Mid-term Flashcards
(42 cards)
What are the objectives/goals of business? What metrics might we use to determine how successful companies are in achieving those goals?
Goals: Sustainable competitive advantage which creates superior performance
Metrics: Revenue growth (can be ‘bought’), common stock returns, market cap
We can also look at trended financial statement analysis (like a movie of strategy in action) - helps us determine where companies are spending strategically
Best performance measure - ROE
Why might it be important that we consider the performance of a company with respect to a broader range of stakeholders?
Some companies (Whole Foods) create more than just economic value for its stakeholders. They create markets for organic and natural foods that were previously underdeveloped. Now, Walmart offers organic products too.
Some people also want to know that their products were made in sustainable ways – LEED certified buildings
What is the most common performance measure used by executive management? Why? What components make this particular measure so useful?
ROE - Return on equity (Sales/Shareholders Equity)
Economic profit (what is above normal profit) gives superior returns. When a company’s ROE is larger than its cost of equity capital, then it has a residual income, which means superior returns.
Components - Profitability, Asset Productivity, Financial Leverage
Why is revenue growth such a critical performance measure?
- shows that company can maintain relationships with new/existing customers
- expand into new territories
- stay relevant in marketplace
Important to remember that top and bottom line growth are important – not just top line!
Why is it important for a company to focus on moving toward the monopoly end? What strategies can the company employ to achieve that end?
That’s where all the profits are.
What three methods of performance analysis provide greatest insight into a company strategy?
- summary measures
- measures that can be compared to competitors
- reflect long run periods of time
How would you gain insight into a specific company’s strategy?
- detailed financial statement analysis
- identify economic logics within an industry to see how winning company’s are winning in that
- identify important operational characteristics
How do KSFs inform us about a particular market?
The characteristics of the market would drive the KSFs depending on if the market is something that is easily replaceable. Gas stations, we don’t care about the ‘brand’ price is something that really affects where we go.
What elements help us define an industry?
Industries can be defined differently, depending on who’s talking. Comparing our company to our competitors through similar inputs and similar outputs.
How are NAICS codes utilized in industry analysis?
We can identify where an industry fits within a message of industries.
What criticisms do you have of the five-forces model? What does it not explain that you believe is important in competitive strategy?
It can become a laundry list of items that sits in a binder on shelf - and is a snapshot of just a moment in time. It does not explain the importance of value-adding activities like value chain analysis does.
How can we use the five-forces model to examine industries?
It helps us understand other forces than just competition (rivalry) have on business such as threat of new entrants, threat of substitutes, and bargaining power of buyers and suppliers
What factors help limit the entry of new competitors into an industry?
- capital requirements
- economies of scale
- access to distribution
- switching costs (MS word)
What are the types of absolute cost advantage, and how do they impact the five forces?
you can produce a good cheaper than anyone else - when cost advantage is strong, threat of new entrants is low
What are perceived switching costs?
Switching from say one brand to another - coke/pepsi same cost, same can, same function
Provide examples of real switching costs.
Involve some money or loss of something
How do substitutes affect and industry’s attractiveness? What are appropriate responses by competitors when substitutes emerge?
- They can establish a price ceiling
2. prompt competition to ramp up marketing and promotional efforts so they don’t lose consumers
What are three factors that determine how strong the threat of substitutes will be for an industry?
- relative price/performance of substitute products (needs to be equal price or lower or have better performance)
- how easily can a buyer obtain
- buyers’ propensity to try
How would you explain buyer concentration?
In bargaining power of buyers:
It is important to consider structure of an organization. We might look at an industry and see a few large buyers and how much of the marketshare they have. In other words, the loss of any one of these buyers might result ina dramatic shift in the industry. Two ways to measure it concentration ratio and herfindahl index
In what ways do suppliers impact the attractiveness of an industry?
- price
- availability
- services provided
Name the elements that affect the attractiveness of an industry and explain their impact.
5 forces as well as STEEPG
Why is important for companies to focus on moving toward the monopoly end? What strategies can the company employ to achieve that end?
Because the more monopoly-like you are, the more you are protected from new firms entering and from substitute products. In a monopoly market one firm exists and makes all the profits.
They active this through making barrier to entry or barriers to mobility (companies already in industry difficult to imitate what’s happening)
STEEPG - identifying outside forces affecting your industry
S - Social (Demographic/Psychographic, cultural)
T - Technological
E - Economic
E - Environmental
P - Political
G - Global
What does SWOT stand for?
Strengths, Weaknesses, Opportunities, Threats
