EXAM 1 FLASHCARDS

Class #1

What is STRATEGY?

• Set of goal-directed actions to gain and sustain superior performance against competitors.

  Founder of Modern Strategy: Michael Porter

What Strategy is NOT

• Not grandiose statements

  • "We will be number 1", We’ll Win M: Claire

• Not failure to address competition

  • Blockbuster not addressing changes with Netflix, Amazon Prime, Hulu, etc.

• Distinct from operational effectiveness or tactical tools

  • “Operation, pricing, branding Strategy”

  • Good policies/initiatives but not a strategy

    M: Concept of a plan

Summary: strategy is a well-thought-out plan with actions surrounding completing a goal and sustaining better performance against competitors. It is NOT just saying we’ll win without any plan or not addressing how and why they’re a competitor competitors

3 Elements of a GOOD Strategy:

1. Diagnosis of competitive challenges

   • Analysis of a firm (internal & external environments)

2. Guiding policy to address those challenges

   • Formulation → Results in corporate

3. Set of coherent actions to implement the firm’s guiding policy

   • Implementation

AFI = Analyze, Formulate, Implement

M: Good militaries use these tactics to defeat their enemies

A: External → Industry Structure, Competitive Forces, & Strategic Groups Internal → Resources, Capabilities, and Core Competencies, Shared Value and CA

F: Business → differentiation, cost leadership, and blue ocean. Innovation, entrepreneurship, and platforms

Corporate → Vertical integration and diversification. Strategic Alliances, Mergers & Acq. Global Strategy → Competing around the world

I: Organizational Design → structure, culture, and control. Corp. governance, business ethics, and business modules

All of these are used to GAIN & SUSTAIN Competitive Advantage

Competitive Advantage:

Superior performance relative to competitors in the same industry or industry average

• It's relative and assessed by benchmarking against industry averages → NOT ABSOLUTE

To assess CA, benchmark:

• Compare the firm to competitors in the same industry

• Compare the firm to the industry average

+ Wal-mart Example:

Who are their competitors: Amazon, Target, etc.

Does Wal-Mart have a CA: - low prices. - efficient supply chain. - brand recognition. - E-Commerce

Is it sustainable?

Sustainable Competitive Advantage:

Competitive + Advantage + Sustainable = superior performance relative to other competitors in the same industry/ind avag.

Ex: Wal-mart, Google, Apple , Lululemon

Competitive Disadvantage: a firm that underperforms

Competitive Parity: two or more firms performing at the same level

Ex: Visa & MasterCard

How can firms gain a competitive advantage?

Usually 1 of the 2 ways:

1. Differentiation (more valuable products)

   • more valuable to consumers than its competitors

2. Cost Leadership (lower prices)

   • lower than similar goods/services

Reward of Value Creation: profitability & market share

• Competitive Disadvantage and Parity

  • Competitive Disadvantage: Underperforming relative to others.

  • Competitive Parity: Firms performing at the same level

Strategic Positioning in Retail:

• Managers must make conscious trade-offs in resource allocation and activity selection.

  • Strategies must enhance value creation to achieve a competitive advantage

    Why: Value Creation - Costs = Economic Contribution

• choice restrictions can enhance decision-making.' This means that by limiting the options available to customers, retailers can simplify the decision-making process, which can lead to increased sales and customer satisfaction.

Class #2: Strategic Leadership & Purpose

it’s not just about profit → CA can also be in terms of RESOURCES

• New Ventures

  • financial & human capital

• Existing Companies

  • profitable growth

• Charities

  • donations

• Universities

  • best students & professors

• Celebrities

  • endorsements

Value Creation

companies w/ a good strategy are able to provide products or services to consumers:

• at an affordable price

• and enables the company to make a profit

it lays the foundation for a successful economy:

• education

• healthcare

• public safety

• infrastructure

• environment

Shareholders vs Stakeholders

Stakeholders: orgs, groups, or individuals that affect or be affected by a firm’s actions

and/or have a vested claim in the firm’s performance/survival

Internal:

• stock/shareholders

• employees

• board memebers

External:

• customers

• suppliers

• alliance partners, media, gov’t, communities, planet etc.

