Strategy Exam Flashcards
(123 cards)
1
Q
What is Strategy?
A
The set of goal-directed and integrated actions a firm takes to gain and sustain superior performance relative to competitors.
2
Q
Good Strategy Entails:
A
- 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
3
Q
Strategic Management
A
An integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage.
4
Q
Strategic Management Process
A
Method put in place by strategic leaders to formulate and implement a strategy, which can lay the foundation for a sustainable competitive advantage.
5
Q
Stages of Strategic Management Progress
A
- Top-down strategic planning
- Scenario planning
- Strategy as a planned emergence
6
Q
Top Down Strategic Planning
A
A rational, data-driven strategy process through which top management attempts to program future success using analysis, formulation, and implementation.
7
Q
Analyze, Formulate, Implement
A
- Analyze the external and internal environments
- Formulate an appropriate business and corporate strategy
- Implement the formulated strategy through structure, culture, and controls.
8
Q
Scenario Planning
A
Strategy planning activity in which top management envisions different what-if scenarios to anticipate plausible futures in order to derive strategic responses.
9
Q
Strategy as Planned Emergence
A
Strategy process in which organizational structure and systems allow bottom-up strategic initiatives to emerge and be evaluated and coordinated by top management. Strategic initiatives can bubble up from deep within the organization through autonomous actions, serendipity, and resource allocation process.
10
Q
Competitive Advantage
A
Superior performance relative to other competitors in the same industry or the industry average.
11
Q
Sustainable Competitive Advantage
A
Outperforming competitors or the industry average over a prolonged period of time.
- 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.
12
Q
Steps to Gaining Competitive Advantage
A
- Diagnosis
- Guiding policy
- Coherent actions (need to value more and have lower cost)
13
Q
What are Strategic Commitments?
A
Significant investments resulting in fundamental changes to the organization’s structure. Difficult and costly to reverse.
14
Q
Why is it better for firms to keep their vision statements customer oriented rather than product oriented?
A
- Customer-oriented vision statements allow companies to adapt to changing environments because they focus on thinking about how to best solve problems for consumers (ex: we are in energy business) and providing solutions to customer needs (ex: making more smoothies than milkshakes if customers want to order in the morning)
- Product-oriented vision statements often constrain this ability and define a business in terms of a good or service it provides (ex: we are in typewriter business)
- Identifies a critical need but now how to meet as it may change, vision needs to be flexible and and allow for change and adaptation
15
Q
How do Strong Ethical Values Benefit a Firm?
A
- Underline vision statement and provide stability to strategy, laying groundwork for long-term success
- When company is pursuing mission and vision in quest for competitive advantage serve as guardrails to keep company on track
16
Q
What is Strategic Leadership?
A
Executives’ use of power and influence to direct the activities of others when pursuing an organization’s goals
17
Q
Level-5 Leadership Pyramid
A
A conceptual framework of leadership progression with five distinct, sequential levels. Level 5= executive who builds enduring greatness through a combo of willpower and humility Ex: Sheryl Sandberg at Meta
18
Q
Corporate Strategy
A
concerns the question of where to compete in industry, markets, and geography.
The decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industries and markets simultaneously.
19
Q
Business Strategy
A
Concerns the question of how to compete – cost leadership, differentiation, and value innovation
20
Q
Functional Strategy
A
concerns the question of how to implement a chosen business strategy. Different corporate and business strategies require different activities across the various functions
21
Q
Strategic Business Units
A
Standalone divisions of a larger conglomerate, each with their own profit-and-loss responsibility.
General Managers in SBUs must:
1. answer business strategy questions relating to how to compete to achieve superior performance.
2. Formulate an appropriate generic business strategy—cost leadership, differentiation, or value innovation—in their quest for competitive advantage.
22
Q
Intended Strategy
A
The outcome of a rational and structured top-down strategic plan.
23
Q
Realized Strategy
A
Combination of intended and emergent strategy, formulated by top-down and and bottom-up emergent strategy
24
Q
Emergent Strategy
A
Any unplanned strategic initiative bubbling up from the bottom of the organization.
25
Unrealized Strategy
unpredictable events may change intended strategies
26
Deliberate Strategy
Arise when actions are taken to put intended strategies in place
27
Critical Challenge in the Pursuit of a Stakeholder Strategy
Effectively balancing the needs of various stakeholders.
