Week 1: Strategic Management and the External Environment Flashcards
(144 cards)
1
Q
What do firms achieve by formulating and implementing a value-creating strategy?
A
Strategic competitiveness
2
Q
Define “strategy” in the context of business.
A
A coordinated plan of actions aimed at using core competencies to exploit strengths and achieve a competitive advantage.
3
Q
When does a firm have a competitive advantage?
A
When it creates superior value for customers that competitors cannot imitate or find it too expensive to imitate.
4
Q
How can an organization’s strategy be considered to have a competitive advantage? (similar ass question)
A
After competitors’ efforts to duplicate it have ceased or failed.
5
Q
Is there such a thing as a perfect competitive advantage?
A
<b></b>No, no competitive advantage is perfect.
6
Q
<b>What are above-average returns?</b>
A
Profits that are higher than what an investor expects to earn from this investment compared to other investments that have the same level of risk.
7
Q
What is risk in the context of investments?
A
An investor’s uncertainty about the economic gains or losses from a particular investment.
8
Q
How do successful companies manage risk?
A
They learn to manage risk effectively to reduce investors’ uncertainty about investment outcomes.
9
Q
What accounting-based activities do firms use to assess their performance? (AES)
A
Return on assets, return on equity, and return on sales.
10
Q
How can firms assess their performance in terms of stock market returns?
A
By calculating monthly returns using the formula:
MR = (End of period stock price - Beginning stock price) / Beginning stock price = % change return.
11
Q
What are average returns?
A
Returns equal to those an investor expects to earn from other investments with a similar amount of risk.
12
Q
What does failure mean in investment context/businesses?
A
When investors withdraw their investments from firms earning less-than-average returns.
13
Q
<b>What is the consequence of overconfidence in investing?</b>
A
Excessive risk-taking, which can be dangerous even for very successful companies.
14
Q
What is the Strategic Management Process?
A
used for firms to achieve strategic competitiveness and earn above-average returns.
15
Q
What model does the Strategic Management Process involve?
A
The A-S-P model: Analysis, Strategy, Performance.
16
Q
What is involved in the “Analysis” phase?
A
Analyzing the external environment and internal organization to identify opportunities, threats, resources, capabilities, and core competencies.
17
Q
What does the “Strategy” phase entail? (FI)
A
Strategy formulation and strategy implementation.
18
Q
What is the goal of the “Performance” phase?
A
Achieving strategic competitiveness and above-average returns.
19
Q
What is a challenge for firms in today’s competitive landscape?
A
Understanding the strategic implications of digitalization and integrating it effectively into their strategies. (so the evergrowing issue of rapid technology changes/improvements)
20
Q
Why are conventional sources of competitive advantage like economies of scale and large advertising budgets less effective today?
A
Due to the impact of social media advertising, which has changed the dynamics of how firms earn above-average returns.
21
Q
What is hypercompetition?
A
A condition characterized by intense rivalry among competitors, rapid market changes, and low entry barriers.
22
Q
How does the global economy affect competition?
A
It increases the scope of the competitive environment, allowing goods, services, people, skills, and ideas to move freely across borders.
23
Q
Define globalization.
A
when countries and their businesses become more connected economically.
24
Q
How does globalization affect companies in the competitive landscape?
A
It increases opportunities for companies, as customers may choose global competitors’ products if they create superior value compared to domestic products.
25
**What does "liability of foreignness" refer to?**
The risks associated with competing outside a firm’s domestic markets. (operating in another country than its home country)
26
**What are the three categories of technology and technological changes?**
1) Technology diffusion and disruptive technologies
2) The Information Age
3) Increasing knowledge intensity.
27
**How has the rate of technology diffusion changed?**
It is greater now than it was a decade or two ago, along with the rate at which companies gather information about competitors.
28
**What is information technology (IT), and why is it important?**
IT is a crucial capability that supports product innovation and can provide a competitive advantage. Firms that fail to harness data and information are at a disadvantage.
29
**What does increasing knowledge intensity refer to?**
Increasing knowledge intensity means that having knowledge—like skills and information—is becoming **more** important for using and creating technology.
* Success now depends more on what you know than on just having money or resources.
30
**How is knowledge viewed as a resource? Is it tangible or intangible?**
Knowledge is considered an intangible resource.
31
**What is strategic flexibility?**
Strategic flexibility is the ability of a company to adapt quickly to changing market demands and opportunities.
