Management 4970 Test 1

What are the barriers to imitation?

Better expectations of future resource value, path dependence: past decisions limit current options, casual ambiguity: cause and effect are vague, social complexity: social and business systems interact, Intellectual Property (IP) protection.

VRIO Tool

Valuable, Rare, Costly to Imitate, Organized to capture the value of the resource

What is PESTEL analysis/the PESTEL framework?

It groups environmental factors into 6 segments: Political, Economic, Sociocultural, Technological, Ecological, and Legal

Drawing on the McKinsey reading on CPG (consumer packaged goods) industry, identify three

PESTEL factors discussed in the article. Classify each within the PESTEL framework and explain how

each trend could represent an opportunity or threat for firms in the consumer goods industry.

Ecological - Consumers “going green”, health and wellness concerns

Legal - changing tax regimes, rising trade protectionism

Sociocultural - rise of digital consumers, shifting demographics

Explain Porter’s Five Forces framework, its five forces,

Threat of new entrants, Bargaining power of buyers, Threat of substitute products or services, Bargaining power of suppliers, and rivalry among existing competitors.

Explain Porter’s 5 Forces framework and the purpose of the framework

a business strategy tool used to analyze an industrys competitiveness and long term profit potential

Choose three of the five porter’s forces and explain the conditions under which each force would be strong (at

high level).

Supplier Power- concentrated/limited supplier industry, no supplier substitutes, current holding firms face supplier switching costs

Buyer power- few buyers and each buyer purchases lg quantities, buyers face low or no switching costs, buyers can backwardly integrate into industry

Threat of substitutes - substitute offers attractive price-performance trade-off, buyer’s cost of switching to substitute is low

According to the resource-based view and VRIO framework, what characteristics allow a firm's resources and capabilities to generate temporary/sustainable competitive advantage?

Valuable, Rare, costly to imitate, organized to capture the value of the resource

Drawing on the Nike reading, identify two key resources or capabilities that contribute to Nike’s competitive advantage. Apply the VRIO framework to evaluate whether each is capable of providing Nike with a sustained competitive advantage. Justify your assessment.

• Customization - benefits associated with offering customer tailored solutions (rare in VRIO framework)

• Scope - large range of products geared to diff people (costly to imitate in VRIO framework

AFI Strategy Framework

Analysis, Formulation, Implementation

Goal-directed actions to gain and sustain superior performance relative to competitors

Also explains and predicts differences in firm performance - good strategy is based on AFI Framework

Sustainable competitive advantage

A firm that is able to outperform its competitors or the industry average over a prolonged period (example- Apple’s sustainable competitive advantage over Samsung that has lasted over a decade)

Competitive disadvantage

A firm that underperforms its rivals and the industry average

Competitive parity

two or more firms that perform at the same level

Unique strategic position

walmart’s strategic activities strengthen its position as cost leader

Big stores, low overhead, low wages

Stakeholders include

stockholders, employees, board members, customers suppliers, alliance partners, unions, communities, media and governments

Internal Stakeholders examples

employees, stockholders, board members

External Stakeholders examples

customers, suppliers, alliance partners, creditors, unions, communities, governments, media

Stakeholder Impact Analysis

helps to recognize, prioritize, and address stakeholder needs

Power, legitimacy, and urgent claims

Pyramid of CSR

Philanthropic responsibilities, ethical responsibilities, legal responsibilities

Upper Echelons Theory

organizational outcomes reflect values of top management team

their unique perspectives and values

The strategy process

Formulation-choice of strategy, where and how to compete, 3 areas (corporate, business, functional)

Implementation-how work gets done, execution

Example of corporate strategy

Where to compete? Industry, markets, and geography

Example of functional strategy

How to implement chosen business strategy? Diff strategies require diff activities

SBU

strategic business unit, an autonomous division of a larger conglomerate. (ex: Sam’s club of walmart)

profit and loss responsibility

receive guidelines from corporate headquarters

3 approaches to organizational strategy

Strategic planning, scenario planning (top down), strategy as planned emergence (less formal)

Intended Strategy

outcome of a rational and structured top-down strategic plan

Emergent Strategy

any unplanned strategic initiative, can influence firm overall strategy

Realized strategy

combo of intended and emergent strategy

How to choose approach to organizational strategy

effectiveness is dependent on rate of change (slow/stable-choose top-down), firm size (large firm-choose top-down or scenario planning) (ex-Nuclear power provider is top-down, prep for black swan events thru scenario planning)

Pestel - P

Political - processes and actions of gov’t bodies that influence the firm can be shaped thru events like lobbying and litigation

Pestel - E

Economic - largely macroeconomic, examples include growth rates, interest rates, employment lvls

In periods of economic expansion

Businesses expand and are more profitable

Unemployment is low

For interest rates, credit is cheap bc interest rates are low

Price Stability - rising prices result in inflation

Currency exchange rates - dollar can appreciate

Pestel - S

Sociocultural - society’s cultures, norms, and values

examples include demographic trends like population characteristics, etc.

Pestel - T

Technological - application of knowledge, innovations in technology. examples include new processes and products, etc.

Pestel - E

Environmental - broad environmental issues like global warming, natural environment, sustainable economic growth.

Pestel - L

Legal - official outcomes of political processes

laws, mandates, regulations, etc (legal factors often coexist with or result from political will)

How do industry forces impact firm profitability?

Attractive industry - sustainable competitive advantage is easier - high profit ptnl, weaker 5 forces

Unattractive industry - sustainable competitive advantage is harder, low profit ptnl, stronger 5 forces

Threat of entry barriers

Economies of scale, network effects, customer switching costs, capital requirements, gov’t policy, etc.

Bargaining Power of suppliers is high when

Limited supplier industry

Suppliers not dependent on industry for majority of revenue

Suppliers offer differentiated products

Incumbent firms face supplier switching costs

No supplier substitutes

Suppliers can fwd-integrate into industry

Rivalry Intensity is determined by

Competitive industry structure, industry growth, strategic commitments, exit barriers

Industry Convergence

when unrelated industries begin to satisfy the same customer need, caused by technological advances.

Strategic Groups

set of companies that are pursuing a similar strategy in the same industry

Core competencies

unique strengths of a firm that allow them to differentiate from rivals. Result in creating higher value for customers or result in products/services offered at lower cost (ex-Netflix creates proprietary algorithms based on individ customer prefs)

Resource-based view (RBV)

Model aids in identifying core competencies

Resources are key to superior firm performance

Tangible (includes labor and capital) and Intangible

Critical Assumptions of Resource-based view (RBV)

resource heterogenity - a firm is a unique bundle of resources, capabilities, and competencies

resource immobility - resources are “sticky” and don’t move easily from firm to firm, difficult to replicate, can last

Core Rigidity

when a former core competency turns into a liability thru new updates / company changes

• result of an environmental change

• no longer fits the external environment

turns a resource from an asset to a liability

Dynamic Capabilities Perspective

a model that emphasizes firms ability to

modify and leverage resource base

gain and sustain comp advtg

respond to constantly changing environment

Primary activities vs support activities

Primary

• add value directly, transform inputs into outputs, focus on regular stages

Support

• firm activities that add value indirectly, research and development, accting and finance, etc.