Origin of the term strategy
Strategos (ancient Greek): "Art of the general"
How can strategy be defined?
Goal-directed actions to gain and sustain superior performance relative to competitors.
An integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage.
strategic management
A good strategy is based on 3 elements that can be summarized with the __________ framework
AFI
AFI framework stands for
analysis, formulation implementation
The first step of AFI (analysis) is completed via
a diagnosis of the competitve challenge analyze the firm's internal and external environments
The second step of AFI (formulation) is completed via
A guiding policy to address the competitive challenge
the formulation stage of AFI results in
corporate, business and functional strategy
The third step of AFI (implementation) is completed via
A set of coherent actions to implement the firm's guiding policy
Superior performance relative to other competitors in the same industry or the industry average.
competitive advantage
competitive advantage is _, not ___
relative absolute
You can assess competitive advantage by benchmarking in 2 ways:
compare to competitors in the same industry compare to industry average
A firm that is able to outperform its competitors or the industry average over a prolonged period.
sustainable competitive advantage
A unique position within an industry that allows the firm to provide value to customers, while controlling costs.
strategic positioning
___________ __________ minus _________ equal economic contribution.
value creation costs
two or more firms that perform at the same level
competitive parity
A firm that underperforms it's rivals and/or the industry average.
competitive disadvantage
Companies with a good strategy are able to provide products or services to consumers: (2)
•At a price point that they can afford. •That enables the company to make a profit.
Value creation lays the foundation for a successful economy. Give some examples of the sectors it may affect
•Education. •Infrastructure. •Public safety. •Healthcare. •Clean water and air.
Organizations, groups, and individuals: •Can affect or can be affected by a firm's actions. •Have an interest in the performance or survival of the firm.
stakeholders
Examples of Stakeholders include:
stockholders, employees, board members, customers, suppliers, alliance partners, creditors, unions, media, governemnt
An integrative approach to managing a diverse set of stakeholders to gain and sustain competitive advantage.
stakeholder strategy
___________ ____________ __________ helps to recognize, prioritize and address stakeholder needs.
stakeholder impact analysis
3 important stakeholder attributes
power, legitimacy, urgency
when the stakeholder can get the company to do something that it would not otherwise do.
power
perceived to be legally valid or otherwise appropriate.
legitimate claims
require a company's immediate attention and response.
urgent claims
Stakeholder Impact Analysis
1.Satisfied stakeholders are more cooperative and thus more likely to reveal information that can further increase the firm's value creation or lower its costs. 2.Increased trust lowers the costs for firms' business transactions. 3.Effective management of the complex web of stakeholders can lead to greater organizational adaptability and flexibility. 4.The likelihood of negative outcomes can be reduced, creating more predictable and stable returns. 5.Firms can build strong reputations that are rewarded in the marketplace by business partners, employees, and customers.
Pyramid of Corporate Social Responsibility (CSR)
Portrays the four components of CSR, beginning with the basic building block of of economic performance at the base.
This pyramid summarizes the four components of corporate social responsibility. Economic responsibilities are the foundational building block, followed by legal, ethical, and philanthropic responsibilities. Note that society and shareholders require economic and legal responsibilities. Ethical and philanthropic responsibilities result from a society's expectations toward business. The pyramid symbolizes the need for firms to carefully balance their social responsibilities. Doing so ensures not only effective strategy implementation, but also long-term viability.
Successful use of power and influence accomplished by directing the activities of others, pursuing an organization's goals, and enabling organizational competitive advantage
strategic leadership
A framework that helps us understand the link between strategic leadership, strategy, and firm performance
Upper Echelons Theory
is a conceptual framework that shows leadership progression through five distinct sequential levels
the level-5 pyramid
statement which captures an organization's aspiration and spells out what the organization wants to accomplish by identifying the long-term objective
vision
an effective vision: (3)
•Is expressed as a statement •Should be forward-looking and inspiring •Should provide meaning for employees in pursuit of the organization's ultimate goals
a vision is _________ _________: it outlines a firm's stretch goal
strategic intent
relationship between vision statements and firm performance are strongest when: (3)
The vision is customer-oriented
Internal stakeholders help define the vision
Organizational structures align to the vision, for example, compensation
vision that defines a business in terms of a good or service provided.
product-oriented vision statements ex. US railroad companies
vision that defines a business in terms providing solutions to customer needs.
customer-oriented vision statements
the _________is what an organization actually does; defines how the vision is accomplished
mission
ethical standards and norms which govern the behavior of individuals, provide stability to the strategy, and serve as guardrails to keep the company on track
values
Values help employees: (3)
Understand the company culture Deal with complexity Resolve conflict
3 distinct areas/types of strategies
business
corporate
functional
Corporate strategy answers the question: ________________? And makes the decision between....
•Where to compete? •Industry, markets, and geography
Business strategy answers the question: ________________? And makes the decision between....
•How to compete? •Cost leadership, differentiation, or value innovation
Functional strategy answers the question: ________________? And makes the decision between....
