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Creating Competitive Strategies Key Terms
Midterm Vocabulary

Additional Business Flashcards




Guesses that are based on concrete data and research. They are projections made about a marketing or sales plan that have corroborative backup. These numbers are available through industry and marketing research.

(1. Belief, logical construct, or unconfirmed fact. See assumptions for more.

2. Taking on (assuming) the duties and powers of an office, a responsibility, or someone else's obligation (such as a loan).
One who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying opportunities and assembling the necessary resources to capitalize on those opportunities. Entrepreneurs usually start with nothing more than an idea-usually a simple one-and then organize the resources accordingly in order to transform that idea into a sustainable business. Dominant age group is 25-34. Men are more likely to start an entrepreneurial business over women (except in Latin America & the Caribbean)

(Person who exercises initiative by organizing a venture to take benefit of an opportunity and, as the decision maker, decides what, how, and how much of a good or service will be produced. He or she supplies risk capital as a risk taker, and monitors and controls the business' activities as a manager. The entrepreneur is usually a sole-proprietor, a partner, or the one who owns the majority of shares in an incorporated venture. According to the Czech-US economist Joseph Alois Schumpeter (1883-1950), entrepreneurs are not necessarily motivated by profit but regard it as a standard for measuring achievement or success. He discovered that they (1) greatly value self-reliance, (2) strive for distinction through excellence, (3) are highly optimistic (otherwise nothing would be undertaken), and (4) always favor challenges of medium risk (neither too easy, nor ruinous).)
Strategic Planning
The process of an organization deciding their corporate direction, objectives and priorities, and then aligning their resources to accomplish the actions necessary to meeting them.

Provides a company, much in the same way that a business plan does, with a blueprint as to how they will accomplish their objectives within the confines of their mission and vision.

(Systematic process of envisioning a desired future, and translating this vision into broadly defined goals or objectives and a sequence of steps to achieve them. In contrast to long-term planning (which begins with the current status and lays down a path to meet estimated future needs), strategic planning begins with the desired-end and works backward to the current status. At every stage of long-range planning the planner asks, "What must be done here to reach the next (higher) stage?" At every stage of strategic-planning the planner asks, "What must be done at the previous (lower) stage to reach here?" Also, in contrast to tactical planning (which focuses at achieving narrowly defined interim objectives with predetermined means), strategic planning looks at the wider picture and is flexible in choice of its means.)
Intellectual Capital
Composed of 3 Elements:
1. Human Capital: The talents, skills, and abilities of a company's workforce;
2. Structural Capital: The accumulated knowledge and experience that a company possesses including processes, software, patents, and copyrights; and
3. Customer Capital: The established customer base, positive reputation, ongoing relationships and goodwill a company builds up over time with its customers.

(Collective knowledge (whether or not documented) of the individuals in an organization or society. This knowledge can be used to produce wealth, multiply output of physical assets, gain competitive advantage, and/or to enhance value of other types of capital. Intellectual capital is now beginning to be classified as a true capital cost because (1) investment in (and replacement of) people tantamounts to investment in machines and plants, and (2) expenses incurred in education and training (to maintain the shelf life of intellectual assets) are equivalent to depreciation costs of physical assets. Intellectual capital includes customer capital, human capital, intellectual property, and structural capital.)
Industry Structure
An industry is a group of firms that market products which are close substitutes for each other (e.g. the car industry, the travel industry).

Some industries are more profitable than others. Why? The answer lies in understanding the dynamics of competitive structure in an industry.

The most influential analytical model for assessing the nature of competition in an industry is Michael Porter's Five Forces Model (see other cards)
Value Chain
Separates a firm by its strategically relevant activities to understand the interdependent relationship of costs and differentiation as sources of development of a competitive advantage strategy. A company's value chain is part of the overall value system. The main purpose of the value chain is to define the appropriate industry in which you are involved, determine the activities in which you engage, and pinpoint the focus for analysis of competitors.
(See Module 2 Note cards for primary value chain activities).

(Interlinked value-adding activities that convert inputs into outputs which, in turn, add to the bottom line and help create competitive advantage. A value chain typically consists of (1) inbound distribution or logistics, (2) manufacturing operations, (3) outbound distribution or logistics, (4) marketing and selling, and (5) after-sales service. These activities are supported by (6) purchasing or procurement, (7) research and development, (8) human resource development, (9) and corporate infrastructure.)
Inbound Logistics
The receiving and warehousing of raw materials, and their distribution to manufacturing.

