Term
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Definition
consists of the competitive moves and the business approaches that managers are employing to compete successfully, improve performance, and grow the business.
o A management’s action plan for competing successfully and operating profitably, based on an integrated array of considered choices.
o Strategy is about competing differently from rivals – doing what competitors don’t do or, even better, doing what they can’t do. |
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Term
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Definition
an ability to meet customer needs more effectively, with products or services that customers value more highly, and more efficiently, at lower costs.
o Meeting customer needs more effectively can translate into the ability to command a higher price (example: Godiva chocolate)
o Meeting customer needs more cost-effectively can translate into being able to charge lower prices and achieve higher sales volumes (ex: Walmart) |
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Term
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Definition
| comes from the elements of the company’s strategy that give buyers lasting reasons to prefer a company’s products or services over their competitors. |
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Term
| Four most frequently used and dependable strategic approaches |
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Definition
Low Cost, Differentiation, Market niche, low prices
o Striving to be the industry’s low-cost provider, thereby aiming for a cost-based competitive advantage over rivals (Walmart – ability to under price competitors)
o Outcompeting rivals on the basis of differentiating features, such as higher quality, wider product selection, added performance, value-added services, more attractive styling, and technological superiority (Apple – innovative products)
o Focusing on a narrow market niche and winning a competitive edge by doing a better job than rivals of serving the special needs and tastes of buyers in the niche (Ebay’s online auctions - they enjoy their competitive success)
o Aiming to offer the lowest (best) prices for differentiated goods that at least match the features and performance of higher-priced rival brands – known as best-cost provider strategy, most cost-effective provider of an upscale product/service. (Marshall’s – discounted designer clothing) |
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Term
| A company’s proactive (or deliberate strategy) |
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Definition
| new planned initiatives plus ongoing strategy elements continued from prior periods |
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Term
| A company’s reactive (or emergent strategy) |
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Definition
| consists of unplanned new strategy elements that emerge as managers react adaptively to changing circumstances |
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Term
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Definition
| sets forth the economic logic for making money in a business, given the company’s strategy – it describes two critical elements: 1. The customer value proposition and 2. The profit formula |
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Term
| Customer Value Proposition |
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Definition
lays out the company’s approach to satisfying buyer wants and needs at a price customers will consider a good value
The greater the value (V) provided, and the lower the price (P), the more attractive the value proposition is o customers |
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Term
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Definition
| describes the company’s approach to determining a cost structure that will allow for acceptable profits, given the pricing tied to its customer value proposition – which depends on three elements: V (the value) P(the price) and C( company’s costs). |
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Term
| The 3 tests of a Winning Strategy |
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Definition
| Fit test, Competitive Adv Test, Performance Test |
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Term
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Definition
how well does the strategy fit the company’s situation?
A strategy has to be well matched to industry and competitive conditions, a company’s best market opportunities, and other pertinent aspects of the business environment in which the company operates |
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Term
| Competitive Advantage Test |
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Definition
: Can the strategy help the company achieve a sustainable competitive advantage?
Winning strategies achieve a competitive advantage over key rivals that is long lasting. The bigger and more durable the competitive advantage, the more powerful it is. |
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Term
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Definition
Is the strategy producing good company performance?
Two kinds of performance indicators include:
• Profitability and financial strength
• Competitive strength and market standing |
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Term
| Strategy-making, Strategy Executing Process (5 steps) |
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Definition
o Developing a strategic vision of a company’s long-term direction, a mission that describes the company’s purpose, and a set of values to guide the pursuit of the vision and mission.
o Setting objectives and using them as yardsticks for measuring the company’s performance and progress.
o Crafting a strategy to achieve the objectives and move the company along the strategic course that management has charted.
o Executing the chosen strategy efficiently and effectively.
o Monitoring developments, evaluating performance, and initiating corrective adjustments in the company’s vision and mission, objectives, strategy, or execution in light of actual experience, changing conditions, new ideas, and new opportunities. |
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Term
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Definition
top mgmt’s views and conclusions about the company’s long-term direction and what product-customer-market-technology mix seems optimal for the road ahead.
o It delineates mgmt’s aspirations for the business, providing a panoramic view of “where we are going” and a convincing rationale for why this makes good business sense for the company.
o It points an organization in a particular direction, charts a strategic path for it to follow in preparing for the future, and builds commitment to the future course of action.
Well-conceived visions are distinctive and specific. They avoid generic, feel good statements.
It must convey what mgmt. wants the business to look like and provide managers with a reference point in making strategic decisions and preparing the company for the future. |
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Term
| Do's and Dont's of making a Strategic Vision |
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Definition
Dos: Be graphic, be forward-looking and directional, keep it focused, have some wiggle room, be sure the journey is feasible, indicate why the directional path makes good business sense, make it memorable.
Don’ts: Be vague, dwell on the present, use overly broad language, state the vision in bland or uninspiring terms, be generic, rely on superlatives only, run on and on. |
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Term
| Payoffs of a clear vision statement |
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Definition
o It crystallizes senior executives’ own views about the firm’s long-term direction
o It reduces the risk of rudderless decision making
o It is a tool for winning the support of organization members for internal changes that will help make the vision a reality
o It provides a beacon for lower-level managers in setting departmental objectives and crafting departmental strategies that are in sync with the company’s overall strategy.
o It help an organization prepare for the future |
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Term
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Definition
• Describes the enterprise’s current business and purpose—“who we are, what we do, and why we are here”
o It is found in the company’s annual report or posted on a company website. |
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Term
| Difference between a Strategic Vision and Mission statement |
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Definition
o A strategic vision portrays a company’s aspirations for the future (“where we are going”)
o A mission statement describes its purpose and present business (“who we are, what we do, and why we are here”) |
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Term
| What does a Mission Statement describe? |
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Definition
o Identify the company’s product or services.
o Specify the buyer needs if seeks to satisfy.
o Identify the customer group or markets it is endeavoring to serve.
o Specify its approach to pleasing customers.
o Give the company its own identity. |
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Term
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Definition
(sometimes called the core values) are beliefs, traits, and behavioral norms the management has determined should guide the pursuit of its vision and mission.
o They relate to things such as fair treatment, integrity, ethical behavior, innovativeness, teamwork, top-notch quality, superior customer service, social responsibility, and community citizenship.
o Many companies have developed a statement of values to emphasize the expectation that the values be reflected in the conduct of company operations and the behavior of company personnel.
o Most companies have identified 4 to 8 core values. |
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Term
| What are the 2 extremes some companies practice when it comes to company values? |
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Definition
o One extreme are companies with window-dressing values; the values are given lip service by top executives but have little discernible impact on either how company personnel behave or how the company operates.
