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Strategic Management > Test One > Flashcards

Test One Flashcards

1
Q

Strategy

A

A firm’s theory about how to gain competitive advantages

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2
Q

Define Mission

A

Long-term purpose of a firm

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3
Q

Define Strategic Management Process

A

Sequential set of analyses and choices that can increase the likelihood that a firm will choose a good strategy that generates competitive advantages

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4
Q

Visionary Firm

A

Firms whose central mission is central to all they do and they earn higher returns

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5
Q

Objectives

A

Specific measurable targets a firm uses to evaluate the extent to which it is realizing its mission

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6
Q

External Analysis

A

The firm identifies the critical threats and opportunities in its environment

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7
Q

Internal Analysis

A

Helps a firm identify its organizational strengths and weaknesses and helps the firm identify which of its resources and capabilities are likely to be sources of competitive advantage.

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8
Q

Business-Level Strategies

A

Actions taken by the firm to gain competitive advantage in a single market or industry.

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9
Q

Corporate-Level Strategies

A

Actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously.

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10
Q

Competitive Advantage

A

Creation of more economic value than rival firms

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11
Q

Economic Value

A

The difference between the perceived benefits gain by a customer that purchases a firm’s products or services and the full economic cost of these products or services.

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12
Q

Competitive Parity

A

Firms that create the same economic value as their rivals

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13
Q

Competitive Disadvantage

A

Firms that generate less economic value than their rivals

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14
Q

Accounting Performance

A

Measure of competitive advantage calculated by using information from a firm’s published profit and loss and balance sheet statements.

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15
Q

Accounting Ratios

A

Numbers taken from a firm’s financial statements that are manipulated in ways that describe various aspects of a firm’s performance.

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16
Q

Profitability Ratios

A

Measure of profit in the numerator and some measure of firm size or assets in the denominator

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17
Q

Liquidity Ratios

A

Focus on the ability of a firm to meet its short-term financial obligations

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18
Q

Leverage Ratios

A

Focus on the level of a firm’s financial flexibility

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19
Q

Activity Ratios

A

Focus on the level of activity in a firm’s business

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20
Q

Cost of Capital

A

Rate of return that a firm promises to pay its suppliers of capital to induce them to invest in the firm

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21
Q

Economic Measurements of Competitive Advantage

A

Compare a firm’s level of return to its cost of capital instead of to the average level of return in the industry.

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22
Q

Cost of Debt

A

Interest firm must pay its debt holders

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23
Q

Cost of Equity

A

Rate of return a firm promises its equity holders in order to induce these individuals and institutions to invest in the firm.

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24
Q

Weighted Average Cost of Capital

A

% of the firm’s total capital

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25
Q

Mission statements must create what for the company

A

value

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26
Q

High quality objectives are tied to what?

A

mission statement

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27
Q

The size of the competitive advantage is equal to what?

A

the difference in economic value between the two firms

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28
Q

define privately held firm

A

has stock that is not traded on public stock market or it is a division of a larger company

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29
Q

When would a firm have above average accounting performance but below normal economic performance?

A

when a firm is not earning its cost of capital but has above industry average accounting performance

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30
Q

When would a firm have below average accounting performance but high economic performance

A

happens when a firm has a very low cost of capital and is earning at a rate in excess of this cost but is still below the industry average

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31
Q

define emergent strategies

A

theories of how to gain competitive advantage in an industry that emerge over time or that have been radically reshaped once they are initially implemented

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32
Q

Define the General Environment

A

broad trends in the context within which a firm operates that can have an impact on a firm’s strategy choices

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33
Q

What are the six elements of the General Environment?

A 
Technological Change
Demographic Trends
Cultural Trends
Economic Climate
Legal and Political Conditions
Specific International Events
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34
Q

Define technological change

A

exploring the use of technology to create new products and services

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35
Q

define demographics

A

distribution of individuals in a society in terms of age, sex, marital status, income, ethnicity, etc.

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36
Q

define culture

A

values, beliefs, and norms that guide behavior in society

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37
Q

define economic climate

A

overall health of the economic systems within which a firm operates

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38
Q

what is the legal and political environment

A

laws and legal systems’ impact on business together with the general nature of the relationship between government and business

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39
Q

what are specific international events?

A

civil wars, political coups, terrorism, wars, famines, etc.

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40
Q

What is the structure-conduct-performance model?

A

measures relationship among a firm’s environment, behavior, and performance

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41
Q

What is industry structure in the SCP model?

A 
# of competing firms
homogeneity of products
cost of entry and exit
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42
Q

What is firm conduct in the SCP model?

A

strategies firms pursue to gain competitive advantage

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43
Q

What is performance in the SCP model?

A

firm level: competitive disadvantage, parity, temporary or sustained CA
Society: productive and allocative efficiency, level of employment, progress

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44
Q

what is the five forces framework?

