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Strategic Management Exam 1 - John Launder
Terms in this set (64)
What is strategy and what are its characteristics?
A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.
Strategic Management Process:
Analyze its external environment and internal organization to determine its resources, capabilities, and core-competencies—on which its strategy likely will be based.
With the information gained from external and internal analyses, the firm develops its vision and mission and formulates one or more strategies.
To implement its strategies, the firm takes actions to enact each strategy with the intent of achieving strategic competitiveness and above-average returns.
Difference between corporate and business strategy.
Business-level strategy focuses on how to attain and satisfy customers, offer goods and services that meet their needs, and increase operating profits. To do this, business-level strategy focuses on positioning itself against competitors and staying up to date on market trends and technology changes.
Corporate strategy seeks to make a set of business units more than the sum of its parts. It can do this by developing relationships between business units, which allows them to share resources and avoid duplication of efforts.
The Global Economy and Technological Changes. What are they? How they are altering the strategic landscapes? What is technological diffusion?
A global economy is one in which goods, services, people, skills, and ideas move freely across geographic borders.
Technology-related trends and conditions can be placed into three categories: technology diffusion and disruptive technologies, the information age, and increasing knowledge intensity.
The rate of technology diffusion is the speed at which new technologies become available and are used.
Perpetual innovation is a term used to describe how rapidly and consistently new, information-intensive technologies replace older ones.
What is knowledge intensity? How has it affected businesses and decision making in businesses?
Knowledge (information, intelligence, and expertise) is the basis of technology and its application.
In the competitive landscape of the twenty-first century, knowledge is a critical organizational resource and an increasingly valuable source of competitive advantage.
To be strategically flexible on a continuing basis and to gain the competitive benefits of such flexibility, a firm has to develop the capacity to learn.
What are stakeholders? Why are they important? What role do they play in strategic management?
Stakeholders are the 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.
Stakeholders continue to support an organization when its performance meets or exceeds their expectations.108 Also, research suggests that firms that effectively manage stakeholder relationships outperform those that do not. Stakeholder relationships and the firm's overall reputation among stakeholders can therefore be a source of competitive advantage.
What are strategic leaders? What is their role?
Strategic leaders are people located in different areas and levels of the firm using the strategic management process to select strategic actions that help the firm achieve its vision and fulfill its mission.
Regardless of their location in the firm, successful strategic leaders are decisive, committed to nurturing those around them, and committed to helping the firm create value for all stakeholder groups.
Describes competition that is excessive such that it creates inherent instability and necessitates constant disruptive change for firms in the competitive landscape.
Strategic flexibility is a set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment.
Inputs into a firm's production process, such as capital equipment, the skills of individual employees, patents, finances, and talented managers.
Capacity for a set of resources to perform a task or an activity in an integrative manner.
Capabilities that serve as a source of competitive advantage for a firm over its rivals.
A picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve.
Specifies the businesses in which the firm intends to compete and the customers it intends to serve.
The 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.
People located in different areas and levels of the firm using the strategic management process to select strategic actions that help the firm achieve its vision and fulfill its mission.
Refers to the complex set of ideologies, symbols, and core values that are shared throughout the firm and that influence how the firm conducts business.
Returns equal to those an investor expects to earn from other investments with a similar amount of risk.
Strategic management process
Full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns.
Know the key elements of the IO Model. (Industry definitions, General environment, and 5 forces model).
The I/O (Industrial Organization) Model adopts an external perspective to explain that forces outside of the organization represent the dominate influences on a firm's strategic actions.
The general environment is composed of dimensions in the broader society that influence an industry and the firms within it.
The industry environment is the set of factors that directly influences a firm and its competitive actions and responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competing firms.
The demographic segment is concerned with a population's size, age structure, geographic distribution, ethnic mix, and income distribution
The economic environment refers to the nature and direction of the economy in which a firm competes or may compete.
The political/legal segment is the arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding interactions among nations as well as between firms and various local governmental agencies.