These companies have value statements because they are in vogue and make the company look good.
o On the other extreme are companies whose executives are committed to infusing the company with the desired character, traits, and behavioral norms so that they are ingrained in the company’s corporate culture—the core values thus become an integral part of the company’s DNA and what makes it tick.
At these value-driven companies, the executives “walk the talk” and company personnel are held accountable for displaying the stated values. |
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Term
| What is the managerial purpose of setting objectives? |
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Definition
| convert the vision and mission into specific performance targets. |
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Term
| Well-stated Objectives contain.. |
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Definition
| specific, quantifiable or measurable, and contain a deadline for achievement. |
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Term
| Concrete, measurable objectives are managerially valuable for what 3 reasons? |
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Definition
They focus efforts and align actions throughout the organization
They serve as yardsticks for tracking a company’s performance and progress
The provide motivation and inspire employees to greater level of effort. |
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Term
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Definition
Financial- relate to financial performance targets management has set for the organization to achieve.
Strategic- related to the target outcomes that indicate a company is strengthening its market standing, competitive vitality, and future business prospects. |
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Term
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Definition
a tool that is widely used to help a company achieve its financial objectives by linking them to specific strategic objectives derived from the company’s business model.
Improved strategic performance fosters better financial performance.
A company’s financial perf. measures are really lagging indicators that reflect the results of past decisions and organizational activities.
But a company’s pas tor current financial perf is not a reliable indicator of its future prospects—poor financial performers often turn things around and do better, while good performers can fall upon hard times.
The best and most reliable leading indicators of a company’s future financial perf and business prospects are strategic outcomes that indicate whether the company’s competitiveness and market position are stronger or weaker.
Utilizing a perf measurement system that strikes a balance between financial objectives and strategic objectives is optimal.
The surest path to boosting company profitability quarter after quarter and year after year is to relentlessly pursue strategic outcomes that strengthen the company’s market position and produce a growing competitive advantage over rivals. |
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Term
| The merits of stretching objectives are.. |
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Definition
Stretching an organization to perform at its full potential and deliver the best results possible.
• Spur exceptional perf and help build firewall against contentment with modest gains in org perf. |
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Term
| Why do companies need long and short term objectives? |
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Definition
Short term (quarterly or annual) obj focus attention on delivering perf improvements in the current period and satisfy shareholder expectations for near-term progress.
Long term (3 to 5 years off) objectives are critical for achieving long term perf and stand as a barrier to a nearsighted mgmt. philosophy and undue focus on short term results.
• Long term obj force managers to consider what to do now to pu the company in position to perform better later. |
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Term
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Definition
| Corporate, Business, Functional, Operational |
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Term
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Definition
strategy at the multibusiness level—how to achieve a competitive edge through multibusiness, multimarket strategy.
o Orchestrated by the CEO and other senior executives |
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Term
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Definition
– (one for each business the company has diversified into)
o How to strengthen market position and gain competitive advantage.
o Actions to build competitive capabilities businesses
o Orchestrated by the GMs of each of the Co different lines of business, often with advice and input from more sr execs and the heads of functional-area activities within the business. |
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Term
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Definition
– (within each business)
o Add relevant detail to the hows of the business strategy
o Provide a game plan for managing a particular activity in ways that support the business strategy
o Orchestrated by the heads of major functional activities within a particular business, often in collaboration with other key people |
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Term
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Definition
o Add detail and completeness to business and functional strategies
o Provide a game plan for managing specific lower-echelon activities with strategic significance.
o Orchestrated by brand mgrs., and operating mgrs. of plants, distribution centers, and purchasing centers, and the mgrs. of strategically important activities like web site ops, often in collaboration with other key people. |
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Term
| Executing a strategy (9 steps) |
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Definition
• Staffing the organization with the needed skills and expertise.
• Building and strengthening strategy-supporting resources and competitive capabilities.
• Organizing the work effort along the lines of best practice.
• Allocating ample resources to the activities critical to strategic success.
• Ensuring that policies and procedures facilitate rather than impede effective strategy execution.
• Installing information and operating systems that enable company personnel to carry out their roles effectively and efficiently.
• Motivating people and tying rewards and incentives directly to the achievement of performance objectives.
• Creating a company culture and work climate conducive to successful strategy execution.
• Exerting the internal leadership needed to propel implementation forward and drive continuous improvement of the strategy execution process. |
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Term
| Roles of the Board of Directors in the Strategy-Crafting, Strategy-Executing Process are... |
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Definition
• Critically appraise the company’s direction, strategy, and business approaches.
• Evaluate the caliber of sr execs strategic leadership skills
• Institute a compensation plan for top execs that rewards them for actions and results that serve stakeholders interests—especially those of shareholders.
