question
What is strategic management?
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Combines AFI for competitive advantage
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What is strategy?
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Goal-directed actions to gain and sustain superior performance relative to competitors
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What is a good strategy?
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Enables a firm to achieve superior performance and sustainable competitive advantage relative to its competitors.
question
A good strategy consists of which three elements?
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1. Competitive challenge (Analysis)
2. Guiding policy (Formulation)
3. Coherent actions (Implementation)
2. Guiding policy (Formulation)
3. Coherent actions (Implementation)
question
What is a competitive advantage?
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Superior performance relative to other competitors in the same industry average.
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What is Sustainable competitive advantage?
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A firm that is able to outperform its competitors or the industry average over a prolonged period.
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What is Competitive parity?
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two or more firms that perform at the same level.
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What is Competitive disadvantage?
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A firm that underperforms its rivals and the industry average
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What can a company's return on invested capital tell us about its competitive advantage?
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If it is higher than the competition, it the industry advantage. If it is lower than the competition, it is losing their advantage
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To gain a competitive advantage, what does a firm need to provide?
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A firm needs to provide goods or services that customers value more highly than those of its competitors (differentiator) or are similar to the competitors at a lower price (low cost leader)
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What are the rewards of superior value creation and capture?
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Profitability and market share
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What is strategic positioning?
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A unique position within an industry that allows the firm to provide value to customers while controlling costs
question
Economic contribution is determined by what?
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Value creation (what the consumer is willing to pay for)-costs
question
What types of tradeoffs did Walmart and Nordstrom make to pursue different strategies?
answer
Walmart- acceptable service by low skill employees in a big box retail outlet
Nordstrom- Superior customer service, upscale, high-end.
Nordstrom- Superior customer service, upscale, high-end.
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What is the key to a successful strategy (to gain a competitive advantage)?
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Having a unique strategic position, preforming the same activities differently than rivals or different activities.
question
What are the three hallmarks of what strategy is NOT?
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1. Grandiose statements "we will be no. 1"
2. A failure to face a competitive challenge
3. Operational effectiveness, competitive benchmarking, or tactical tools
2. A failure to face a competitive challenge
3. Operational effectiveness, competitive benchmarking, or tactical tools
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What is the first step to gain and sustain a competitive advantage?
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Value creation
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What is value creation?
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Companies with a good strategy are able to provide products or services to consumers at a price point that they can afford and that enables the company to make a profit
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Who are stakeholders?
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Organizations, groups, and individuals can affect or can be affected by a firms actions and have an interest in the performance or survival of the firm.
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How do external stakeholders differ from internal stakeholders?
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Contribute capital with the expectation that the stock will rise with dividends. Communities provide real estate, infrastructure, and public safety.
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Which groups are considered internal stakeholders?
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employees, stockholders, board members
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Which groups are considered external stakeholders?
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customers, suppliers, alliance partners, creditors, unions, communities, governments, media
question
What is a stakeholder strategy?
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An integrative approach to managing a diverse set of stakeholders to gain and sustain competitive advantage
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Why does effective stakeholder management benefit firm performance?
answer
cooperative stakeholders reveal important information
increased trust lowers business transaction cost
can lead to greater adaptability and flexibility
more predictable and stable returns
stronger reputation
increased trust lowers business transaction cost
can lead to greater adaptability and flexibility
more predictable and stable returns
stronger reputation
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What is a stakeholder impact analysis?
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Helps recognize, prioritize and address stakeholder needs
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What are three important stakeholder attributes?