32
**What does the resource-based model of above-average returns assume about organizations?**
It assumes that each has its own special resources (skilled employees, technology, etc) and abilities that make it different from others.
33
**What are resources in the context of a firm's production process?**
Inputs such as **capital equipment**, **employee skills**, **patents**, **finances**, and **talented managers**, which can be either tangible or intangible.
34
**What is a capability?**
a general skill or ability a company has
35
**What are core competencies?**
Capabilities that provide a competitive advantage for a firm over its rivals.
36
**What are the key assumptions of the resource-based model?**
* Resources and capabilities are the key factir of strategy and profits.
* Firms have different resources and strategies.
* Resources can’t easily move between companies, which helps some firms maintain an advantage.
37
**Vision**
A picture of what the firm wants to be and what it wants to achieve.
38
**Mission**
A mission specifies the businesses in which the firm intends to compete and the customers it intends to serve.
39
**Stakeholders**
Individuals, groups and organizations that can affect the firm's vision and mission are affected by the strategic outcomes achieved, and have enforceable claims on the firm's performance.
40
**Capital market stakeholders**
Capital market stakeholders are the people or groups, like shareholders and major investors, who provide funding to a company.
41
**Product market stakeholders**
Product market stakeholders are the main groups that affect or are affected by a company's products. This includes customers, suppliers, local communities, and labor unions representing employees.
42
**Organizational stakeholders**
All of a firm's employees, including both **non-managerial** and **managerial personnel.**
43
**Strategic Leaders**
Strategic leaders are people in a company who help decide what the company should do to succeed. They can be in different jobs or levels, not just at the top.
44
**Organizational culture**
Organizational culture is the shared beliefs, values, and symbols within a company that shape how it operates and how employees behave.
45
**What is a key characteristic of strategic leaders?**
They must think globally and act locally.
46
**What makes top management teams effective?** (senior executives, or leaders)
They use human capital management skills (recruiment and selection, employee delopyment, diversity, etc) and strong cognitive abilities (criticial thinking, decision-making, etc) which allows them to make better strategic decisions for the company's success.
47
**What is the general environment?**
The general environment is made up of outside factors in society that can impact businesses.
* This includes things like the economy, laws, social changes, and technology.
48
**What are the seven environmental segments?**
**Demographic**, **economic**, **political/legal**, **sociocultural**, **technological**, **global**, and **physical environment**.
49
Can firms control or change the general environment segments?
No, firms cannot directly control or change these segments, but they can recognize trends and predict their effects.
50
**What is competitor analysis?**
How companies gather and analyze information about their competitors.
51
What does an analysis of the general environment focus on?
Environmental trends and their implications.
52
**What does an analysis of the industry environment focus on?** (known as industry analysis) > FOCUSES ON EXTERNAL ENVIRONMENT FACTORS
Focuses on evaluating factors and conditions such as **market trends**, **competition**, **barriers to entry**, **supplier and buyer power**, and **legal factors** that influence an *industry's profitability potential.*
53
What is the focus of an analysis of competitors?
Predicting competitors' actions.
54
What does external environment analysis refer to?
Studying outside factors that can affect a business, which are out of the company’s control.
55
What are some examples of external factors?
Competition, customer preferences, economy, and laws.
56
Why is identifying opportunities and threats important?
It helps in studying the general environment to achieve strategic competitiveness.
57
**What is an opportunity in the general environment?**
A condition that, if exploited effectively, helps a company reach strategic competitiveness.
58
**What is a threat in the general environment?**
A condition that may hinder a company's efforts to achieve strategic competitiveness.
59
**What is scanning in the context of the general environment?**
The study of all segments in the general environment.
60
What is an industry?
A group of firms producing products that are close substitutes.
61
What are barriers to entry?
Factors that can prevent or impede newcomers to a market or industry sector.
62
What is economies of scale?
As a company produces more, the cost per unit goes down, giving an advantage over new companies.
63
**What is product differentiation?**
Making a product stand out as unique or special in the eyes of customers.
64
How do new companies typically compete with established brands?
They often lower their prices, which can lead to lower profits or losses.
65
**What are capital requirements?**
The investment needed to compete in a new industry, which may deter new entrants.
66
**What are switching costs?**
One-time costs customers incur when buying from a different supplier.
