question
What is strategic management?
answer
an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage
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What is strategy?
answer
A set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors
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What is a good strategy and what does it consist of?
answer
It is based on 3 elements:
1. Analysis-A diagnosis of the competitive challenge
2. Formulation-A guiding policy to address the competitive challenge.
3. Implementation-A set of coherent actions to implement the firm's guiding policy
1. Analysis-A diagnosis of the competitive challenge
2. Formulation-A guiding policy to address the competitive challenge.
3. Implementation-A set of coherent actions to implement the firm's guiding policy
question
What is a competitive advantage?
answer
Superior performance relative to other competitors in same industry or the industry average. It is relative...not absolute.
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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. EX: Apple iphone vs. Samsung Galaxy
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What is competitive parity?
answer
performance of two or more firms at the same level
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What is competitive disadvantage?
answer
underperformance relative to other competitors in the same industry or the industry average. They underperform against their rivals & industry average.
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What can a company's return on invested capital tell us about its competitive advantage?
answer
By comparing it to the industry average. If the industry average is 20% and your ROIC is 15%, then your business is underperforming or at a competitive disadvantage
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To gain a competitive advantage, what does a firm need to provide? What are the rewards of superior value creation and capture?
answer
Firms need to provide: goods/services that consumers value more highly than their competitors.
The rewards are: profitability and greater market share.
The rewards are: profitability and greater market share.
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What is strategic positioning?
answer
A unique position within an industry that allows the firm to provide value to customers, while controlling costs
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Economic contribution is determined by what?
answer
Value Creation (price consumers are willing to pay) - Costs (costs for your company to make good/service)
Economic Contribution = your profit
Economic Contribution = your profit
question
What types of tradeoffs did Walmart and Nordstrom make to pursue different strategies?
answer
•Walmart:
cost leader - big box outlet, low prices.
•Nordstrom: differentiator - professional salespeople, luxury setting.
cost leader - big box outlet, low prices.
•Nordstrom: differentiator - professional salespeople, luxury setting.
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What is the key to successful strategy (to gain a competitive advantage)?
answer
is to combine a set of activities to stake out a unique strategic position within an industry. Competitive advantage has to come from performing different activities or performing the same activities differently than rivals are doing.
question
What are the three hallmarks of what strategy is NOT?
answer
1. Grandiose statements: ex-"we will be #1
2. A failure to face a competitive challenge
3. Operational effectiveness, competitive benchmarking, or tactical tools. (calling policies...strategies)
2. A failure to face a competitive challenge
3. Operational effectiveness, competitive benchmarking, or tactical tools. (calling policies...strategies)
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What is the first step to gain and sustain a competitive advantage?
answer
by providing value creation with products/services at a price point that consumers can/willing to pay that also enables the company to make a profit.
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What is value creation?
answer
price consumers are willing to pay
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Who are stakeholders?
answer
Organizations, groups, and individuals that can affect or are affected by a firm's actions.
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How do external stakeholders differ from internal stakeholders?
answer
internal stakeholders work for/ get paid by company, own shares in company and represent interest in the company.
External stakeholders don't work for the company but are impact by the company and the companies performance/contributions to the economy.
External stakeholders don't work for the company but are impact by the company and the companies performance/contributions to the economy.
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Which groups are considered internal stakeholders?
answer
Employees, Stockholders, Board members
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Which groups are considered external stakeholders?
answer
customers, suppliers, creditors, unions, communities, governments, media
question
What is a stakeholder strategy?
answer
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
1. important information is shared
2. increased trust & lowers business transaction costs
3.leads to greater adaptability/flexibility
4. more predictable and stable returns
5. stronger reputation
2. increased trust & lowers business transaction costs
3.leads to greater adaptability/flexibility
4. more predictable and stable returns
5. stronger reputation
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What is a stakeholder impact analysis?
answer
a decision tool with which managers can recognize, prioritize, and address the needs of different stakeholders
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What are three important stakeholder attributes?
