Business Strategy Week 2

Question 1

external market (from out to in)

Answer 1

general environment-political economic socio cultural demographic technological ecological and legal/ethical
industry-markets and strategic groups
market - customer competitors business partners and community
firm

Question 2

pestel analysis components

Answer 2

political
economic
socio-cultural (and demographic)
technological
ecological
legal and ethical

Question 3

michael porter general idea

Answer 3

strategy should be formulated on the basis of analysis

Question 4

Henry Mintzberg general idea

Answer 4

strategy as planned emergence

Question 5

external environment

Answer 5

refers to the factors, forces, situations, and events outside the organization that affects its performance

Question 6

strategic group

Answer 6

direct competitors w/ similar business models and strategies

Question 7

pestel - political

Answer 7

-can potentially be influenced through lobbying ( one of few areas a firm can actually influence)
examples of impacts of political
-tax policy
-subsidies or grants
-tariffs
-political action to drive legislation

Question 8

pestel - economic

Answer 8

-influence spending and types of purchases for businesses and consumers
-economic business cycle
-cost of capital

Question 9

pestel - socio-cultural (demographic)

Answer 9

-impact market sizes and types of products customers want to buy
-demographics like hispanic people buying power or age related buying can have an impact

-socio cultural - values and beliefs
-going green
-health concious

Question 10

pestel - technological

Answer 10

new technology can change the other factors

Question 11

pestel - ecological

Answer 11

can impact a frims reptutation and attractiveness to customers

Question 12

pestel - legal/ethical

Answer 12

• employment and labor laws and regulations;
• consumer and privacy laws;
• health and safety in the work place;
• packaging and labeling; and
• interstate and international trade regulation.

Question 13

what is pestel analysis? what are the steps?

Answer 13

external analysis tool to identify key macro-econmoic forces

-identify external factors that most directly impact the firm
-research and analyze how relevant forces are trending so you can make predictions about the future
-from predicted futures identify opportunities and threats

Question 14

pestel analysis- prioritization approach

Answer 14

you want to prioritize high impact things that have a high probability of occurence and deprioritize low impact things with a low probability of occurance. closer to high you build strategy, somewhere in the middle you monitor

Question 15

the structure conduct performance model key assumption (SCP)

Answer 15

assumes industry structure determines firm conduct which in turn determines firm performance

Question 16

structure conduct performance model components (SCP)

Answer 16

-structure - # of competitors and product diversity, extent of vertical integration and value chain, economics of supply and demand, cost of entry/ exit
-conduct - specific firm actions like branding, differentiation, and price setting, capacity, innovation, operating efficiencies, collusion
-performance - performance of individual firms and the industry as a whole.
profits, value creation, technological progress, returns for shareholders,performance in industry

Question 17

Perfect competition

Answer 17

• many small firms
  -firms are price takers - a company has little or no control over the price of its products or services
  -commodity product
  -low entry barriers
  -most fragmented ( low profitability)

Question 18

monopolistic competition

Answer 18

-many firms
-some pricing power
-differentiated
-medium entry barriers

Question 19

oligopoly

Answer 19

-few large firms
-some pricing power
-differentiated
-high entry barriers
-either homogeneous or heterogeneous products

Question 20

monopoly

Answer 20

-one firm
-considerable pricing power
-unique product
-very high entry barriers
-most consolidated (high profitability)

Question 21

when is A firm is a price taker

Answer 21

when it responds to changes in industry supply and demand by adjusting prices, rather than attempting to influence the level of supply or demand

Question 22

porter five force model reason for existing

Answer 22

The closer that competitive conditions of an Industry approximate perfect competition the more unattractive the industry becomes

therefore

The Porter Five Forces Model is focused on Industry structure and how factors that drive structure impacts firm profitability

Question 23

porter five forces model

Answer 23

competitve rivalry ( main driver) among existing competitors and the other drivers:
-threat of new entrants
-bargaining power of buyers
-bargaining power of supplies
-threat of substitute product or services

-provide the industry structure in which the various firms compete.

Question 24

concentration ratio (industry concentration)

Answer 24

ratio of combined markets shares of a given number of top firms to whole market size
-An economic metric that can measure fragmentation
-used to asses the extent to which a market is oligopolistic
-most common is top 4

impacts:
competitive rivalry
buyer bargaining power
supplier bargaining power

Question 25

switching costs

Answer 25

costs incurred as a result of changing brands suppliers or products -costs can be monetary but also psychological, effort and time based impacts - all five forces

Question 26

forward integration

Answer 26

a form of vertical integration moves down the supply chain to expand business activities to control direct distribution or supply of companies products. when a firm purchases or builds it's own retail or distribution centers impacts -buying bargaining power

Question 27

backward integration

Answer 27

up the supply chain by controlling supply before the company. a firm purchases or becomes it's own supplier -supplier bargaining power

Question 28

porter five forces - power of suppliers: when is bargaining power of suppliers high?