A

identifies the five most common threats faced by firms in their local competitive environments and the conditions under which these threats are more or less likely present

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45
Q

what are the five threats in the FF framework?

A

entry, suppliers, rivalry, substitutes, buyers

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46
Q

define environmental threat

A

any individual or group outside a firm that seeks to reduce the level of that firm’s performance

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47
Q

define threat of entry

A

firms that have started operating in an industry or that threaten to begin operations in an industry soon

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48
Q

barriers to entry

A

attributes of an industry’s structure that increase the cost of entry

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49
Q

what are the 4 barriers to entry identified by the SCP model?

A

economies of scale
product differentiation
Cost advantages independent of scale
government regulation of entry

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50
Q

define economies of scale

A

a firm’s costs rise as a function of its volume of production

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51
Q

define diseconomies of scale

A

firm’s costs rise as a result of its volume of production

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52
Q

define product differentiation

A

incumbent firms possess brand identification and customer loyalty that potential entrants do no.

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53
Q

define proprietary technology

A

secret technology gives incumbent firms important cost advantages over potential entrants

54
Q

define managerial know-how

A

knowledge and information that are needed to compete in an industry on a day-to-day basis

55
Q

define rivalry threat

A

intensity of competition among a firm’s direct competitors

56
Q

what is a sign of rivalries in an industry?

A

frequent price cutting

57
Q

what attributes increase the threat of rivalry

A

large number of firms
slow industry growth
lack of product differentiation
capacity added in large increments

58
Q

what is the threat of substitutes?

A

rival products that meet approximately the same customer needs but do so in different ways

59
Q

what is the effect of substitutes?

A

puts price ceiling on the prices firms can charge

60
Q

what is the threat of suppliers?

A

suppliers can increase the price of supplies or reduce quality

61
Q

true or false, suppliers are not a threat to firms when firms are not an important part of a supplier’s business

A

false

62
Q

what is the threat of powerful buyers?

A

powerful buyers act to decrease a firm’s revenues

63
Q

if the products or services that are being sold to buyers are standard and not differentiated, then the threat of buyers is what?

A

greater

64
Q

buyers are more likely to be more of a threat when the —-they purchase are a significant portion of the costs of their final products.

A

supplies

65
Q

true or false, buyers more likely to be a threat when they are not earning significant economic profit

A

true

66
Q

what is backward vertical integration?

A

A form of vertical integration that involves the purchase of suppliers.

67
Q

what is an example of backward vertical integration?

A

An example of backward integration would be if a bakery business bought a wheat processor and a wheat farm.

68
Q

when is another firm considered a competitor?

A

if your customers value your product less when they have another firm’s product

69
Q

when is another firm considered a complementor?

A

if your customers value your product more than the other firm’s

70
Q

define fragmented industries

A

industries in which a large number of small or medium-sized firms operate and no small set of firms has dominant market share

71
Q

define emerging industries

A

newly created or newly re-created industries formed by technological innovations, changes in demand, the emergence of a new customer, etc.

72
Q

define consolidation strategy

A

strategies that begin to consolidate the industry into a smaller number of firms

73
Q

define first-mover advantage

A

advantages that come to firms that make important strategic and technological decisions early

74
Q

define technological leadership strategy

A

making early investments in particular technologies in an industry

75
Q

define strategically valuable assets

A

resources required to successfully compete in an industry.

76
Q

define cross-switching costs

A

customers make investments in order to use a firm’s particular products or services

77
Q

define processes

A

activities that a firm engages in to design, produce, and sell products and services

78
Q

define process innovation

A

firm’s effort to refine and improve its current processes.

79
Q

define market leader

A

firm with the largest share in that industry

80
Q

define niche strategy

A

reduce scope to narrow segments of the declining industry

81
Q

define harvest strategy

A

a firm tries to stay in a dying industry as long as possible

82
Q

define divestment

A

extracting a firm from a declining industry

83
Q

what is the resource based view?

A

focuses on the resources and capabilities controlled by a firm as sources of competitive advantage

84
Q

define resources according to RBV

A

tangible and intangible assets that a firm controls that it can use to conceive and implement its strategies.

85
Q

define capabilities

A

tangible and intangible resources that that enable a firm to take full advantage of the other resources it controls

86
Q

define financial resources

A

all money from whatever source

87
Q

define retained earnings

A

profit that a firm made earlier in its history

88
Q

define physical resources

A

all physical technology used in a firm

89
Q

define human resources

A

training, experience, judgement, intelligence, relationships, and insight of individual managers and workers in a firm.

90
Q

define organizational resources

A

firms formal reporting structure, formal and informal planning, culture, reputation, etc

91
Q

define resource heterogeneity

A

some firms may be more skilled in accomplishing a certain activity than other firms

92
Q

define resource immobility

A

unable to overcome resource heterogeneity

93
Q

define VRIO framework

A

Value
Rarity
Imitability
Organization

94
Q

define question of value

A

does a resource enable a firm to exploit an environmental opportunity and or neutralize an environmental threat?

