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Flashcards in CH 1-5 Deck (112):
1

List the goals of strategy

1. Strategic competitiveness
2. Sustainable competitive advantage
3. Above average returns

2

Define strategic competitiveness

companies ability to formulate and implement a value-creating strategy

3

Define sustainable competitive advantage

company that develops and implements a strategy that competitors cannot duplicate or is too costly to imitate

4

Define above average returns

returns above what investors expect in comparison to other investments with similar risk

5

Examples of strategy

Boeing and Airbus: From 2001-2005 Airbus's strategy won the competitive advantage when it created an aircrafted that seated 550+ passengers but only served 35 large aiports. Boeing responded with a strategy focused on smaller planes that served more airports and gained supremacy again.

McDonalds: used to have profitability/growth driven by market saturation. Now they focus on growth using their existing stores. Changed strategy.

6

Define strategy

integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage

7

List the requirements of a strategy

Pursue a long term mission and vision
Impacts long term profitability
Involves multiple functional areas

8

Old competitive landscape vs. New Competitive landscape

old = characterized by market stability

new = characterized by:
-economies of scale
-advertising budgets aren't as effective
-new organizational forms/relationship (joint venture, alliance, M&A)
-rapid change
-focus on innovation/flexibility vs traditional

9

Change in competitive landscape has led to ______

Hypercompetition

10

Define hypercompetition

extremely intense rivalry among firms
-increasingly competitive moves
-inherent market instability/change

11

List the drivers of the competitive landscape

1. Technology
2. Global economy (globalization)

12

SWOT is ___

DEAD

13

What do the S&W now stand for

Resources
Capabilities
Core competencies
Competitive advantage
VRIO

14

What do the O&T now stand for

General environment
Industry environment
Competitive environment

15

Define the Industrial Organization (I/O) Model

the EXTERNAL environment determinant of a firm's strategic action

16

Define the Resource Based Model

a firm's UNIQUE RESOURCES and CAPABILITIES are the critical determinants of strategic competitiveness

17

I/O Model states that

the industry a firm chooses has a stronger influence on performance than do the choices that managers make

18

List the I/O Model strategies

Cost leadership
Differentiation

19

Resource-based Model states that

a firm should choose to enter a certain industry based on its resources/capabilities

20

according to the resource based model, a resource/capability must be

valuable, rare, costly to imitate, not substitutable

21

Define vision

-picture of what the firm ultimately wants to achieve
-the foundation for the mission
-the responsibility of the leader

22

Define mission

-specific business in which the firm intends to compete and customers it intends to serve
-more concrete than vision
-deals more with product markets and customers

23

List the types of stakeholders

1. Capital market
2. Product market
3. Organizational

24

Capital market stakeholders

shareholders, banks, etc.
-expect returns to commiserate with the risk accepted by investment
-higher dependency relationship relates to how significant the response

25

Product market stakeholder

customers, suppliers, communities, unions
-all benefit due to competitive battles

26

Organizational stakeholders

employees

27

Steps of the Strategic Management Process

1. Collect info/knowledge to help determine what type of strategy would be effective and how it could be best implemented (external environment/internal organization)
2. After studying external and internal environments, the firm has the information it needs to form a vision and mission
--articulate the goal the firm is trying to accomplish
--inform stakeholders what that goal is

28

Segments of General Environment

Global
Technological
Political/Legal
Demographic
Economic
Sustainable Physical
Sociocultural
"Gabby Talks Politics During Every Single Supper"

29

External environment consists of the ____ and ____ environments

Competitor

Industry (Threat of new entrants, Power of suppliers, Power of buyers, Product substitutes, Intensity of rivalry)

30

Define General Environment

dimensions in the broader society that influence an industry and the firms within it

31

Demographic segment

age, population size, geographic distribution, ethnic mix income distribution

32

Economic segment

inflation, interest rates, trade, budget, savings rate, GDP

33

Political/Legal segment

laws, deregulation, policies, lobbying, regulation, antitrust laws

34

sociocultural segment

women in workplace, workplace diversity, attitudes about quality of work, shift in work/career preferences, shifts in product/service preferences, diverse & aging workplace,