(Receiving, storing, and disseminating incoming goods or material for use.)
Outbound Logistics
The warehousing and distribution of finished goods.

(Movement of material associated with storing, transporting, and distribution a firm's goods to its customers.)
Competitive Advantage
When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage.

Michael Porter identified two basic types of competitive advantage:

1. Cost Advantage
2. Differentiation Advantage

A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself.

Cost and differentiation advantages are known as positional advantages since they describe the firm's position in the industry as a leader in either cost or differentiation.

A resource-based view emphasizes that a firm utilizes its resources and capabilities to create a competitive advantage that ultimately results in superior value creation. The following diagram combines the resource-based and positioning views to illustrate the concept of competitive advantage:

Resources and Capabilities

According to the resource-based view, in order to develop a competitive advantage the firm must have resources and capabilities that are superior to those of its competitors. Without this superiority, the competitors simply could replicate what the firm was doing and any advantage quickly would disappear.

Resources are the firm-specific assets useful for creating a cost or differentiation advantage and that few competitors can acquire easily. The following are some examples of such resources:

Patents and trademarks
Proprietary know-how
Installed customer base
Reputation of the firm
Brand equity
Capabilities refer to the firm's ability to utilize its resources effectively. An example of a capability is the ability to bring a product to market faster than competitors. Such capabilities are embedded in the routines of the organization and are not easily documented as procedures and thus are difficult for competitors to replicate.

The firm's resources and capabilities together form its distinctive competencies. These competencies enable innovation, efficiency, quality, and customer responsiveness, all of which can be leveraged to create a cost advantage or a differentiation advantage.

Cost Advantage and Differentiation Advantage

Competitive advantage is created by using resources and capabilities to achieve either a lower cost structure or a differentiated product. A firm positions itself in its industry through its choice of low cost or differentiation. This decision is a central component of the firm's competitive strategy.

Another important decision is how broad or narrow a market segment to target. Porter formed a matrix using cost advantage, differentiation advantage, and a broad or narrow focus to identify a set of generic strategies that the firm can pursue to create and sustain a competitive advantage.

Value Creation

The firm creates value by performing a series of activities that Porter identified as the value chain. In addition to the firm's own value-creating activities, the firm operates in a value system of vertical activities including those of upstream suppliers and downstream channel members.

To achieve a competitive advantage, the firm must perform one or more value creating activities in a way that creates more overall value than do competitors. Superior value is created through lower costs or superior benefits to the consumer (differentiation).
The organizational structure, control systems, and company culture

(One of the primary activities supported by the value chain.)
Second component of the value chain model which is useful for defining a firm's core competencies and the activities which it can pursue for a competitive advantage (cost advantage & differentiation)

Differentiation; By focusing on the activities associated with core competencies and capabilities in order to perform them better.
Differentiation Strategy
Involves differentiating the product or service offering of the business so that it is perceived as being unique.

Ultimately, differentiation creates brand loyalty, and involves higher development costs.
Entrepreneurs should build their advertising messages on a U.S.P., a key customer benefit or product or service that sets it apart from its competition. To be effective, a USP must actually be unique--something the competition does not (or cannot) provide--and compelling enough to encourage customers to buy.

A successful USP answers the customer's critical question, "What's in it for me?" A USP should express in no more than 10 words what a business can do for its customers.

The USP becomes the heart of a company's advertising message.
Strategic Management
Systematic analysis of the factors associated with customers and competitors (the external environment) and the organization itself (the internal environment) to provide the basis for rethinking the current management practices. Its objective is to achieve better alignment of corporate policies and strategic priorities.

There are 9 Factors listed--See Module 2 Flashcard set
Mission Statement
A mission statement is the basic blueprint for the business. It represents both to the founders and to the potential investors what is envisioned for the company and the brand.

Written declaration of a firm's core purpose and focus which normally remain unchanged, whereas business strategies and practices may frequently be altered to adapt to the changing circumstances. Properly crafted mission statements (1) serve as filters to separate what is important from what is not, (2) clearly state which markets will be served and how, and (3) communicate a sense of intended direction to the entire organization. A mission is different from a vision in that the former is the cause and the latter is the effect; a mission is something to be accomplished whereas a vision is something to be pursued for that accomplishment. Also called company mission, corporate mission, or corporate purpose.
Very similar to a mission statement, and is often used interchangeably with a mission statement. It seeks to answer the essential questions like "what do we stand for?" and "what do we want to become?" It encompasses the higher purposes and ethical values of the business.

