Strategy Exam Flashcards
What is strategy?
The set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.
It’s ultimately about making bets…bets that certain things will happen and positioning the firm to be able to capture value when that happens
What does good strategy entail?
- A diagnosis of the competitive advantage
- A guiding policy to address the competitive challenge
- A set of coherent actions to implement the firm’s guiding policy
What does strategy require?
- Delivering valued customer outcomes
- Making tradeoffs…not being all things to all people
- Alignment
What is Strategic Management? What is the Strategic Management Process?
Strategic Management: An integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage.
Strategic Management Process: Method put in place by strategic leaders to formulate and implement a strategy, which can lay the foundation for a sustainable competitive advantage.
What are the 3 approaches to setting strategy process?
- Strategic Planning
- Scenario Planning
- Strategy as Planned Emergence
Provide details on the Strategic Planning process.
Traditional top-down process
* Analyze the external and internal environments
* Formulate an appropriate business and corporate strategy
* Implement the formulated strategy through structure, culture, and controls.
Provide details on the Scenario Planning process including what levels it occurs at.
- Top-down process that asks ‘what if’ questions
- Occurs at both the corporate and business levels of strategy
- Involves consideration of black swan events (Incidents that describe highly improbable but high-impact events.)
Provide details on the Strategy as Planned Emergence process.
- Top-down and bottom-up process
- More integrative approach to managing strategy process
What is Competitive Advantage?
Superior performance relative to other competitors in the same industry or the industry average.
Always relative, not absolute
What is a Sustainable Competitive Advantage?
Outperforming competitors or the industry average over a prolonged period of time.
If a company wants to gain a competitive advantage in a competitive industry, what should it do?
- Effective corporate strategy helps to gain and sustain a competitive advantage.
- Be able to adjust to demographic changes
- To gain a competitive advantage, a firm needs to provide either goods or services consumers value more highly than those of its competitors, or goods or services similar to the competitors at a lower price.
- Business model innovation is a critical tool for gaining and sustaining competitive advantage in strategy implementation.
What’s the first step in gaining a competitive advantage?
- Analysis of the external and internal environments (Part I of AFI). A diagnosis to identify the competitive challenge, which includes this analysis.
- The first step to gain and sustain a competitive advantage is to define an organization’s vision, mission, and values (strategic mgmt process).
- To assess competitive adv we compare a firm performance to a benchmark - either the performance of other firms in the same industry or an industry average.
What are strategic commitments?
- Significant changes that are difficult and costly to reverse
- Significant investments resulting in fundamental changes to the organization’s structure
- Can stem from large, fixed cost requirements, but also from noneconomic considerations
- Ex. a change to an organization’s incentive and reward system
- Ex. Tesla’s Gigafactories – $5 billion investment in new lithium-ion battery plant
What is a Customer-Oriented vision statement?
Defines a business in terms of providing solutions to customer needs.
What is a Product-Oriented vision statement?
Defines a business in terms of a good or service provided.
Product-oriented visions tend to force managers to take a more myopic view of the competitive landscape.
Why is it better for firms to keep their vision statements customer oriented rather than product oriented?
- Customer-oriented vision statements allow increased strategic flexibility
- Companies can adapt to change environments
- Product-oriented tend to be less flexible and thus more likely to fail.
- The lack of an inspiring needs-based vision can cause the long-range problem of failing to adapt to a changing environment.
How do strong ethical values benefit a firm?
- First, ethical standards and norms underlay the vision statement and provide stability to the strategy, thus laying the groundwork for long-term success.
- Second, once the company is pursuing its vision and mission in its quest for competitive advantage, they serve as guardrails to keep the company on track.
What is strategic leadership?
- Executives’ use of power and influence to direct the activities of others when pursuing an organization’s goals.