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power (over the company), Legitimacy (has legitimate claim when it is perceived to be legally valid or otherwise appropriate), Urgency (urgent claim when it requires a companies immediate attention and response)
question
What are the five steps in the stakeholder impact analysis?
answer
1. Who are our stakeholders
2. What are our stakeholders' interests and claims
3. What opportunities and threats to our stakeholders present
4. What economic, legal, ethical and philanthropic responsibilities do we have to our stakeholders
5. What should we do to effectively address the stakeholder concerns
2. What are our stakeholders' interests and claims
3. What opportunities and threats to our stakeholders present
4. What economic, legal, ethical and philanthropic responsibilities do we have to our stakeholders
5. What should we do to effectively address the stakeholder concerns
question
What is corporate social responsibility (CSR)? What are the four components or CSR?
answer
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. Strategic leaders need to realize that society grants shareholders the right and privilege to create a publicly-traded stock company and the firm owes something to society
question
What is the Pyramid of Corporate Social Responsibility?
answer
Effectively managing the strategy process is the result of: Analysis, Formulation, Implementation.
This frame work explains and predicts differences in firm performance.
Helps leaders formulate and implement a strategy that can result in superior performance
This frame work explains and predicts differences in firm performance.
Helps leaders formulate and implement a strategy that can result in superior performance
question
What is the AFI strategy framework? What does the framework explain and predict? How does the framework help managers?
answer
Analysis: 1. Strategic leadership and the strategy process (what roles do strategic leaders play, and how do they help shape a firm's vision, mission, and values? How does strategy come about, and what process for creating strategic leaders put in place) 2. External (What effects do forces in the external environment have on the firm's potential to gain and sustain a competitive advantage? how should the firm deal with them?), internal analysis (What effects do internal resources, capabilities, and core competencies have on a firm's potential to gain and sustain a competitive advantage? How should the firm leverage them for competitive advantage?) , competitive advantage, firms performance, and business models (How does the firm make money? How can one assess and measure competitive advantage? What is the relationship between competitive advantage and firm performance?)
Formulation: 3.Business strategy (how should the firm compete: cost leadership, differentiation, or value innovation?) 4. Corporate strategy (where should the firm compete: industry, markets, and geography) Global strategy (How and where should the firm compete: local, regional, national, or international)
Implementation: 5. Organizational design (how should the firm organize to turn the formulated strategy into action) Corporate governance and business ethics (what type of corporate governance is most effective? how does the firm anchor strategic decisions in business ethics?)
Formulation: 3.Business strategy (how should the firm compete: cost leadership, differentiation, or value innovation?) 4. Corporate strategy (where should the firm compete: industry, markets, and geography) Global strategy (How and where should the firm compete: local, regional, national, or international)
Implementation: 5. Organizational design (how should the firm organize to turn the formulated strategy into action) Corporate governance and business ethics (what type of corporate governance is most effective? how does the firm anchor strategic decisions in business ethics?)
question
What are the three broad tasks associated with AFI? Which key topics and questions are addressed in each of the AFI tasks?
answer
Goal-directed actions to achieve competitive advantage in a single product market. How should we compete?
Who: which customer segments?
What: customer needs will we satisfy?
Why: do we want to satisfy them?
How: will we satisfy our customer's needs?
Who: which customer segments?
What: customer needs will we satisfy?
Why: do we want to satisfy them?
How: will we satisfy our customer's needs?
question
What is a business-level strategy? Which broad question does it concern?
answer
Industry and firm effects
question
What are two positions associated with firm effects?
answer
A strategic profile based on value creation and cost in a specific product-market.
A value and unique position, which meets customer needs, maximizes product value, and lowest possible product cost
A value and unique position, which meets customer needs, maximizes product value, and lowest possible product cost
question
What is a strategic position? What does it help a firm to accomplish?
answer
A strategic profile based on market value creation and cost in a specific product-market.
A valuable and unique position, which meets customer needs, maximizes product value, and lowest possible product cost.
A valuable and unique position, which meets customer needs, maximizes product value, and lowest possible product cost.
question
What are strategic trade-offs?
answer
Choices between a cost or value position
The tension between value creation and pressure to keep cost in check.
Purpose to maximize the firm's economic value creation and profit margin
The tension between value creation and pressure to keep cost in check.
Purpose to maximize the firm's economic value creation and profit margin
question
What tension must managers address so as not to erode the firm's economic value creation?
answer
Narrower competitive scope.