28
Stakeholder Impact Analysis
A decision tool with which managers can recognize, prioritize, and address the needs of different stakeholders, enabling the firm to achieve competitive advantage while acting as a good corporate citizen.
29
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
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Three Crucial Stakeholder Attributes
Power, Legitimacy, and Urgency
31
Corporate Social Responsibility
A framework that helps firms recognize and address the economic, legal, social, and philanthropic expectations that society has of the business enterprise at a given point in time.
32
Economic Responsibilities
The foundational building block, followed by legal, ethical, and philanthropic responsiblities.
Economic responsibilities:
- 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)
33
External Forces in a Firm's Task Environment
- Industry structure, composition of their strategic groups (a set of close rivals)
- Strategic leaders have more influence over external factors in task environment compared to those in the general environment
34
PESTEL Framework
PESTEL - A framework that categorizes and analyzes an important set of external factors that might impinge upon a frim. These factors can create both opportunities and threats for the firm
- Political - government bodis, nongovernmental organizations, and social movements
-Economic - growth rates, employment level, interest rates, price stability, currency exchange rates
- Sociocultural - society’s cultures, norms and values
- Technological - application of knowledge to create new processes and products
- Ecological - broad environmental issues such as the natural environment, climate change, and sustainable economic growth
- Legal - the official outcomes of political processes as manifested in laws, mandates, regulations, and court decisions
35
Task Environment
The industry’s structure and the composition of their strategic groups (a set of close rivals)
Strategic leaders DO have some influence over external factors in the firm’s task environment.
36
General Environment
The macroeconomic factors such as interest rates and currency exchange rates
In contrast, strategic leaders have little direct influence over external factors in the firm’s general environment.
37
Economies of scale are cost advantages that accrue to firms with _____?
Larger output because they can spread fixed costs over more units
38
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
39
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
40
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
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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.
42
Bargaining Power of Suppliers
Cumulative learning and experience effects can 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 buyers. This can reduce the bargaining power of buyers.
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Bargaining Powers of Buyers
When their bargaining power is high, buyers gain negotiating power for lower prices, better quality, and better terms for their purchases when dealing with suppliers. When the bargaining power of buyers is low, sellers have more negotiating power.
44
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.
45
Threat of Substitutes
Cumulative learning and experience effects can 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.
High when rivals or even companies outside the industry offer more attractive and/or lower cost products.
46
Competitive Rivarlry
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 defend their market positions.
47
What are the drawbacks of the 5 forces model?
A key drawback is that it simply provides a list of factors that can be advantageous or disadvantageous to an organization. Similar to other analytical frameworks (SWOT, for example), this tool only serves as a starting point for a deeper investigation of organizational performance.
Simplicity and Rigidity, Static Nature
Provides only a point-in-time snapshot of a moving target, cannot determine changing speed of industry or rate of innovation
48
Industry Convergence
A process whereby formerly unrelated industries begin to satisfy the same customer need
49
Strategic Group
The set of companies that pursue a similar strategy within a specific industry.
50
Strategic Group Model
a framework that explains differences in firm performance within the same industry.
Competitive rivalry is strongest between firms in the same strategic group.
The external environment affects strategic groups differently.
The five competitive forces affect strategic groups differently.
Some strategic groups are more profitable than others.
51
Tangible Resources
have physical attributes and thus are visible - labor, capital, land, equipment, etc.
52
Intangible Resources
have no physical attribute and thus are invisible - culture, knowledge, brand rep, intellectual property, etc.
53
Resource-based view
A model that sees certain types of resources as key to superior firm performance.
Sees resources as key to superior firm performance
Aids in identifying core competencies
Separates resources by tangible or intangible
Looks inside the firm for sources of sustainable competitive advantage
54
Resource Heterogeneity
A model that sees certain types of resources as key to superior firm performance.
55
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
56
Entry Barrier
Obstacles that discourage or prevent entry into an industry
- Economies of scale
- Network effects
- Customer switching costs
- Capital requirements
- Advantages independent of size
- Government policy
- Credible threat of retaliation
57
How are the assumptions of the resource-based view different from perfect competition?
