Exam Review Flashcards
(127 cards)
1
Q
What is strategy?
A
- a set of goal-directed actions a firm takes to gain & sustain superior performance relative to competitors
- where, how, and what to compete with
- it is a pattern/plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole
– The outcome of the strategic management process.
2
Q
What is the strategic management process?
A
- lays the foundation for sustainable competitive advantage.
3
Q
When setting the strategy process, strategic leaders rely on what three approaches?
A
- strategic planning
- scenario planning
- strategy as planned emergence
4
Q
If a company wants to gain competitive advantage in a competitive industry, what should it do?
A
- firm must provide EITHER
1. goods or services consumers value more highly than those of its competitors
2. OR goods or services similar to the competitors’ at a lower price
5
Q
What’s the first step in gaining a competitive advantage?
A
- strategic leaders have a strong influence in setting an organization’s vision, mission, and values
– Part 1 of AFI framework: Analyzing
6
Q
What are strategic commitments?
A
- firm actions that are costly, long term oriented, and difficult to reverse which back up the firm’s strategy.
– if firms make strategic commitments to compete in a industry, rivalry among competitors is likely to be more intense
7
Q
What is a product oriented vision statement?
A
- defines a business in terms of a good or service provided
8
Q
What is a customer oriented vision statement?
A
- defines a business in terms of providing solutions to customer needs
9
Q
Why is it better for firms to keep their vision statements customer oriented rather than product oriented?
A
a company can more easily adapt to changing environments
10
Q
What is the advantage of a product oriented vision statement?
A
- forces managers to take a more myopic (short sighted) view of the competitive landscape
- can be an advantage to ‘unify’ a team and improve organizational effectiveness for product development short term
11
Q
How do strong ethical values benefit a firm?
A
- ethical standards and norms underlay the vision statement and provide stability to strategy, thus laying the groundwork for long-term success
– once the company is pursuing its vision and mission in its quest for competitive advantage, they serve as guard rails to keep the company on track
12
Q
What is strategic leadership?
A
- executives’ use of power and influence to direct the activities of others when pursuing an organization’s goals
– their support of the vision leads to competitive advantage
13
Q
What are the 5 levels of the leadership pyramid?
A
- executive
- effective leader
- competent manager
- contributing team member
- highly capable individual
14
Q
What’s a level 5 manager?
A
executive
15
Q
What’s the difference between corporate & business strategy?
A
- Corporate: where to compete as to industry / markets / geography
- Business: how to compete. Three generic business strategies are available: 1. cost leadership, 2. differentiation, 3. value innovation
16
Q
What is corporate strategy?
A
- involves decisions that senior management makes and the actions it takes in the quest for competitive advantage
– it concerns the scope of the firm, which determines the boundaries of the firm along the industry value chain, products and services, and geography
17
Q
What are the functions of general managers in strategic business units?
A
- they must answer business strategy questions relating to how to compete in order to achieve superior performance
– must manage and align the firm’s different functional areas for competitive advantage
18
Q
What are the different types of strategies? (application)
A
- intended
- unrealized
- bottom-up
- realized
19
Q
What is intended strategy?
A
- a top-down strategic plan, the outcome of a rational and structured, top-down strategic plan
20
Q
What is unrealized strategy?
A
- the result of unpredictable events
21
Q
What is bottom-up strategy?
A
- describes any unplanned strategic initiative bubbling up from deep within the organization
22
Q
What is realized strategy?
A
- generally formulated through a combination of its top-down strategic intentions and bottom-up emergent strategy
23
Q
What does a good stakeholder strategy look like?
A
- an integrative approach to managing a diverse set of stakeholders effectively to gain and sustain competitive advantage
24
Q
What are the 5 stages of stakeholder impact analysis?
