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Strategic Management test 1
N/A
102
Management
Undergraduate 4
11/02/2011

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Term
in which situations can a company run successful business without any business strategy?
Definition
monopoly
stable market
small number of competitors
high and stable demand for goods
government protectionism
predictable future
Term
Evolution of Management Systems: 1900-1930
Definition
Recurring vision of future
Use of procedures manual and financial control
"Management by control"
Term
Evolution of Management Systems: 1950
Definition
Prediction of future by extrapolation
management by objectives and long term planning
"management by extrapolation"
Term
Evolution of Management Systems: 1970
Definition
predictable threats and opportunities
periodic strategic planning and strategic management
"management by anticipation of change"
Term
Evolution of Management Systems: 1990-present
Definition
Partially predictable "weak signals" and unpredictable surprises
strategic management, weak signal management, suprise management
"management by flexible/rapid response"
Term
What factors can increase the level of uncertainty for a company
Definition
economic
social
political
cultural
demographic/environmental
technology
competition
Term
5 forces of competition
Definition
potential new entry
power of suppliers
pressures of substitute products
power of buyers
rivals
[government (influences all forces and sometimes plays competitive role)]
Term
competitive advantage
Definition
a firms ability to create value in a way that its rivals cannot
Term
How to achieve sustained competitive advantage
Definition
1. adapting to change in external trends, internal capabilities, and resources
2. effectively formulating, implementing, and evaluating strategies
Term
Strategic planning process
Definition
vision and mission statement
goals and objectives
SWOT
strategic alternatives analysis
strategy selection/formulation
strategy implementation
strategy monitoring and evaluation
Term
business strategy
Definition
set of decision making principles for which a company administration is using in order to achieve the company's goals
Term
4 areas for business strategy application
Definition
performance measures
rules for developing the firm's relationship with its external environment
rules for establishing the internal relations and processes within the organization (administrative strategy)
rules for day to day procedures (operating policies)
Term
2 keys to strategy formulation
Definition
take advantage of external opportunities
avoid/minimize impact of external threats
Term
corporate level strategy should ask
Definition
in which markets do we compete today?
in which markets do we want to compete in tomorrow?
how does our ownership of a business ensure its competitiveness today and in the future?
Term
business level strategy should ask
Definition
how do we compete in this market today?
how will we compete in this market in the future?
Term
factors in ethical decision making
Definition
authority structures
incentive systems
role of corporate governance
Term
potential biases in decision making
Definition
common illusions about ourselves
escalating commitments
self-serving fairness bias
overconfidence bias
ethnocentrism and stereotyping
risk assessment
Term
vision statement
Definition
what do we want to become?
agreement on the basic vision for which the firm strives to achieve in the long run is critically important to the firm's success.
express long term action horizons
ambitions and force the firm to stretch
ambiguity allows flexibility for changing strategy or implementation tactics
Term
mission statement
Definition
what is our business?
enduring statement of purpose, distinguishes one firm from another, declares the firm's reason for being
inspiring
less than 250 words
identify the utility of a company's products/services
social responsibility
enduring
nine components
Term
shared vision
Definition
creates commonality of interests
reduce daily monotony
provides opportunities and challenges
Term
questions for defining a mission statement
Definition
whose needs are we going to satisfy?
what are our clients needs?
how are we going to satisfy these needs?
Term
9 items included in mission statement
Definition
customer
products or services
markets
tech
concern for survival, profitability, or growth
philosophy
self-concept
concern for public image
concern for employees
Term
benefits from a strong mission
Definition
unanimity of purpose
resource allocation
organizational climate
focal point of work structure
Term
effective missions
Definition
reflect future growth
provide criteria for strategy selection
basis for generating and evaluating strategic options
generate strategic alternatives
are dynamic in nature
arouse positive feelings and emotions
motivate readers to action
generate favorable impression of the firm
reconciles interests among diverse stakeholders
finely balanced between specificity and generality
Term
objective
Definition
a criterion by which the firm's success (or failures) is determined
Term
types of objectives
Definition
economic
non-economic
organizational
short-term
long-term
Term
Effective goals (SMART)
Definition
specific
measurable
attainable
result oriented
time bound
Term
internal audit
Definition
strengths
weaknesses
Term
external audit
Definition
opportunities-a condition in the general environment that, if exploited helps a company achieve success
threats-a condition in the general environment that may hinder a company's efforts to achieve strategic competitiveness
Term
segments of the external environment
Definition
demographic
economic
political/legal
sociocultural
technological
global
Term
industry
Definition
a group of companies offering products or services that are close substitutes for each other- that is products or services that satisfy the same basic customer needs
Term
supply side of the market
Definition
industry
Term
demand side of the market
Definition
customers
Term
industry boundary
Definition
the basic customer needs that are served by a market
Term
sector
Definition
a group of closely related industries
Term
external analysis methods
Definition
scanning
monitoring
forecasting
assessing
Term
sources of corporate info
Definition
moody's manuals
standard corporation descriptions
value lined investment surveys
dun's business rankings
S&P industry surveys
industry week
forbes, fortune, business week
Term
High rivalry limits the profitability of an industry by
Definition
price discounting
new product introductions
advertising campaigns
service improvement
Term
the intensity of a rivalry is greatest if
Definition
competitors are numerous or equal in size or power
industry growth is slow
exit barriers are high
Term
rivalry is especially destructive to profitability if it gravitates to price competition
Definition
products are nearly identical
fixed costs are high and marginal costs are low
the product is perishable
Term
threat of entry
Definition
degree to which new competitors can enter an industry and intensify rivalry
Term
barriers to entry
Definition
supply side economies of scale: firms that can produce larger volumes can spread fixed costs over more units and reduce cost per unit
demand side benefits of scale: a buyers willingness to pay for a product increases with the number of other buyers who also patronize the company.