Answer 28

-concentrated or limited supplier industry -suppliers not dependent on industry for majority of revenue -industry competitors firms face supplier switching costs -suppliers hold scarce resources -suppliers offer differentiated products -no or few suppliers substitutes -suppliers can forward integrate into the industry

Question 29

porter five forces -bargaining power of buyers: when is bargaining power of buyers high?

Answer 29

-few buyers and each buyer purchase large quantities -industries products are standardized or undifferentiated commodities -buyer has many substitutes -buyers have low or no switching costs -buyers are price sensitive -buyers can backwardly integrate into the industry

Question 30

porter five forces -threat of substitutes: when is the threat of substitutes high?

Answer 30

-substitute has attractive price-performance tradeoff -buyers switching cost to substitute is low -buyer are not loyal to any of the industry competitors

Question 31

what is the primary impact of substitutes (porter 5 forces)

Answer 31

the limit placed on the pricing flexibility of the industry competitors

Question 32

porter five forces -threat of new entrants: when is the threat of new entrants high? What barriers to entry are there?

Answer 32

-when there are now or low barriers of entry and the industry avg profitability is high barriers to entry -economies of scale -network effects -customer switching costs -capital requirements -advantages independent of size -government policy -credible threat of retailation

Question 33

porter five forces -competitive rivalry

Answer 33

the amount of competition for market share and profitability -other 4 forces put pressure on rivalry -the stronger the forces the stronger the intensity

Question 34

when do firms have less rivalry ( porters 5 forces)

Answer 34

-high buyer switching costs -low exit barriers -economies of scale -more industry concentration -more product differentiation (the herogenous or dissimilar products are the more attractive the industry)

Question 35

are industries static or dynamic (porter)

Answer 35

industryies are dynamic. porters 5 forces analysis is a snapshot as of a point in time and needs to be revisited periodically

Question 36

how are industries dynamic?

Answer 36

-barriers to entry can be made more or less difficult (patents, buyer loyalty, technology) -supplier power can change ( vertical integration) -technology ( new products or leapfrog product lines, capacity) -competitor rivalry intensifies as industries mature -sociocultural, demographic, technological, etc changes impact buyer preferences

Question 37

what is a complement? benefits?

Answer 37

a product, service, or competency that adds value to the original product offering when the two are used in tandem. tends to result in higher margins and profits for industry competitors. they stimulate demand

Question 38

How can companies eliminate obstacles to firm profitability?

Answer 38

-increase product differentiation -diversify product lines -introduce or increase switching costs -innvoate to increase product value -alter bargaining relationships between industry competitors buyers and suppliers -build barriers to entry to keep new competition out -develop complement or build strategic partnerships w/ complement providers

Question 39

internal analysis

Answer 39

analyze and assess the internal capabilities and resources of the organization and to evaluate the firm’s ability to leverage its strengths or mitigate its weaknesses when pursuing external opportunities or protecting the firm against external threats.

Question 40

Sources of Competitive Advantage

Answer 40

-core competencies -resources -capabilites -activites

Question 41

Sources of Competitive Advantage - core competencies

Answer 41

–unique strengths that drive competitive advantage

Question 42

Sources of Competitive Advantage - resources

Answer 42

–tangible and intangible assets of the firm

Question 43

Sources of Competitive Advantage - capabilities

Answer 43

organizational and managerial skills, what a firm can do

Question 44

Sources of Competitive Advantage - activities

Answer 44

transform inputs into outputs (goods or services). business processes

Question 45

resource-based view

Answer 45

relies on resources tangible and intangibles that must be heterogenous and immobile and have vrio attributes to become vrio resources that provide competitive advantage

Question 46

Resource-Based View - tangible

Answer 46

-easiest to identify -physical assets (land,buildings, equipment -financial resources -need to understand their potential for creating competitive advantage -dont provide as much advantage because other companies can just buy them

Question 47

Resource-Based View - intangible

Answer 47

-more likely than tangible to create a sustainable competitive advanatage -difficult to measure (especially on balance sheets) -large market to book disparities important ex: brands technology / intellectual property -other companies can't buy this - more likely to create a competitive advantage than tangible resources