A
- identify stakeholders
- identify stakeholders’ interests
- identify opportunities and threats
- identify social responsibilities
- address stakeholder concerns
25
What are the different kinds of responsibilities of a firm? (economic responsibility)
- gain & sustain a competitive advantage
- investors expect an adequate return for their risk capital
- creditors expect the firm to repay its debt
- consumers expect safe products and services at appropriate prices & quality
- suppliers expect to be paid in full and on time
- governments expect the firm to pay taxes and manage natural resources such as air and water under decent stewardship
26
What are some of the external forces in a firm's task environment?
- ones that managers do have some influences over, such as the composition of their strategic groups (a set of close rivals) or the structure of the industry
27
What is the PESTEL framework for the external environment?
- Political
- Economic
- Sociocultural
- Technological
- Ecological
- Legal
28
Political (PESTEL analysis)
- the processes and actions of government bodies that can influence the decisions and behavior of firms
29
Economic (PESTEL analysis)
- external environment are largely macroeconomic, affecting economy wide phenomena
30
Sociocultural (PESTEL analysis)
- capture a society's cultures, norms, and values
31
Technological (PESTEL analysis)
- capture the application of knowledge to create new processes and products
32
Ecological (PESTEL analysis)
- broad environmental issues such as natural environment, global warming, and sustainable economic growth
33
Legal (PESTEL analysis)
- the official outcomes of political processes as manifested in laws, mandates, regulations, and courts
34
How is the task environment different from the general environment?
- both are external factors, but managers have some influence over a task environment, and they do not in a general environment
35
Economies of scale are cost advantages that accrue to firms with _____?
larger output
- because they can spread fixed costs over more units, employ technology more efficiently, benefit from a more specialized division of labor, and demand better terms from their suppliers
36
What are Porter's 5 forces?
1. threat of entry
2. power of suppliers
3. power of buyers
4. threat of substitutes
5. rivalry among existing competitors
37
How are cumulative learning and experience effects of a company most likely to affect the 5 forces?
- threat of new entrants will be low
38
What are the drawbacks of the 5 forces model?
1. only a point-in-time snapshot of a moving target (static model, NOT dynamic)
2. one cannot determine the changing speed of an industry or the rate of innovation
3. must repeat analysis over time to create a more accurate picture of their industry
4. must also consider industry dynamics
39
* What is true of strategic groups?
- the set of companies that pursue a similar strategy within a specific industry
40
What are the differences between tangible and intangible resources?
- **Tangible**: physical attributes (land, capital, labor, buildings) and can be bought on the open market; physical attributes and can be sold on an open market
- **Intangible**: no physical attributes (culture, knowledge, reputation) and cannot be bought on the open market
41
What are the different types of resource characteristics?
1. resource heterogeneity
2. resource immobility
3. resource substitution
4. costly-to-imitate resource
42
What is resource heterogeneity?
- bundle of resources and capabilities that **differ** across firms
43
What is resource immobility?
- resources tend to be "sticky" and don't move easily from firm to firm
44
What is resource substitution?
- unable to develop or buy at a REASONABLE price
45
What is costly-to-imitate resource?
- one of the 4 key criteria in the VRIO framework
- resource is costly to imitate if firms that do not possess the resource are unable to develop or buy the resource at a comparable cost
46
What are high entry barriers? What do they look like?
factors that can prevent or impede newcomers into a market or industry sector, and so limit competition. These can include high start-up costs, regulatory hurdles, or other obstacles that prevent new competitors from easily entering a business sector.
- economies of sale
- network effects
- customer switching costs
- capital requirements
- advantages independent of size
- government policy
- credible threat of retaliation
47
What is resource-based view of competition?
- a model that sees certain types of resources as key to superior firm performance
48
What is perfect competition?
- a perfectly competitive industry is fragmented and has many small firms, a commodity product, ease of entry, and little / no ability for each individual firm to raise its prices
49
How are the assumptions of the resource-based view different from perfect competition?
