Term
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Definition
| The integrative mgmt field that combines analysis, formulation and implementation in the quest for competitive advantage. |
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Term
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Definition
| A firm that formulates and implements a strategy that leads to superior performance relative to other competitors in the same industry or the industry average |
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| sustainable competitive advantage |
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Definition
| A firm that is able to outperform its competitors or the industry avg. over a PROLONGED PERIOD OF TIME |
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Term
| Strategy in business vs. sports |
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Definition
| In business, wwe have no ABSOLUTE measure of performance for competitive advantage as we do for height or weight or NCAA tournament victories. Rather, we compare performance to a BENCHMARK, either the performance of other firms in the same industry or an industry avg. |
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Definition
| performance of two or more firms at the same level |
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Term
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Definition
goal-directed actions a firm intends to take in quest to gain and sustain competitive advantage.
Strategy is NOT:
a zero-sum game
Strategy IS:
*the managers' theories about how to gain and sustain competitive advantage
*about being different from your rivals
*about creating value while containing cost
*deciding what to do, and what NOT to do
*It combines a set of activities to stake out a unique position
*requires long-term commitments that are often not easily reversible |
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Definition
When competitors cooperate with one another to achieve strategic objectives
ex: new Cell microprossor that powers Playstation 3 game console was a result of a collaborative effort amg. IBM, Toshiba and Sony |
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Definition
staking out a unique position in an industry that allows the firm to provide value to customers, while controlling costs
-requires trade offs |
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Term
| STRATEGY as a THEORY OF HOW TO COMPETE... |
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Definition
| provides managers with a roadmap to navigate the compeitive territory |
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| The strategic mgmt process is... |
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Definition
| a never-ending cycle of analysis, formulation, implementation and feedback |
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Term
| Firm effects vs. Industry Effects |
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Definition
Firm effects: the results of manager's actions to influence firm performance (about 30-40%)
plus other effects determine firm's overall performance.
TEND TO HAVE MORE IMPACT THAN..
Industry effects: the results attributed to the choice of industry in which to compete (20%) |
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Term
| Tradeoff examples: Toyota and Hyundai |
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Definition
| Toyota introduced lean manufacturing to resolve the trade offf btwn. quality and cost. This allowed Toyota to produce higher-quality cars at a lower unit cost, and to perfect the mass customization of cars. Hyundai offered cars that surpass Toyota's quality while attempting to provide luxury cars. Hyundai focused on resolving the trade offs btwn. luxury, quality and cost.. |
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Term
Strategy across levels:
Corporate Strategy
Business Strategy
Fuctional Strategy |
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Definition
1) Corporate Strategy: Where to compete?
-Corporate executives need to decide in which industries, markets, and geographies their co. should compete, as well as how they can create synergies across business units that may be quite different.
-monitoring performance, making adjustments to overall portfolio , decide whether to enter certain industries and markets .
-Objective: increase overall corporate value
2) Business Strategy: HOW to compete?
-occurs within strategic business units (SBUs: a standalone division of a larger conglomerate, with its own profit-and-loss responsibility)
-General managers in SBUs must answer question HOW to compete.
3)Fuctional Strategy: HOW TO IMPLEMENT Business Strategy?
-Within each SBU are various business functions such as accounting, finance, HR, IT, operations, marketing, etc.
