Strategic Management Book Ch 1-2
Terms in this set (25)
What is strategic management?
integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage
What is strategy?
a set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors
What are the 3 steps to make a good strategy?
1. diagnosis of the competitive challenge: by analysis of the firm's external and internal environments
2. guiding policy to address the competitive challenge: accomplished through strategy formulation (corporate, business and functional strategies)
3. Set of coherent actions to implement the firm's guiding policy: this element is achieved through strategy implementation
What should a good strategy start with?
a clear and critical diagnosis of the competitive challenge
What are the necessary characteristics of formulated strategy?
consistent, backed up with strategic commitments like sizable investments or changes to an organization's incentive and reward system (big changes not easily reversed)
Without consistency in a firms guiding policy, what happens to a firms employees and the stakeholders of the company?
-employees become confused and cannot make effective day to day decisions that support the overall strategy
-stakeholders become frustrated
What are the 3 characteristics of a good strategy?
1. defines the competitive challenges facing an organization through a critical and honest assessment of the status quo
2. provides an overarching approach on how to deal with the competitive challenges identified (needs to be communicated in policies that provide guidance to employees)
3. requires effective implementation through a coherent set of actions
Competitive advantage is always ________ not absolute.
What is a competitive advantage?
a firm that achieves superior performance relative to other competitors in the same industry or the industry average
How does one assess a competitive advantage?
By comparing performance to a benchmark (of other firms in same industry)
What is a competitive disadvantage?
when a firm under performs its rivals or industry average
What is competitive parity?
performance of two or more firms at the same level
What does a firm need to do to gain a competitive advantage?
provide goods or services consumers value more highly than those of its competitors or goods or services similar to the competitors lower price
What are the rewards of superior value creation and capture?
profitability and market share
How does a company create superior value while containing the cost to create it?
through strategic positioning -stake out unique position within industry that allows the firm to provide value to customers while controlling costs
The greater the difference between value creation and cost, the greater the firms __________?
economic contribution (and more likely will gain competitive advantage)
Are trade-offs required in strategic positioning?
True or False: since clear strategic positioning requires trade-offs, strategy is as much about deciding what not to do as it is about deciding what to do.
True or False: the key to a successful strategy is to combine a set of activities to stake out a unique position within an industry.
What is NOT strategy?
1. Grandiose statements which fail to address economic fundamentals
2. Failure to face a competitive challenge (ie: Blockbuster ignored Netflix)
3. Operational effectiveness, competitive benchmarking, or other tactical tools (specific strategies like marketing strategy will not give competitive advantage)
What are the two factors that firm performance is determined by?
1. industry effects
2. firm effects
What are industry effects?
underlying economic structure of the industry in which the firm competes
What is the structure of an industry determined by?
1. entry/exit barriers
2. number and size of companies
3. types of products/services offered
What are firm effects?
attribute firm performance to the actions managers take
What is the most significant of the effects that impacts the company?
firm effects (meaning internal manager decisions)