Focused cost- Bic and disposable pens and lighters at low cost
Focused differentiation-exquisite pens at several hundred dollars
Focused cost- Bic and disposable pens and lighters at low cost
Focused differentiation-exquisite pens at several hundred dollars
question
Focused cost-leadership strategy? Focused differentiation strategy
answer
Seeks to create higher-value vs competitors, offers unique features, charges higher prices.
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What is a differentiation strategy?
answer
Seeks to create similar value vs competitors and charges lower prices
question
Cost-leadership strategy?
answer
The size- narrow or broad- of the market in which a firm chooses to compete
question
Scope of competition?
answer
unique features that increase value, so that consumers pay a higher price. The focus of competition: Unique product features, service, new product launches, market and promotion
question
What is the goal of a differentiation strategy?
answer
The competitive advantage achieved when the product of value-cost is greater.
question
What does the formula (V - C) represent?
answer
The greater economic value created (v-c),the greater the firms potential competitive advantage
question
How does economic value created relate to potential competitive advantage?
answer
Having the same costs as competitors
question
What is cost parity?
answer
Pursuing a differentiation strategy, firms that successfully differentiate their product can enjoy a competitive advantage, assuming they are able to control costs. Firm a's product is seen as a generic commodity with no unique brand value. Firm b has the same cost structure as firm a but creates more economic value and thus has a competitive advantage over both firm a and c. Although firm c has higher costs than firm a and b, it still generates a higher economic value than firm a.
question
Understand all concepts relating to Exhibit 6.3
answer
savings that come from producing two (or more) outputs at less cost than producing each output at less cost despite using the same resources and technology
question
What are economies of scope?
answer
1. Product features (increase the perceived value of the product or service offering.
2. Customer service
3. Complements (add value to a product or service when they are consumed in tandem)
2. Customer service
3. Complements (add value to a product or service when they are consumed in tandem)
question
What are the three most salient value drivers?
answer
Creates a competitive advantage only if their increase in value creation exceeds the increase in costs. The condition of change in V> change in C must be fulfilled if a differentiation strategy is to strengthen a firms strategic position and thus enhance its competitive advantage
question
Under what condition does a value driver contribute to a firm's competitive advantage (stated in equation form)?
answer
Complements add value to a product or service when they are consumed in tandem
question
How does a complement act as a value driver?
answer
reduce the firm's cost below that of its competitors while offering adequate value, reduce prices for customers and optimize the value chain for low cost
A cost leader can achieve a competitive advantage as long as its economic value created is greater than that of its competitors
A cost leader can achieve a competitive advantage as long as its economic value created is greater than that of its competitors
question
What is the goal of a cost leadership strategy?
answer
creating the same value as a different company even with different costs and value
question
What is differentiation parity?
answer
Pursuing a cost-leadership strategy, firms that can keep their costs at the lowest point in the industry while offering acceptable value are able to gain a competitive advantage of possible cost savings and thus experiences a competitive advantage.
question
Understand all concepts relating to Exhibit 6.4
answer
1. Cost of input factors (raw materials, capital labor, and IT services)
2. Economies of scale (decrease in cost per unit as output increases)
3. Learning-curve effects (Less time to produce output with experience
4. Experience-curve effects (improvements to technology and production processes)
2. Economies of scale (decrease in cost per unit as output increases)
3. Learning-curve effects (Less time to produce output with experience
4. Experience-curve effects (improvements to technology and production processes)
question
What are the four most important cost drivers?
answer
Decreases in cost per unit as output increases
Spreads fixed costs over a larger output
Employs specialized systems and equipment
Takes advantage of certain physical properties
Spreads fixed costs over a larger output
Employs specialized systems and equipment
Takes advantage of certain physical properties
question
What are economies of scale? What three things do economies of scale allow firms to do?
answer
Cost per unit falls as output increases up to point q1. A firm whose output is closer to q1 has a cost advantage over other firms with less output, bigger is better.