-Each FUNCTIONAL manager is responsible for decisions and action w/in a single fuctional areas that aide in the implementation of the business-level strategy. |
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Term
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Definition
| Organizational plan that details the firm's competitive tactics and initiatives (how the firm intends to make money) |
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Term
| razor-razor-blade business model |
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Definition
| give away or sell for a small fee and make money on the replacement part ex: Gillete or HP printers/catridges |
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Definition
| increase in the value of a product or service as more ppl use it ex: Google |
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Definition
| THe largest but poorest socioeconomic group of the world's population (Coca-cola, procter and gamble focus on these customers..they too can provide significant business opportunities) |
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Definition
| side-effects of production and consumption that are not reflected in the price of a product ex: oil, coal cause CO 2 emissions |
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Definition
| A model that links three interdependent strategic mgmt tasks: Analyze, formulate and implement- that together, help firms conceive of and implement a strategy tat can improve performance and result in competitve advantage. |
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Term
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Definition
| A model that links three interdependent strategic mgmt tasks: Analyze, formulate and implement- that together, help firms conceive of and implement a strategy tat can improve performance and result in competitve advantage. |
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Definition
| Method by which managers conceive of and implement a strategy that can lead to a sustainable competitive advantage |
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Term
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Definition
| a statement about what an org. ultimately wants to accomplish, it captures the co's aspiration |
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Definition
| what the co. does, what its business is |
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Definition
| actions that are costly, long-term oriented, and difficult to revers. (To be effective, firms need to back up their mission statements with strategic commitments) ex: Boeing developed 787 Dreamliner |
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Definition
| the strategic option that managers think most closely matches reality at a given pt in time. |
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Term
strategic iniative
emergent strategy |
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Definition
strategic iniative:
any activity a firm pursues to explore and develop new products and processes, new markets, or new ventures
emergent strategy:
any unplanned strategic iniative undertaken by mid-level employees of their own volition |
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Term
1) intended strategy
2) unrealized strategy
3) realized strategy |
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Definition
1) intended strategy:
top-down strategic plan
2) unrealized strategy:
part or all of a firm's strategic plan that falls by teh wayside due to unexpected events
3) realized strategy:
combination of intended and emergent strategy |
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Term
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Definition
1. Political factors
2. Economic factors
3. Sociocultural factors
4. Technological factors
5. Ecological factors
-concern broad environmental issues such as the natural environment, global warming and sustainable economic growth.
6. Legal factors
-laws, mandates, regulations and court decisions |
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Term
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Definition
| group of companies offering similar products/services. It make up the supply side of the mkt, while customers make up tshe demand side. |
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Term
| Structure-conduct-performance (SCP) model |
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Definition
A theoretical framework that explains differences in industry performance.
4 industry types:
1. Perfect competition
2. Monopolistic competition
3. Oligopoly
4. Monopoly |
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Term
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Definition
A framework proposed by Michael Porter that identifies 5 forces that determine the profit potential of an industry and shape a firm's competitive strategy.
1. Threat of entry
2. Power of suppliers
3. Power of buyers
4. Threat of substitutes
5. Rivalry among existing competitors |
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Term
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Definition
| obstacles that determine how easily a frim can enter an industry. It is one of the most significant predictors of industry profitability. |
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Definition
| High entry barriers can correspond to high industry profitability |
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Term
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Definition
SUPPLIER POWER INCREASE WHEN:
-If there are only a few substitutes fro product/service supplied
-Extent of competition among suppliers is low
-When product is unique/differentiated
-COmpanies in the industry face high switching cost
-Suppliers provide a credible threat of FOWARDLY INTEGRATING into the industry (moving into their buyer's market)
-When co's in the industry buy only small quantities from suppliers |
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Term
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Definition
Buyers have strong bargain power:
-When they purchase in large quantities and control many access points to the final customer ex: Walmart
-buyer's switching costs are low ex: Walmart can switch btwn rubbermaid or Sterlite by offering more shelf space to the producer that offers the greatedst price cut or quality improvement
-Buyers also tend to be quite powerful when they are the only customer buying a certain product ex: U.S. Dept. of Defense --> military equipment
-When they can credibly threaten BACKWARD INTEGRATION (buyer moves upstream in the industry value chain into the seller's buisness ex: Pepsi making plastic bottles |
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Term
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Definition
Threat of substitutes is high when:
-the substitute offers an attractive price-performance trade-off
-the buyer's cost of switching to the substitute is low |
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Term
| Rivalry among existing competitors |
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Definition
Rivalry among existing competitors is high when:
-There are many competitors in the industry
-competitors are roughly of equal size
-industry growth is slow, zero or even negative
-exit barriers are high
-products and services are direct substitutes |
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Term
| Key takeaway from 5 forces model |
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Definition
The STRONGER the forces, the LOWER the industry's ability to earn above-avg. profits, and correspondingly, the LOWER the firm's ability to gain and sustain a competitive advantage.