(Aspirational description of what an organization would like to achieve or accomplish in the mid-term or long-term future. It is intended to serves as a clear guide for choosing current and future courses of action. See also mission statement).
SWOT ANALYSIS (Strengths, Weaknesses, Opportunities, & Threats)
Situation analysis self-assessment strategy in which internal strengths and weaknesses of an organization, and external opportunities and threats faced by it are closely examined to chart a strategy.

SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective.

A SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model.

Strengths: characteristics of the business or team that give it an advantage over others in the industry.
Weaknesses: are characteristics that place the firm at a disadvantage relative to others.
Opportunities: external chances to make greater sales or profits in the environment.
Threats: external elements in the environment that could cause trouble for the business.
(Also discussed in more depth in Module 2 flash card sets on "Strengths" & "Weaknesses"
Positive internal factors that contribute to the accomplishment of a company's mission, goals, and objectives. A company's strengths could be their personnel, the patented technology, or a logo (like Louis Vuitton). Whatever these strengths may be, they can easily be built into a competitive advantage for your business.

(Capital, knowledge, skill, or other advantage that a firm has or can acquire over its competitors in meeting the needs of its customers.)
Negative internal factors that inhibit the realization of the company's missions, goals, and objectives. For a new brand, newness and lack of history or credibility are both considered weaknesses.

(Flaw that increases the risk of a failure.)
Exploitable set of circumstances with uncertain outcome, requiring commitment of resources and involving exposure to risk.

(Agents, factors, or forces in an organization's external environment that are out of its control, and can directly or indirectly affect is chances of success or failure.)
Risk: (1) Indication of an approaching or imminent menace. (2) Negative event that can cause a risk to become a loss, expressed as an aggregate of risk, consequences of risk, and the likelihood of the occurrence of the event. A threat may be a natural phenomenon such as an earthquake, flood, storm, or a man made incident such as fire, power failure, sabotage, etc.

(Agents, factors, or forces in an organization's external environment that are out of its control, and can directly or indirectly affect is chances of success or failure.)

The following area analyses are used to look at all internal factors effecting a company:

Resources: Profitability, sales, product quality brand associations, existing overall brand, relative cost of this new product, employee capability, product portfolio analysis
Capabilities: Goal: To identify internal strategic strengths, weaknesses, problems, constraints and uncertainties

The following area analyses are used to look at all external factors effecting a company:

Customer analysis: Segments, motivations, unmet needs
Competitive analysis: Identify completely, put in strategic groups, evaluate performance, image, their objectives, strategies, culture, cost structure, strengths, weakness
Market analysis: Overall size, projected growth, profitability, entry barriers, cost structure, distribution system, trends, key success factors
Environmental analysis: Technological, governmental, economic, cultural, demographic, scenarios, information-need areas Goal: To identify external opportunities, threats, trends, and strategic uncertainties
A method of collecting data on elements that are external to the organization, in order to use the data for guiding decisions on the organization’s strategic direction.

(Careful monitoring of a firm's internal and external environments for detecting early signs of opportunities and threats that may influence its current and future plans. In comparison, 'surveillance' is confined to a specific objective or a narrow sector.)
The controllable variables that will add to your successful score card that will lead to success in business. Including: plant size, size of sales force, business location, distribution system, product packaging, etc. (Companies that leverage these variables tend to become industry leaders.)
Assessment of the difference between a firm's performance and that of its competitors, and detection and examination of the factors that cause the difference.

Primary Goals (Also found in Module 2 Flash cards)
1. Avoid surprises from existing competitors;
2. Identify potential new competitors;
3. Improve reaction time to competitor's moves; and
4. Anticipate rival's next strategic moves.

Should answer the following questions: Who are your major competitors? / Where are they located? / What distinct competencies have they developed? / Are your cost structures competitive? How fiscally solid are your competitors? / What is their marketing strategy and how do they market their goods and services? What do their customer's say about them? / How do customers describe their goods and services, their way of doing business, the additional services they supply? / What are their strengths and how can you surpass them? / Are their new competitors on the horizon?
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