The critical assumptions of the resource-based model are different from describing a firm in the perfectly competitive industry structure
In perfect competition all firms have access to the same resources and capabilities ensuring that one firms advantage is short lived
58
VRIO Framework
a theoreteical framework that explains and predicts firm-level competitive advantage
Valuable - a resource is valuable if it helps a firm exploit an external opportunity or offset an external threat
Rare, and costly to - a resource is rare if the number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition
Imitate. And, the firm itself must be - a 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
Organized to capture the value of the resource
59
Isolating Mechanisms
Barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy.
60
Causal Ambiguity
A situation in which the cause and effect of a phenomenon are not readily apparent.
61
Path Dependence
A situation in which the options one faces in the current situation are limited by decisions made in the past.
62
Social Complexity
A situation in which different social and business systems interact with one another.
63
Intellectual Property (IP) Protection
A critical intangible resource that can provide a strong isolating mechanism, and thus help to sustain a competitive advantage.
64
Costly-to-Imitate Resource
One of the four key criteria in the VRIO framework. A 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.
65
Resource Stock
Current level of intangible resources
Strategic leaders must decide which investments to make over time to best position the firm for competitive advantage in a changing environment
Need to monitor the existing intangible resource stocks and their attrition rates
66
Value Chain
The internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value.
Each distinct activity performed needs to either add incremental value to the product or service offering or lower its relative cost, competitive advantage flows from firm’s distinct set of activities
67
SWOT
Strengths - Internal
Weaknesses - Internal
Opportunities - External
Threats - External
Whether they are strengths or weaknesses can be determined by applying the VRIO framework
Opportunities and threats are in the firm’s general environment and can be captured by PESTEL and Five Forces analysis
68
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.
69
Gross Margin
COGS/Revenue
70
Return on Revenue Formula
Net income/Revenue
71
What is True of Accounting Data?
Using accounting data to assess competitive advantage and firm performance is standard managerial practice. When measuring accounting profitability to assess competitive advantage, manager use financial data and ratios derived from publicly available accounting data such as income statements and balance sheets.
Accounting data are historical and thus backward-looking.
Accounting data do not consider off-balance-sheet items.
Accounting data focus mainly on tangible assets, which are no longer a company’s most important assets.
72
Return on Risk Capital
Investors are primarily interested in a company’s total return to shareholders, which is the return on risk capital, including stock price appreciation plus dividends received over a specific period.
73
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.
Market cap=Number of Outstanding shares * share price
74
Opportunity Costs
the loss of potential gain from other alternatives when one alternative is chosen.
75
Reservation Price
The maximum price a consumer is willing to pay for a product or service based on the total perceived consumer benefits.
76
Economic Value Created
Difference between value (V) and cost (C), or (V – C).
77
What are the advantages of a balanced scorecard?
The balanced scorecard allows strategic leaders to:
- 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 necessary.
78
Shareholders
Individuals or organizations that own one or more shares of stock in a public company.
79
Risk Capital
The money provided by shareholders in exchange for an equity share in a company; it cannot be recovered if the firm goes bankrupt.
80
Total Return to Shareholders
Return on risk capital that includes stock price appreciation plus dividends received over a specific period.
81
Efficient-Market Hypothesis
The idea that all available information about a firm’s past, current state, and expected future performance is embedded in the market price of the firm’s stock.
82
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.
83
Triple Bottom Line
Combination of economic, social, and ecological concerns—or profits, people, and planet—that can lead to a sustainable strategy.
84
Balanced Scorecard
Strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals.
85
Differentiation Strategy
generic business strategy that seeks to create higher value/more unique for customers than the value that competitors create, while containing costs
Focused - more narrow focus on a niche market
86
Cost-Leadership Strategy
Generic business strategy that seeks to create the same or similar value for customers at a lower cost
Focused - more narrow focus on a niche market
87
Strategic Trade-off
Choices between a cost position or value position. Such choices are necessary because higher value creation tends to generate higher cost.
88
Business-level strategy
The goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.
Who are the customer segments we serve?
What customer needs, wishes, and desires will we satisfy?
Why do we want to satisfy them?
How will we satisfy them?
89
Cost Drivers
- Cost of input factors
- Economies of scale
- Learning-curve effects
- Experience-curve effects
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Value Drivers
- Product features
- Customer service
- Complements
Value drivers contribute to competitive advantage only if increase in value creation exceeds increase in cost
91
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
92
Scope of Competition
The size—narrow or broad—of the market in which a firm chooses to compete.
93
Stuck in the middle strategic position
Strategic position that is not clearly defined as low cost or differentiation; results from attempts to straddle different strategic positions and leads to inferior performance results.
