

equity capital invested with no guarenetee that will recoup their cash or earn a decent return

profitability

the return a company makes on the capital invested in the enterprise

Return on invested capital ROIC

net profit / capital invested in company

results of how efficiently and effectively the capital is used to satisfy customer needs

growing profits is accomplished through:

selling products in rapidly growing markets

gaining market share rivals

selling more to existing customers

expanding overseas or diversifying into new businesses

to boost profitability and profit growth managers must

use strategies to give their company a competitive advantage

high profitability and sustainable profit growth

competitive advantage

the achieved advantage over rival company’s profitability is greater than the average profitability in its industry.

sustained competitive advantage

a company’s strategies enable it to maintain above-average profitability for a number of years

business model

the conception of how strategies should work together as a whole to enable the company to acheive competitive advantage

opporunities

elements in a company’s environment that allow it to formulate and implement strategies to be more profitable

threats

elements in external environment that could endanger the integrity and profitability of a company

5 competitive forces

risk of entry

bargaining power of buyers

power of complement providers

threat of substitutes

bargaining power of suppliers

risk of entry 9 things

economies of scale

brand loyalty

absolute cost advantage

customer switching costs

government regulations

capital requirements

access to distribution channels

strong profit and growth potential

threat of retaliation by incumbents

potential competitiors

companies not currently competing in industry but have potential to do so

economies of scale

reductions in unit costs attributed to a larger output

brand loyalty

preference of consumer for the products of established companies

absolute cost advantage

enjoyed by incumbents in an industry and that new entrants cannot expect to match

customer switching costs

costs that consumers must have bear to switch from the products offered by one established company to the products offered by new entrant

govt regulations

failing entry barriers due to govt regulation results in significant new entry the intensity of industry competition, and lower industry profit rates

capital requirements

the amount of capital required to enter an industry

access to distribution channels

the ability for a new entrant to find distributors

strong profit and growth potential

attractiveness of the market

threat of retaliation by incumbents

dependent upon business options

rivalry

competive struggle between companies between companies within an industry to gain markewt share with each other

intensity of rivalry factors

industry competitive structure

industry demand

cost conditions

exit barriers

differentiation opportunities and switching costs

bargaining power of suppliers

suppliers power to raise input prices or industry cost means

suppliers are powerful when (5 reasons)

• the product has few substitues and is vital to the companies industry

• supplier is not dependent on one particular industry for their sales

• cpompanies would incur high switching costs if they moved to the supplier

• supplier can threaten to enter customers industry

• companies cannot enter their suppliers industry to lower prices (vertical integration)

bargain power of buyers

buyer’s power to baragin down prices or raise costs by demanding better quality and service

buyers are powerful when

• buyers can choose sellers and purchase in large quantities

• supplier industry is dependent on buyers for a major portion of sales

• low switching costs and ability to purchase input from several companies at once enables buyers to pit companies against each other

• buyers can threaten to enter the industry and produce the product

substitute products

those of different business that satisfy simliar consumer needs

sub products does what?

limit the price that companies in an industry can charge for their good

complementors

companies that sell product that add value to the products of other companies in an industry

strong complementors

provide an increase opporuntiy for creating value

weak complementors

slow industry growth and limit profitability

6 steps in industry analysis

define industry

identify playerrs

analyze players influence

test analysis

respond

change

define industry

identify how customers perceive the segments of the market to detect rivals

identify how industry statistics categorize the industry

objective: define industry with clarity, usefulness, and specifity to decide how to act

identify players

identify all companies and orgs that influence profitability of the industry

classify players according to porter’s competitive forces

analyze players infuence

• evaluate the relative strength of each player and how it influences profitability

• make an overall assessment of the level of profitability in the industry

test analysis

compare predictions with observed level of profit

if suggesting low profit, one force must shrink the overall market pie

respond

given analysis, how should firm respond for more profit?

asess opportunities to increase profits and reduce threats to existing profit

change

develop strategy that allows firm ot compete over time and explore opportunities to change industry structure

limitations of models for industry analysis

life-cycles issues

innovation

change

company differences

macroenvironmental forces - PESTEL

political

economic

sociocultural

technological

ecological

legal

cannot be influenced directly by managers

scanning (macro analytical process)

identifying early signals of environmental changes and trends

monitoring

detecting meaning through ongoing observations of environmental changes and trends

forecasting

developing projections of anticipated outcomes based on monitored changes and trends

asessing

determining the timing and importance of environmental changes and trends for firms strategies and their management

demographic forces

outcome of changes in the characteristcs of a population

macroeconomic forces

affect general health and well-being of a nation and the regional economy of an organization which in turn affect companies and industries

four primary macroeconomic forces:

growth rate of economy

interest rates

current exchange rates

inflation or deflation rates

global forces - failing barriers to international trade have enabled:

domestic markets enter to foreign markets

foreign enterprises to enter the domestic markets

NOW, rising traiffs (barriers to trade) have?

technological forces - technological change can:

• make products obsoletwe

• create a host of new product possibilities

  • impact the height of the barrier to entry and reshape

social forces

way in which changing social morals and values affect an industry

political and legal forces

outcomes of changes in laws and regulations

implications of strategic groups:

since all companies in a strategic group pursue a similar strategy, customers view them as direct substitues and the most immediete threats to a company are therefore the rivals within the group

mobility barriers

within-industry factors that inhibit the companies between strategic groups

managers must

determine if is cost effective to overcome mobility barriers

and realize that companies in other strategic groupd become the competitors if they overcome mobility barriers

embryonic industry x

the development stage of a company where growth is slow because of buyer unfamiliarity and high prices (due to low ability for high scale economies

growth industry stage x

first-time demand expands rapidly

prices fall (scale economies attained)

distribution channels developed

threat of potential competitors highest at this stage

shakeout stage x

demand approaches saturation levels

fewer potenial first-time buyers

rivalry intensifies

price war

mature industries x

totally saturated market

demand limited to replacement demand

growth is low or zero

declining industries x

growth becomes negative due to tech substition

social changes

demographics

intenerational competition

failing demand = excess capacity

two themes in creating compeitive advantage

firm must configure itself to do something unique and valuable

full range of firm’s activities must act in harmony

• firm must find integrated set activities that distinguish a firm from its rivals

value proposition

statement that conveys why a buyer should buy a company’s product or service

package of benefits a company delivers to its customers

value proposition anaylsis

reflects that choices about the particular kidns of value the firm will offer

strategic sweet spot

between circles of customers needs and company’s capabilitys

leaves out competitor’s offerings

distinctive competences

firm specific strengths that allow a company to differentiate its product and/or achieve lower costs to get comp advantage

resources

assets of a company

basic factors of production

resources such as land, labor, management, plant and equipment

advanced factors of production def’n

resources such as process, knowledge, org architecture, and intellectual property that contribute to a company’s competitive advantage

process knowledge

knowledge of the internal rules routines, and procedures of an org that managers can leverage to achieve org objectives also called capabilities