• Oversee the company’s financial accounting and financial reporting practices. |
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Term
| What is a company's macro-environment? |
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Definition
o The macro-environment encompasses the broad environmental context in which a company’s industry is situated
o Strategically relevant influences coming from the outer ring of the external environment can sometimes have a high impact on a company’s direction and strategy. Example: opportunities for cigarette companies to grow their businesses are greatly reduced by antismoking ordinances
o The factors and forces in a company’s environment having the biggest strategy-shaping impact typically pertain to the company’s immediate industry and competitive environment – competitive pressures, the actions of rival firms, buyer behavior, supplier-related considerations etc. |
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Term
| 7 components of a micro-environment |
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Definition
• Population demographics: size, growth rate, and age
• Social Forces: societal values, attitudes, cultural factors, and lifestyles that impact businesses
• Political, legal, & regulatory factors: political policies and processes, and laws that the company must abide by
• Natural Environment: ecological & environmental forces such as weather, climate, and climate change and associated factors like water shortages
• Technological factors: the pace of technological change and technical developments that have potential for wide-ranging effects on society
• General economic conditions: economic factors at the local, state, national, or international level that affect firms & industries
• Global forces: conditions and changes in the global markets including political events and policies towards international trade |
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Term
| When understanding a company’s industry & competitive environment, Does that industry offer attractive opportunities for growth? |
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Definition
Consider whether the industry offers good opportunities for growth
• Indicating how much customers value the industry’s products (or services) and whether the industry demand is strong enough to support profitable sales growth
o Key economic indicators of an industry’s growth:
Market size – overall unit sales and sale volume
Industry growth rate |
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Term
| When understanding a company’s industry & competitive environment, What kinds of competitive forces are industry members facing, and how strong are they? |
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Definition
- 5 forces model of competition
Competition from rival sellers from potential new entrants, from producers of substitute products, Suppliers bargaining power, Customer bargaining power
The seriousness of the competitive threat of a new entrant to a market depends on: 1. Barriers to entry and 2. The expected reaction of incumbent (present) firms to new entry
• Industry incumbents are willing and able to launch strong defensive maneuvers to maintain their positions and can make it hard for new entrants to gain a market foothold to survive – these defensive maneuvers include: offering price discounts, spending more on advertising, sales promotions
• A barrier to entry exists whenever it is hard for a newcomer to break into the market and/or the economics of the business put a potential entrant at a disadvantage such as sizable advertising, production, & distribution, strong network effect etc. |
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Term
| When understanding a company’s industry & competitive environment, What actors are driving industry change, and what impacts will they have? |
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Definition
The most important part of dynamic industry analysis is to determine whether the collective impact of the change drivers will be to increase or decrease market demand, make competition more or less intense, and lead to higher or lower industry profitability
Dynamic industry analysis, when done properly, pushes company managers to think about what’s around the corner and what the company needs to be doing to get ready for it |
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Term
| When understanding a company’s industry & competitive environment, How are industrial rivals positioned – who is stringing positioned and who is not? |
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Definition
| The best technique for revealing the market positions of industry competitors is strategic group mapping, which reveals which companies are close competitors and which are distant competitors |
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Term
| When understanding a company’s industry & competitive environment, What strategic moves are rivals likely to make next? |
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Definition
Competitive Intelligence about rivals’ strategies, their latest actions and announcements, their financial performance, their strengths and weaknesses will help them make strategic moves in regards to their competitors
• Helps managers avoid the damage to sales and profits that comes from being caught napping by the surprise moves from rivals |
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Term
| When understanding a company’s industry & competitive environment, What are the key factors for future competitive success? |
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Definition
An industry’s key success factors (KSF) are those competitive factors that affect industry members’ ability to survive and prosper in the marketplace
• Strategy elements, product and service attributes, operational approaches, resources, and competitive capabilities with the greatest impact on competitive success in the marketplace |
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Term
| When understanding a company’s industry & competitive environment, Does the industry offer good prospects for attractive profits? |
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Definition
If a company can conclude that its overall profit prospects are above average in the industry, then the industry environment is basically attractive (for that company)
If industry profit prospects are below average, conditions are unattractive (for that company) |
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Term
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Definition
| the notion that industries commonly follow a general pattern of development and maturation in 4 stages – Emergence, Rapid Growth, Maturity, and Decline |
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Term
| 5 forces model of competition |
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Definition
• Competition from rival sellers
• Competition from potential new entrants
• Competition from producers of substitute products
• Suppliers bargaining power
• Customer bargaining power |
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Term
| Factors the affect the strength of rivalry |
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Definition
• Rivalry is strong when: buyer demand is growing slowly, sellers find themselves with excess inventory, firms have high fixed costs or high storage costs
• Rivalry is weak when: buyer demand grows rapidly, buyer costs to switch brands are high, fixed and storage costs are low |
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Term
| What are the 2 factors that determine whether the threat of new entry is strong or weak? |
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Definition
| o The threat of entry is stronger when entry barriers are low, when incumbent firms are unable or unwilling to vigorously contest a newcomer’s entry, and when there’s a sizeable pool of entry candidates with resources and capabilities well suited for competing in the industry |
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Term
| Competitive pressures from the sellers of substitute products: |
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Definition
• Whether the substitutes are readily available
• Whether buyers view the substitutes as attractively priced in relation to their quality, performance, and other attributes
• Where the costs that buyers incur in switching to the substitutes are low or high |
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Term
| Competitive pressures stemming from supplier bargaining power: |
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Definition
| • Suppliers with strong bargaining power can erode industry profitability by charging industry members higher prices, passing costs on to them, and limiting their opportunities to find better deals |
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Term
| Competitive pressure stemming form buyer bargaining power and price sensitivity: |
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Definition
• Whether buyers are able to exert strong competitive pressures on industry members depends on 1. The degree to which buyers have bargaining power and 2. The extent to which buyers are price-sensitive
• Buyers with strong bargaining power can limit industry profitability
o Buyers’ bargaining power is greater when their costs of switching o competing brands or substitutes are relatively low
o Buyer power increases when industry goods are standardized or differentiation is weak |
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Term
| Matching Company Strategy to Competitive Conditions: |
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Definition
| • A company’s strategy is increasingly effective the more it provides some insulation from competitive pressures, shifts the competitive battle in the company’s favor and positions firms to take advantage of attractive growth opportunities |
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Term
| There are 3 steps involving a strategic analysis of the industry dynamics: |
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Definition
o Identifying the drivers of change
o Assessing whether the drivers of change are, individually or collectively, acting to make the industry more or less attractive
o Determining what strategy chances are needed to prepare for the impacts of the anticipated change |
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Term
| Dynamic Industry Analysis |
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Definition
| involves determining how the drivers of change are affecting industry and competitive conditions |
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Term
| Most drivers of industry and competitive change fall into one of the following 4 categories: |
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Definition
• Changes in an industry’s long-term growth rate
• Increasing globalization
• Changes in who buys the product and how they use it
• Technological changes & etc. |
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Term
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Definition
| a cluster of industry rivals that have similar competitive approaches and market positions |
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Term
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Definition
| rivals’ strategies, their latest actions and announcements, their financial performance, their strengths and weaknesses will help them make strategic moves in regards to their competitors |
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Term
| An industry's key success factors (KSF) |
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Definition
| those competitive factors that affect industry members’ ability to survive and prosper in the marketplace |
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Term
| Indicators on how well a company's strategy is working |
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Definition
o Whether the firms sales are growing faster than, slower than, or about the same pace as the market as a whole, thus resulting in a rising, eroding, or stable market share.