- in perfect competition, all firms have access to the same resources and capabilities, ensuring that one firm's advantage will be short-lived
- when resources are freely available and mobile, competitors can quickly acquire the same resources that the current market leader utilizes
50
What are the different components of the resource-based view? - VRIO framework
1. valuable
2. rare
3. costly to imitate
4. firm must be organized to capture the value of the resource
51
What are the other characteristics of competitive advantage?
1. path dependence
2. casual ambiguity
3. social complexity
4. better expectations
5. IP protection
52
Competitive advantage characteristic: Path dependence
- describes a process in which the options in a current situation are limited by decisions made in the past
- often, early events-sometimes even random ones-significantly affect outcomes
53
Competitive advantage characteristic: Casual ambiguity
- describes a situation in which the cause and effect of a phenomenon are not readily apparent
54
Competitive advantage characteristic: Social complexity
- describes situations in which different social and business systems interact
- there is frequently no casual ambiguity about how individual systems such as supply chain management or new product development work in isolation
55
Competitive advantage characteristic: Better expectations
- better expectations of the future value of a resource allow a firm to gain a competitive advantage
- if these better expectations can be systematically repeated over time, they can help a firm develop sustainable competitive advantage
56
Competitive advantage characteristic: IP protection
- critical intangible resource (patents, designs, copyrights, trademarks, trade secrets)
57
* What makes a valuable resource difficult to imitate?
- cost
- uniqueness
- path dependency
- casual ambiguity
- social complexity
58
What is true of a resource stock?
- the firm's current level of intangible resources
59
How do you use the value chain to think about competitive advantage?
- a firm's activities are one of the key internal drivers of performance differences across firms
- activities are distinct actions that enable firms to add incremental value at each step by transforming inputs into goods and services
- to help a firm achieve competitive advantage, each distinct activity performed needs to either add incremental value to the product or service offering or lower its relative cost
60
What is SWOT analysis? be able to identify
1. Strengths
2. Weakness
3. Opportunities
4. Threat
61
What is core rigidity?
- a former core competency that turned into a liability because the firm failed to hone, refine and upgrade the competency as the environment changed
62
* Know what examples of what constitutes the different resources a firm could have
- any asset that a firm can draw on when formulating and implementing a strategy
63
What are the different financial ratios?
1. return on revenue
2. cost of goods sold
3. revenue resource development
4. expense revenue
64
Financial ratios: know the different components & where they show up: return on revenue
- net profit/revenue
-- profitability ratio
65
Financial ratios: know the different components & where they show up: cost of goods sold
- starting inventory + purchases - ending inventory
-- income statement
66
* Financial ratios: know the different components & where they show up: revenue resource development
67
* Financial ratios: know the different components & where they show up: expense revenue
68
What is true of accounting data?
- all accounting data are historical and thus backward-looking
69
What is good/bad about accounting data?
- do NOT consider off-balance sheet items
- accounting data focuses on mainly tangible assets, which are no longer the most important
70
* What does the return on risk capital include?
- from an investors' or shareholders perspective, the measure of competitive advantage that matters the most
- -stock price appreciation plus dividends received over a specific period.
71
What is market capitalization?
- a firm performance metric that captures the **total dollar market value** of a company's total outstanding shares at any given point in time
72
How do you compute market capitalization?
- # of shares outstanding * stock price
73
What are opportunity costs?
- value of the best forgone alternative use of the resources employed
- **example**: you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can't spend the money on something else.
74
What is economic value created?
- difference between value (V) and cost (C)
-- (V-C)
75
What is reservation price?
- the maximum price a consumer is willing to pay for a product or service based on the total perceived consumer benefits
76
What are the advantages of a balanced scorecard?
- communicate and link the strategic vision to responsible parties within the organization
- translate the vision into measurable operational goals
- design and plan business processes
- implement feedback and organizational learning to modify and adapt strategic goals when indicated
77
What is accounting profitability approach to valuing?
- using financial data and ratios derived from publicly available accounting data such as income statements and balance sheets
- accurately assessing the performance of their firm and benchmarking their firm's performance their firm's performance to competitors is key
78
What is economic value created approach?