customer switching costs: fixed costs that buyers face when they change suppliers
capital environments
unequal access to distribution channels
restrictive government policy
Term
expected retaliation-
Definition
how potential entrants believe incumbents may react will influence their decisions to enter or stay out of an industry
Term
the threat of a substitute is high if:
Definition
it offers an attractive prices-performance trade-off to the industry
the buyer's cost of switching to the substitue is low
Term
buyer power
Definition
degree to which firms in the buying industry are able to dictate terms on purchase agreements that extract some of the profit that would otherwise go to competitors in the focal industry
Term
customers capture more value by
Definition
forcing down prices
demanding better quality or more services
playing industry participants off against one another
Term
the power of buyers can increase if
Definition
there are few buyers and/or they can buy large volumes of product
the industry's products are standardized or undifferentiated
Term
which industries allow buyers to capture more of the profits
Definition
those with many suppliers and few buyers
Term
supplier power
Definition
degree to which firms in the supply industry are able to dictate terms to contracts and thereby extract some of the profit that would otherwise be available to competitors
Term
suppliers capture more value by
Definition
charging higher prices
limiting quality or services
shifting costs to industry participants
Term
a supplier group is powerful if
Definition
it is more concentrated to the industry it is selling to
the supplier group doesn't depend heavily on the industry for its revenues
industry participants face switching costs in changing suppliers
suppliers offer products that are differentiated
there is no substitute for the supplier's offering
Term
to neutralize supplier power
Definition
standardize specifications for parts so your company can switch more easily among vendors
Term
to counter customer power
Definition
expand your services so it's harder for customers to leave you for a rival
Term
to temper price wars initiated by established rivals
Definition
invest more heavily in products that differ significantly from your competitors
Term
to scare off new entrants
Definition
elevate the fixed costs of competing: for instance, by escalating your R&D expenditures
Term
to limit the threat of substitutes
Definition
offer a better value through wider product accessibility
Term
steps to determine if an acceptable profit can be earned
Definition
1. identify key aspects or elements of each competitive force
2. evaluate how strong and important each element is for the firm
3. decide whether the collective strength of the elements is worth the firm entering or staying in the industry
Term
core competencies
Definition
essence of what makes an organization unique in its ability to provide value to its customers
firms strengths that cannot be easily matched or imitated by competitors
building competitive advantage involves taking advantage of distinctive competencies
strategies designed to improve on a firm's weaknesses and turn to strengths
Term
tangible resources
Definition
assets that can be seen and quantified
financial (borrowing capacity, ability to generate internal funds)
organizational (planning, motivational, controlling, staffing systems)
physical (access to raw materials, sophistication of equipment)
technological (patents, trademarks, copyrights, trade secrets)
Term
intangible resources
Definition
assets that are rooted deeply in the firm's history and have accumulated over time
human (knowledge, trust, managerial capabilities, organizational culture)
innovation (ideas, scientific capability, capability to innovate, knowledge management)
reputational (reputation with customers, brand name, perceptions of quality, rep with suppliers
Term
capabilities
Definition
a firm's skill at using its resources to create goods and services...
the firms capability or ability to integrate firms resources to achieve a desired objective
become important when they combine resources in unique combos that create economic value and can lead to the competitive advantage
Term
examples of capabilities
Definition
distribution: effective use of logistics management technique
HR: motivating, empowering, and retaining employees
MIS: control of inventory via point of purchase data collection
Marketing: effective promotion of brand-name products, effective customer service
Manufacturing: miniaturization of components and products
R&D: innovative technology
Term
4 criteria of sustainable competitive advantage
Definition
valuable capabilities
rare capabilities
costly to imitate capabilities (historical, ambiguous cause, social complexity)
nonsubstitutional capabilities
Term
value chain analysis
Definition
allows the firm to understand the parts of its operations that create value and those that do not.
