Strategy and Decision Making Exam 1

Average Returns

returns equal to those an investor expects to earn from other investments possessing a similar amount of risk

Strategic Management Process

the full set of commitments, decisions, and actions firms take to achieve strategic competitiveness and earn above-average returns

The Strategic Management Process

An organization can be confident that its strategy yields a competitive advantage after:

competitors efforts to duplicate it have ceased or failed

Digitilization

the process of converting something to digital form, is a competitive dimension that is affecting competition in multiple industries throughout the world

Hypercompetition

a condition where competitors engage in intense rivalry, markets change quickly and often, entry barriers are low

2 primary drivers of hypercompetition

the emergence of a global economy

rapid technological change

global economy

one in which goods, services, people, skills, and ideas move freely across geographic borders

tariff

a tax imposed by a government on goods imported into their country. sometimes used as a weapon against a country in an effort to gain concessions in other areas.

globalization

the increasing economic interdependence among countries and their organizations as reflected in the flow of products, financial capital, and knowledge across country borders.

global supply chain

a network of firms that spans multiple countries with the purpose of supplying goods and services

deglobalization

a reduction in participation in global supply and value chains

technology diffusion

the speed at which new technologies become available to firms and when firms choose to adopt them

perpetual innovation

a term used to describe how rapidly and consistently new, information-intensive technologies replace older ones

disruptive technologies

technologies that destroy the value of an existing technology and create new markets

knowledge

consists of information, intelligence, and expertise

information technology

the key to acquiring and managing knowledge flows

big data

refers to the data retrieved by firms that are increasing in volume, variety, and frequency

big data analytics

the process of examining huge amounts of data to uncover hidden patterns and other information that can be used to improve decision making

strategic flexiblity

a set of capabilities firms use to respond to various demands and opportunities existing in today’s dynamic and uncertain competitive environment

involves coping with uncertainty and its accompanying risks

requires developing the capacity for continuous learning and adapting to a changing environment

sustainability

a firm that should not deplete or destroy natural elements upon which it depends for survival

logic of the I/O (industrial organization) model

the profitability potential of an industry or a segment of it as well as the actions firms should take to operate profitably are determined by a set of industry characteristics, including:

economies of scale

barriers to market entry

diversification

product differentiation

the degree of concentration of firms in the industry

market frictions

The I/O (industrial organization) Model of Above-Average Returns

The industrial organization (I/O) model assumes that

The external environment imposes pressures and constraints that determine the strategies that would result in above-average returns.

resources

inputs into a firm’s production process, such as capital equipment, the skills of individual employees, patents, finances, and talented managers

capability

the capacity for a set of resources to perform a task or an activity in an integrative manner

core competencies

capabilities that serve as a source of competitive advantage for a firm over its rivals

Resources and capabilities have the potential to be the foundation for a competitive advantage when they are:

−Valuable (allow a firm to take advantage of opportunities or neutralize threats in its external environment)

−Rare (possessed by few, if any, current and potential competitors)

−Costly to imitate (are difficult for other firms to obtain)

−Non-substitutable (have no structural equivalents)

Which of the following is an assumption of the resource-based model?

Organizational decision makers are assumed to be rational individuals who are committed to acting in the firm's best interests, as shown by their profit-maximizing behaviors.

stakeholders

individuals, groups, and organizations that can both influence and are affected by the objectives, actions, and outcomes of a firm.

primary stakeholders

directly involved in the value-creating processes of the firm and include: suppliers, employees, customers, the communities in which the firm operates, financiers such as the firm’s shareholders and banks

secondary stakeholders

can both influence and are influenced by what the firm does, but they do not contribute directly to the value the firm creates.

distributional justice

means that stakeholders feel as though they are receiving value through their relationship with their firm that is commensurate with what they contribute to the firm

procedural justice

means that the firm listens to stakeholders and considers their positions when making important decisions that are likely to affect them

interactional justice

means that all stakeholders are treated with honesty, respect, and integrity

vision

a picture of what the firm wants to be and, in broad terms, what it wants to achieve

a vision statement:

articulate the ideal description of an organization and gives shapes to its intended future, tends to be relatively short and concise

an effective vision

stretches and challenges people, and is consistent with the decisions and actions of those involved with developing it.

