Strategic Management Textbook

competitive advantage
a firm that achieves superior performance relative to other competitors in the same industry or the industry average
sustainable competitive advantage
A firm that is able to outperform its competitors or the industry average over a prolonged period of time has a ________
competitive parity
performance of two or more firms at the same level
strategic positioning requires _________
industry effects
describe the underlying economic structure of the industry
firm effects
attribute firm performance to the actions managers take
black swan events
incidents that describe highly improbably but high impact events
organizations groups and individuals that can affect or be affected by a firm’s actions
stakeholder strategy
An integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage; Allows firms to analyze and manage how various external and internal stakeholders interact to jointly create and trade value
power, legitimacy, urgency
3 attributes of stakeholders
corporate social responsibility (CSR)
a framework that helps firms recognize and address the economic, legal, social, and philanthropic expectations that society has of the business enterprise at a give point in time
analyze, formulate, implement
AFI framework
A model that links three interdependent strategic management tasks—analyze, formulate, and implement—that together help managers plan and implement a strategy that can improve performance and result in competitive advantage
define firm’s vision, mission, and values
first step to obtaining an effective strategy process
a ________ vision defines a business in terms of a good or service
a ________ vision defines a business in terms of providing solutions to customer needs
organizational values
ethical standards and norms that govern the behavior of individuals within a firm or organization
strategic leadership
the behaviors and styles of executives that influence others to achieve the organization’s vision and mission
face to face
most effective way of management
upper echelons theory
a conceptual framework that views organizations outcomes strategic choices and performance levels as reflections of the values of the members of the top management team
(1) highly capable individual
(2) contributing team member
(3) competent manager
(4) effective leader
(5) executive
level 5 leadership pyramid levels
upper-echelons theory
according to the ________, it is the top management team that primarily determines whether a firm is able to gain and sustain a competitive advantage through the strategies they pursue
corporate strategy
__________ concerns questions relating to where to compete (industry, markets, and geography)
business strategy
____________ concerns the question of how to compete (cost leadership, differentiation, or integration)
functional strategy
__________ concerns the question of how to implement business strategy
strategic business unit
a standalone division of a larger conglomerate with its own profit and loss responsibility
top down strategic planning
rational top town process through which executives attempt to program future success
scenario planning
strategy planning activity in which managers envision different what if scenarios to anticipate plausible futures
core competencies
unique strengths embedded deep within a firm
any assets such as cash, buildings, machinery or intellectual property that a company can draw on when crafting and executing a strategy
the organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically
distinct and fine-grained business processes such as order taking, the physical delivery of products or invoicing customers
resource-based view (RBV)
provides a model that systematically aids in identifying core competencies
Tangible resources have physical attributes and are visible (labor, capital, land, buildings, plant, equipment, and supplies)
resource heterogeneity
bundles of resources, capabilities and competencies differ across firms
resource immobility
resources tend to be “sticky” and don’t move easily from firm to firm. Because that stickiness, the resource differences that exist between firms are difficult to replicate and therefore can last for a long time
VRIO framework
a way to evaluate a firm’s resource endowments and answer the question of what resource attributes underpin competitive advantage
valuable, rare, costly to imitate, organized to capture value
a resource is _______ if it helps a firm increase the perceived value its product or service in the eyes of the consumer either by adding attractive features or by lowering price because the resource helps the firm lower its costs
a resource is ________ if only one or a few firms possess it. If the resource is common it will result in perfect competition where no firm is able to maintain a competitive advantage
costly to imitate
if firms that do not have the resource are unable to develop or buy the resource at a reasonable price
organized to capture value
having in place an effective organizational structure, process and systems to fully exploit the competitive potential of the firm’s resources, capabilities, and competencies
luck, path dependence, casual ambiguity, social complexity
4 conditions that protect competitive advantage to make it more difficult for competitors to imitate the resources, capabilities, or competencies that underlie its competitive advantage
path dependence
describes a process in which the options one faces in a current situation are limited by decisions made in the past
casual ambiguity
describes a situation in which the cause and effect of a phenomenon are not readily apparent
social complexity
describes situations in which different social and business systems interact with one another
dynamic capabilities perspective
a model that emphasizes a firm’s ability to modify and leverage its resource base in a way that enables it to gain and sustain competitive advantage in a constantly changing environment
dynamic capabilities
describe a firm’s ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources over time in its quest for competitive advantage
resource stocks
firm’s current level or intangible resources
resource flows
the firm’s level of investment to maintain or build a resource
value chain analysis
descries the internal activities a firm engages in when transforming inputs into outputs. Each activity the firm performance along the horizontal chain adds incremental value—raw materials and other inputs are transformed into components that are finally assembled into finished products or services from the end consumer.