- Power: The strategic leader’s ability to influence other organizational members to do things, including things they would not do otherwise
- Position Power- based on authority/role
- Informal Power- Ex. Persuasion
- Ex. Sheryl Sandberg Facebook’s chief operating officer who reports only to Mark Zuckerberg. She created Facebook’s business model and has attracted high profile advertisers by persuading them, and showcasing how Facebook can place precise targeted ads that align with their user profiles.
Provide examples of situations exhibiting strategic leadership
- Successful business founders: Jeff Bezos at Amazon, Sara Blakely at Spanx, Arianna Huffington with her media and wellness businesses, Phil Knight at Nike, Jack Ma at Alibaba, Elon Musk at Tesla and SpaceX, Rihanna with Fenty Beauty, Oprah Winfrey with her media empire, and Whitney Wolfe with the dating apps Tinder and Bumble.
- Strategic leaders also shape and revitalize existing businesses: Mary Barra at GM, Rosalind Brewer at Walgreens Boots Alliance, Karen Lynch at CVS Health, Sundar Pichai at Google, Indra Nooyi at PepsiCo (left in 2018), Howard Schultz at Starbucks, and Satya Nadella at Microsoft.
What’s a level five manager?
- Effective strategic leaders go through a natural progression of 5 levels according to the Level-5 Leadership Pyramid
- Level 5 Manager is an executive who works to help the organization succeed and others to reach their full potential (Page 40)
- Ex. Sheryl Sandberg
- Level 1: Highly Capable Individual; Level 2: Contributing Team Member; Level 3: Competent Manager; Level 4: Effective Leader; Level 5: Executive
What’s the difference between corporate strategy and business strategy?
Corporate Strategy: Where should the firm compete in terms of industry, markets, and geography?
* The WHERE to compete
* Corporate executives located in the HQ office formulate corporate strategy
Business Strategy: How should the firm compete: cost leadership, differentiation, or value innovation?
* The HOW to compete
* This occurs within strategic business units, which are standalone divisions of conglomerates each with its own profit and loss responsibility.
What is a corporate strategy about?
- Corporate execs formulate corporate strategy as they decide in which industries, markets, and geographies their companies should compete
- They must formulate a strategy that can create synergies across business units that may be quite different and they determine the firm’s boundaries by deciding whether to enter specific industries and markets and sell certain divisions
- These execs are responsible for setting overarching strategic objectives and allocating scare resources among the SBU, monitoring performance, and allocating scare resources adjusting the overall portfolio as the business as needed
- The objective of the corporate level strategy is to increase overall company value to make it higher than the sum of the individual business units’ value
What are different functions that general managers in strategic business units perform?
- Business strategy occurs within strategic business units (SBUs), the standalone divisions of a larger conglomerate, each with profit-and-loss responsibility.
- General Managers in SBUs must:
- Answer business strategy questions relating to how to compete to achieve superior performance.
- Formulate an appropriate generic business strategy—cost leadership, differentiation, or value innovation—in their quest for competitive advantage.
- Examples of SBGs: Accounting, Finance, HR, Product Development, Operations, etc.
What is an Intended Strategy?
- what the firm plans to do (i.e. top down strategic plan)
- The outcome of a rational and structured top-down strategic plan
When does a Deliberate Strategy arise?
Arise when actions are taken to put intended strategies in place
What is a Realized Strategy?
- What the org is actually doing
- Combination of top-down strategic intentions and bottom-up emergent strategy
What is an Unrealized Strategy?
- Plans which never get implemented, or those which die out after some attempt(s) at implementation
- Parts of an intended strategy that fall by the wayside because of unpredictable events
What is an Emergent Strategy?
- A way of describing patterns which did not arise from a planning process
- Unplanned strategic initiative bubbling up from deep within an organization
What does a good stakeholder strategy looks like?
Stakeholder strategy: an approach to strategy formulation that considers all of the company’s stakeholders not just its shareholders, a core tenant is that a single-minded focus on shareholders exposes a firm to undue risk in order to gain and sustain competitive advantage.
Needs to effectively balance the needs of various stakeholders.