The WEAKER the forces, the GREATER the industry's ability to earn above-avg. profits, and correspondingly, the GREATER the firm's ability to gain and sustain a competitive advantage. |
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Term
| Industry Attractiveness is detrimined by three distinct PAIRS of two forces... |
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Definition
1. Supplier and buyer power
2. Entry and exit barriers
3. available complements and threat of substitutes
=five forces PLUS complements model |
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Term
| Industry stuctures are... |
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Definition
| not stable over time, they are DYNAMIC. Since a consolidated industry tends to be more profitable than a fragmented one, firms have the tendency to change the industry structure in their favor, making it more consolidated thru (horizontal) mergers and acquisitions. Having fewer competitors generally euqates to higher industry profitability |
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Term
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Definition
| A process whereby formerly unrelated industries begin to satisfy the same customer need. (usually brought on by technological advances ex: Newspapers, magazines, tv, movies,radio need to find a new form of content delivery as Kindles, iPads, etc. make print media obsolete |
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Term
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Definition
| the set of co's that pursue a similar strategy w/in a specific industry |
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Term
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Definition
A framework that explains firm differences in performance in the same industry by clustering different firms into groups based on a few key strategic dimensions
Strategic group mapping:
-competitive rivalry is strongest btwn firms that are w/in the same strategic group
-strategic groups are affected differently by the external environment ex: recessions favor companies in the low-cost strategic group
-Strategic groups are affected differently by the competitive forces
-Some strategic groups are more profitable than others |
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Term
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Definition
| Industry-specific factors that separate one strategic group from another. ex: point-to-point vs. hub-and-spoke |
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Term
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Definition
unique strengths embedded deep w/in the firm, that allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost.
*VERY important to continuosly nourish. W/out upgrading or ongoing improvement, competitors are more likely to develop equivalent or superior skills ex: Best Buy did with Circuit city |
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Term
| What happened with Circuit City? |
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Definition
| Circuit city core competencies lost value because the firm neglected to upgrade and protect them...top mgmt distracted by pursuing non core activities, laying off thousands (lost of vlauable, rare and difficult to imitate nature) |
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Term
| What are two things that build/contribute to core competencies? |
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Definition
1. Resources: assets of a company such as cash, buildings, intellectual property, culture, knowledge, reputation, brand equity
*Can be tangible or intangible
2. Capabilities: "a company's skills at coordinating its resources and putting them to productive use" ..the organizational and managerial skills necesary to orchestrate a diverse set of resources and to deploy them strategically. Capabilities are by nature intangible. |
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Term
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Definition
| enable firms to add value by transforming inputs into goods and services. |
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Term
| Interplay of resources and capabilities.. |
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Definition
| Resources reinforce core competencies, while capabilities allow managers to orchestrate their core competencies. |
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Term
Linking Strategy, resources, capabilities and competencies....Feedback loop
DRAW MAP |
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Definition
Core competencies drive strategy which leads to competitve advantage...
***Feedback loop leads to development of new resources and capabilities or enhances existing resources and capabilities. |
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Term
Resource based view:
Tangible vs. intangible |
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Definition
Resource based view: A model that sees RESOURCES as KEY to superior firm performance. If a resource exhibits VRIO attibutes, the resource enables the firm to gain and sustain a compeetitive advantage.
Tangible resources have physical attributes and are visible ex: land, factory, etc whereas intangible have no physical attributes and thus are invisible ex: knowledge, culture etc.