Question 48

Resource-Based View - tangible / intangible: human capital

Answer 48

-have characteristics that are both intangible and tangible -skills, knowledge, knowhow -most important resource for many firms is human capital -differ from intangible resources because firms don't own humans

Question 49

Resource-Based View - heterogenous

Answer 49

-skills, capabilities, and other resources that organizations' possess differ from one firm to another

Question 50

Resource-Based View - immobile

Answer 50

they cannot be easily transferred to a different organization

Question 51

vrio acronym

Answer 51

for a resource to provide competitive advantage it must be vrio resource valuable rare costly to Imitate organize to capture value

Question 52

VRIO Analysis steps

Answer 52

if a resource is not valuable then eliminator or outsource ( be cost effective) -competitive disadvantage if a resource is valuable but not rare then keep it but focus on being cost effective -competitive parity if a resources is valuable, rare, but not costly to imitate then find ways to protect it or innovate to stay ahead of competition -temporary competitive advantage if a resource is rare, costly to imitate, but not organized to capture value then it's probably not contributing to competitive advantage or parity. license if possible or modify org. to exploit it -temporary competitive advantage if a resource is valuable, rare, costly to immitate, AND the firm is organized to capture it's value then sustained competitive advantage

Question 53

according to vrio, when can a firm get a sustained competitive advantage

Answer 53

a firm can only gain a sustained competitive advantage if it has the resources and capabilities that satisfy VRIO requirements

Question 54

why would a resource be costly to imitate?

Answer 54

-historical condition- resources developed over a long period of time (brand reputation) -causal ambiguity- competitiors don't know what is giving you an advantage -social complexity - resources and capabilities are interwoven in the fabric of a frim's culture and interpersonal relationships. two or more things combine to create a resource

Question 55

competitive conformity ( vrio)

Answer 55

the firm is not worse than its competitors, but it's not better either happens when a resource is valuable but not rare

Question 56

value chain analysis (value chain framework)

Answer 56

supporting activities and primary activities create margin supporting activities r + d information systems hr firm infrastructure accounting finance and planning primary activities inbound logisitics manufacturing and assembly distribution marketing and sales post-sales support

Question 57

inbound logistics (value chain framework)

Answer 57

supply chain management or transportation. anything involved in order planning, placement, receiving storing, or distributing raw material. commonly outsourced ( not a competitive advantage)

Question 58

manufacturing and assembly (value chain framework)

Answer 58

the stage where raw materials and other inputs are turned into product manufacturing for industrial companies and for service related companies a process that supports value creation (claims processing)

Question 59

distribution (value chain framework)

Answer 59

distribution of final product to customers the value created is place value

Question 60

marketing and sales (value chain framework)

Answer 60

advertising, promotion, sales force organization, selecting distribution channels, pricing and managing customer relationships and post sales support

Question 61

post-sales support (value chain framework)

Answer 61

-activities such as installation, training, maintenance, repair, warranty, and other after sales services.

Question 62

what does (value chain analysis do?

Answer 62

helps you understand how the firm create value for it's customers

Question 63

what is a value chain?

Answer 63

the full range of activities a firm performs to bring a product from conception to delivery. the full range of activities a firm performs to bring a product from conception to delivery.

Question 64

r&d (support) (value chain framework)

Answer 64

researching the firms market and customer needs and developing new and improved products and services to fit these needs

Question 65

information systems (support) (value chain framework)

Answer 65

technology can be used to develop a prodcut

Question 66

hr (support) (value chain framework)

Answer 66

activities involving hiring and retaining employees and ensuring employees are placed in the right jobs

Question 67

firm infrastructure (support) (value chain framework)

Answer 67

refers mainly to the management of the firms physical infrastructure including the assets of the firm

Question 68

accounting, finance, and planning (support) (value chain framework)

Answer 68

adminstrative functions that support many of the planning and control functions of the organization

Question 69

(Ratio Analysis and Benchmarking)

Question 70

what is the primary objective of porters 5 forces? add to assessment page

Question 71

asset specificity add to assessment page

Question 72

what 3 (+ one extra) financial documents are used for developing ratios?

Answer 72

-bs -is -statement of cash flows -+ operational metrics and cost accounting data

Question 73

what are the 4 basic types of ratios?