answer
1. Power: over the company
2. Legitimacy: has legitimate claim when it is perceived to be legally valid or otherwise appropriate 3. Urgency: urgent claim when it requires a companies immediate attention and response
2. Legitimacy: has legitimate claim when it is perceived to be legally valid or otherwise appropriate 3. Urgency: urgent claim when it requires a companies immediate attention and response
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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 do our stakeholders present
4. What economic, legal, ethical, & 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 do our stakeholders present
4. What economic, legal, ethical, & philanthropic responsibilities do we have to our stakeholders
5. What should we do to effectively address the stakeholder concerns.
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What is corporate social responsibility (CSR)?
answer
A company has obligations to its local community, people & society, and should be accountable for the social & ethical effects of its actions
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What are the four components or CSR? What is the Pyramid of Corporate Social Responsibility?
answer
1. Philanthropic
2. Ethical
3. Legal
4. Economic
The CSR Pyramid consists of Economic responsibilities being at the bottom or foundation of the pyramid and working its way up to the very top, Philanthropic responsibilities.
2. Ethical
3. Legal
4. Economic
The CSR Pyramid consists of Economic responsibilities being at the bottom or foundation of the pyramid and working its way up to the very top, Philanthropic responsibilities.
question
What is the AFI Strategy Framework?
answer
model that links three interdependent management task that help firms conceive of and implement a strategy that can improve performance and result in competitive advantage
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What does the AFI framework explain and predict? How does the framework help managers?
answer
1. Explains and predicts differences in firm performance.
2. Helps leaders formulate and implement a strategy that can result in superior performance.
2. Helps leaders formulate and implement a strategy that can result in superior performance.
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What are the three broad tasks associated with AFI? Which key topics and questions are addressed in each of the AFI tasks?
answer
1. Analysis: Strategic leadership and the strategy process, Internal/External Analysis, & Competitive Advantage, Firm Performance, and Business Models
2. Formulation: Business Strategy, Corporate Strategy, & Global Strategy
3. Implementation: Organizational Design & Corporate Governance/Business Ethics
2. Formulation: Business Strategy, Corporate Strategy, & Global Strategy
3. Implementation: Organizational Design & Corporate Governance/Business Ethics
question
What is a business-level strategy? Which broad question does it concern?
answer
Goal-directed actions to achieve competitive advantage in a single product market.
The broad question is: "How should we compete?"-Who the customer is, what needs to satisfy, why satisfy those needs, and how to go about doing that.
The broad question is: "How should we compete?"-Who the customer is, what needs to satisfy, why satisfy those needs, and how to go about doing that.
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What are two positions associated with firm effects?
answer
Value Position & Cost Position
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What is a strategic position? What does it help a firm to accomplish?
answer
A strategic profile based on value creation and cost in a specific product _market_
Helps firm accomplish:
1. Meet customer needs
2. Maximize product value
3. Lowest possible product cost
Helps firm accomplish:
1. Meet customer needs
2. Maximize product value
3. Lowest possible product cost
question
What are strategic trade-offs?
answer
Choices between a cost OR value position.
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What tension must managers address so as not to erode the firm's economic value creation?
answer
tension between value creation and pressure to keep cost in check
question
What is Differentiation strategy & Focused differentiation strategy
answer
Unique features that increase value, so that consumers pay a higher price
Focused: means the same but with a narrow focus in a niche market
Focused: means the same but with a narrow focus in a niche market
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What is Cost-leadership strategy & Focused cost-leadership strategy
answer
seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers.
Focused: means the same but with a narrow focus in a niche market
Focused: means the same but with a narrow focus in a niche market
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Scope of competition
answer
whether to pursue a specific, narrow part of the market or go after the broader market
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What is the goal of a differentiation strategy?
answer
add unique features to increase perceived value of Goods/Services in consumer's mind so they pay higher prices
question
What does the formula (V - C) represent?
answer
Value - Cost > Competitors
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How does economic value created relate to potential competitive advantage?
answer
If the company's economic value is greater than its competitors = competitive advantage
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What is cost parity?
answer
costs = to other competitors
question
What are economies of scale?
answer
Decrease in cost per unit from increased output
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What are economies of scope?
answer
savings that come from producing two (or more) outputs at less cost but shares the same resources and technology
question
What are the three most salient value drivers?
answer
1. Product features
2. Customer service
3. Complements
2. Customer service
3. Complements
question
Under what condition does a value driver contribute to a firm's competitive advantage (stated in equation form)?
answer
only if their increase in value creation (∆V) exceeds the increase in costs (∆C).
