MGMT 5560 test 1

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)

1. The vision is customer-oriented
2. Internal stakeholders help define the vision
3. 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

1. business
2. corporate
3. 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

1. strategic planning
2. scenario planning
3. 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?

1. threat of entry
2. power of suppliers
3. power of buyers
4. threat of substitutes
5. rivalry among existing competitors

2 key insights of 5 forces model

1. Competition is viewed more broadly in the five forces model
2. 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:

1. How vigorous is price competition?
2. How diverse are the products?
3. Are there many firms? Are they similar or different from each other?
4. Are exit barriers high?
5. 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

1. When?
2. How?
3. What?
4. Where?
5. 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

1. Identify important strategic dimensions
2. Choose two key dimensions (For horizontal and vertical axes)
3. Graph the firms in the strategic group.