Minimum efficient scale: output range needed to bring down cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale.
Diseconomies of scale: Increases in cost per unit when output increases
Minimum efficient scale: output range needed to bring down cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale.
Diseconomies of scale: Increases in cost per unit when output increases
question
Understand all concepts relating to Exhibit 6.5 (Economies of scale, minimum efficient scale, and diseconomies of scale).
answer
they use the cube-square rule, more room in the store, the more they can produce and hold
question
How do Walmart and The Home Depot benefit from utilizing physically large "big-box" stores?
answer
output range needed to bring down cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale.
question
What is minimum efficient scale?
answer
Firms too big
Complexities of too much coordination.
Inflexible and slow
Increases in cost per unit when output increases
Complexities of too much coordination.
Inflexible and slow
Increases in cost per unit when output increases
question
What are diseconomies of scale?
answer
learning curves go down, as it takes less and less time to produce the same output as we learn how to be more efficient
first documented in aircraft manufacturing before its entry into ww2
first documented in aircraft manufacturing before its entry into ww2
question
What is a learning curve? At what time were learning curves first documented in the U.S.?
answer
As cumulative output increases, firms move down the learning curve, reaching lower per-unit costs
question
What does it mean for a firm to have a 70 percent learning curve?
answer
effects from economies of scale can be quite significant, while learning effects are minimal. In contrast, in some professions (brain surgery) learning effects can be substantial, while economies of scale are minimal.
question
Are learning curve effects more pronounced in simple or complex manufacturing?
answer
firm b leverages economies of learning due to larger cumulative output to gain an advantage over firm a
question
Understand all concepts relating to Exhibit 6.7 relating to learning curve and experience curves.
answer
allow movement down a given learning curve based on current production technology.
question
How do learning effects differ from economies of scale?
answer
changing the underlaying technology while holding cumulative output consistent
question
What is the experience curve?
answer
a new method or technology to produce an existing product, may initiate a new and steeper curve
helps show due to new technology
helps show due to new technology
question
What is process innovation? How does process innovation relate to the experience curve?
answer
A strategy that combines both differentiation and cost-leadership activities. A firm offers a differentiated product service at a low cost (trader joes)
Uses the value of innovation to reconcile trade-offs
It represents
1. Untapped market space
2. creation of additional demand
3. Opportunities for highly profitable growth
Uses the value of innovation to reconcile trade-offs
It represents
1. Untapped market space
2. creation of additional demand
3. Opportunities for highly profitable growth
question
What is a blue ocean strategy?
answer
Lower costs: Eliminate (which of the factors should be eliminated, Reduce (which of the factors shold be reduced)
Increase perceived consumer benefits: Raise (which of the factors should be raised) Create(which factors should be created
Eliminate: salespeople and after-sales service
Reduce: warranties
Raise: offers tens of thousands of home furnishing items
Create: new ways to shop for furniture
Increase perceived consumer benefits: Raise (which of the factors should be raised) Create(which factors should be created
Eliminate: salespeople and after-sales service
Reduce: warranties
Raise: offers tens of thousands of home furnishing items
Create: new ways to shop for furniture
question
What is value innovation (see IKEA example)?
answer
Because if not done properly, it could result in getting stuck in the middle
question
Why is a blue ocean difficult to implement?
answer
firm has neither a clear differentiation nor a clear cost-leadership position. leads to inferior performance and a resulting competitive strategy
question
What is being stuck in the middle?
answer
Horizontal connection of the points of each value on the strategy canvas that helps strategic leaders diagnose and determine courses of action
question
What is a value curve?
answer
Graphical depiction of a company's relative performance vis-a-vis its competitors across the industry's key success factors
question
What is strategy canvas (also see exhibit 6.11 relating to JetBlue)?
answer
another name for business-level strategies, which are cost leadership and product differentiation
question
Generic Business Strategies
answer
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