shows how a product moves from the raw materials stage to the final customer
Term
How to do a value chain analysis
Definition
desegregate the firm into separate activities
identify resources and capabilities associated with each activity
identify linkages/relationships across activities
determine what changes in firm activities need to be made to support strategy
Term
Primary activities
Definition
inbound logistics
operations
outbound logistics
marketing and sales
service
Term
support activities
Definition
infrastructure of the firm
HR management
technology development
procurement
Term
outsourcing
Definition
purchase of a value creating activity from an external supplier
Term
benefits of outsourcing
Definition
improves business focus
gain access to world class capabilities
accelerate re-engineering benefits
share risks
free resources for other purposes
seek greatest value
evaluate resources and capabilities
Term
3 factors of profitability
Definition
value customer places on the company's products/services
price that a company charges for products/services
the costs of creating those products/services
Term
consumer surplus
Definition
utility-price
the amount that consumers benefit by being able to purchase a product for a price that is less than they would be willing to pay
Term
2 ways to increase value
Definition
1. raise prices to reflect higher utility
2. lower prices to generate demand
Term
elements of competitive advantage
Definition
superior quality
superior customer responsiveness
superior efficiency
superior innovation
Term
superior efficiency
Definition
efficiency = output/input
employee productivity (output produced per employee)
capital productivity (sales produced per dollar of capital invested in a business)
Term
superior quality
Definition
excellence and reliability
when a customer perceives that a product's attributes provide them, with higher utility than attributes of products sold by rivals
Term
superior customer responsiveness`
Definition
time it takes for a good to be delivered/service performed
to excel, a company must be do a better job identifying customer needs and satisfying them than their competitor do
Term
Innovation
Definition
product innovation-creates value by creating new products
process innovation-creates more value by lowering production costs
Term
lean production
Definition
more value with lest work
Term
why a company loses competitive advantage
Definition
inertia
prior strategic commitments
the icarus paradox
Term
SO strategies
Definition
use a firms internal strengths to take advantage of external opportunities
Term
WO strategies
Definition
improving internal weaknesses by taking advantage of external opportunities
Term
ST strategies
Definition
use a firms strengths to avoid or reduce the impact of external threats
Term
WT strategies
Definition
defensive tactics aimed at reducing internal weaknesses and avoiding external threats
Term
strategic alternatives
Definition
growth
limited growth (stability)
retrenchment (liquidation, cuts, shortening and reorientation)
combination
Term
BCG Matrix
Definition
enhances multidivisional firm in formulating strategies
autonomous divisions= business portfolio
divisions may compete in different industries
focus on market share position and industry growth rate
Term
Stars
Definition
high growth rate, high market share
support and strengthen them
strategic options: integration, market penetration, market development, product development
Term
cash cows
Definition
low growth rate, high market share
control production costs and investment, estimate possibility of investing money in stars and cats
strategic options: diversification, retrenchment, product development, divestiture
Term
wild cats
Definition
high growth rate, low market share
research possibility of converting cats into stars in the case of a special investment to cats
strategic options: market penetration, market development, product development, divestiture
Term
dogs
Definition
low growth rate, low market share
try to be rid of dogs if there is no special reason to keep them (PR)
Term
3 approaches to strategy development
Definition
proter's 5 generic strategies
synergy
product life cycle
Term
2 ways to achieve advantage over rivals
Definition
differentiation-produce a differentiated product and charge sufficiently higher prices to more than offset the added costs of differentiation
low-cost- produce an equivalent product at a lower cost
Term
Porter's generic competitive strategies
Definition
cost leadership
differentiation
integrated cost leadership/differentiation
focus cost leadership
focused differentiation
Term
cost leadership
Definition
everything possible at a lower cost so it can offer things for cheaper than competitors
must also focus on high quality to retain customers
pros: if competitors have simular prices on their products the cost leader will make more money
able to charge less due to low cost structure
Term
keys to cost leadership
Definition
standardized products
reduce differentiation
define possible minimum of features acceptable in the market
lowest competitive price

how to produce the fewest number of products that will be desired by the largest number of people
Term
risks of cost leadership
Definition
tech change may eliminate cost advantage
competitors learn to imitate value chain
focus on efficiency may blind firm to changes in customer preferences
Term
focus cost leadership
Definition
combination of cost leadership and focused strategies
compete in one or few segments
small volume products
Term
differentiation strategy
Definition
integrated set of actions taken to produce goods that customers precieve as being different in ways that are important to them
satisfies needs in ways competitors can't
customers pay a premium when products features are worth extra money
Term
risks of focus strategy
Definition
competitor may be able to focus on a mkore narrowly defined competitive segment and outfocus the focuser
large competitors may enter niche market
preferences of niche market may change and become simular to those of broad market
Term
integrated cost leadership/differentiation strategy
Definition
involves engaging in primary and support activities that allow a firm to simultaneously pursue a low cost and differentiation
KEY: flexible management systems
information networks
total quality management systems (commitment to customer at every step)
Term
risks of integrated cost leadership/differentiation strategy
Definition
involves compromises and trade offs between maximizing low cost and maximizing differentiation
may get stuck in the middle
successful integrators are rare
Term
4 types of synergy
Definition
market-when one product fortifies and promotes the sale of another product or service
cost-
tech-presupposes transferring of tech from one app to another
management-when one manager can easily swap with another seamlessly
Term
product life cycle (strategies)
Definition
precommercialization (innovation)
introduction (infiltration)
growth (advancement)
maturity (defense)
decline (withdrawal)
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