MGMT 434

Chapter 1

**Indicates class notes

Strategic competiveness- is achieved when a firm successfully formulates an implements a value- creating strategy.

Strategy- is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.

A firm has a competitive advantage when it implements a strategy competitors are unable to duplicate or find too costly to try to imitate.

Above-average returns- are returns in excess of what an investor expects to earn from other investments with a similar amount of risk.

Risk- is an investor’s uncertainty about the economic gains or losses that will result from a particular investment.

Average returns- returns equal to those an investor expects to earn from other investments with a similar amount of risk.

The Strategic Management Process- is the full set of commitments, decisions, and actions required for a firm to achieve strategic competiveness and earn above average returns.

Hypercompetition- is a term often used to capture the realities of the competitive landscape.

A Global Economy is one in which goods, services, people, skills, an ideas move freely across geographic borders.

Globalization- the increasing economic interdependence among countries and their organizations as reflected in the flow of goods and services, financial capital, and knowledge across country borders.

Technology Diffusion is the speed at which new technologies become available and are used.

Disruptive Technologies- techs that destroy the value of an existing tech and create new markets

Strategic Flexibility- is a set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment.

Industrial Organizational Model- the industry in which a company chooses to compete has a stronger influence on performance than do the choices managers make inside the org. Firm’s performance is determined by economies of scale, barriers to market entry, diversification, product differentiation, and the degree of concentration of firms in the industry.

The Resource-Based Model assumes that each organization is a collection of unique resources and capabilities suggests that the strategy the firm chooses should allow it to use it competitive advantages in an attractive industry.

The Uniqueness of its resources and capabilities is the basis of a firm’s strategy and its ability to earn above-average returns.

Resources are inputs into a firm’s production process, such as capital equipment, the skills of individual employees, patents, finances, and talented managers. 3 categories physical, human, and organizational capital

A Capability is the capacity for a set of resources to perform a task or an activity in an integrative manner.

Core Competencies are resources and capabilities that serve as a source of competitive advantage for a firm over its rivals.

Stakeholders are affected by a firm’s performance. The individuals and groups who can affect the firm’s vision and mission, are affected by the strategic outcomes achieved, and have enforceable claims on the firm’s performance.

Shareholders- individuals and groups who have invested capital in a firm in the expectation of earning a positive return on their investments

Vision- a picture of what the firm wants to be and, what it wants to ultimately achieve

Mission- specifies the businesses in which the firm intends to compete and the customers it intends to serve. (Business needs to Put Their money where their mouth is and do what they are saying they need to do)

Capital Market Stakeholders- shareholders and lenders

Product Market Stakeholders- customers, suppliers, host communities, and unions

Organizational Stakeholders- employees

Strategic Leaders- are people located in different parts of the firm using the strategic management process to help the firm reach its vision and mission.

Organizational Culture- refers to the complex set of ideologies, symbols, and core values that are shared throughout the firm and that influence how the firm conducts business.

Profit Pool- entails the total profits earned in an industry at all points along the value chain

**SBU Strategic business units- **

1. What are strategic competitiveness is when a firm successfully formulates and implements a value-creating strategy

Strategy- is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.

Competitive advantage- when it implements a strategy competitors are unable to duplicate or find too costly to try to imitate

above-average returns- are returns in excess of what an investor expects to earn from other investments w/ a similar amount of risk.

strategic management process?- the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above average returns.

First step in the process is to analyze its external environment and internal organization to determine its resources, capabilities, and core competencies. w/ this info firm develops its vision and mission

2. What are the characteristics of the current competitive landscape? What two factors are the primary divers of this landscape?

1. Global economy2. Technologies ( technology diffusion and disruptive technologies)

3. According to the I/O model, what should a firm do to earn above-average returns?

Identifying then competing successfully in an profitable industry or segment of an industry.