*Shareholders (meaning they have a financial stake in its success) are IN stakeholders

Stakeholder Strategy: integrative approach to managing a diverse set of stakeholders to G&S CA

• they benefit from firm performance

  • Benefits include enhanced cooperation and reduced transaction costs

Stakeholder Impact Analysis: Tool to prioritize stakeholder needs based on power, legitimacy, and urgency

• helps recognize, prioritize, and address stakeholder needs

3 Stakeholder Attributes

1. Power: they can get the firm to do something they would otherwise not

2. Legitimacy of Claims: perception of being legally valid or otherwise appropriate

3. Urgency of claims: requires a company’s immediate attention and response

Decision Flow for SIA: who are SH? What do they value? What opps and threats do they present? What responsibilities do we have to them? What should we do to efficiently address their concerns

*talked about Emory

Pyramid of Corporate Social Responsibility:

• Framework defining levels of corporate responsibility including economic, legal, ethical, and philanthropic.

Bottom to top: Economic, Legal, Ethical, Philanthropic

Four Components of CSR:

1. Economic:

   • gaining and sustaining CA

   • for-profit firms

2. Legal:

   • minimum acceptable standards

   • est. rules of the game

3. Ethical

   • full scope of the stakeholder’s expectations, norms, and values

4. Philanthropic

   • voluntarily give back to society

5. Key Takeaways:

• A strategist’s job is to cope with competition

  • Rivals

  • Potential limit to profits (suppliers, customers, stakeholders)

• Strategic CA is relative to the competition

  • higher value (differentiation) vs lower costs (cost leadership)

  • requires trade-offs → can’t be a perfect fit for everybody

• Strategy is a set of activities that work together

  • creates an “economic moat” that produces profits

  • more benefits than practices → difficult for others to copy

• Willingness to pay = (DOES NOT EQUAL) price

  • Goal is to find customer segments who LOVE what you do and are WTP Ex: VEG

  • How your price reflects intentions: margin vs market shares

  • Understanding competition requires strategic awareness beyond traditional rivals to include all stakeholders.

    • Emphasizing trade-offs in strategy and the necessity of maintaining unique market positions

AFI Framework

effectively managing the strategy process is the result of the interdependence of

(A)nalysis

(F)ormulation

(I)mplementation

Why: AFI framework explains and predicts differences in firm performance AND helps leaders for and implement a strategy that results in CA

A: External → Industry Structure, Competitive Forces, & Strategic Groups Internal → Resources, Capabilities, and Core Competencies

Shared Value and CA

F: Business → differentiation, cost leadership, five forces, and blue ocean. Innovation, entrepreneurship, and platforms

Corporate → Vertical integration and diversification. Strategic Alliances, Mergers & Acq. Global Strategy → Competing around the world

I: Organizational Design → structure, culture, and control. Corp. governance, business ethics, and business modules

Leadership influences strategy and firm performance IMMENSELY

• strategy leaders have a strong preference for face-to-face interactions/learning

Strategic Leaders: 5-Level Pyramid

• leaders use formal power and informal influence to get things done

Lvl 1: Highly capable individual

Lvl 2: Contributing Team Member

Lvl 3: Competent Manager

Lvl 4: Effective Leader

Lvl 5: Executive

Progression of leadership through the pyramid

• Strategy Formulation

  • choice of strategy

  • where and how to compete

• Strategy Implementation

  • Organization, coordination, integration

  • How work gets done

  • Execution of strategy

3 distinct areas

1. corporate: where

2. business: how to compete

3. functional: how to implement business strategy

Vision, Mission, & Values

• most companies have customer-oriented statements

  • Ex: Nike → everyone is an athlete Olay → everybody is beautiful

Vision: what do we want to accomplish (strategic intent)

• spells out aspirations, goals, long-term objectives

• provide employees with a purpose/direction

• firm core competencies bring the vision to life

Mission: how do we accomplish our goals

• which customers, products, and services

Values: what commitments do we make? What safeguards are in place?