- difference between a buyer's willingness to pay for a product / service and the firm's total cost to produce
79
What is triple bottom line approach?
- combination of economic, social, and ecological concerns (*or profits, people and planet*) that can lead to a sustainable strategy
80
What is balanced scorecard?
- strategy implementation tool that harnesses multiple **internal** and **external** performance metrics to balance financial and strategic goals
81
What is a subscription-based model?
- users pay for access to a product or service whether they use the product or service during the payment term or not
82
What are the subscription-based strategies?
1. razor/razorblades
2. pay as you go
3. freemium
4. wholesale
5. agency
6. bundling
83
What is the razor / razor blade model?
- initial product is often sold at a loss or given away for free to drive demand for complimentary goods
84
What is the pay-as-you-go model?
- users pay for only the services they consume
-- you pay whenever you need it and are charged a premium for the use of it
-- example: water
85
What is the freemium model?
- free for basic, upgrades for premium features or add-ons
86
What is the wholesale model?
- sell products to retailers at a fixed price
-- retailers are free to set their own price on any product and profit from the difference
87
What is the agency model?
- the producer relies on an agent or retailer to sell the product, at a predetermined percentage commission
-- the producer may also control the retail price
88
What is the bundling model?
- sells product/service for which demand is negatively correlated at a discount
-- demand for two products is negatively correlated if a user values one product more than another
89
What is strategic trade-off?
- choices between a cost or value position
- such choices are necessary because higher value creation tends to generate higher cost
90
* What do we mean by a generic business strategy?
1. **Differentiation**- seeks to create higher value for customers than the value that competitors create
2. **Cost Leadership**- seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors
3. **Value innovation**- ?
91
Generic business strategy: what are cost drivers?
- the direct cause of a business expense
- a cost driver is any activity that triggers a cost of something else
92
Generic business strategy: what are value drivers?
- unique features that will increase the perceived value of goods and services in the minds of consumers
93
What are the different kinds of economies?
1. economies of scale
2. economies of scope
3. time compression diseconomies
94
What is economies of scale?
- decreases in cost/unit as outcome increases (+)
95
What is economics of scope?
- savings that come from producing 2+ outputs at less cost than producing them individually, despite using the same resources and technology
96
What is time compression diseconomies?
- costs often increase exponentially when companies attempt to build a new competence in a shorter amount of time than it usually takes
97
Generic strategies: what is differentiation strategy?
- seeks to create **higher value** for customers than the value that competitors create
- these firms attempt to deliver products or services with unique features while keeping costs at the same or similar levels, allowing them to charge higher prices to their customers
- the focus of competition in a differentiation strategy tends to be on unique product features, services, new product launches, and on marketing and promotion rather than price
98
Generic strategies: what is cost leadership strategy?
- seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors
- this enables the firm to offer lower prices to its customers
- attempts to optimize all of its value chain activities to achieve a low-cost position
99
Integration-type strategy: what's it doing & what's it called?
- **horizontal integration**: the process of merging with competitors, leading to industry consolidation
-- you do this if the target firm is worth more inside your firm
100
What are some benefits of horizontal integration?
- *lower costs*: through economies of scale
- *reductions in competitive intensity*: changes the underlying industry structure in favor of the surviving firms. Excess capacity is taken out of the market, and competition tends to decrease as a consequence of horizontal integration, assuming no new entrants
- *increased differentiation*: horizontal integration can do this by filling gaps in a firm's product offering, allowing the combined entity to offer a complete suite of products and services
101
What are some examples of horizontal integration?
- Facebook buying Instagram
- Disney buying Pixar
- Exxon buying Mobil
102
How long does a patent last?
20 years
103
What are the different kinds of alliances?
1. joint venture
2. cross-boarder
3. non-equity
4. equity
104
Why would you use one alliance vs another?