**Competitive advantage is more likely to spring from INTANGIBLE rather than tangible resources.
EX: Google has tangible resources value at 5 billion but intangible brand valued over 100 billion. So their competitive advantage is more likely from INTANGIBLE resources |
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Term
| Two critical assumptions of Resource based model: |
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Definition
1) Resource Heterogenity: Bundles of resources and capabilities differ across firms
2) Resource immobility: resources tend to be "sticky" and don't easily move from firm to firm
EX: SWA |
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Term
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Definition
| A theoretical framework that explains and predicts firm-level competitive advantage. A firm can gain a competitive advantage if it has resources that are valuable (V), rare (R), and costly to imitate (I); the firm must organize (0) to caputre the value of the resources. |
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Term
| Fulfilling VRIO requirements |
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Definition
Is the Resource or capability....
*Valuable? --NO---> Competitive Disadvantage
Yes...
*Rare? --NO--> Competitive parity
Yes....
*Costly to Imitate? --No--> Temporary competitive advantage
Yes...
And is the firm...
*Organized to capture value? ---NO--> Temporary competitve advantage
Yes...then, SUSTAINED COMPETITVE ADVANTAGE |
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Term
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Definition
A resource is valuable if it helps a firm increase the perceived value of its product or service in the eyes of consumers, either by adding attractive features or by lowering price because the resoruce helps the firm lower its cost.
Ex: Honda's competency in designing and producing efficient engines increases the perceived value of its product to consumers. That competency, supported by lean manufacturing enables quality to be designed and build directly into the product...helping Honda lower costs. |
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Term
VRIO: RARE
--->Knowledge diffusion
Example |
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Definition
A resource/capbility is rare if only one or few firms possess the resource or can perform the capability in the same unique way.
ex: Toyota's lean manufacturing was a valuable and rare rsource, allowing it to lower production cost and maintain high quality of "mass-customized" cars. Toyota was able to gain TEMPRORY comepetitive advantage.
HOwever, KNOWLEDGE DIFFUSION can occur thru benchmarking studies, new methods taught or consultants...lean manufacturing became an industry standard so Toyota and other firms achieve competitve parity as lean manufacturing became a common resource. |
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Term
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Definition
A resource is costly to imitate if firms that do not possess the resouce are unable to develop or buy the resource at a reasonable price.
EX: APple's user friendly product design, integration and marketing competencies..costly for Sony to imitate.
another ex: Croc vs. Nike (Croc was a "one trick pony" wheras Nike was able to continuosly innovate AND build tremendous brand recognition) |
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Term
| VRIO: Organized to capture value (O) |
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Definition
| To fully exploit the competitive potential of its R & C's a firm must have in place an effective organizational structure coordinating systems |
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Term
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Definition
The internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value. Primary activities directly add value; support activites add value indirectly.
Primary: raw materials, intermediate goods/components, final assembly/manufacturing (operations), marketing & sales, customer service
Support activities: R&D, IS, HR, FIN, ACCTG, Operations mgmt, and general mgmt
*In the value chain perspective, R & C's are needed to perform the firm's activities. While the resource based view model helps to identify the integrated set of resources and capabilities that r the building blocks of core competencies, the value chain perspective helps managers to see how competitve advantage FLOWS from the firm's SYSTEM of ACTIVITIES.
ex: SWA uses activities such as frequent and reliable departures, limited in-flight passenger service, low ticke prices, short-haul point2point flights using secondary airports, flying only one type of aircraft, highly productive motivated ground/gate crew.Each core activity is supporteed by a number of other activities..consistent and complement and reinforce one another = interconnected system |
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Term
| Strategic activity system |
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Definition
| The conceptualization of a firm as a network of INTERCONNECTED ACTIVITIES |
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Term
Dynamic capabilities
and...