∆V > ∆C
∆V > ∆C
question
Hoes does a complement act as a value driver?
answer
adds value to a product/service when they are consumed in tandem.
Ex: Smart phones & Apps. the more apps you offer the more value of your smartphone
Ex: Smart phones & Apps. the more apps you offer the more value of your smartphone
question
What is the goal of a cost leadership strategy?
answer
1. Reduce cost below competitors
2. Offer adequate value
3. Reduce prices for customers
4. Optimize the value chain for low cost
2. Offer adequate value
3. Reduce prices for customers
4. Optimize the value chain for low cost
question
What is differentiation parity?
answer
value = same as competitors
question
What are the four most important cost drivers?
answer
1. Cost of input factors: raw materials, capital, labor
2. Economies of scale
3.Learning-curve effect: less time to produce output w/ experience
4. Experience-curve effects: improvements to technology & production processes
2. Economies of scale
3.Learning-curve effect: less time to produce output w/ experience
4. Experience-curve effects: improvements to technology & production processes
question
What three things do economies of scale allow firms to do?
answer
1. spreads fixed costs over a larger output
2. Employs specialized systems & equipment
3. Takes advantage of certain physical properties
2. Employs specialized systems & equipment
3. Takes advantage of certain physical properties
question
How do Walmart and The Home Depot benefit from utilizing physically large "big-box" stores?
answer
They can stock more merchandise and handle inventory more efficiently
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What is minimum efficient scale?
answer
the output range needed to bring the cost per unit down as much as possible, allowing a firm to stake out the lowest-cost position achievable through economies of scale.
question
What are diseconomies of scale?
answer
when costs start to increase as output increase and you begin producing at an output beyond the minimum efficient scale.
question
What is a learning curve? At what time were learning curves first documented in the U.S.?
answer
A downward sloping curve that showed as production doubled, the per unit cost decreased by a predictable and constant rate.
1st documented in the airplane manufacturing during WW2 (1930s).
1st documented in the airplane manufacturing during WW2 (1930s).
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What does it mean for a firm to have a 70 percent learning curve?
answer
every time outputs doubled... costs declined by 30%.
Total overall costs are only 70% of what they were last time output doubled.
Total overall costs are only 70% of what they were last time output doubled.
question
Are learning curve effects more pronounced in simple or complex manufacturing?
answer
The more complex the underlying process to manufacture a product or deliver a service, the more learning curve effects we can expect.
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How do learning effects differ from economies of scale?
answer
1. differences in timing
2. differences in complexity
2. differences in complexity
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What is the experience curve?
answer
there is a change in underlying technology while holding output constant.
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What is process innovation?
answer
a new method or technology to produce an existing product
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How does process innovation relate to the experience curve?
answer
process innovation can create a new or steeper curve
question
What is a blue ocean strategy?
answer
A strategy that combines both differentiation & cost-leadership activities
question
What is value innovation (see IKEA example)?
answer
reducing a firm's costs while also increasing perceived value for buyers.
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Why is a blue ocean difficult to implement?
answer
because it requires reconciling two distinct strategic positions - differentiation & low cost
question
What is being stuck in the middle?
answer
When a "Blue Strategy" has gone bad = the firm has neither a clear differentiation nor a clear cost-leadership profile.
Leads to inferior performance and a resulting competitive disadvantage.
Leads to inferior performance and a resulting competitive disadvantage.
question
What is a value curve?
answer
graphic representation (basic component of strategy canvas) of a firm's relative performance across different competitive factors in an industry
question
What is strategy canvas (also see exhibit 6.11 relating to JetBlue)?
answer
A Graphical depiction of a company's performance: Relative to its competitors, shows focus or divergence and viewed across the industry's key competitive factors.
Reveals key strategic insights.
Reveals key strategic insights.
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