- strategic alliances are voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services
**benefits**:
- strengthen competitive position
- enter new markets
- hedge against uncertainty
- access critical complementary assets
- learn new capabilities
105
What is the joint venture alliance?
- a stand-alone organization created and jointly owned by two or more parent companies
- the partners contribute equity to a joint venture, they enter a long-term commitment, which in turn facilitates transaction specific investments
-- share the costs and risks of operating in the host country
-- local partner's knowledge of the host country
-- meet political considerations - JV is only feasible entry mode
PROS: strongest tie, trust and commitment that can result between the partners
CONS: can entail long negotiations, long-term solution, managers have 2 bosses
106
What is the non-equity alliance?
- the most common type of alliance, which is based on contracts between firms
- in a non-equity alliance, firms tend to share explicit knowledge that can be codified (laws/rules)
**PROS**: flexible, fast, easy to initiate and terminate
**CONS**: weak tie, lack of trust & commitment
107
What is the equity alliance?
- purchase of a stock ownership stake or corporate venture capital investment, or investment in kind such as a plant or equipment
*PROS*: stronger tie, trust & commitment can emerge, window to new technologies
**CONS**: less flexible, slower, can entail significant investment
108
What is the cross-border alliance?
- an agreement between two or more business organizations from two different countries to pursue a set of common interests
109
* When would you do a merger & how do you go about doing one?
- when the target firm is worth more inside your firm??
110
What is horizontal integration?
- the process of merging with competitors, leading to industry consolidation, do it if the target firm is worth more inside your firm
111
What is winner's curse?
- some companies get involved in a bidding war for an acquisition; the winner ends up with the prize but may have overpaid for the acquisition- thus falling victim to the winner's curse
112
What is the main reason M&As fail?
- miscalculation of the expected synergy (interaction/cooperation)
- paid too much (winner's curse)
- difficulty of integrating 2 firms
(FULL SYNERGIES NOT ACHIEVED.- i.e you can achieve 5 billion of synergy, but if you promised 10 billion, then you failed)
113
What is organizational design? What are the key building blocks?
- how the firm should organize to turn the formulated strategy into action
1. specialization
2. formulation
3. centralization
4. hierarchy
114
What is specialization? (OD)
- degree to which a task is divided in separate jobs or labor division
115
What is formalization? (OD)
- extent to which employee behavior is steered by explicit and codified rules & procedures
116
What is centralization? (OD)
- degree to which decision making is concentrated at the top of an organization
117
What is hierarchy? (OD)
- determines the formal, position-based reporting lines and who reports to who
118
What is mechanistic organizational structure?
- characterized by a **high** degree of specialization and formalization and by a tall hierarchy that relies on **centralized** decision-making
119
What is organic organizational structure?
- have a **low** degree of specialization and formalization, a flat org structure, and **decentralized** decision-making
120
What is the process of organizing for competitive advantage?
- simple structure
- functional
- multidivisional
- matrix
121
What is a functional structure?
- ADVANTAGE: groups employees into distinct functional groups based on area of work, allows for a **higher** degree of specialization and deeper domain expertise than a simple structure
- CON: tends to lack cross-functional communication
122
What is organizational culture?
- collectively shared values and norms of an organization's members; a key building block of organizational design
123
Competitive industry structure
elements and features common to all industries. This is largely captured by
- # and size of its competitors
- firm's degree of pricing power
- type of product or service (commodity or differentiated product)
- height of entry barriers
124
4 types of competitive industry structure?
1. perfect competition
2. monopolistic competition
3. oligopoly
4. monopoly
125
What is monopolistic competition?
- many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers
-- forces firms to offer products with unique features, allows firms to differentiate products and prices
126
What is oligopoly?
- a few large firms, differentiated products, high barriers to entry, and some degree of pricing power
127
What is monopoly?
- only 1 firm, often a large firm supplying the market, unique products and high barrier to entry into the industry
-- no competition, total price control