o Whether the co is acquiring new customers at an attractive rate as well as retaining existing cust.
o Whether the firm’s profit margins are increasing or decreasing and how well its margins compare to rival firms.
o Trends in the firm’s net profits and return on investment and how they compare to the same trends for other companies in the industry
o Whether the company’s overall financial strength and credit rating are improving or declining.
o How shareholders view the company on the basis of trends in the company’s stock price and shareholder value (relative to the stock price trends at other companies in the industry).
o Whether the firm’s image and reputation with its customers are growing stronger and weaker.
o How well the company stacks up against rivals on technology, product innovation, customer service, product quality, delivery time, price, getting newly developed products to market quickly, and other relevant factors on which buyers base their choices.
o Whether key measures of operating performance (such as days of inventory, employee productivity, unit cost, defect rate, scrap rate, order-filling accuracy, delivery times, and warranty costs) are improving, remaining steady, or deteriorating.
• The stronger a company’s financial performance and market position, the more likely it has a well-conceived, well-executed strategy. |
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Term
| Types of Profitability ratios.. |
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Definition
| gross profit margin, operating profit margin (return on sales), net profit margin (net return on sales), return on total assets, return on stockholder’s equity, return on invested capital, earnings per share. |
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Term
| Types of Liquidity ratios.. |
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Definition
| current ratio, working capital |
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Term
| Types of Leverage ratios.. |
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Definition
| debt-to-asset ratio, long-term debt-to-capital ratio, debt-to-equity ratio, long-term debt-to-equity ratio, times-interest earned (coverage) ratio |
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Term
| Types of Activity ratios.. |
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Definition
| days of inventory, inventory turnover, average collection period |
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Term
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Definition
| dividend yield on common stock, price-earnings ratio, dividend payout ratio, internal cash flow, free cash flow |
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Term
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Definition
| a company’s resources and capabilities. |
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Term
| Resource and capability analysis |
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Definition
| provide managers with a powerful tool for sizing up the company’s competitive assets and determining whether they can provide the foundation necessary for competitive success in the market place. |
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Term
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Definition
| is a competitive asset that is owned or controlled by a company |
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Term
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Definition
| is the capacity of a firm to perform some activity proficiently. |
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Term
| 2 types of company resources |
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Definition
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Term
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Definition
o Physical resources – ex. Mineral deposits, plants, equipment real estate, locations of stores
o Financial resources – cash and cash equivalents, securities,
o Technology assets – patents, copyrights, trade secrets
o Organizational resources – IT and comm systems |
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Term
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Definition
o Human assets and intellectual capital – the experience, cumulative learning, and knowledge of employees
o Brands, company image, and reputational assets – brand names, trademarks, product image, buyer loyalty and goodwill
o Relationships – alliances or joint ventures that provide access to technologies, specialized know-how, or geographic markets, partnerships with suppliers
o Company culture and incentive systems – norms of behavior, business principles, and ingrained beliefs within the company, the attachment of personnel to the company’s ideals, the compensation system and motivational level of company personnel |
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Term
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Definition
| a linked and closely integrated set of competitive assets centered around one or more cross-functional capabilities. |
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Term
| 4 tests of a resources competitive power |
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Definition
• Is the resource (or capability) competitively valuable?
• Is the resource rare—is it something rivals lack?
• Is the resource hard to copy?
• Can the resource be trumped by different types of resources and capabilities—are there good substitutes available for the resource? |
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Term
| Sustainable Competitive Advantage |
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Definition
| an advantage over the market rivals that persists despite efforts of the rivals to overcome it. |
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Term
| Copying Resources (3 points) |
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Definition
o Imitation is difficult for resources that reflect a high level of social complexity (company culture, interpersonal relationships among mrgs or R & D teams, trust based relations with customers or suppliers) and casual ambiguity, a term that signifies the hard-to-disentangle nature of the complex resources, such as a web of intricate processes enabling new drug discovery.
o Social complexity and Casual ambiguity are two factors that inhibit the ability of rivals to imitate a firm’s most valuable resources and capabilities.
o Casual ambiguity makes it very hard to figure out how a complex resource contributes to competitive advantage and therefore exactly what to imitate. |
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Term
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Definition
| the capacity of a company to modify its existing resources and capabilities or create new ones. |
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Term
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Definition
o Strengths, Weaknesses, market Opportunities, and external Threats.
o It is a simple but powerful tool for sizing up a company’s strengths, weaknesses, market opportunities, and external threats to its future and well-being.
• Basing a company’s strategy on its most competitively valuable resource and capability strengths gives the company its best chance for market success. |
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Term
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Definition
| activity that a company has learned to perform with proficiency—a capability, in other words. |
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Term
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Definition
| activity that a company performs proficiently that is also central to its strategy and competitive success |
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Term
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Definition
| competitively important activity that a company performs better than its rivals—it thus represents a competitively superior internal strength. |
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Term
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Definition
– something a company lacks or does poorly (in comparison to others) or a condition that puts it at a competitive disadvantage in the marketplace.
• These weaknesses can relate to:
o Inferior or unproven skills, expertise, or intellectual capital in competitively important areas of business.
o Deficiencies in competitively important physical, organizational, or intangible assets.
o Missing or competitively inferior capabilities in key areas.