The sociocultural segment is concerned with a society's attitudes and cultural values.
The technological segment includes the institutions and activities involved in creating new knowledge and translating that knowledge into new outputs, products, processes, and materials.
The global segment includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets.
The sustainable physical environment segment refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to those changes with the intent of creating a sustainable environment.
What is an industry? What are industry boundaries? Why is defining them important? How should strategic managers deal with changing industry boundaries?
An industry is a group of firms producing products that are close substitutes.
First, it helps executives determine the arena in which their firm is competing. Second, a definition of industry boundaries focuses attention on the firm's competitors. Defining industry boundaries enables the firm to identify its competitors and producers of substitute products. Third, a definition of industry boundaries helps executives determine key factors for success. Finally, a definition of industry boundaries gives executives another basis on which to evaluate their firm's goals.
What are the components of the General Environment?
Demographic, Economic, Political/Legal, Sociocultural, Technological, Global, and Sustainable Physical Environment
Know the Five Forces Model? What are its key objectives? What factors affect the intensity of each force?
Threat of new entrants
Bargaining power of suppliers
Bargaining power of buyers
Threat of substituting products
Rivalry of competing firms
What are the criticisms of the IO Model?
The external environment imposes pressures and constraints that determine strategic choices
Similarity in strategically relevant resources causes competitors to pursue similar strategies
Resource differences among competitors are short-lived due to resource mobility across firms
Strategic decision makers are rational and engage in profit-maximizing behaviors
What are strategic groups? How are they useful?
A strategic group is a set of firms emphasizing similar strategic dimensions and using a similar strategy.
The notion of strategic groups can be useful for analyzing an industry's competitive structure. Such analyses can be helpful in diagnosing competition, positioning, and the profitability of firms competing within an industry.
What does competitor analysis mean? What are its key elements?
The general environment is composed of dimensions in the broader society that influence an industry and the firms within it.
the set of factors that directly influences a firm and its competitive actions and responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competing firms.
How companies gather and interpret information about their competitors
A condition in the general environment that, if exploited effectively, helps a company reach strategic competitiveness
A condition in the general environment that may hinder a company's efforts to achieve strategic competitiveness.
A group of firms producing products that are close substitutes.
A set of firms emphasizing similar strategic dimensions and using a similar strategy
The set of data and information the firm gathers to better understand and anticipate competitors' objectives, strategies, assumptions, and capabilities
Companies or networks of companies that sell complementary goods or services that are compatible with the focal firm's good or service
You should know the key elements of the Resource Based Model. What are resources, capabilities and core competencies?
Resources are inputs to the firm's production process
The firm combines individual tangible and intangible resources to create capabilities
Capabilities are used to complete the organizational tasks required to produce, distribute, and service the goods or services the firm provides to customers for the purpose of creating value for them.
Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals.
Know the difference between tangible and intangible resources.
Tangible resources are assets that can be observed and quantified.
Intangible resources are assets that are rooted deeply in the firm's history, accumulate over time, and are relatively difficult for competitors to analyze and imitate.
How are resources, capabilities, and core competencies related to each other? How does the VRIO framework apply to them?
Resources are combined to make capabilities. Those capabilities serve as a competitive advantage, which are called core competencies.
You should know what is meant by entry tickets and core rigidities? Why are they important for strategic managers?
Entry tickets: valuable and non-substitutable capabilities
- Refers to those competencies that a firm must necessarily have to survive in the industry. For a firm to have at least average returns it must possess all entry tickets relevant to an industry.
- A large set of competencies that firms may possess (they are unique, valuable and imperfectly imitable.
- No one core competency can be possessed by all firms.
- For a firm to have super-normal profits, a firm must posses some core competencies.
Core rigidities: former core competencies that now generate inertia and stifle innovation.
These things are important for strategic managers because they need to know all of these to create the proper strategy for their company.
What are the different forms of imitation?