distinct actions that enable firms to add incremental value at each step by transforming input into goods and services (I.e. managing a supply chain, running the company’s IT system)
SWOT analysis
allows managers to synthesize insights obtained form an internal analyses of the company’s strengths and weaknesses (S and W) and those from an analysis of external opportunities and threats (O and T)
strengths, weaknesses, opportunities, threats
(1) accounting data (2) shareholder value (3) economic value
3 components in assessing competitive advantage
accounting data
enable us to conduct direct performance comparisons between different companies. Some of the profitability ratios most commonly used are
individuals or organizations that own one or more shares of stock in a public company and are the legal owners of public companies
economic value created (EVC)
the difference between a buyers willingness to pay for a product or service and the firm’s total cost to produce it
willingness to pay (WTP)
Amount of total perceived consumer benefits equals the maximum ___________
the dollar amount V a consumer would attach to a good or service the consumer’s maximum willingness to pay sometimes also called reservation price
consumer surplus
the difference between the value a consumer attaches to a good or service and what he or she paid for P or V-P
balanced scorecard strategy
strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals
triple bottom line
combination of economic, social, and economical concerns that can lead to a sustainable strategy
corporate social responsibility
helps firms recognize and address society’s expectations of the business enterprise at a given time
business model
organizational plan that details the firm’s competitive tactics and initiatives in short how the firm intends to make money
business level strategy
details the goal directed actions managers take in their quest for competitive advantage when competing in a single product market
EVC = ?
product features, customer service, complements
3 value drivers
cost of input factors, economies of scale, learning curve effects, experience curve effects
4 cost drivers
integration strategy
requires that tradeoffs between differentiation and low cost are reconciled
Productivity frontier which is the value cost relationship that captures the result of performing best practices at any given time
PESTEL framework
a framework that categorizes and analyzes an important set of external forces (political, economic, sociocultural, technological, ecological, and legal) that might impinge upon a firm. These forces are embedded in the global environment and can create both opportunities and threats for the firm
political, legal environment, economic, sociocultural, technological, ecological
five forces model
a framework developed by Michael Porter that identifies five forces that determine the profit potential of an industry and shape a firm’s competitive strategy
a group of companies that more or less the same set of suppliers and buyers
industry analysis
a method to identify an industry’s profit potential and derive implications for a firm’s strategic position within an industry
strategic position
relates to its ability to create value for customers while containing the cost to do so.
stronger, lower
the ________ the 5 forces the _______ the industry’s profit potential making the industry less attractive for potential competitors
threat of entry, power of suppliers, power of buyers, threat of substitutes, rivalry among existing competitors
5 forces
threat of entry
the risk that potential competitors will enter an industry
entry barriers
obstacles that determine how easily a firm can enter an industry. Entry barriers are often one of the most significant predictors of industry profit potential
strategy formulation
centers around the key questions of where and how to compete. Business strategy concerns the question of how to compete in a single product market
corporate strategy
the decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industrial and markets simultaneously addresses where to compete along three dimensions
(1) products and services (2) industry value chain (3) geography
3 dimensions along which firms compete
principal agent problem
a situation in which an agent performing activities on behalf of a principal pursues his or her own interests
short term contracts, strategic alliances, long term contracts
3 alternatives to make or buy
vertical integration
the firm’s ownership of its production of needed inputs or of the channels by which it distributes its outputs
industry value chain
depiction of the transformation of raw materials into finished goods and services along distinct vertical stages each of which typically represents a distinct industry in which a number of different firms are competing
changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain
changes in an industry value chain that involve moving ownership of activities closer to the end point of the value chain
increasing costs, reducing quality, reducing flexibility, increasing legal repurcussions
4 drawbacks to vertical integration
strategic outsourcing
involved moving one or more internal value chain activities outside the firm’s boundaries to other firms in the industry value chain
the joining of two independent companies to form a combined entity
the purchase or takeover of one company by another
vertical integration
concerns the number of activities a firm participates in up and down the industry value chain
horizontal integration
the process of merging with a competitor at the same stage of the industry value chain
reduction in competitive intensity, lower costs, increased differentiation
3 benefits to horizontal integration
access to new markets, access to new capability, preempt rivals
3 reasons to integrate