• Company weaknesses are thus internal shortcomings that constitute competitive liabilities.
• A company is well advised to pass on a particular market opportunity unless it has or can acquire the competencies needed to capture it. |
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Term
| Are the company’s prices and costs competitive with those of key rivals, and does it have an appealing customer value proposition? (2 points) |
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Definition
• The higher a company’s costs are above those of close rivals, the more competitively vulnerable it becomes.
• The greater the amount of customer value that a company can offer profitably relative to close rivals, the less competitively vulnerable it becomes. |
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Term
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Definition
| identifies the primary activities that create customer value and the related support activities. |
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Term
| A company’s _______ and _______ identify the major components of its internal cost structure. |
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Definition
| primary and secondary activities |
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Term
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Definition
o Supply chain mgmt.
o Operations
o Distribution
o Sales and marketing
o Service |
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Term
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Definition
o Product R & D, technology, and systems development
o Human resources mgmt.
o General administration |
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Term
| A company’s _______ _______depends not only on the costs of internally performed activities (its own value chain) but also on costs in the value chains of its suppliers and distribution channel allies. |
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Definition
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Term
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Definition
a potent tool for improving a company’s own internal activities that is based on learning how other companies perform them and borrowing their “best practices”
• Benchmarking the costs of company activities against rivals provides hard evidence of whether a company is cost-competitive. |
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Term
| Performing value chain activities in ways that give a company the capabilities to either outmatch rivals on differentiation or beat them on costs will help the company to _________________. |
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Definition
| secure a competitive advantage. |
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Term
| Competitive Strength Assessment |
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Definition
o High weighted competitive strength ratings signal a strong comp position and possession of comp advantage; low ratings signal weak position and comp disadvantage.
o A company’s competitive strength scores pinpoint its strengths and weaknesses against rivals and point directly to the kinds of offensive/defensive actions it can use to exploit it comp strengths and reduce its comp vulnerabilities. |
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Term
| What strategic issues and problems merit front-burner managerial attention? |
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Definition
• Zeroing in on the strategic issues a company faces and compiling a “worry list” of problems and roadblocks creates a strategic agenda of problems that merit prompt managerial attention.
• Actually deciding on a strategy and what specific actions to take is what comes after developing the list of strategic issues and problems that merit front-burner mgmt. attention.
• A good strategy must contain ways to deal with all the strategic issues and obstacles that stand in the way of the company’s financial and competitive success in the years ahead. |
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Term
| Two factors that most distinguish one competitive strategy from another are .. |
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Definition
| to 1. Whether a company’s market target is broad or narrow and 2. Whether the company is pursuing a competitive advantage linked to low costs or product differentiation |
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Term
| The 5 Competitive Strategies companies use are.. |
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Definition
A low-cost provider strategy
A broad differentiation strategy
A focused (or market niche) differentiation strategy
A focused (or market niche) low-cost strategy
A best-cost provider strategy |
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Term
| The Low-Cost Provider Strategy |
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Definition
o A company achieves low-cost leadership when it becomes the industry’s lowest-cost provider rather than just being one of perhaps several competitors with comparatively low prices
Successful low-cost leaders are exceptionally good at finding ways to drive costs out of their businesses and still provide a product or service that buyers find acceptable
For maximum effectiveness, a low-cost provider needs to pursue cost-saving approaches that are difficult for rivals to copy
• This could lead to an advantage in better profitability than rivals can attain |
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Term
| 2 Major avenues for achieving a cost advantage: |
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Definition
1. Do a better job than rivals of performing value chain activities more cost-effectively
• Managers must launch a concentrated, on going effort to search out cost-saving opportunities in every part of the value chain
• Attention must be paid to cost drivers, which is a factor that has a strong effect on a company’s costs and which managers can use as levers to push costs down
o Cost cutting methods with use of cost drivers
2. Revamp the firm’s overall value chain to eliminate or bypass some cost-producing activities, approaches include:
• Selling direct to consumers and bypassing the activities and costs of distributors and dealers
o Example: selling on the company’s website could be cheaper than going through distributor-dealers
• Coordinating with suppliers to bypass the need to perform certain value chain activities, speed up their performance, or otherwise increase overall efficiency
• Reducing materials handling and shipping costs by having suppliers locate their plants or warehouses close to the company’s own facilities |
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Term
| Keys to being a successful low-cost provider |
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Definition
Success in achieving a low-cost edge over rivals comes from out-managing rivals in finding ways to perform value chain activities faster, more accurately and more cost-effectively
The more price-sensitive buyers are, the more appealing a low-cost strategy becomes |
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Term
| Pitfalls to avoid in pursuing a Low-Cost Provider Strategy |
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Definition
A low-cost/low-price advantage results in superior profitability only if:
• The prices are cut by less than the size of the unit cost advantage
• The added gains in unit sales are large enough to bring in a bigger total profit despite lower margins per unit sold
A low-cost provider is in the best position to win the business of price-sensitive buyers, set the floor on market price, and still earn a profit
Reducing price does not lead to higher total profits unless the incremental gain in total revenues exceeds the incremental increase in total costs
A low-cost provider’s product offering must always contain enough attributes to be attractive to prospective buyers – low price, by itself, is not always appealing to buyers |
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Term
| Broad Differentiation Strategy |
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Definition
Strategy offers unique product attributes that a wide range of buyers find appealing and worth paying for
o Differentiation strategies are attractive when buyers’ needs and preferences are too diverse to be fully satisfied by a standardized product offering
Studies of buyers’ needs and behaviors to learn what buyers consider important are very important
Successful differentiation allows a firm to the following:
• Command a premium price for its product
• Increase unit sales (because additional buyers are won over by the differentiating features)
• Gain buyer loyalty to its brand (because some buyers are strongly bonded to differentiating features of the company’s product offering) |
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Term
| Managing the value chain to create the differentiating attributes (2 points) |
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Definition
The most systematic approach involves focusing on uniqueness drivers, a set of factors that are particularly effective in creating differentiation