35

technological segment

product innovation, applications of knowledge, R&D expenditures, new communication technologies, growth of internet

36

global segment

important political events, critical global niche markets, newly industrialized nations, different cultural/institutional attributes, growth of informal economy

37

Sustainable physical (environment) segment

energy consumption, energy sources, renewable energy, environment footprint, water availability, environmentally friendly products, reacting to natural or man made disaster

38

Define the industry environment

set of factors directly influencing a firm and its competitive actions and competitive responses

39

List the different elements that influence a firm (industry)

--threat of new entrants
--power of suppliers
--power of buyers
--threat of product substitutes
--intensity of rivalry among competitors

"Sally really buys supplies everywhere"

40

General vs Industry vs Competitor Environment

General - focused on future
Industry - factors that influence a firm's profitability within its industry
Competitive - focusing on predicting the dynamics of competitors' actions, responses, and intentions

41

Define Industry

a group of firms producing products that are close substitutes
ex: Tobacco industry (cigarettes, juul, etc) and nicotine patches, Nicorette could be combined to become the oral fixation industry

42

List Porter's Five Forces

-threat of new entrants
-bargaining power of suppliers
-bargaining power of buyers
-threat of substitutes
-intensity of rivalry among competitors

43

Threat of new entrants requires ____

barriers to entry
-economies of scale
-product differentiation
-capital requirements
-switching costs
-access to distribution channels
-cost disadvantages independent of scale
-government policy
-expected retaliation

44

Define economies of scale

marginal improvements in efficiency that a firm experiences as it incrementally increases in size

45

Define product differentiation

unique products
customer loyalty
products at competitive prices
---essentially, the products you buy regardless of price but you prefer over another brand

46

Define capital requirements

in some industries you require a lot of products to build your business (facilities, inventory, marketing, availability of resources)

47

Define switching costs

one time costs customers incur buying from a different supplier
-new equipment, retraining employees
ex: you have to get out of a cell phone contract

48

Define distribution channel access

stocking or shelf space, price breaks
ex: Yoplait and Chobani have to pay for shelf space

49

Define cost disadvantages independent of scale

-proprietary technology
-favorable access to raw materials
-desirable locations

50

Define expected retaliation

responses by existing competitors may depend on a firm's present stake in the industry

51

Define government policy

licensing and permit regulations, deregulation of industry
ex: Dodd Frank Act Deregulation, Environmental protection by EPA

52

Supplier power increases when...

-suppliers are large and few in number
-substitutes not available
-customer diversification
-supplier goods are critical to buyer's marketplace success
-supplier's products have high switching costs
-supplier poses a threat to integrate further into buyer's industry

53

buyer power increases when...

-buyer are large and few in number
-buyer purchases a large portion of the industry's total output
-buyer's purchases = significant portion of supplier revenue
-buyer switching costs are low
-buyers can pose a threat to integrate backwards in supplier's industry

54

context of internal analysis

Resources + Resource = Capabilities + Core Competencies (3-4) → Competitive Advantage

55

Context of Internal Analysis

-Maintain a "Global Mindset"
-Analyze firm's resources and capabilities (and how to leverage these to create value)
-A firm's core competencies creates and sustains its competitive advantage

56

How does a firm create value

by exploiting core competencies or competitve advantages, firms create value
-value is created by bundling and and leveraging firm resources and capabilities

57

Define Competitive Advantage

When one firm creates more value than another firm

58

Foundation of a competitive advantage

Resources, capabilities, and core competencies

59

How do firm's effectively bundle and leverage resources

firms must understand what the customer values

60

What are the two types of resources?