Strategy scholars have provided arguments as to why effective stakeholder management can increase firm performance:
* Satisfied stakeholders are more cooperative and more likely to reveal information that can further increase the firms value creation or lower its costs
* Increased trust lowers the cost of firm’s business transactions
* Effective management of the complex web of stakeholders can lead to greater organizational adaptability and flexibility
* The likelihood of adverse outcomes can be reduced creating more predictable and stable returns
* Firms can build strong reputations that are rewarded by business partners, employees, and customers; most strategic leaders care about the firm’s public perception, and they celebrate and publicize their inclusion in high profile rankings such as fortunes world’s most admired companies
What are the different responsibilities of the firm (Corporate Social Responsibility)?
- Economic
- Legal
- Ethical
- Philanthropic
What are the economic responsibilities as part of Corporate Social Responsibility?
- Provide adequate return for the risks investors take
- Repay creditors
- Produce safe products and services at reasonable prices and acceptable quality
- Pay suppliers in full and on time
- Pay taxes
- Manage natural resources (i.e. air and water)
What are some of the external forces in a firm’s task environment?
- Industry structure, composition of their strategic groups (a set of close rivals), customers/suppliers, regulatory bodies, labor force.
- Strategic leaders have some influence over forces in this environment
Describe the P in the PESTEL Framework.
- Political Factors result from the pressure that various groups such as government bodies, nongovernmental orgs (NGOs) and social movements can exert to influence the decisions and behavior of firms
- NGO examples: the National Rifle Association (NRA), Black Lives Matter (BLM), #MeToo
- Political factors and legal factors are closely related
- Example: 5 decades of ppl campaigning for gay rights, in 2015 the Supreme court ruled the 14th Amendment requires all states to allow for same sex marriages
- While these factors are in the firm’s general environment where they wield less influence, companies work hard to shape and influence this realm by pursuing nonmarket strategy in which they obtain more favorable outcomes for the firm through activities such as lobbying, PR, contributions and litigation
Describe the first E in the PESTEL Framework.
Economic Factors are largely macroeconomic, affecting economy wide phenomena
Strategic leaders (SL’s) need to consider how the following 5 macroeconomic factors can affect firm strategy:
* Growth rates
* Employment level
* Interest rates
* Price stability (inflation and deflation)
* Currency exchange rates
Describe the S in the PESTEL Framework.
Sociocultural Factors capture a society’s cultures, norms and value.
Because these flux and differ across groups, SLs need to monitor trends and consider implications for firm strategy
- Demographic trends are critical sociocultural trends (ex. age, gender, family size, ethnicity, sexual orientation, religion and socioeconomic class)
- Demographic trends present opportunities and threats
- Firms that adjust can gain competitive advantage while those that don’t may experience negative performance implications
Describe the T in the PESTEL Framework.
Technological Factors capture the application of knowledge to create processes and products
Significant innovations in process technology include lean manufacturing, six sigma quality, genetic engineering, AI, and quantum computing
Describe the second E in the PESTEL Framework.
- Ecological Factors concern broad environmental issues such as the natural environment, climate change, and sustainable economic growth
- Orgs and the natural environment co-exist in an interdependent relationship
- Companies contribute to the pollution of air, water, land and the depletion of the worlds natural resources
- Ecological factors such as climate change can also provide business opportunities
- Ex: Tesla addressing environmental concerns through EVs
Describe the L in the PESTEL Framework.
Legal Factors capture the official outcomes of political processes as manifested in laws, mandates, regulations, and court decisions, all of which can directly impact a firms profit potential
How’s the task environment different from the general environment?
Task environment – Directly affects a firm’s operations and performance. Strategic leaders have some influence.
* Ex. industry’s structure, the composition of their strategic groups, customers, labor force
General environment - Doesn’t have a direct impact on your business, but shapes the overall business environment. Strategic leaders have little direct influence.
* Ex. Political factors in the PESTEL analysis, economic conditions, technological trends
What is Economies of Scale?
Economies of Scale: Decreases in cost per unit as output increases.