• Striving to create superior product features, design, and performance
• Improving customer service & adding additional services
• Striving for innovation and technological advances
Revamping the value chain system to increase differentiation
• Coordinating with channel allies to enhance customer perceptions of value
• Coordinating with suppliers to better address customer needs |
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Term
| Delivering superior value via a broad differentiation strategy (4 Routes): |
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Definition
To incorporate product attributes and user features that lower the buyer’s overall costs of using the company’s products
To incorporate tangible features that increase customer satisfaction with the product such as product specification, functions, and styling
To incorporate intangible features that enhances buyer satisfaction in noneconomic ways. Example: Toyota’s Prius is beneficial to the environment
To signal the value of the company’s product offering to buyers such as fancier product packaging than competitors
o The most successful approaches to differentiation are those that are hard to expensive for rivals to duplicate |
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Term
| Pitfalls to avoid pursuing a differentiation strategy: |
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Definition
A differentiation strategy is always doomed when competitors are able to quickly copy most or all of the appealing product attributes a company comes up with
Over-differentiating and overcharging can be a fatal strategy mistake |
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Term
| Focused (or market niche) Strategies |
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Definition
o What sets focused strategies apart from low-cost provider and broad differentiation strategies is concentrated attention on a narrow piece of the total market
The target segment (or niche) can be defined by geographical uniqueness, by specialized requirements in using the product, or by special product attributes that appeal only to niche members |
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Term
| Focused Low-Cost Strategy |
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Definition
| Aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and lower price than rivals |
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Term
| Focused Differentiation Strategy |
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Definition
aims to provide a competitive advantage with a product offering carefully designed to appeal to a unique group of buyers (example: Rolls Royce)
• Risks of these two strategies:
o The chance that competitors will find effective ways to match the focused firm’s capabilities in serving the target market
o Employing a focused strategy is the potential for preferences and needs of niche members to shift over time towards the product attributes desired by the majority of buyers |
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Term
| Best-Cost Provider Strategies |
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Definition
are a hybrid of low-cost provider and differentiation strategies that aim at providing desired quality/features/performance/service attributes while beating rivals on prices
o A best-cost provider strategy works best in markets where product differentiation is the norm and there is an attractively large number of value-conscious buyers who prefer midrange products to cheap, basic products or expensive top-of-the-line products |
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Term
| Choosing the best basis for a competitive attack (2 points) |
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Definition
o Strategic offenses should, as a general rule, be based on exploiting a company’s stongest strategic asset
o Sometimes a company’s best strategic option is to seize the initiative, go on the attack, and launch a strategic offensive to improve its market position. |
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Term
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Definition
o Using a cost-based advantage to attack competitors on the basis of price or value.
o Leapfrogging competitors by being the first adopter of next-generation technologies or being first to market with next-generation products.
o Pursuing continuous product innovation to draw sales and market share away from less innovative rivals.
o Adopting and improving on the good ideas of other companies (rivals or otherwise).
o Using hit-and-run or guerrilla warfare tactics to grab sales and market share from complacent or distracted rivals.
o Launching a preemptive strike to secure an advantageous position that rivals are prevented or discouraged from duplicating. |
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Term
| Launching a preemptive strike to secure an advantageous position that rivals are prevented or discouraged from duplicating. |
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Definition
A preemptive move is a one-of-a-kind type action—whoever strikes first stands to acquire competitive assets that rivals can’t readily match.
Examples:
• Securing the best distributers in a particular geographic region or country
• Obtaining the most favorable sites in terms of customer demographics, cost characteristics, or access to transportation, raw materials supplies, or low-cost inputs
• Tying up the most reliable, high quality suppliers via exclusive partnerships, long-term contracts, or acquisition.
• Moving swiftly to acquire the assets of distressed rivals at bargain prices
To be successful, the preemptive move doesn’t have to totally block rivals from following; it merely needs to give a firm a prime position that is not easily replicated or circumvented. |
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Term
| Using hit-and-run or guerrilla warfare tactics to grab sales and market share from complacent or distracted rivals. |
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Definition
Occasional lowballing on price (to win a big order or steal a key account from a rival), surprising key rivals with sporadic but intense bursts of promotional activity (offering a special trial offer for new customers to draw them away from rival brands), or undertaking special campaigns to attract buyers away from rivals plagued with a strike or problems in meeting buyer demand
Well suited for small challengers that have neither the resources nor the market visibility to mount a full-fledged attack on industry leaders and that may not merit a full retaliatory response from larger rivals. |
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Term
| Adopting and improving on the good ideas of other companies (rivals or otherwise). |
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Definition
| Ex. Founders of Home Depot took their previous employers company and expanded and improved it. |
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Term
| Pursuing continuous product innovation to draw sales and market share away from less innovative rivals. |
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Definition
| This can only be sustained if a company has sufficient product innovation skills to keep its pipeline full and maintain buyer enthusiasm for its new and better product offerings. |
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Term
| Leapfrogging competitors by being the first adopter of next-generation technologies or being first to market with next-generation products. |
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Definition
Ex. Microsoft was able to market Xbox 360 a full 12 months ahead of Sony’s PlayStation 3 and Nintendo’s Wii.
This type of strategy is high risk, however, since it requires costly investment at a time when consumer reactions to the new technology are yet unknown. |
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Term
| Using a cost-based advantage to attack competitors on the basis of price or value. |
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Definition
Offering customers an equally good, or better product at a lower price or offering a low-priced, lower-quality product that gives customers more value for their money.
Price cutting offensives are generally successful only when a company first achieves a cost advantage and then hits competitors with a lower price. |
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Term
| Choosing which rivals to attack |
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Definition
• ¬¬Market leaders that are vulnerable
o When a company leads in terms of size and market share is not the true leader in terms of serving the market well.
Unhappy buyers, inferior product line, weak comp adv. with regard to low-cost leadership or differentiation, strong emotional commitment to an aging technology the leader has pioneered, outdated plans, and equipment, a preoccupation with diversification into other industries, and mediocre or declining profitability.
• Ex: Toyota recall in 2009-10—GM and Ford used incentives and low-financing offers aimed at winning over Toyota customers.