• how do we act legally/ethically as we pursue our vision and mission

• Help deal with complexity, resolve conflict, and understand culture

Research shows that vision statements and firm performance are related

• relationship is strongest when:

  • vision is CUSTOMER-ORIENTED

  • internal stakeholders HELP DEFINE the vision

  • organizational structures ALIGN W/ THE VISION (compensation)

Case Analysis:

• put yourself in the firm’s shoes

• address challenges followed by background on the firm and additional information

Class #3: Strategic Management Process

3 Approaches to Organizational Strategy

1. Strategic planning

   • a formal, top-down approach

2. Scenario Planning

   • A formal, top-down. approach (w/ what-ifs)

3. Strategy as planned emergence

   • bottom-up, begins with a strategic plan, but is less formal

Top-Down Strategic Planning: Overview

• data-driven strategy process

• Top management attempts to program future success through analysis

  • prices and costs, margins, mkt demand

• Ideal settings

  • highly regulated industries

  • gov’t

  • military

Pro’s and Con’s of Top-Down Strategic Planning:

Pro’s:

• clarity of strategy and communication

• Coordination and control

Cons:

• Rigid

• Limited feedback

• Difficult to tell the future

• Distances between top managers and front-line

Scenario Planning: Overview

• Ask “what if” questions

• Top management compares different scenarios

  • legislation, demographic changes, economic and geopolitical condition, tech advances

• Different strategic responses

  • can plan for optimistic or pessimistic futures

• Ideal settings

Pros and Cons:

Pros:

• largely the same as top-down, but provides some flexibility

Cons:

• limited feedback

• difficult to predict all scenarios, especially black swan events

• distance between top managers & front-lines

• avoidance in planning for pessimistic scenarios

Black Swan Event:

the high impact of of a highly improable event

ex: 9/11, Brexit, Large-scale conflict

Strategy as Planned Emergence: Overview

Top-Down & Bottom-Up:

• bottom-up strategic initiatives emerge

• evaluated and coordinated by management

• less formal and less stylized

Relies on data, plus:

• personal experiences

• Deep domain expertise

• front line insights

Ideal Settings: New ventures, smaller forms, dynamic industries

Pros & Cons:

Pros:

• combines elements of AFI framework in a holistic way

• direction with intended strategy

• allows for emergent strategy

• strategy flexibility, buy-in

Cons:

• unclear strategic process and communication

Strategic Decision-Making:

• System 1 (immediate, subconscious, error-prone)

• System 2 (slow, conscious, effortful, more reliable)

Cognitive Biases from these:

• Illusion of control: airplanes

• Escalating commitment: sunken cost theory (Motorola)

• Confirmation Bias

• Reason by Analogy: the tendency to use simple analogies to make sense of complex problems → corp fin value chat

• Representativeness: drawing conclusions from small samples/anecdotes

• Groupthink: follow the leader

Class #4: PESTEL & Porter’s 5 Forces

Pre-Class: Stakeholder analysis for Emory

Tackling External analysis → Review of PESTEL framework, Five Forces model, and entry strategies

The PESTEL Framework:

• straightforward way to scan, monitor, and evaluate external factors

Political, Economic, Sociocultural, Tech, Enviornment, Legal

Political:

• Pressure exerted on firms by

  • gov’t bodies

  • Nongovernmental organizations

  • Social movements

They use a nonmarket strategy to influence the political environment (lobbying, PR, contributions, litigation)

• Political and legal forces are very similar

  • political pressure usually results in a change in legislation

Economic:

• Largely macroeconomic, affect economy-wide phenomena

  • Growth rates

  • Employment level

  • Interest rates

  • Price stability (inflation and deflation)

  • Currency exchange-rated

Sociocultural:

• Society cultures, norms, and values

  • constantly in flux

  • differ across groups

  • strategic leaders should monitor these trends

• Demographic trends:

  • population characteristics

  • Age, gender, family size, ethnicity, sexuality, etc.

Tech:

• Application of knowledge to create

  • new processes and products

• Innovations in process tech

  • lean manufacturing, engineering, AI, etc.

• Innovations in product tech

  • drones, wearable devices, electric cars

• Advances in AI and machine learning

Ecological:

• Broad environmental issues

  • Natural environments

  • Climate change

  • Sustainable economic growth

• relationship between orgs and the environment can be adversarial or advantageous for business

Legal:

• Official outcomes of political processes:

  • laws

  • mandates

  • regulations

  • court decisions

• Many industries have been deregulated

  • airlines, telecom, energy, and trucking

• Legal factors often coexist with or result from a political will

*Talked about NYC and Airbnb

Industry vs Firm Effects: Industry Concepts

Industry:

• Group of firms with more or less the same set of suppliers and buyers

• Tend to offer similar products/services

• Fulfill similar customer needs

Industry Effects:

• Firm performance attributed to the economic structure of the industry in which the firm competes

• Elements common to all firms w/in the industry

• Examples include entry and exit barriers, types of products offered

Industry Analysis allows us to:

1. Identify an industry’s profit potential

2. Derive implications for a firm’s strategic position within an industry

   Strategic Position: A firm’s profile based on the difference between value creation and cost (V-C) to maximize CA

Industry vs Firm Effects: Firm Concepts

Firm Effects:

• firm performance attributed to the actions strategic leadership take

• more important than industry effects

Recall:

Corp. Strategy: address the question of which industries to compete in

Busi. Strategy: answers the question of how to compete in them

In a pie chart - firm effects make up 55% with industry effects being 20% and other effects being 25%

Porter’s 5 Forces Model:

Purpose:
1. Help strategic leaders understand the profit potential of different industries
2. Position their firms to gain and sustain a competitive advantage

Perspective:

• Competition is broadly conceived (not just rivals)

• Profit potential isn’t random, it is a function of the five forces

The 5 Forces:

1. Threat of New Entrants 🚪🔓

   • Economies of scale

   • Customers switching costs

   • Gov’t policy

     • How easy is it for new businesses to enter the market?

     • If it's easy, competition increases, making it harder for existing companies to maintain profits.

2. Bargaining Power of Suppliers 📦💰

   • Raise the cost of production

   • Reduce the industry profit potential (Value)

     • How much power do suppliers have over pricing and availability of materials?

     • If a few suppliers control key resources, they can demand higher prices, increasing costs for businesses.

3. Bargaining Power of Buyers 🛒💵

   • # of firms

   • Standardization

   • Buyers switching costs

   • The threat of backward integration: business strategy where a company expands its operations by acquiring or controlling its suppliers ex: tesla makes their own batteries

     • How much influence do customers have?

     • If customers have many options, they can demand lower prices or better quality, forcing businesses to compete.

4. Threat of Substitutes 🔄⚖

   • Price/performance trade-offs

   • Low switching costs

     • Are there alternative products that can replace yours?

     • If customers can switch to another product easily (e.g., Uber instead of taxis), your business might struggle.

5. Industry Rivalry ⚔🔥

   • How intense is the competition among existing businesses?

   • If many companies are competing aggressively, prices drop, profits shrink, and businesses must innovate to stand out.

When are new entrants easily able to enter an industry:

• Profitable industries attract new entrants; threats of new capacity

Low barriers to entry threaten the profits of incumbents

easily able to enter an industry when:

1. Limited economies of scale: cost/unit varies little with volume
2. Fast learning curve: cost / unit varies little with experience
3. Low switching costs: easy to pivot to new entrant product / service
4. Low network effects: WTP not a function of others purchasing
5. Low brand loyalty: willingness to try new entrant product / service
6. Low startup costs: investments recouped quickly
7. Equal access to inputs: no proprietary rights
8. Equal access to distribution: sales channels widely available
9. No history of incumbent aggression: no expectation of retaliation
10. Limited government restrictions: little need for licenses/approvals

How to evaluate a company’s economic moat:

5 sources:

1. Intangible assets

2. Customer Switching costs

3. Cost advantage

4. Network Effect

5. Efficient Scale

Class #5: Industry Entry & Dynamics

How do Suppliers Threaten Profitability?

• Powerful Suppliers can exert pressure on an industry’s profit potential by:

  • demanding higher prices or limiting quality of their inputs, capturing more economic value created

  • Economic surplus = WTP - Cost

• Suppliers are powerful when:

  • There are few alternatives for their buyers

    • concentrated industry

    • no substitute products

  • There are many buyers, either within or across industries

  • it is expensive for their buyers to switch, high switching costs, difficult to shop around

  • They can credibly threaten to forward-integrate

    FI: a company expands by taking control of activities that happen later in its supply chain, like distribution or retail

    ex: manufacturer that starts selling its products directly to consumers instead of relying on third-party

    —> Short:

  • Few alternatives for buyers

  • Concentrated industry

  • No substitute products

  • High switching costs for buyers

  • Ability to threat forward integration

How do buyers limit profitability?