94
Blue Ocean Strategy
Business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs.
95
Blue Oceans
Untapped market space that is ripe for the creation of additional demand and the resulting opportunities for highly profitable growth.
96
Red Oceans
The known market space of existing industries, where the rivalry among existing firms is cutthroat because the market space is crowded and competition is a zero-sum game.
97
How Long does a Patent Last?
20 years
98
Strategic Alliance
Voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services
- Enable firms to achieve goals faster and at lower costs than going it alone
- Complementary parts of a firm’s value chain
- Allow firms to circumvent potential legal repercussions, including potential lawsuits
99
Why Do Firms Enter Strategic Alliances?
- Strengthen competitive position
- Enter new markets
- Hedge against uncertainty
- Access critical complementary assets
- Learn new capabilities
100
Joint Venture
a standalone organization created and jointly owned by two or more parent companies
Long-term commitment
101
Cross-Border Alliance
Alliances that cross borders
Benefit from local expertise and contacts
A risk that some of the companies proprietary know-how and intellectual capital may be appropriated by the foreign partner
102
Non-Equity Alliance
Partnership based on contracts between firms.
103
Explicit Knowledge
Knowledge that can be codified; concerns knowing about a process or product.
104
Equity Alliance
Partnership in which at least one partner takes partial ownership in the other.
105
Tacit Knowledge
Knowledge that cannot be codified; concerns knowing how to do a certain task and can be acquired only through active participation in that task.
106
Corporate Venture Capital (CVC)
Equity investments by established firms in entrepreneurial ventures; CVC falls under the broader rubric of equity alliances.
107
Merger
The joining of two independent companies to form a combined entity.
108
Acquisition
The purchase or takeover of one company by another; can be friendly or unfriendly.
-Reduction in competitive costs, lower costs, increased differentiation. Size can matter larger getting smaller usually acquisition.
109
Horizontal Integration
The process of merging with competitors, leading to industry consolidation.
Companies should go ahead if target firm is more valuable in acquiring firm than as a continued standalone company
110
Winner's Curse
sometimes companies get in a bidding war for an acquisition, and the winner may end up with the prize but overpaid for acquisition
111
What is going on when we say a lot of mergers and acquisitions don't actually work?
On average, destroy rather than create shareholder value because anticipated synergies never materialize
Many want to work because of principal-agent problem, desire to overcome competitive disadvantage, and superior acquisition and integration capability
112
Managerial Hubris
A form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary.
113
Organizational Design
The process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization.
114
Organizational Structure
A key to determining how the work efforts of individuals and teams are orchestrated and how resources are distributed.
Key building blocks of organizational structure:
Specialization
Formalization
Centralization
Hierarchy
115
Specialization
An organizational element that describes the degree to which a task is divided into separate jobs (i.e., the division of labor).
116
Formalization
An organizational element that captures the extent to which employee behavior is steered by explicit and codified rules and procedures. Ex: McDonald’s same all over world
117
Centralization
An organizational element that refers to the degree to which decision making is concentrated at the top of the organization. (top-down highly centralized, planned emergence in decentralized). Slow response times and less customer satisfaction
118
Hierarchy
An organizational element that determines the formal, position-based reporting lines and thus stipulates who reports to whom. Tall structure– if many in between you and CEO, flat structure if few levels of hierarchy
119
Mechanistic Organization
Characterized by a high degree of specialization and formalization and by a tall hierarchy that relies on centralized decision making. Ex: McDonald’s (frying french fries documented by minute detail)
120
Organic Organization
Characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making. Fluid and flexible information flow horizontally and vertically, faster decision making, and higher employee motivation, retention, satisfaction and creativity. Higher rate of entrepreneurial behaviors and innovation.
121
Functional Structure
Organizational structure that groups employees into distinct functional areas based on domain expertise. (R&D, Marketing, HR, etc)
122
Simple Structure
Organizational structure in which the founders tend to make all the important strategic decisions as well as run the day-to-day operations.
123
Organizational Culture
Organizational culture - the collectively shared values and norms of an organization’s members; a key building block of organizational design
Values - define what is considered important - goals that each organizational member should strive to achieve
Norms - unwritten rules that define appropriate employee attitudes and behaviors in employees’ day-to-day work and interactions
An effective culture can lay the foundation for competitive advantage