Caution is advised in challenging strong market leaders—there’s a significant risk of squandering valuable resources in a futile effort or precipitating a fierce and profitless industry-wide battle for market share.
o Runner-up firms with weaknesses in areas where the challenger is strong.
When a challengers resources and capabilities are well suited to exploiting their weaknesses.
o Struggling enterprises that are on the verge of going under.
Further sap its financial strength and comp position can weaken its resolve and hasten its exit from the market.
In this situation, it makes the most sense to attack the rival in the market segments where it makes the most profits, since this will threaten its survival the most.
o Small local and regional firms with limited capabilities.
They have limited expertise and resources, a challenger with broader and/or deeper capabilities is well positioned to raid their biggest and best customers—particularly those that are growing rapidly, have increasingly sophisticated requirements, and may already be thinking about switching to a supplier with more full-service capabilities. |
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Term
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Definition
based on discovering or inventing new industry segments that create altogether new demand, thereby positioning the firm in uncontested market space offering superior opportunities for profitability and growth.
Ex. eBay, Starbucks, Dollar General, Cirque du Soleil |
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Term
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Definition
protecting Market position and competitive advantage
• Rarely enhance competitive advantage, but helps fortify a firm’s position |
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Term
| Purpose of defensive strategies |
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Definition
o Lower risk of being attacked
o Weaken the impact of any attack that occurs
o Influence challengers to aim their efforts at other rivals |
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Term
| Defensive Strategies - Blocking Avenues Open to Challengers |
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Definition
• There are many ways to throw an obstacle in the path of would-be challengers.
o Participate in alternative technologies as a hedge against rivals attacking with a new or better technology
o Introduce new features, add new models, or broaden its product line to close off gaps and vacant niches
o Lengthening warranties, offering free training and support services, providing coupons and sample giveaways |
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Term
| Defensive Strategies - Signaling Challengers that Retaliation is Likely |
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Definition
• Publicly announcing mgmt. commitment to maintaining the firm’s present market share.
• Publicly committing the company to a policy of matching competitors’ terms or prices.
• Maintaining a war chest of cash and marketable securities.
• Making an occasional strong counter response to the moves of weak competitors to enhance the firm’s image as a tough defender. |
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Term
| Because of _____ ______advantages and disadvantages, competitive advantage can spring from when a move is made as well as from what move is made. |
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Definition
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Term
| Potential for First-Mover Advantages |
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Definition
o Bear greater risks and greater development costs than firms that move later.
o There are 6 conditions in which first-mover advantages are most likely to arise:
When pioneering helps build a firm’s reputation with buyers and creates brand loyalty.
When a first mover’s customers will thereafter face significant switching costs.
When property rights protections thwart rapid imitation of the initial move.
When an early lead enables the first mover to move down the learning curve ahead of rivals.
When a first mover can set the technical standard for the industry. |
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Term
| The Potential for First-Mover Disadvantages or Late-Mover Advantages |
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Definition
o These situations arise in these 4 instances:
When pioneering is more costly than imitating, and only negligible experience or learning-curve benefits accrue to the leader.
When the products of an innovator are somewhat preemptive and do not live up to buyer expectations.
When rapid market evolution gives fast followers the opening to leapfrog a first mover’s products with more attractive next-version products.
When market uncertainties make it difficult to ascertain what will eventually succeed. |
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Term
| To Be a First Mover or Not |
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Definition
• Need to answer these questions:
o Does market takeoff depend on the development of complementary products or services that currently are not available?
o Is new infrastructure required before buyer demand can surge?
o Will buyers need to learn new skills or adopt new behaviors? Will buyers encounter high switching costs in moving to the newly introduced product or service?
o Are there influential competitors in a position to delay or derail the efforts of a first mover? |
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Term
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Definition
| the range of activities which the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses. |
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Term
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Definition
| range of product and service segments that a firm serves within its focal market. |
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Term
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Definition
| the extent to which a firm’s internal activities encompass one, some, many, or all of the activities that make up an industry’s entire value chain system, ranging from raw-material production to final sales and services activities. |
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Term
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Definition
| combining 2 or more companies into a single corporate entity, with the newly created company often taking a new name. |
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Term
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Definition
| combination in which one company, the acquirer, purchases and absorbs the operations of another company, the acquired. |
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Term
| Difference between a merger and acquisition? |
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Definition
| relates more to the details of ownership, management control, and financial arrangements then to strategy and competitive advantage. |
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Term
| • Increasing a company’s horizontal scope can strengthen its business and increase its profitability in 5 ways: |
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Definition
o Improving the efficiency of its operations
o Heightening its product differentiation
o Reducing market rivalry
o Increasing the company’s bargaining power over suppliers and buyers
o Enhancing its flexibility and dynamic capabilities |
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Term
| • To achieve these benefits, horizontal merger and acquisition strategies typically are aimed at any of 5 outcomes: |
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Definition
o Increasing the company’s scale of operations and market share.
o Expanding a company’s geographic coverage.
o Extending the company’s business into new product categories.
o Gaining quick access to new technologies or complementary resources and capabilities.
o Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities. |
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Term
| Vertically integrated firm |
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Definition
| one that performs value chain activities along several portions or stages of an industry’s overall value chain, which begins with production of raw materials or initial inputs and culminates in final sales and service to the end consumer. |
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Term
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Definition
| participation in all stages of the vertical chain |
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Term
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Definition
| building positions in selected stages of the vertical chain |
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Term
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Definition
| a mix of in-house and outsourced activity in any given stage of the vertical chain. |
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Term
| Advantages of a Vertical Integration Strategy |
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Definition
| • Can add materially to a company’s technological capabilities, strengthen a firm’s competitive position, and boost its profitability |
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Term
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Definition
| performing industry value chain activities previously performed by suppliers or other enterprises engaged in earlier stages of the industry value chain |
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Term
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Definition
| – performing industry value chain activities closer to the end user. |
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Term
| Disadvantages of a Vertical Integration Strategy |
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Definition
• Raises a firm’s capital investment in the industry, increasing business risk
• Vertical Integrated companies are often slow to embrace technological advances or more efficient production methods when they are saddled with older technology or facilities.