• they can demand lower prices, higher qulaity, and/or better service

• Threat to industry profits:

• limited # of buyers (volume discount)

• undifferentiated products (no customer pref)

• no switching costs

• credible threat of backward integration

Consumers are price-sensitive when:

• A purchase represents a significant portion of its procurement budget

• Buyers earn low profits or are short of cash

• Buyers product/service quality (cost) is not much affected by quality (costs) of inputs

Threat of Substitutes

• Substitutes meet the same basic customer ned

  • in a different way

  • from outside the given industry

• Limit the pricing power of incumbents

• Factors influencing threat:

  • Price/performance tradeoffs

  • Low switching costs

Examples:

• software vs professional services

• Energy drinks vs coffee

• zoom vs business travel

When is Rivalry Among Competitors High?

• Conditions for high rivalry:

  • Many competitors of equal size

  • Slow industry growth

  • High exit barriers

  • Strong commitment from incumbents

  • Direct substitute products

  • High fixed costs and low marginal costs

  • Excess capacity

Industry Structure Predicts Rivalry

• Industry competitive structures range from:

  • Perfect competition: many small firms, low entry barriers, low-profit potential

  • Monopolistic competition: differentiated products, medium barriers, some pricing power

  • Oligopoly: few large firms, high entry barriers

  • Monopoly: one firm, very high entry barriers, significant pricing power

A Sixth Force: Complements

• Complement is a product, service, or competency that adds value when used with the original product

  • the availability of complements increases (or decreases) demand for the primary product (charging stations)

  • affects the profit potential for the industry and the firm

• Co-Opetition: cooperation among competitors for strategic objectives

Entry Choices:

• when

• how

• what

• where

• who

Industry Dynamics:

• PESTEL and 5 Forces Models provide static snapshots;

  Changes in: paying attention to industry dynamics recognize

  • Industry structure

  • Industry shocks

    • deregulation, legislation, technological innovation, globalization

Industry Convergence

• Unrelated industries satisfying the same customer needs due to technological advances;

  • Ex: Media industries

    • moving content online

    • newspapers, magazines, TV, radio, movies, music, books

Airline Distinction:

Group A: low-cost, point-to-point

• spirit

• frontier

• jetblue

—- Mobility Barrier ——

Group B: differentiated, hub and spoke

• delta

• American

• united

Class #6: Firm Internal Analysis

Inside the Firm: Competitive Advantage → include:

• Core competencies

• Resources

• Capabilities

Do the resources meet the VRIO Framework:

• valuable, rare, inimitable, organized

  • competitive impact

  • performance implications

* We built paper skyscrapers

Class #7: Value Chains and Strategic Systems

Dynamic Capabilities

allows a firm to:

• adapt their resources over time with aim of gaining CA

  • create, deploy, modify, upgrade etc.

Goal:

• continually develop resources, capabilities, and competencies

• create long-term competitive advantage

• create a strategic fit with the firm’s environment

ex: Apple and Boeing

The Bathtub Metaphor

Inflows:

Investments in intangible Resources

• dynamic capabilities

• new product development

• innovation capability

• trademarks

  etc.

Outflows:

leakage, forgetting

Firm Value Chain

the total internal activities a firm engages in when transforming inputs into outputs

• raw materials → components → products

• Encompasses primary & support activities

  • each activity adds incremental value

  • also adds incremental costs

Generic Value Chain

• Components:

  • Primary Activities

    • Operations: Transform raw materials to finished products.

    • Marketing and Sales: Promote and sell products.

    • After-Sales Service: Support after purchase.

  • Support Activities

    • Research and Development: Innovate and improve products.

    • Information Systems: Manage data and improve processes.

    • Human Resources: Manage personnel and organizational culture.

    • Accounting and Finance: Financial management and reporting.

    • Firm Infrastructure: All systems, processes, and policies supporting primary activities.

• Value Addition: Each activity adds incremental value but also costs

Primary Activities:

firm activities add value directly

• inputs → outputs

• focused on moving raw materials, through production phases, to sales & marketing, and finally customer service

  • supply chain management

  • operations

  • distribution

  • marketing and sals

  • after-sales service

Support Activities:

firm activities that add value indirectly

• necessary to sustain primary activities

  • R&D

  • Information systems

  • Human Resources

  • Accounting and finance

  • Firm infrastructure including process, policies, and procedures

Strategic Activity Systems

Strategic Activity Systems are networks of interconnected activities

• can be the foundation of competitive advantage

• socially complex and casually ambiguous

• enhance likelihood of sustained CA

Characteristics:

• one or more elements can be easily observed

Strategic Activities MUST evolve:

• External environment changes

• Competitors develop their activity systems

  How are activity systems updates?
  • Add new activities
  • Remove activities that are no longer relevant
  • Upgrade activities that have become stale or somewhat obsolete
  

Class #8: IPO, Shareholder Capitalism, Creating Value

Public Company: ownership divided into shares that can be traded by the general public

• companies “go public” (IPO) to raise capital for future growth

4 Attractive Characteristics:

• limited liability for investors (shareholders)

• Transferability of investor ownership

• Legal personality

• Separation of legal ownership and management control

Shareholder Capitalism

• investors/providers of risk capital own company

  • have the most legitimate claim on profits

  • Goal of firm: maximize profits

• Purpose of the firm, the duty of strategic leaders: maximize profits

• Maximizing profits → increased societal welfare

Assumptions of Shareholder Capitalism

• Free markets are perfectly efficient

  • Competitive markets efficiently allocate resources

  • provide info about value via price

• Individual freedom as a primary goal of society

  • corporations “legal persons”

  • negative externalities if left unchecked by policymakers

• Managers are agents of shareholders

  • Principal-agent problem: Conflict between representativeness (managers) and who they represent (owners)

Reimagining Capitalism in a World on Fire

• Three Defining Problems

  • Climate change

  • Economic Inequality

  • Beleaguered Institutions

• Proposed shift toward stakeholder capitalism and creating shred value

Stakeholder Capitalism

• companies have a responsibility to all stakeholders (not only shareholders)

• All stakeholders have legitimate claims

• Goal: Creating Shared Value

Creating Shared Value:

• Pursue policies/ practices enhancing competitiveness while also advancing economic/ social conditions

• Duty of strategic managers: focus on economic value for shareholders while creating social value

• MORE THAN CSR

  • rather than reduce harm, generate social value from business activities

• Expanding the pie of value creation

Class #9: TOM, Assessing Competitive Advantage

The Rise and Fall of TOMS

• Easily Imitable Model – The "One-for-One" concept was copied by competitors (e.g., Skechers’ Bobs), reducing differentiation.

• High Costs & Low Margins – Donations increased expenses without a sustainable revenue model to offset costs

• Poor Strategic Adaptation – Failed to pivot effectively when competitors and market trends evolved.

• Lack of Product Innovation – Focused on philanthropy rather than improving design, comfort, or variety.

• Weak Brand Loyalty – Consumers valued the cause but not the product itself, leading to declining repeat purchases.

• Market Saturation & Declining Appeal – Cause-based marketing lost its novelty as consumer preferences shifted toward impact-driven, transparent sustainability efforts.

Goal of Strategic management → gain and sustain Competitive Advantage

• Easy to compare performance between two firms, but not clear:

  • why firms have CA

  • CA in terms of an entire industry and changing environment

  • How we measure CA

Overview of Performance Frameworks:

3 traditional frameworks to measure and assess firm performance

1. Account Profitability

2. Shareholder Value Creation

3. Economic Value Creation

*Accounting Profitability + Shareholder VC = Helps determine stock’s market valuation

2 integrative frameworks that combine quantitative data and qualitative assessment

• Triple Bottom Line

• Balance Scorecard

Accounting Metrics:

• ROIC = invested capital

• ROE = stockholder equity

• ROA = assets

• ROR = Invested capital

Source = required 10-Ks

Pros & Cons of Accounting Metrics:

Pros:

• specific requirements

• audited

Cons:

• Backward-looking: know the company's past but not the future

• Only items found on the balance sheet

• focus on tangible assets

Shareholder Value Creation

• Market capitalization (“market cap”) = shares outstanding * share price

Total return to shareholders: looking at capital gains and dividends to measure the full amount an investor earns from a stock

• external

• forward-looking

• efficient market hypothesis

• Decision: return or Invest?

Limitations of Shareholder Value:

• macroeconomic factors

• investor mood

• difficult to assess performance from stock prices (especially ST)

Economic Value Creation:

created when a company provides goods or services that customers are willing to pay more for than the cost to produce them. This happens in 3 main ways:

1. Differentiation – Offering unique or higher-quality products that customers value, allowing for premium pricing (e.g., Apple, Tesla).

2. Cost Leadership – Producing at a lower cost than competitors while maintaining acceptable quality, leading to higher profit margins (e.g., Walmart, McDonald's).

3. Value Innovation – Combining lower costs with unique value to create a new market or disrupt an industry (e.g., Uber, Airbnb).