95
Q

What defines a good strategy?

A

that which generates competitive advantages

96
Q

what are the two most common business-level strategies?

A

cost leadership and product differentiation

97
Q

what are common corporate-level strategies?

A 
vertical integration
diversification
strategic alliances
merger and acquisition
global strategies
98
Q

which ratio shows how profitable a company’s assets are?

A

ROA

99
Q

true or false, firms that have normal economic performance are able to gain access to the capital they need to survive although they are not prospering

A

true

100
Q

true or false. In general, firms with competitive parity usually do not have normal economic performance

A

false

101
Q

What accounting and economic performances are associated with competitive advantage?

A

Above average on both

102
Q

What accounting and economic performance are associated with competitive parity?

A

average accounting performance

normal economic performance

103
Q

What accounting and economic performance are associated with competitive disadvantage?

A

below average accounting

below normal economic performance

104
Q

Define competitive disadvantage

A

A factor which places a business at risk for losing customers to a competitor.

105
Q

if a restaurant has its liquor license suspended and its competition still has the license, what is this an example of?

A

competitive disadvantage

106
Q

define intended strategy

A

a strategy a firm thought it was going to pursue

107
Q

define unrealized strategy

A

an intended strategy a firm does not actually implement

108
Q

define deliberate strategy

A

an intended strategy a firm actually implements

109
Q

“The premise that genius is not in crafting a particular strategy, but instead noticing what’s actually working and investing in that.” this quote is related to what?

A

emergent strategies

110
Q

NyQuil. In testing, they realized this regular cold medicine kept putting people to sleep. The solution? Reposition the product as a nighttime cold remedy, which it’s been for over 25 years. what is this an example of?

A

emergent strategy

111
Q

Viagra. Originally intended as high-blood pressure medication, patients in the clinical trials consistently reported an interesting side effect, so they repositioned the drug around the side effect and created a multi-billion dollar category in the process. this is an example of what?

A

emergent strategy

112
Q

what is a major general environment concern in regards to marketing in other countries?

A

culture

113
Q

an ice cream company that buys a dairy farm. The company requires milk to make ice cream and either can buy milk from a dairy farm or other milk supplier or could own the dairy farm itself. This ensures that it will have a steady supply of milk at its disposal and that it will pay a reasonable price. This can protect the ice cream maker in the event that there are several other buyers vying for the same milk supply. this is an example of what?

A

backward vertical integration

114
Q
  1. Low barriers to entry.
  2. Highly specialized market for goods and services requires extreme specialization by firms.
  3. High transportation costs.
  4. Lack of standardization, or lack of need for it.
  5. High need for trust and local firms often inspire more trust in their customers.

these are examples of what?

A

fragmented industry

115
Q

A unique product or specialized service is characteristic of what type of market?

A

fragmented

116
Q

true or false, barriers to entry are high in an emerging industry

A

false

117
Q

What are four sources of cost advantage that act as barriers to entry?

A

Proprietary Technology
Managerial know-how
Favorable access to raw materials
Learning-curve cost advantages

118
Q

What are the indicators of threat of suppliers in an industry?

A 
many small firms
differentiated products
not threatened by subs
suppliers forward integrate
firms are not important customers for suppliers
119
Q

True or false, when a firm has the option of purchasing from a large number of suppliers, suppliers have more power to threaten a firm’s profits

A

false, it will have less power to threaten a firm’s profits

120
Q

true or false, suppliers are a greater threat when what they supply is unique and highly differentiated

A

true

121
Q

what are the indicators of the threat of buyers in an industry

A

small number of buyers
undifferentiated product
products sold to buyers are a significant % costs
buyers are not earning good ec. profits
buyers threaten backward vertical integration

122
Q

in the five forces model, if all of the threats are low, what will expected performance of firm be?

A

high

123
Q

in the five forces model, if all of the threats are high, what will expected performance of firm be?

A

low

124
Q

in the five forces model, if half of the threats are high and half are low, what will firm performance be?

A

mixed

125
Q

true or false, the five forces model can be used to anticipate exact level of firm performance in industry

A

false, it anticipates the average performance

126
Q

true or false, a firm does not want to introduce complementors into its market

A

false, complementors increase market share

127
Q

what is an environmental opportunity for a fragmented industry?

A

consolidation

128
Q

what is an environmental opportunity for an emerging industry?

A

first-mover advantage

129
Q

what is an environmental opportunity for a mature industry?

A

product refinement
improve service quality
process innovation

130
Q

what is an environmental opportunity for a declining industry?

A

leadership
niche
harvest
divest

Strategic Management (5 decks)

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