4. What does the resource-based model suggest a firm should do to earn above-average returns?

This suggests that a firm’s unique resources and capabilities are critical link to strategic competitiveness

5. What are vision and mission? What is their value for the strategic management process?

Vision- picture of what the firm wants to be and ultimately what it wants to achieve

Mission- business or business in which the firm wants to compete and the customers it intends to serve **Mission comes from the Vision

6. What are stakeholders? How do the three primary stakeholder groups influence organizations?1. Capital Market- shareholders and lenders (venture capitalists)2. Product Market- consumers, suppliers, customers, communities, unions3. Organizational- employees

7. How would you describe the work of strategic leaders?CEO top level managers, helps the firm reach their vision and mission

8. What are the elements of the strategic management process? How are they interrelated?

Rational approach firms use to achieve strategic competiveness and earn above-average returns.

Chapter 2

**Two problems with marlbo becoming altria and acquiring new companies. #1 is that they would not be paying dividens to stockholders. #2 the stock was watered down with new companies like kraft.

General Environment- is composed of dimensions in the broader society that influence an industry and the firms within it. 7 environmental segments: demographic, economic, political/legal, sociocultural, technological, global, and physical.

**Interest rates are vey low. Good for us but not for our comptetors**

The Industry Environment- the set of factors that directly influences a firm and its competitive actions and responses the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competitors.

Competitor Analysis- is how companies gather and interpret information about their competitors

Opportunity is a condition in the general environment that if exploited effectively, helps a company achieve strategic competitiveness.

**SWOT- strength weakness opportunities threats***

A Threat is a condition in the general environment that may hinder a company’s efforts to achieve strategic competiveness.

Components of the External Environmental Analysis

Scanning- identifying early signals of environmental changes and trends Monitoring- detecting meaning through ongoing observations of env changes and trends Forecasting- developing projections of anticipated outcomes based on monitored changes and trends Assessing- determining the timing and importance of env changes and trends for firms’ strategies and their mgmt.

Porters five forces of competition model

Threat of new entrants

Bargaining power of suppliers

Bargaining power of buyers

Threat of substitute products

Rivalry among competing firms

Demographic Segment- is concerned with a population’s size, age structure, geographic distribution, ethnic mix, and income distribution.

Economic Environment- refers to the nature and direction of the economy in which a firm competes or may compete.

Political/legal segment- is the arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding interactions among nations as well as between firms and various local governmental agencies.

Sociocultural Segment- is concerned with a society’s attitudes and cultural values.

Technological Segment- includes the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes, and materials.

Global Segment- Includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets

Physical Environment Segment- refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to and deal with those changes.

Industry- is a group of firms producing products that are close substitutes.

A Strategic Group- is a set of firms emphasizing similar strategic dimensions to use a similar strategy.

Useful data and information combine to form Competitor Intelligence: the set of data and info the firm gathers to better understand and better anticipate competitors’ objectives, strategies, assumptions, and capabilities.

Complementors are companies or networks of companies that sell complementary goods or services that are compatible with the focal firm’s good or service.

Class Notes: If you can go to graduate school ASAP.

Chapter 3

Global mind set- the ability to analyze, understand and manage an internal organization in ways that are not dependent on the assumptions of a single country, culture, or context

Value- measured by a product’s performance characteristics and by its attributes for which customers are willing to pay.

Tangible resources- are assets that can be observed and quantified.

Intangible resources- are assets that are rooted deeply in the firm’s history and have accumulated over time. Relatively difficult for competitors to analyze and imitate. Capabilities exist when resources have been purposely integrated to achieve a specific task or set of tasks.

Value capabilities- allow the firm to exploit opportunities or neutralize threats in its external environment.

Rare capabilities – capabilities that few, if any, competitors possess

Costly-to-imitate capabilities- capabilities that other firms cannot easily develop

Nonsubstitutabe capabilities do not have strategic equivalents.

Primary activities are involved w/ a products physical creation, its sale and distribution to buyers, and its service after the sale.

Value Chain Anaysis- A resource in you business should provide more wealth to us than the cost

PORTERS 5 FORCES

Support activities- provide the assistance necessary for the primary activities to take place.