Bells and whistles
- These are additions to the product/service
- Ex. Online banking
- Ex. Kodak used to dominate film/photography firm. Competitors was Polaroid and they gave instant photos. Kodak's response to this was quick service system, getting photos developed while you're shopping.
You should know why competitive advantage may (or may not) diminish over time?
As the market changes, if you don't change your strategy, something that was a competitive advantage may not stay one
A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market.
The ability to analyze, understand, and manage an internal organization in ways that are not dependent on the assumptions of a single country, culture, or context.
Is measured by a product's performance characteristics and by its attributes for which customers are willing to pay.
Allow the firm to exploit opportunities or neutralize threats in its external environment.
Capabilities that few, if any, competitors possess.
Capabilities that other firms cannot easily develop.
Capabilities that do not have strategic equivalents
Value chain activities
Activities or tasks the firm completes in order to produce products and then sell, distribute, and service those products in ways that create value for customers.
Include the activities or tasks the firm two technologies given that the firm concentrates on them as a means of creating value completes in order to support the work being done to produce, sell, distribute, and service the products the firm is producing.
The purchase of a value-creating activity or a support function activity from an external supplier.
You should know what are the building blocks of strategy: Which customers we will serve? What needs of the target customers will be served? And how will those needs be served?
Look outside to identify threats and opportunities
Look inside at resources, capabilities, and practices
Consider strategies for addressing threats and opportunities
Being a good "fit" among strategy-supporting activities
You should know the concepts of reach, richness, and affiliation.
The reach dimension of relationships with customers is concerned with the firm's access and connection to customers.
Richness, the second dimension of firms' relationships with customers, is concerned with the depth and detail of the two-way flow of information between the firm and the customer.
Affiliation, the third dimension, is concerned with facilitating useful interactions with customers.
You should know and be able to describe the different generic business level strategies? Cost Leadership, Differentiation, Focused low cost, Focused differentiation, stuck in the middle, and integrated cost differentiation strategies. What are the risks of these strategies?
Cost Leadership Risks
- Loss of competitive advantage to new technologies
- Too much focus on cost reductions may occur at expense of customers' perceptions of differentiation
- Competitors may successfully imitate the cost leader's strategy
- A focusing firm may be "out-focused" by its competitors
- A large competitor might set its sights on a firm's niche market
- Customer preferences in a niche market may change to more closely resemble those of a broader market
- The price differential between the differentiators' product and the cost leader's product becomes too large
- Differentiation ceases to provide value for what the customer is willing to pay
- Experience narrows customers' perceptions of the value and differentiated features
- Counterfeit goods replicate the differentiated features of the firm's products
Be sure to know the difference between cost and price from a strategic management perspective.
Cost: the amount of money that a firm pays to deliver products or services to the customer.
Price: what the customer pays to obtain the product/service
What are the different ways that companies can differentiate themselves? What are the key steps in developing a differentiation strategy?
Ways to differentiate:
- Products that have different, valued features that are sold at a premium price.
- Differentiate the products along as many dimensions as possible.
- Less product similarity helps insulate company from competition with rivals.
Differentiation strategy: is an integrated set of actions taken to produce goods or services (at at an acceptable cost) that customers perceive as being different in ways that are important to them.
What are the key steps and requirements in implementing cost leadership and differentiation strategies?
Involves engaging in primary value-chain activities and support functions that allows a firm to simultaneously pursue low cost and differentiation.
Business level strategy
Integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets.
A process used to cluster people with similar needs into individual and identifiable groups.
cost leadership strategy
Integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors
Integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them.
Integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment.
Integrated cost leadership/differentiation strategy
Involves engaging in primary value-chain activities and support functions that allow a firm to simultaneously pursue low cost and differentiation
Total quality management (TQM)
Managerial process that emphasizes an organization's commitment to the customer and to continuous improvement of all processes through problem-solving approaches based on empowerment of employees.
The ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary.
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