The goal is to maximize the gap between what customers are willing to pay and the company's costs.

Limitations:

• powerful in concept, but difficult to determine WTP

• WTP changes over time

• Must estimate economic value for all products/services to determine CA

Triple Bottom Line

• people

• profits

• planet

= sustainable strategy

Balance Scorecard

• helps managers achieve strategic objectives

• uses internal and external performance metrics

• balances financial and strategic goals

4 corners:

• how do shareholders view us? (financial)

• how do customers view us? (Customer)

• what core competencies do we need? (innovation and learning)

• how do we create value? Internal business

Example Metrics:

• Customers

  • revenue, profit, customer satisfaction

• Value creation

  • competitiveness, innovation, organizational learning

• Core Competencies

  • key business process

• Shareholders

  • cash flow, operating income, total returns to shareholders

Pros & Cons:

Pros:

• links strategic visions to responsible parties within an organization

• translates vision into measurable goals

• designs and plans business process

• implements feedback and org. learning

• alerts to needed strategic goal adaptation

Cons:

• implementation tool, assumes strategies are properly founded

• little insight on getting back on track

Exam Prep:

• things we talked about heavily

  • PESTEL

  • Porter’s 5 forces

• Frameworks

Concept List

Chapter #1:

• Different strategies for gaining CA

  • differentiation and cost leadership

    *3rd would be niche market (segment over industry)

    = You gain profit & mkt share (money and popularity)

• Strategy impact analysis

  • tool for how we manage stakeholders’ needs

    → they have power, urgency, and legitimacy

    → who are they, what do they value, what opps and threats are they, what do we owe them, how do we deliver

• Pyramid of corp responsibility

  • Economic, Legal, Ethical, Philanthropic

• Talked about Walmart

  → how does Walmart have CA

  • cost leadership

  • efficient supply chain

  • brand recognition

    *makes them sustainable against their competition

Chapter #2:

• Levels of leadership

  • Target: individual (intern), team member (me), manager (jenn), Lead (teris), Exec (john)

    • 3 distinct areas

      1. corporate: where

      2. business: how to compete

      3. functional: how to implement business strategy

• Flywheel effect: small, consistent efforts build momentum over time, eventually leading to massive success

• Vision statements

  • customer vs product oriented

  • vision, mission, values

    → Vision: what we want to accomplish (goals, long-term), Mission: how we accomplish it (customers, products/service), Value: how we go about completing it in a legal/ethical matter → resolve it an issue

    *relationship is strongest when:

    • vision is CUSTOMER-ORIENTED

    • internal stakeholders HELP DEFINE the vision

    • organizational structures ALIGN W/ THE VISION (compensation)

• Microsoft case

• Org.Strategy: Strategy top-down planning, scenario planning, emergent strategy

  • settings where they’re effective

    1. Strategy top-down

       • comes from executives and passed down to employees

         A: - clear goal and guidelines - set timeframe

         D: -restrictive input - limited feedback - slow adjustments

       • Ideal Settings: - military - highly regulated inst. - gov’t ex: Divergent

    2. Scenario Planning

       • “the over-thinkers” → plan for what if situations

         → potential changes in legislation, policies, advancements etc.

         *Can be pessimistic or optimistic

         A: - flexible version of the top-down strategy planning

         D: - difficult to predict all scenarios [black swan] - limited feedback - distance between top exec and front line *people avoid the bad

       • Ideal setting: fairly stable industries for firms w/ few large competitors → UPS

    3. Emergent Strategy

       • bottom-up approach that comes from employees and passed on up

         → relies on data AND personal experiences and insights

         A: - lots of input/feedback - combines elements of AFI framework in a good way - flexible

         D: - unclear strategic goal, process, or communication

       • Ideal settings: New ventures, small firms

• Black Swan: a big cataclysmic event that no one saw coming (9/11)

  • a rare, unpredictable event that has a major impact

• Cognitive biases

• Emory

Chapter #3:

• PESTEL framework

  a tool/framework that lets us identify opss and threats in the market that will affect a firm

  • Political

    *P&L are really similar → political pressure usually results in a change in legislation

  • Economic

    *macroeconomic, affect economy-wide phenomena

  • Sociocultural

    *differs across groups and should be monitored

  • Tech

    *new processes and products, AI

  • Environment

  • Legal

    *many industries have been deregulated , but still → Legal factors often coexist with or result from a political will

• Airbnb & Soft Drinks

• Industry and Firm affects

  • industry structure and profitability

  • Industry Effects: factors that affect all companies in the industry, no matter what their individual strategies are:

    • Entry and exit barriers

    • Types of products

      → These factors impact how well businesses in that industry can perform

      Industry Analysis helps us understand:

      • Profit potential: How much money can be made in the industry overall.