67
**How do high switching costs affect new entrants?**
They must offer a lower price or a much better product to convince buyers to switch. (For example, Netflix switching to Hulu, u have to endure switching costs)
68
**What is access to distribution channels?**
How easily a company can get its products to customers; new companies may need to convince distributors to sell their products.
69
**What are cost disadvantages independent of scale?** (cost disadvantage: specific factors that lead to a company having higher costs compared to its compeitiors)
**brand loyalty** (firms with high brand loyalty can maintain higher prices, unlike other firms), **access to distribution channels** (established firms often have good relastionships with distributors, allowing for them to reduce distribution costs), or **unique technology** (gives established firms an edge other companies dont have)
70
**How can government policy affect industry entry?**
It can control which companies can enter an industry through **licenses** and **permits**.
71
**What is expected retaliation in the context of industry entry?**
New entrants may be discouraged if they believe existing companies will retaliate against them.
72
**What is the bargaining power of suppliers?**
The influence suppliers have over companies in an industry, which can affect profitability.
73
**When do suppliers have strong bargaining power?**
When a **few large suppliers dominate the market**, **there are no good substitutes**, or **their** **products are crucial for success.**
74
**What is the bargaining power of buyers?**
The influence that customers have over companies in an industry.
75
**When are buyers considered powerful?**
When they buy a large share of the product a company sells, can easily switch to alternatives, or threaten to produce their own products.
76
**What is the threat of substitute products?**
Refers to the risk that customers will choose alternative products or services instead of what a company offers.
- It** limits prices** bc if there are many subsitutes in the market then companies cant charge high prices.
- If subsitues are very popular, it can take away customers from a company, reducing **market share.** (the portion of sales a company has in a market).
- The threat is WORSE when switching costs. When switching costs are low, customers can switch easily from one product to another.
77
**What increases the intensity of rivalry among competitors?** (basic answer)
Companies reacting to each other, especially in industries with **many competitors**, **slow growth** (companies must fight harder in slower growing industries for new customers) , and **high fixed costs.** (requires companies to maintain high levels of production. this may result in companies choosing to lower prices or increase marketing strategies, fueling compeition further.)
78
**What leads to high rivalry due to lack of differentiation?** (undifferentiated products)
When products are similar and switching costs are low.
79
**What are high strategic stakes?**
High strategic stakes mean that when companies invest a lot in their strategies, the pressure to perform well in the market becomes very intense.
80
**What are high exit barriers?**
Costs and constraints that keep firms in unprofitable industries.
81
**What defines industry attractiveness?**
main determinant of a industry's attractiveness. is the potential profitability can be earned in the industry. **(how much $$$ can u make)**
- high entry barriers
- low risk of subsitutes
- low risk of strong bargaining power of suppliers and buyers.
82
**What are key aspects of competitor analysis?**
Future objectives, current strategy, expected response, assumptions, capabilities.
83
**What does the analysis of the five forces help determine?**
The industry’s attractiveness in terms of earning average or above-average returns.
84
**What is the general relationship between competitive forces and profit potential?**
The stronger the competitive forces, the lower the potential for firms to generate profits.
85
**What is a strategic group?**
A set of firms that use similar business strategies.
86
**What is intra-specific group competition?**
Competition within the same strategic group using similar strategies.
87
**What is inter-specific group competition?**
Competition between different strategic groups using different strategies.
88
**How do top companies in similar strategic groups stand out?**
They find ways to be unique, which drives them more profits.
89
**Which type of competition is more intense: intra-group or inter-group?**
Intra-group competition is more intense than inter-group competition.
90
**What are some examples of strategic dimensions firms may treat similarly?**
Technological leadership, product quality, pricing policies, distribution channels, and customer service.
91
**Why is the idea of a strategic group important?**
Its important bc u can then see and understand the compeitive structure of an industry and also understand company positioning and profitability.
92
**Why is competive rivalry strong within strategic groups?**
Competitive rivalry is strong within strategic groups due to similar products and strategies.
93
**How do the strengths of the five forces differ?**
The strengths of each of the five forces can vary significantly depending on industry conditions and the specific characteristics of the market, affecting how companies strategize and compete.
94
**How does intense rivalry affect a firm's profitability?**
The more intense the rivalry, the greater the threat to each firm’s profitability.