Tangible and Intangible

61

Define and list tangible resources

assets that can be seen and quantified
-financial
-physical
-technological
-organizational

62

Define and list intangible resources

assets rooted in the firm's history and that have accumulated over time
-human
-innovation/creativity
-reputation

63

Financial resources

cash
capacity to raise equity
borrowing capacity

64

Physical resources

plant and facilities
favorable manufacturing locations
access to raw materials

65

Technological resources

stock of technology like trade secrets
innovative product processes
patents
copyright
trademark

66

organizational resources

firm's formal reporting structure
formal planning, controlling, and coordinating systems

67

Human resources

knowledge
trust
employee experience/skills
organizational routines

68

innovation/creativity resources

ideas
scientific skills
innovation capacities

69

reputation resources

brand name
quality and reliability repuation
supplier relations

70

Define Capability

exist when resources are purposely integrated to achieve a specific task or set of tasks

71

Examples of capabilities

Ex: Walmart developed a great MIS system early on so they could tell exactly what they sold and what more they needed. They also strategically located themselves close to distribution centers so they could easily stock up at a low cost.

Ex: Southwest's HR routines + physical resources of planes and gates

72

Define core competency

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

73

Ideal number of core competencies

no more than 3-4

74

Tools used to identify core competency

1. Barney's Four Criteria of Sustainable competive advantage (VRIO)
2. Porter's value chain

75

Barney's Four Criteria of Sustainable Competitive Advantage

Four criteria (VRIO)
1. Valuable - does capability help take advantage of an opportunity/create value for customers?
2. Rarity - capability currently possessed by limited number of suppliers?
3. Inimitability - do firms without capability face cost disadvantage to develop?
4. Nonsubstituable - does capability lack a strategic equivalent?

***A yes to all four questions = "Sustained Competitive Advantage" (goes down to Temporary Advantage, Parity, and Disadvantage)

76

Porter's Value Chain Analysis

allows a firm to understand the parts of its operations that creates value and those that don't

used to understand a firm's cost position and identify how to implement a business-level strategy

Broken down into primary and support activites

Key: create additional value without incurring significant costs and capture value that has been created

77

Define primary activities

deal with physical creation, sale, distribution, and servicing of a product/service

-inbound/outbound logistics
-operations/production
-marketing and sales
-service

78

Define support activities

provide assistance for the primary activities to take place

-human resource management
-technology development
-resource procurement
-administration

79

Define value chain

proposes that each activity either adds or subtracts value for the firm.
-activities that support core competencies = value adding = do(in house)
-activities that require capabilties that are not core competencies = value subtracting = don't do (outsource)

80

Define Business-Level Strategyq

integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in SPECIFIC PRODUCT MARKETS

81

In determining a business level strategy, firm must determine

who (the customer group is)
what (needs the customer has that the firm seeks to satisfy)
how (the firm can satisfy needs - can firm use its core competencies)

82

List the different business level strategies

cost leadership
differentiation
focused cost leadership
focused differentiation
Integrated cost leadership/differentiation

83

Basic business level strategy matrix

Competitive Advantage
Cost Uniqueness


Broad Target CL D

Competitive Scope ICL/D

Narrow Target FCL FD

84

Define cost leadership strategy

An integrated set of actions designed to produce or deliver goods or services at the lowest cost, relative to competitors with features that are acceptable to customers
-Produces no-frills, standardized products for typical customers
-Focuses on efficiency so costs are lower than competitors’ costs
-Generally offers lower cost products with competitive levels of differentiation

85

Examples of cost leadership

Greyhound Bus
Big Lots: buys "lots" of goods that don't sell at other stores for a big discount and resell at a decent margin
Walmart

86

Competitive risks of cost leadership

-too much focus on one or a few value-chain activities
-all rivals share a common input or raw material
-imitated too easily

87

Define Differentiation Strategy

integrated set of actions designed by a firm to produce or deliver goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them
-Provide products with different, valued features sold at a premium price
-------Hinges on customers valuing differentiated features more than they value low price
-Firms should differentiate offerings on as many dimensions as possible
-The less similarity to competitors’ products, the more buffered a firm is from competition