Dynamic Capabilities perspective |
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Definition
Dynamic capabilites: Describe a firm's ability to create, deploy, modify, reconfigure, upgrade or leverage its resources in its quest for compettitve advantage
(Intangible resource!)
ex: Vanguard
*Not only do dynamic capabilities allow firms to adopt to changing mkt conditions, they also enable firms to CREATE market changes ex: APple's dynamic cap.'s allowed it to REDEFINE the market for portable music thru iPOd, generating environmental change to which SOny and other had to respond. ALso with iPhone.
Dynamic Capabilities perspective: A model that emphasizes a firm's abilty to modify and leverage its resorue base in a way that enables it to gain and sustain competive advantage in a constantly changing environment. |
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Term
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Definition
firm's current level of intangible resources
" How fast the bathtub fills, depends on how much water leaks out of the tub...outflows repres. a reduction in the firm's intangible-resource stocks. |
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Term
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Definition
firm's level of investments to maintain or build a resource
"amount of water in the bathtub" =intangible resources such as new product development, engineering expertise, innovation, reputation...
Each investment flow would be represented by a diff. faucet |
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Term
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Definition
a situation in which the options one faces in the current situation are limited by decisions made in the past
ex: US customary system of measurements only industrial nation in the world not using the metric system |
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Term
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Definition
a situation in which the cause and effect of a phenomenon are not readily apparent
ex: Apple's success is a hard to pinpoint...was it the visionary role of Steve Jobs? the rare skills of a design team? timeing of products?
*If the link btwn cause and effect is ambiguuous for Apple's managers, it is that much more difficult for others seeking to copy this valuable resource. |
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Term
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Definition
| describe situations in which different social and business systems interact w/ one another. COpying emerging complex social systems is difficult for competitors because neither direct imitation nor substituation is a valid approach. The interaction btwen diff. systems create too many possible permutations for a system to be understood with any accuracy. |
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Term
| Measuring competitve advantage |
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Definition
1. Economic value: value, price and cost
2. Accounting profitability
3. Shareholder value |
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Term
| value (economic value creation) |
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Definition
| the dollar amt a consumer would attach to a good/service, the consumer's maximum willingness to pay aka reservation price |
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Term
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Definition
| difference btwn value and costs (V-C) aka economic contribution |
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Term
| profit (producer surplus) |
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Definition
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Term
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Definition
| diff. btwn value a consumer attaches to a good or service (V) - what they paid for (P) |
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Term
| Limitations about acctg data |
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Definition
-all acctg. data are historical data and thus backward-looking (past decision/performance is no guarantee for future perf)
-Acctg data do not consider off-balance sheet items ex: pension obligations, operating leases are significant.
-acctg data focus mainly on tangible assets, which are no longer the most important
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Term
Measuring competitive advantage:
Shareholder value creation |
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Definition
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Term
Balanced scorecard
(another approach to creating/sustaining comptitive advantage)
and 4 key questions.. |
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Definition
Strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals.
4 key Q's:
1. How do customers view us?
2. How do we create value?
3. What core competencies do we need?
4. How do shareholders view us? |
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Term
Balanced scorecard
(another approach to creating/sustaining comptitive advantage)
and 4 key questions.. |
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Definition
Strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals.
4 key Q's:
1. How do customers view us?
2. How do we create value?
3. What core competencies do we need?
4. How do shareholders view us? |
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Term
| Advantages and disadvantages of Balanced scorecard |
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Definition
Advantages:
-communicate and link the strategic vision w/in the org.
-translate the vision into measureable operational goals.
-design and plan business processes
-implement feedback and org. learning in order to modify & adapt strategic goals when indicated
Disadvantages:
-tool for strategy IMPLEMENTATION, not strategy FORMULATION
-provides limited guidance about which metrics to choose
-does not provide much insight into how metrics that deviate from the set of goals can be put back on track |
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Term
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Definition
Combination of economic, social, and ecological concerns that can lead to a sustainable strategy
(takes a more integrative and holistic view in assesssing a co's performance)
Managers audit their co's fullfillment of its social and ecological obligations to stakeholders such as employees, customers, suppliers etc. Therefore triple bottom line is related to STAKEHOLDER THEORY - a firm as embedded in a network of internal and external constituencies that each make contributions and expect consideration in return. |
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Term
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Definition
| the actions managers take in their quest for competitive advantage when competing in a single product mkt. |
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Term
strategic position
strategic trade-offs |
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Definition
Strategic position: a firm's strategic profile based on value creation and cost. Goal: Greater the economic value created(V-C), the greater competitive advantage. (Create as large gap as possible btwn value and cost)
TO achieve a desired strategic position, managers must make....
