BUS3 189 Ch 1: What is Strategy?

Competitive advantage

Superior performance relative to other competitors or the industry average

To obtain a competitive advantage, a firm must (1/2)

Create superior value for customers while keeping its cost comparable to competitors

To obtain a competitive advantage, a firm must (2/2)

Provide similar value at a lower cost

Sustained competitive advantage

A firm able to outperform competitors for prolonged periods of time

Competitive disadvantage

A firm that continuously underperforms its rivals or the industry average

Competitive parity

Firms that perform at the same level

Competitive advantage is assessed by comparing (6):

Profitability Ratios (How profitable is the company?)

Activity Ratios (How efficient are the operations of the company?)

Leverage Ratios (How effectively is the company financed in terms of debt and equity?)

Liquidity Ratios (How capable is the business of meeting its short-term obligations?)

Market Ratios (How does the company perform in providing returns for shareholders?)

AND

Qualitative assessment of performance

Red Queen effect

A situation in which everyone runs faster but there are no changes in relative strategic positions

Strategy

A set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors

More value for customers at comparable cost or equivalent value at lower cost

Strategic management

An integrative process through which companies analyze, formulate, and implement strategy

Oversight is provided by the executive leadership

Everyone in the organization is involved

AFI Framework

A model that links three interdependent strategic management tasks—analyze, formulate, and implement—that, together, help managers plan and implement a strategy that can improve performance and result in competitive advantage

AFI Framework (Analysis)

Assessment of the status quo to identify competitive challenges

AFI Framework (Formulation)

Development of an approach to deal with competitive challenges

AFI Framework (Implementation)

Effective implementation of the approach through a coherent set of actions

Stakeholders

Organizations, groups, and individuals, that can affect or are affected by a firm's actions (network of two-way relationships)

Internal stakeholders

Employees (executives, managers, workers), stockholders, board members

External stakeholders

Customers, suppliers, partners, communities, governments, creditors, unions, media

Stakeholder strategy

An integrative approach to managing the diverse set of stakeholders effectively, in order to improve firm performance

Stakeholder impact analysis

Decision process that allows managers to recognize, prioritize, and address the needs of diverse stakeholders

Stakeholder attributes

Power, legitimacy, urgency

Pyramid of Corporate Social Responsibility

Provides firms with a framework of societal expectations and requirements to guide decisions

Economic responsibilities

(Required) a business enterprise is first and foremost an economic institution. Stockholders have varying economic expectations

Legal responsibilities

(Required) Laws and regulations embody a society's notions of right and wrong

Ethical responsibilities

(Expected) strategic leaders are called upon to go beyond minimum legal requirements

Philanthropic responsibilities

(Expected) Under the idea of corporate citizenship, the idea that companies should voluntarily give back to society