95
**What increases the likelihood of rivalry between strategic groups?**
The closer the strategic groups are in terms of their strategies, the greater the likelihood of rivalry.
96
**What does competitor analysis focus on?**
Each company against which a firm competes directly.
97
**Give an example of competitor analysis.**
Coca-Cola trying to understand Pepsi.
98
**What four dimensions does a firm seek to understand in competitor analysis?**
(future objectives, current strategy, assumptions, strengths and weaknesses)
99
**What can firms prepare by understanding these four dimensions?**
An anticipated response profile for each competitor.
100
**What is crucial for effective competitor analysis?**
Gathering data and information to understand competitors’ intentions.
101
**What is competitor intelligence?**
The set of data and information gathered to understand and anticipate competitors’ objectives, strategies, assumptions, and capabilities.
102
**What should firms consider when gathering competitive intelligence?**
The complementors of their products and strategy.
-considering complementors provides a more complete picture of the competitive landscape and how to position the firm effectively.
103
**What are complementors?**
Companies or networks that sell complementary goods or services compatible with the focal firm’s offerings.
104
**What must firms follow when gathering competitor intelligence?**
Relevant laws, regulations, and carefully articulated ethical guidelines.
105
**Who often develops lists of ethical practices for firms?**
Industry associations.
106
**What are some legal and ethical practices for gathering competitor intelligence?**
* Obtaining publicly available information (e.g., court records, annual reports)
* Attending trade fairs to gather brochures and view exhibits.
107
**What types of practices are considered unethical and often illegal?**
Blackmail, trespassing, eavesdropping, and stealing drawings, samples, or documents.
108
**Why is the firm's external environment considered challenging and complex?**
due to constant changes, multiple influencing factors from various stakeholders, and its uncertainty/unpredicatability
109
**What are the three major parts of the external environment?**
*** General environment.** Broad external factors (economic, political, social, technological) affecting all industries.)
*** Industry environment.** Specific factors within a particular industry (competitors, suppliers, buyers) that influence competition and profitability.
*** Competitor environment.** Direct focus on current and potential competitors, analyzing their strategies, strengths, and weaknesses.
110
**What does the general environment encompass?**
Segments and elements in the **broader** society that affect industries and competing firms. (technological, social, economic, etc)
111
**What factors are included in the industry environment?**
Factors that influence a firm's competitive actions, responses, and the industry's profitability potential. (suppliers and buyers, competitors, etc)
112
**What does the competitor environment analyze?**
Each major competitor’s future objectives, current strategies, assumptions, and capabilities. (opportunities, threats, etc)
113
**What are the four parts of the external environmental analysis process?**
Scanning, monitoring, forecasting, and assessing.
114
**What are the seven segments of the general environment?**
Demographic - poulation size, age structure, geographic distribution
Economic - inflation rates, interest rates, trade deficits or surpluses, budget deficits or surpluses
Political/Legal - antitrust laws, taxation laws, deregulation philosophies
Sociocultural - women in the workforce, workforce diversity, attitudes about the quality of work life
Technological - product innovations, applications of knowledge
Global - important political events, critical global markets
Sustainable Physical - energy consumption, practices used to develop energy sources, renewable energy efforts, minimizing a firm's environmental footprint.
115
**How does the industry environment differ from the general environment?**
The industry environment has a more direct effect on firms’ competitive actions and responses.
116
**What does the five forces model of competition include?** (Porter's Five Forces)
1. Threat of Entry
2. Power of suppliers
3. Power of buyers
4. Product subsitutes
5. Intensity of rivalry among competitiors
117
**Where is competitive rivalry greater: within a strategic group or between groups?**
Within a strategic group.
118
**What does competitor analysis inform a firm about?** (4 dimensions)
Future objectives, current strategies, assumptions, and capabilities of direct competitors.
119
**What is complementor analysis in competitor analysis?**
Examining complementors that support forming and implementing rivals’ strategies.
120
**Should firms use illegal or legal practices to gather competitor intelligence?**
Only legal and ethical practices.
121
**How does the Internet impact competitor intelligence gathering?**
It **enhances** firms’ ability to gather insights about competitors and their strategic intentions. (it helps them in simple words lol)
122
**Why is it important for a firm to study and understand the external environment?**
Understanding the external environment helps firms identify opportunities and threats that can impact performance. This awareness allows firms to adapt strategies and enhance their competitiveness.