•How to implement a chosen business strategy? •Different strategies will require different activities across the various functions
3 approaches to organizational strategy
strategic planning
scenario planning
strategy as planned emergence
The PESTEL model groups environmental factors into 6 segments:
Political Economic Sociocultural Technological Ecological Legal
Processes and actions of government bodies that influence the firm can be shaped through:
Lobbying Public relations Contributions Litigation
_________ and _________ forces from the PESTEL model are closely related:
political legal Political pressure often results in changes in legislation
examples of economic factors affecting the PESTEL model
Growth rates Levels of employment Interest rates Price stability Currency exchange rates ex. pandemic causing recession
Sociocultural dimension is affected by society's. _, ___________, and _ that are constantly in flux and differ across groups
cultures, norms, and values
demographic trends helpful when analyzing the sociocultural realm of a PESTEL model
Population characteristics Age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class
how does technology affect the PESTEL model
changes in technology can give firms an advanatge through application of knowledge of new processes, innovations in process technology, or innovation in product technology
________________ can affect the ecological realm of PESTEL and ultimately actions of a firm
broad environmental issues
Official outcomes of political processes such as laws, mandates, regulations, court decisions can be categorized by which part of PESTEL
legal
Describes the economic structure of the industry
industry effects
Attribute firm performance to the manager's actions
firm effects
A group of firms that produces similar products or services
industry
example of an industry
Pharmaceuticals: Pzifer, Merck
Some industries are more profitable than others, and therefore more attractive. the ___________ model helps measure this
five forces model
what are the five forces?
threat of entry
power of suppliers
power of buyers
threat of substitutes
rivalry among existing competitors
2 key insights of 5 forces model
Competition is viewed more broadly in the five forces model
Profit potential is a function of the five competitive forces
The risk of potential competitors will enter an industry
threat of new entrants
an advantage that incumbent firms have over entrants; includes copyrights, legal barriers, economies of scale, network effects, etc.
entry barriers
Things to consider when analyzing an industry's entry to barriers:
What are the capital requirements? Are economies of scale important?
Pressures that industry suppliers can exert on an industry's profit potential
power of suppliers
Power of suppliers can lower industry profit potential if: (2)
Suppliers demand higher prices for their inputs Suppliers capture part of the economic value created
What are some questions to consider when evaluating the power of suppliers?
How concentrated are the suppliers? How crucial is a supplier's product? What are the switching costs? (can you switch from gas to something else) Is there a threat of vertical (forward) integration by the supplier?
The power of buyers depends on the relative bargaining power of buyers (i.e. customers), and they can pressure firms to 1) ___________ or 2) ______________
cut prices add more value into product/service
What are some questions to consider when evaluating the power of buyers?
How sensitive are buyers to price? What is the relative bargaining power of buyers? (Concentration of buyers and sellers; Buyer knowledge of sellers products; Threat of backward vertical integration)
Products or services that meet the same need but in a different way (can originate from a different industry)
substitutes
list a few examples of substitutes
Video conferencing vs. business travel Wireless phone services vs. internet-based services car travel vs. air travel
What question should you consider when evaluating the threat of substitutes?
What are buyers' switching costs?
The intensity with which companies in the same industry jockey for market share and profitability
Rivalry Amongst Existing Competitors (Internal Rivalry)
The other forces in the five forces model pressure the ______________________. The stronger the forces, the stronger the competitive intensity.
Rivalry Amongst Existing Competitors
What are some factors affecting internal rivalry within an industry?
Number and size of competitors Firm's degree of pricing power Type of product or service height of entry barriers
Greater the intensity of rivalry amongst existing competitors = _________ industry profitability
lower
What clues suggest greater intensity of rivalry?
Similarity amongst firms Lack of product differentiation (commodification)
What are the 4 Industry competitive structures?
Perfect competition Monopolistic competition Oligopoly Monopoly
competitive structure in which:
many small firms
firms are price takers
commodity product (undifferentiated)
low entry barriers
perfect competition
competitive structure in which:
many firms
some pricing power
differentiated product
medium entry barriers
monopolistic competition
competitive structure in which:
few (large) firms
some pricing power
differentiated product
high entry barriers
oligopoly
competitive structure in which:
one firm
considerable pricing power
unique product
very high entry barriers
monopoly
in a perfect world, consumers would prefer the industry competitive structure to be _, while a firm would want their industry to be a(n) ___
perfect competition monopoly
example of perfect competition industry
online pet supply stores
When there are many small firms offering a commodity product in an industry that is easy to enter, no one is able to __________________ and __________________.
increase prices generate profits
example of monopolistic competition
The computer hardware industry
example of oligopoly
The express-delivery industry (FedEx, UPS)
other examples: soft drinks, airframe manufacturing, home improvement retail,
When there are only two main competitors, it's called a __________ and is a special case of oligopoly.
duopoly
example of monopoly
Georgia Power is the only supplier of electricity for some 2.5 million customers in the southeastern United States
Questions to consider when evaluating internal rivalry/industry competition:
How vigorous is price competition?
How diverse are the products?
Are there many firms? Are they similar or different from each other?
Are exit barriers high?
Are there high fixed costs? higher fixed costs = higher capacity = more price cutting
The 6th force: A product, service, or competency that adds value when used with the original product.
complements
Complements ________ demand for the primary product and enhance the _______ potential for the industry and the firm.
increase profit
Analyzing an industry's structural characteristics can help explain an industry's ___________
profitability
After analyzing porter's five forces and the different types of competition, firms can use this information to ____________ themselves and create a __________ that works for them
position strategy
List the 5 Entry Choices
When?
How?
What?
Where?
Who?
A set of companies that pursue a similar strategy in a specific industry
strategic groups
What does the strategic group model do?
clusters firms into groups based on key strategic dimensions
what dimensions might we use to group firms based on strategy (strategic grouping)?
1.Pricing 2. Breadth of product and service offerings 3. Product differentiation 4. R&D expenditures 5. Technology 6. Distribution channels 7. Customer service
3 steps to create a strategic group map
Identify important strategic dimensions
Choose two key dimensions (For horizontal and vertical axes)
Graph the firms in the strategic group.