Reduces costs
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 on labor
* demand better terms from their suppliers
What is Economies of Scope?
Savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology.
Increases value
Explain Learning Curve effects
Learning Curve - underlying technology remained constant, while only cumulative output increased
Variable costs go down as a function of the volume produced
I.e. the firm learns how to be productive as more are produced
Explain Experience Curve effects
Experience Curve - underlying technology is changed while holding cumulative output constant
- Combines economy of scale & learning curves.
- Scale comes down a given learning curve.
- Technology allows movement to steeper curve.
- Combination can leapfrog in competitive advantage.
- Ex. Walmart high volumes & technology leadership
How are cumulative learning and experience effects of a company most likely to affect Michel Porter’s Five Forces?
The threat of entry is HIGH when incumbents do not possess cumulative learning and experience effects.
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 on labor
* demand better terms from their suppliers
Additional ChatGPT Thoughts:
* Bargaining Power of Suppliers: Lead to improved relationships with suppliers. As a company gains experience and expertise, it may be better equipped to negotiate favorable terms and prices with its suppliers. This can reduce the bargaining power of suppliers.
* Bargaining Power of Buyers: Results in product or service improvements, cost reductions, and increased customer satisfaction. This can make it more difficult for buyers to switch to alternative suppliers or products, reducing their bargaining power.
* Threat of New Entrants: A company that has accumulated significant knowledge and experience in its industry may have established barriers to entry for new competitors. This could be in the form of proprietary technology, economies of scale, or strong customer relationships, making it more challenging for new entrants to compete effectively.
* Threat of Substitutes : Result in product or service differentiation and improvements, making it less likely for customers to switch to substitutes. This can reduce the threat of substitutes to the industry.
* Competitive Rivalry: Companies that have accumulated knowledge and experience in their industry may have a competitive advantage over their rivals. This can lead to stronger competitive rivalry as experienced companies are better equipped to compete effectively and defe*nd their market positions.
What are the drawbacks of Porter’s five forces model?
Although the five forces plus complements model is useful in understanding an industry’s profit potential, it provides only a point-in-time snapshot of a moving target. With this model (as with other static models), one cannot determine the changing speed of an industry or the rate of innovation. This drawback implies that strategic leaders must repeat their analysis over time to create a more accurate picture of their industry. It is therefore important that strategic leaders consider industry dynamics.
“Models presented in chapter do not allow strategic leaders to understand why there are performance differences among firms in the same industry or strategic group.”
What’s true of strategic groups?
A strategic group is a set of companies that pursue a similar strategy within a specific industry in the quest for competitive advantage. Differ from one another along important dimensions such as:
* expenditures on research and development
* technology
* product differentiation
* market segment
* distribution channels
* customer service
Firms in the same strategic group tend to follow a similar strategy and thus they are direct competitors.
The rivalry among firms within the same strategic group is generally more intense than rivalry among strategic groups.
Mobility Barriers are industry specific factors that separate one strategic group from another, these restrict the movement between groups. Think of the Airline graphic (Exhibit 3.8): Low/High Routes & Cost Structure
What is the difference between tangible and intangible resources?
- Tangible: Resources that have physical attributes and thus are visible.
- Ex. labor, capital, land, plant, building, supplies
- Intangible: Resources that do not have physical attributes and thus are invisible.
- Ex. firm culture, knowledge, brand equity, reputation, intellectual property
What is Resource Heterogeneity?
Assumption in the resource-based view that bundles of resources differ across firms
Requires a more critical look at resources of firms competing in the same industry or same strategic group
What is Resource Immobility?
Assumption in the resource-based view that a firm has resources that tend to be “sticky” and that do not move easily from firm to firm.
Resource differences are difficult to replicate and therefore can last a long time
What are the assumptions of Resource Heterogeneity and Resource Immobility?
Together these assumptions mean that resource bundles differ across firms and such differences can persist for long periods.
The two assumptions are critical to explaining superior firm performance in the resources-based model.