Strategic trade-offs:
Situations that require choosing btwn a cost or value position, necessary because higher value tends to require higher cost. |
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Term
| Two types of Generic Business Strategy |
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Definition
Differentiation Strategy
Cost leadership strategy |
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Term
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Definition
| Generic business strategy that seeks to create higher value for customers compared to their competitors, by delivering products or services w/ unique features while keeping the firm's cost structure at the same/similar levels |
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Term
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Definition
| Generic buisness strategy that seeks to create the same or similar value for customers by delivering products or service at a lower cost than competitors, enabling the firm to offer lower prices |
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Term
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Definition
| the size (narrow or braod) of market in which a firm chooses to compete |
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Term
| Focused cost-leadership strategy |
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Definition
same as the cost-leadership strategy except w/ a narrow focus on a niche market
EX: BIC pens and lighters
EX: |
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Term
| Focused differentiation strategy |
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Definition
Same as diff. strategy except with a narrow focus on a niche mkt.
EX: TESLA Motors, maker of electric cars...focuses on environmentally conscious consumers..only two products so focuses on a narrow mkt segment of customers who are willing to pay a premium price. |
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Term
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Definition
-Product features
EX: APPLE
-Customer service
EX: ZAPPOS
-Customization
EX: NIKE
-Complements
EX: AT&T bundle |
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Term
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Definition
-Cost of input factors
ex: raw materials, capital, labor, etc.
-Economies of scale:
(Decreases in cost per unit as output increases)
Economies of scale allow firms to:
-spread their fixed costs over a larger output
-employ specialized systems and equipment
-take advantage of certain physical properties
-Learning-curve effects
learning by doing can drive costs down
-Experience-curve effects
attempts to captue both EOS and Learning effects |
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Term
| Minimum efficient scale (MES) |
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Definition
| Between Q1 and Q2. Output range needed to bring dow nteh cost per unit as much as possible. |
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Term
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Definition
| increases in cost per unit when output increases |
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Term
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Definition
business-level strategy that successfully combines differentiation and cost leadership activities.
-successful INTEGRATION STRATEGY requires that tradeoffs btwn differentiation and low cost are reconciled
ex: Leopard Cycles (they combined flexible-manufacturing techniques w/ internet-enabled technologies to offer mass-customized race bicycles built with advanced materials such as carbon fiber) |
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Term
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Definition
savings that come from producing two (or more) output at less cost than producing each ouput individually; despite using the same resources and technology.
ex: Starbucks set up to boil purified water for coffee so why not add tea as well |
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Term
| ambidextrous organization |
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Definition
an org. able to balance and harness differenct activities in trade off situations
ex: JIT inventory mgmt, Six sigma, lean manufact.. |
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Term
| Value AND cost drivers (integraton) |
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Definition
-quality
-innovation
-structure culture and routines (ambidextrous org.)
-economies of scope |
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Term
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Definition
| Relationship that captures the result of performing best practices at any give time, the function is convex (bowed outward) to capture the trade-off btwn value creation and production cost. |
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Term
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Definition
| group of companies offering products or services that are close substitutes for each other and that satisfy the same basic customer needs |
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Term
| Challenges to the "Industry" definition |
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Definition
Not written in stone, formal definition can change over time.
-Multiple levels of aggregation possible
-New industries emerge from existing industries (differentiated further down)
-domestic vs. global perspective
-industry may split into subsets |
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