managerial hubris
a form of self delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary
strategic alliances
voluntary arrangements between firms that involve the sharing of knowledge resources and capabilities with the intent of developing processes products or services
relational view of competitive advantage
strategic management framework that proposes that critical resources and capability frequent are embedded in strategic alliances that span firm boundaries
shared value creation framework
provides guidance to managers about how to reconcile the economic imperative of gaining and sustaining competitive advantage with corporate social responsibility
corporate governance
concerns the mechanisms to direct and control and enterprise in order to ensure that it pursues its strategic goals successfully and legal
agency theory
a theory that views the firm as a nexus of legal contracts
board of directors
the centerpiece of corporate governance in such companies
a process driven by the perennial gale of creative destruction in the words of a famed economist Joseph Schumpter
introduction, growth, shakeout, maturity, decline
industry life cycle
network effects
the positive effect (externality) that one user of a product or service as of that product for other users
technology enthusiasts/early adopters, chasm, early majority, late majority, laggards
types of consumers
incremental v. radical, architectural v. disruptive
types of innovation
an innovation that squarely builds on an established knowledge base and a steadily improves an existing product or service offering targets existing markets by using existing technology
an innovation that draws on novel methods or materials is derived either from an entirely different knowledge base or from a recombination of the existing knowledge bases with a new stream of knowledge or targets new markets by using new technologies
Innovate by existing technologies into new markets—doing so generally requires them to reconfigure the components of a technologies are reconfigured in a novel way to create new markets
innovation leverages new technologies to attack existing markets. It invades an existing market from the bottom up
process of closer integration and exchange between different countries and peoples worldwide—made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs
multinational enterprises (MNEs)
a company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries
larger markets, low-cost inputs, new competencies
3 advantages to expanding internationally
liability of foreignness, loss of reputation, loss of intellectual property
3 disadvantages to expanding internationally
a decision framework based on the relative distance between home and foreign target country along four dimensions: culture, administrative (government), geographic, and economic distances
cost reductions, local responsiveness
MNEs face two opposing forces when competing around the globe: ______ and ______
globalization hypothesis
consumer needs and preferences throughout the world are converging and this becoming increasingly homogenous
international, multi-domestic, global-standardization, transnational
4 strategies to expanding internationally
essentially a strategy in which a company sells the same products or services in both domestic and foreign markets
attempt to maximize local responsiveness, hoping that local consumers will perceive them to be domestic companies
attempt to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best of class capabilities reside at the lowest cost
attempt to combine the benefits of localization strategy (high LR) with those of a global-standardization strategy
death of distance hypothesis
assumption that geographic location alone should not lead to a firm-level competitive advantage because firms are now more than ever able to source inputs globally
porter’s diamond framework
Factor conditions describe a country’s endowments in terms of natural, human, and other resources
strategic implementation
final piece of AFI framework that concerns the organization, coordination and integration of how work gets done. It is key to gaining and sustaining competitive advantage.
organizational design
process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization
specialization, formalization, centralization, hierarchy
4 key components of organizational design
________ organizations have a low degree of specialization and formalization—a flat organizational structure and decentralized decision making
___________ organizations are characterized by a high degree of specialization and formalization and a tall hierarchy that relies on centralized decision making
simple, functional, multidivisional (M form), matrix
4 types of structure
structure that generally small firms where the founders tend to make all the important strategic decision as well as run the day-to-day operations
structure groups employees into distinct functional areas based on domain expertise
mechanistic, centralized
cost leadership is ___ and ___ regarding structure
differentiation is _____ regarding structrue
the middle
integration is ______ regarding structure
M form
consists of several distinct strategic business units each with its own profit-and-loss (P&L) responsibility
organization structure that combines the functional structure with the m-form
organizational culture
describes the collectively shared values and norms of an organization
input controls mechanism
strategic control and reward system that seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures that are considered prior to the value creating activities
output controls mechanism
a strategic control and reward system that seek to guide employee behavior by defining expected results (outputs) but leave the means to those results open to individual employees groups and SBUs