• Integrating backward into parts and components manufacture can impair a company’s operating flexibility when it comes to changing out the use of certain parts and components.
• Vertical integration potentially results in less flexibility in accommodating shifting buyer preferences when a new product design doesn’t include parts and components that the company makes in-house.
• Vertical integration may not enable a company to realize economies of scale if its production levels are below the minimum efficient scale.
• Vertical integration poses all kinds of capacity maching problems.
• Integration forward or backward often calls for radical new skills and business capabilities.
• In today’s world of close working relationships with suppliers and efficient supply chain management systems, very few businesses can make a case for integrating backward into the business of suppliers to ensure reliable supply of materials and components or to reduce production costs. |
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Term
| Weighing the Pros and Cons of Vertical Integration |
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Definition
• The tip of the scale depends on:
o Whether vertical integration can enhance the performance of strategy-critical activities in ways that lower cost, build expertise, protect propriety know-how, or increase differentiation
o The impact of vertical integration on investment costs, flexibility and response times, and the administrative costs of coordinating operations across more vertical chain activities.
o How difficult it will be for the company to acquire the set of skills and capabilities needed to operate in another stage of the vertical chain.
o Vertical integration strategies have merit according to which capabilities and value-adding activities truly need to be performed in-house and which can be performed better or cheaper by outsiders. |
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Term
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Definition
| involves farming out certain value chain activities to outside vendors. |
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Term
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Definition
o An activity can be performed better or more cheaply by outside specialists.
o The activity is not crucial to the firm’s ability to achieve sustainable competitive advantage and won’t hollow out its core competencies.
o It streamlines company operations in ways that improve organizational flexibility and speed time to market.
o It reduces the company’s risk exposure to changing technology and/or buyer preferences.
o It allows a company to assemble diverse kinds of expertise speedily and efficiently.
o It allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best. |
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Term
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Definition
that a company will farm out too man y or the wrong types of activities and thereby hollow out its own capabilities.
• While these companies may have been able to lower their operating costs by outsourcing these functions to outsiders that can perform them more cheaply, their ability to lead the development of innovative new products has been weakened in the process. |
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Term
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Definition
formal agreement between 2 or more spate companies in which they agree to work cooperatively toward some common objective.
• Company use of alliances is widespread. |
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Term
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Definition
| type of strategic alliance in which the partners set up an independent corporate entity that they own and control jointly, sharing in its revenues and expenses. |
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Term
| Five factors that make an alliance “strategic” as opposed to just a convenient business arrangement: |
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Definition
o It helps build, sustain, or enhance a core competence or competitive advantage.
o It helps block a competitive threat.
o It increases the bargaining power of alliance members over suppliers or buyers.
o It helps open up important new market opportunities.
o It mitigates a significant risk to a company’s business. |
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Term
| The best _______ are high selective, focusing on particular value-creating activities, whether within or across industry boundaries, and on obtaining a specific competitive benefit. They enable a firm to build on its strengths and to learn. |
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Definition
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Term
| A company that is racing into global market leadership need alliances to: |
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Definition
Get into critical country markets quickly and accelerate the process of building a potent global market presence.
Gain inside knowledge about unfamiliar markets and cultures through alliances with local partners.
Access valuable skills and competencies that are concentrated in particular geographic locations (such as software design competencies in the USA, fashion skills in Italy, and efficient manufacturing skills in Japan and China.) |
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Term
| A company that is racing to stake out a strong position in an industry of the future needs alliances to: |
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Definition
Establish a stronger beachhead for participating in the target audience.
Master new technologies and build new expertise and competencies faster than would be possible through internal efforts.
Open up broader opportunities in the target industry by melding the firm’s own capabilities with the expertise and resources of partners. |
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Term
| Capturing the Benefits of Strategic Alliances (6 steps) |
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Definition
• Picking a good partner
• Being sensitive to cultural differences
• Recognize that the alliance must benefit both sides
• Ensuring that both parties live up to the commitments
• Structuring the decision making process so that actions can be taken swiftly when needed
• Managing the learning process and then adjusting the alliance agreement over time to fit new circumstances |
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Term
| Alliances are likely to be long-lasting when: |
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Definition
o They involve collaboration with partners that do not compete directly
o A trusting relationship has been established
o Both parties conclude that continued collaboration is in their mutual interest, perhaps because new opportunities for learning are emerging. |
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Term
| The Drawbacks of Strategic Alliances and Partnerships |
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Definition
• Culture clash and integration problems due to different mgmt. styles and business practices can interfere with the success of an alliance.
• Anticipated gains may fail to materialize due to an overly optimistic view of the synergies or a poor fit in terms of the combination of resources and capabilities.
• The greatest danger is that a partner will gain access to a company’s propriety knowledge base, technologies, or trade secrets, enabling the partner to match the company’s core strengths and costing the company its hard-won competitive advantage.
o This risk is greatest when the alliance is among industry rivals or when the alliance is for the purpose of collaborative R & D, since this type of partnership requires an extensive exchange of closely held information. |
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Term
| The principle advantages of strategic alliances over vertical integration or horizontal mergers/acquisitions are: |
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Definition
o They lower investment costs and risks for each partner by facilitating resource pooling and risk sharing. This is important when investment needs and uncertainty are high.
o They are more flexible organizational forms and allow for a more adaptive response to changing conditions.
o They are more rapidly deployed—a critical factor when speed is of the essence. |
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Term
| The key advantages of using strategic alliances rather than arm’s-length transactions to manage outsourcing are: |
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Definition
o The increased ability to exercise control over the partners’ activities
o A greater willingness for the partners to make relationship-specific investments |
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Term
| Companies that have a greater success in managing their strategic alliances and partnerships often credit the following factors: |
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Definition
o They create a system for managing their alliances.
o They build relationships with their partners and establish trust.
o They protect themselves from the threat of opportunism by setting up safeguards.
o They make commitments to their partners and see that their partners do the same.
o They make learning a routine part of the mgmt. process. |
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