mission

specifies the businesses in which the firm intends to compete and the customers it intends to serve

a mission is:

more concrete than a firms vision, should establish a firms individuality, should be inspiring and relevant to all stakeholders, deals more directly with product markets and customers, has a higher profitability of being effective when employees have a strong sense of ethics.

values of an organization

define what should matter most to managers and employees when they make and implement strategic decisions

values:

help guide what is rewarded and reinforced in the organization,

are a practical application of business ethics

can help a firm define its purpose and answer the fundamental question of what the firm stands for

should help determine the way stakeholders are treated and their priority in important decisions.

strategic leaders

people located in different areas and levels of the firm using the strategic management process to select actions that help the firm achieve its vision and fulfill its mission

organizational culture

refers to the complex set of ideologies, symbols, and core values that individuals throughout the firm share and that influence how the firm conducts business

the social energy that drives- or fails to drive- the organization

how can a firm avoid managerial hubris (overconfidence) at the top of the organization

delegate strategic responsibilities

A-S-P process

The Analyses (A) firms use to develop strategies

the firms analysis provide inputs that are the foundation for choosing one or more strategies (S) and deciding with one/s to implement.

the strategic management process calls for disciplines approaches to serve as the foundation for developing a competitive advantage

the process has a major effect on the performance (P) of the firm

LEARNING OBJECTIVE: Define strategic competitiveness, strategy, competitive advantage, above-average returns, and the strategic management process.

1. Strategic Competitiveness – When a firm uses a strategy that helps it succeed against rivals.
2. Strategy – A plan of actions and choices to reach goals and compete.
3. Competitive Advantage – When a company does something rivals can’t easily copy.
4. Above-Average Returns – Profits greater than what investors expect for similar risks.
5. Strategic Management Process – The steps a firm takes to choose, apply, and review strategies to stay competitive.

LEARNING OBJECTIVE: Describe the competitive landscape and explain how globalization, technological changes, and expectations of socially responsible behavior shape it.

The competitive landscape is shaped by globalization, which increases worldwide competition; rapid technology, which forces constant innovation; and rising expectations for social responsibility, which push firms to act ethically and sustainably.

LEARNING OBJECTIVE: Use the industrial organization (I/O) model to explain how firms can earn above-average returns.

The I/O model says a firm’s success depends mostly on the external environment (industry it competes in). To earn above-average returns, firms:

1. Study the industry to see what drives profits.

2. Pick an attractive industry.

3. Choose a strategy suited to that industry.

4. Develop skills to carry out the strategy.

5. Use those skills to compete and earn higher returns.

In short: Pick the right industry, match strategy to it, and execute well.

LEARNING OBJECTIVE: 1.4  Use the resource-based model to explain how firms can earn above-average returns.

The resource-based model says a firm’s success depends on its internal resources and capabilities. To earn above-average returns, a firm must have resources that are:

1. Valuable – help exploit opportunities or neutralize threats.

2. Rare – not widely available to competitors.

3. Costly to Imitate – hard or expensive for rivals to copy.

4. Organized – effectively used to create value.

👉 In short: Use unique, valuable resources well to outperform rivals.

LEARNING OBJECTIVE: 1.5  Use the stakeholder model to explain how firms can earn above-average returns.

The stakeholder model says firms earn above-average returns by managing relationships with all key stakeholders (customers, employees, suppliers, investors, communities). By meeting stakeholders’ needs and creating mutual value, firms gain loyalty, support, and a strong reputation, which drives long-term success.

LEARNING OBJECTIVE: 1.6  Describe vision, mission, and values, and explain why they are important.

Vision – A long-term goal showing what the firm wants to become.

Mission – The firm’s purpose and approach to reach its vision.

Values – Core principles guiding behavior and decisions.

LEARNING OBJECTIVE:1.7  Describe strategic leaders and what they do.

Strategic leaders are people located in different areas and levels of the firm using the strategic management process to select actions that help the firm achieve its vision and fulfill its mission.

They are : decisive, committed to nurturing those around them, and committed to helping the firm create value for all stakeholder groups

LEARNING OBJECTIVE: 1.8  Explain the strategic management process.

a rational approach firms use to achieve strategic competitiveness and earn above-average returns.

ASP process

• the analyses (A )and use to develop strategies

• the firms analyses provide inputs that are the foundation for choosing one or more strategies (S) and deciding which ones to implement

• the process has a major effect on the performance (P) of the firm.