88

Examples of differentation strategy

Tiffany Jewelry
Apple
Lexus

89

Risks of Differentiation Strategy

-Customers decide that differences between differentiated and cost leader’s product not worth a higher price
-Competitors offer similar products at a lower cost
-Too high a price premium
-Counterfeiters offer a cheap “knockoff” of a differentiated good or service (e.g., easily imitated)
-Too much differentiation

90

Define focus strategies

The focus strategy is an integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment
-a particular buyer group (ie youths/senior citizens)
-a different segment of a product line (ie professional painters or do-it-yourselfers)
-a different geographic market (east or west)

91

Example of focus strategies

Cost leadership - IKEA
Differentiation - Airstream (trailers), Babies R Us

92

Risks of focus strategies

-A competitor is able to focus on an even more narrowly defined market segment
-Industry-wide competitors decide to focus on specific customer segments
-The differences are reduced between the needs of a specific market segment and those of the rest of the industry

93

Define Integrated CL/D Strategy

firms
-Provide relatively low cost products with valued differentiated features
-Use primary and support activities to produce differentiated products at relatively low costs

94

Risk of Integrated CL/D Strategy

A firm produces products that lack sufficient low cost or differentiation

95

Example of Integrated CL/D Strategy

Southwest Airlines
-low cost: use a single aircraft model, secondary airports, short route flights, no meals, no reserved seats
-differentiation: focus on customer satisfaction, high level of employee dedication, focus on making flying experience fun

96

Challenge with integrated CL/D Strategy

its risky!

potential pitfalls: "Stuck in the Middle" --> When a firm’s products are too expensive to compete with low cost producer and too undifferentiated to provide the value offered by the differentiated producer

97

Competitor

firms operating in the same market, offering similar products, and targeting similar customers

98

Competitive rivalry

firm-to-firm competitive actions
-ongoing set of actions and responses occurring between competitors as they contend with each other for an advantageous position

99

Competitive dynamics

sum of all firm competitive actions
-Total set of actions and responses of all firms competing within a market

100

Strategic action

significant commitment of a specific and distinctive resource that is irreversible
ex: Boeing's midsized jet liner; Guess position to be more upscale

101

Tactical action

Commitment of less specific resources, taken to fine-tune a strategy, that is reversible

ex: pricing, advertising

102

Outline the essence of competitive action and response

industry environment --> Company A initiates a competitive action (Starbucks/Verizon) --> Industry environment is changed --> Company B (McDonalds/Sprint) initiates competitive response --> industry environment is changed again... and so on

103

Strategic Groups

group competitors together based on how they're similar and how they're different

104

Examples of strategic groups

Ferrari, Porsche, Lamborghini

Mercedes, BMW

Hyundai, Kia

Toyota, For GM, Chrysler, Honda, Nissan

105

Strategic groups = ___

low, traditional, high, size, performance aspects of Capsim

106

Competitive rivalry consists of what elements

High Market Commonality + High Resource Similarity = Extent of Competitive Rivals

107

Define market commonality

increases when firms compete in similar markets
-the more overlapping markets the higher the MC
-eg geographic, product, customer, etc.

108

Example of market commonality

McDonalds and Burger King --> McDonalds has a great location strategy so BK decided just to locate all of its stores close to a MCD

109

Resource Similarity

how comparable are competitor's tangible and intangible resources in type and amount

110

Example of resource similarity

-FedEx & UPS
-both have international airhubs, distribution centers, etc.

111

____ MC & RS ____ likelihood of attack

HIgh; Reduces
-firms are more aware of each other's competitive moves
-when attacked, similar firms more likely aggressively retaliate which can lock firms into mutually destructive competitive situations

ex: Blockbuster and Netflix; fast food industry participants; if UPS raises prices Fedex likely will too

112

Drivers of competitive behavior

awareness: by managers
motivation: incentive to take action?
ability: necessary resources to attack?