123
**What are the differences between the general environment and the industry environment? Why are these differences important?**
124
**What is the external environmental analysis process (four parts)? What does the firm want to learn when using this process?**
* **Four Parts:** Scanning, monitoring, forecasting, and assessing.
* **Purpose:** Firms aim to identify opportunities and threats in their external environment (SWOT analysis), which informs strategic decision-making.
125
**What are the seven segments of the general environment? Explain the differences among them.**
126
**How do the five forces of competition in an industry affect its profitability potential? Explain.**
* The five forces (threat of entry, power of suppliers, power of buyers, product substitutes, intensity of rivalry) determine the competitive dynamics within an industry.
* Strong competitive forces can limit pricing power and profit margins, while weak forces provide more opportunities for firms to achieve above-average returns. By analyzing these forces, firms can position themselves favorably within the industry.
127
**What is strategy?**
The overall plan for deploying resources to establish a favorable position, integrated to develop core competencies and gain a competitive advantage for above-average returns.
128
**What are core competencies?**
Capabilities that serve as a source of a firm’s competitive advantage, enabling the firm to achieve that advantage.
129
**What defines competitive advantage?**
When a firm implements a strategy that competitors cannot duplicate.
130
What are above-average returns (AAR)?
Profits that exceed what an investor expects to earn from another investment with similar riskiness.
131
**What are the traits of strategic decisions?**
- Important.
- Involve significant resource commitment.
- Not easily reversible.
132
**What are the two models for gathering information required for strategy?**
1. I/O Model (Industrial Organization)
2. Resource-Based Model
133
**What does the I/O Model suggest?**
The external environment is the primary determinant of a firm’s strategic action, focusing on selecting the right industry for profit potential.
134
**What are the assumptions of the I/O Model?**
* Strategic determination by the external environment
* Similarity of most firms’ resources and strategies within an industry (firms are homogeneous)
* High mobility of resources across firm.
* Rational decision-making for profit maximization
135
**What does the Resource-Based Model emphasize?**
The importance of a firm's internal capabilities in determining strategy, focusing on unique resources and competencies.
136
**How do the I/O Model and Resource-Based Model relate to each other?**
Both models are **complementary**; they provide different perspectives on strategic decision-making.
137
**What is a tactic?**
A scheme for a specific maneuver within a strategic plan.
138
**What are the different levels in the external environment?**
* General environment: Demographic, economic, political/legal, sociocultural, technological, and physical environment (outside the firm’s control).
* Industry environment: Factors in the competitive environment, including Porter’s Five Forces.
* Competitor analysis: Information about competitors’ actions, behaviors, intentions, and responses.
139
**What are Porter’s Five Forces?**
- Threat of New Entrants
- Bargaining Power of Suppliers
- Bargaining Power of Buyers
- Threat of Substitute Products or Services
- Rivalry Among Existing Competitors
140
**What barriers to entry can deter new entrants?**
*** Economies of scale:** Lower costs per unit due to high production volumes.
*** Product differentiation:** Unique products that create customer loyalty.
*** Capital requirements: **High investment needed to enter the industry.
*** Switching costs:** Costs incurred by consumers when changing brands.
*** Access to distribution channels:** Relationships with distributors can be an entry barrier.
*** Cost disadvantages** **independent of scale.**
*** Government policy.
* Expected retaliation from incumbent firms**.
141
**What does the bargaining power of suppliers refer to?** (list out many)
* Suppliers are concentrated.
* Few substitutes are available.
* Suppliers don’t depend heavily on the industry.
* Switching costs for firms are high. Suppliers offer differentiated products.
* Suppliers can threaten to integrate forward into the industry.
142
**When is bargainning bower of buyers strong?**
Strong when:
* Few buyers exist.
* Buyers purchase a large portion of total output.
* The product is undifferentiated.
* Buyers face low switching costs.
143
**What impacts rivalry among competitors?**
* Price discounting
* New product introductions
* Advertising campaigns
* Service improvements
* The degree of rivalry affects profitability, with higher intensity when: Competitors are numerous.
* Industry growth is slow.
* Exit barriers are high.
144
What is the key takeaway regarding the I/O model and Porter’s five forces?
The I/O model emphasizes the external environment as a key determinant of firm strategy, and when the five forces are strong, industry profitability is likely to be low. Managers should develop strategies to influence these forces to their advantage.