Answer 73

-activity and asset quality -liquidity -capital adequacy -earnings and profitability

Question 74

(internal analysis) Activity and Asset Quality Ratios - days sales outstanding

Answer 74

how well a business can issue credit to customers and be paid back on a timely basis can be an indicator of product quality issues or taking on bad credit risks

Question 75

(internal analysis) Activity and Asset Quality Ratios - inventory turnover

Answer 75

the time it takes to sell inventory low -> too much inventory and risk of it becoming obsolete high-> could be due to poor planning

Question 76

(internal analysis) Activity and Asset Quality Ratios - asset turnover

Answer 76

the value of sales or revenues relative to the value of it's assets indicator of the efficiency that the company is using it's assets to generate revenue. higher is more efficient

Question 77

(internal analysis) Liquidity Ratios - Current Ratio

Answer 77

compares current assets to current liabilities does the business have enough immediate assets to pay back immediate liabilites? ratio less than 2 is liquidity risk

Question 78

(internal analysis) Liquidity Ratios - Quick Ratio

Answer 78

measures level o the most liquid current assets availabel to cover current liabilities. excludes inventory and pre-paid expenses which are more difficult to turn into cash a higher quick ratio means a more liquid position. quick ratios less than 1 are liquidity risk

Question 79

(internal analysis) Capital Adequacy Ratios - debt to equity ratio

Answer 79

compares the proportion of debt to equity to see if a business has taken on too much debt. the higher the number the more leverage (and risk)

Question 80

(internal analysis) Earnings and Profitability Ratios - gross margin

Answer 80

proportion of earning generated by the sale of goods or services before admin and other non-product expenses a decline in this could signalpricing pressure, cost control issues or and increasing cost of inputs

Question 81

(internal analysis) Earnings and Profitability Ratios - net profit margin

Answer 81

proportion of net profits to sales. low proportion can indicate a bloated cost structure or pricing pressure

Question 82

(internal analysis) Earnings and Profitability Ratios - return on assets

Answer 82

ability of management to efficiently use assets to generate profits low return indicates a bloated asset base or poor sales

Question 83

(internal analysis) Earnings and Profitability Ratios - return on equity

Answer 83

measure of financial performance -return on net assets (assets - debt = equity)

Question 84

(internal analysis) process benchmarking - types

Answer 84

* Internal (across organizational units) * Competitive (often sponsored by Industry Associations or consulting firms) * Non-Competitive (functional or capability)

Question 85

(internal analysis) process benchmarking - objectives

Answer 85

* Identify strengths and weaknesses * Identify and adopt best practices

Question 86

(internal analysis) common forms of benchmarking

Answer 86

process product function financial performance

Question 87

(internal analysis) common forms of benchmarking - process

Answer 87

identify best practices and reduce costs

Question 88

(internal analysis) common forms of benchmarking - product

Answer 88

competitive (external analysis)

Question 89

(internal analysis) common forms of benchmarking functionional

Answer 89

entire business function (hr for example). decide whether to outsource

Question 90

(internal analysis) common forms of benchmarking - financial

Answer 90

financial analysis to assess overall competitiveness

Question 91

(internal analysis) common forms of benchmarking performance

Answer 91

assessment of competitive positions ( external analysis)

Question 92

what is the purpose of internal analysis

Answer 92

identify firm strengths and weaknesses relative to the opportunities and threats identified in external analysis

Question 93

SWOT framework

Answer 93

internal positive - strengths internal negative - weakness external positive - opportunities external negative - threats

Question 94

SWOT strengths

Answer 94

positive attributes, tangible and intangible, internal to the firm core competencies and vrio resources ex * brand reputation, * intellectual property, * customer relationships, * and exclusive business partnerships.

Question 95

SWOT weaknesses

Answer 95

factors that are within the control of management that detract from the firm's ability to obtain or maintain a competitive advantage * lack of expertise, * limited resources, * lack of access to skills or technology, * inferior service offerings, * poor location, * poor geographic coverage, * poor reputation, * negative publicity, * the lack of access to distribution channels, * inadequate cash flow and other financial weaknesses

Question 96

SWOT opportunities

Answer 96

external positives from which the firm hopes to benefit. These opportunities reflect the potential the firm can realize through formulating and implementing strategy ex * lifestyle changes, * resolutions of problems associated with current situations, * positive market perceptions about the business, * competitor missteps, * improving economic conditions, * or the ability to offer greater value that will create additional demand.

Question 97

SWOT threats

Answer 97

factors beyond management's control that can place the firm's business strategy or the business itself at risk. A threat is a challenge created by an unfavorable trend or development that may lead to deteriorating revenues or profits. Competition, existing and potential, is always a threat.