      • Strategic Position: Where a company stands in the industry compared to others

  • Firm Effects: impacts on a company's performance based on what decisions and actions the company’s leadership makes. It’s more about what the company itself does, like its business strategy and leadership.

    ****Firm effects are more important than industry effects because what a company does (its actions) can have a bigger impact on its success than the industry it’s in

• Strategic positioning

  • Corporate: where to compete

  • Business: How to compete

  • Functional: how to implement

• Porter 5 forces in industry

  Purpose:
  1. Help strategic leaders understand the profit potential of different industries
  2. Position their firms to gain and sustain a competitive advantage

  framework that helps businesses understand the level of competition in an industry and how it affects their profitability

  • know how they interact!!

    1. Bargaining power of suppliers

       • can threaten to increase costs or decrease quality value → increase cost production and eat at profit

    2. Bargaining power of buyers

       • power that customers or buyers have to drive prices down → customers can demand lower prices or better quality, which could affect your profits

    3. Threats of new entrants

       • how easy it is for new competitors to enter the mkt → more competition means less profits

    4. Threat of Substitutes

       • how easy it is for customers to find a suitable sub for your product → switching costs

         ex: Energy drinks vs coffee

    5. Industry rivalry

       • level of competition amongst the firms already in the industry → high competition eats at business (pressure to gain cost leadership)

*PESTEL and 5 Forces Models provide static snapshots

• Economic Moat: describe a company's ability to maintain a competitive advantage over its rivals

  → 5 sources

  • Intangible assets

  • Customer Switching costs

  • Cost advantage

  • Network Effect

  • Efficient Scale

Chapter #4

• VRIO framework

  tool used to analyze a company’s resources and capabilities to determine if they provide a sustainable competitive advantage

  • Valuable, rare, imitable, organized

    → Helps identify company strengths.

    → Shows which resources provide long-term advantages.

    → Helps companies focus on what to protect and develop.

• Resources vs capabilities

  • Dynamic capabilities allows firms to adapt and develop with the changing market and maintain CA

  • Primary Activities: directly support the firm

    → ops, marketing, and sales

  • Support Activities: indirectly support the firm or aid the primary sources

    → accounting/financials, HR, ISOM, R&D

• Bathtub example [inflows and outflows]

  • The Faucet (Inflow) – Represents resources flowing into the company.

    • This could be new customers, revenue, employees, or innovation

  • The Water Level (Stock of Resources) – Represents the current state of resources

  • The Drain (Outflow) – Represents resources leaving the company.

    • This could be customers leaving, employees quitting, or competitive advantage eroding

* Each activity adds incremental value but also costs

Chapter #5:

• Public Stock Company: ownership divided into shares that can be traded by the general public

  • 4 attractive reasons why:

    • limited liability for investors (shareholders)

    • Transferability of investor ownership

    • Legal personality

    • Separation of legal ownership and management control

• Shareholder and stakeholder capitalism

  • Shareholders: primary goal is to maximize value for shareholders (the company’s owners).

    → Companies make decisions based on increasing stock prices, dividends, and financial performance

  • Stakeholders: primary goal of Creating Shared Value, focus on everybody (employees, customers, suppliers etc.)

    → Focuses on long-term sustainability, ethical business practices, and social responsibility

• Why TOMS failed: - easy to replicate [sketchers], - high cost production -weak brand loyalty

• Different accounting metrics - determining competitive advantage

  help determine where the firm stands based on profitability, efficiency, and mkt-position

  • 3 traditional frameworks to measure and assess firm performance

    1. Account Profitability

    2. Shareholder Value Creation

    3. Economic Value Creation

* 1 + 2 = market & stock valuation

• Economic Value Creation:

  • difference between customers WTP and cost to produce the product

Frameworks that combine quantitative data and qualitative assessment:

• balance scorecard

  • what do SH value, what do customers value, What do we have (core competencies), how do we create value from that?

• triple bottom line

  • people, places, profit = sustainable CA