Outsourcing- is the purchase of value-creating activity from an external supplier

Small business is 500 people

Liquidity = helps short term divides assets by liabilities. The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets

!! do not grow if demand is not consistent!! Must meet the demand not more or less

ASSESTS= DEBTS

#1 correlate is size of the company

Capital gains is a way to make money not taxed the rich get richer

Vertically integration is buying and selling to yourself

Differentiation- make product based on quality. Qualitative- must show that your product is better but also must persuade that the quality is worth it/beneficial

Price is opposite of differentiation-

Chapter 5

Competitive rivalry- the ongoing set of competitive actions and competitive response that occur among firms as they maneuver for an advantageous market position

Competitive Behavior- the set of competitive actions and responses the firm takes to build takes to build or defend its competitive advantages and to improve its markets position.

Product diversification (PD): primary

Chapter1

Chapter 2

1. Why is it important for a firm to study and understand the external environment (EE)?

The external environment affects a firm’s strategic actions, EE creates both opportunities and threats.EE influences firms as they seek strategic competitiveness and the earning of above-average returns.

2. What are the differences between the general environment and the industry environment? Why are these differences important?

General environment is composed of dimensions in the BROADER society that influence an industry and the firms within it.

Industry environment- set of factors that directly influences a firm and its competitive actions and responses. Relates to 5 forces model

Better overall understand external environment as we began do dissect it.

SWOT- Strength Weakness Opportunity Threat

SMFA- Scanning Monitoring Forecasting Assessing

3.What is the external environmental analysis process (four steps)? What does the firm want to learn when using this process?

Scanning- Identifying early signals of potential changes in the general environment

Monitoring- analysts observe envior changes to see if an important trend is emerging

Forecasting- feasible projections of what might happen and how quickly

Assessing- determining timing and significance of the effects of envior changes and trends that have been identified

They want to learn about their SWOT of their industry and emerging changes and trends

4. What are the seven segments of the general environment? Explain the differences among them.

Demographic Segment- is concerned with a population’s size, age structure, geographic distribution, ethnic mix, and income distribution.

Economic Environment- refers to the nature and direction of the economy in which a firm competes or may compete. Indexing, Flaw of unemployment rate **ppl not looking for jobs

Political/legal segment- is the arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding interactions among nations as well as between firms and various local governmental agencies.

Sociocultural Segment- is concerned with a society’s attitudes and cultural values.

Technological Segment- includes the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes, and materials.

Global Segment- Includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets

Physical Environment Segment- refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to and deal with those changes.

Chapter 3

1. Why is it important for a firm to study and understand its internal organization?

This is important for firms and specifically managers because they are the ones that make decisions involving the firm’s assets. – identifying developing, deploying and protecting resources, capabilities and core competencies. A manager might identify capabilities as core competencies that do not create competitive advantage.

Managers face Uncertainty, Complexity and intra organizational conflicts, this takes judgment. Understanding its internal org is critical.

2. What is value? Why is it critical for a firm to create value? How does it do so?

Value is measured by a product’s performance characteristics and by its attributes for which customers are willing to pay. Building worth to something

Firms that hold the competitive advantage offer value to customers that is SUPERIOR to the value competitors provide

Creating value is critical because it is the source of above-average returns for a firm

Firms create value by innovatively bundling and leveraging their resources and capabilities

3. What are the differences between tangible and intangible resources?

Tangible resources- assets that can be observed and quantified. Financial, Organizational, Physical, Technological

Intangible resources- difficult to analyze and imitate. Human, Innovation, Reputational, knowledge, trust between managers and employees, managerial capabilities, organizational routines.

Why is it important for decision makers to understand these differences?

It is important to know the value of each as they are both necessary for the success of the company however intangible benefits are a superior source of core competencies.

Are tangible resources linked more closely to the creation of competitive advantages than are intangible resources, or is the reverse true? Why

The more intangible a resource is, the more sustainable will be the competitive advantage that is based on it.

4. What are capabilities?- achieving a specific task or set of tasks

How do firms create capabilities? – based on developing, carrying, and exchanging info and knowledge through the firm’s human capital. Capabilities often evolve and develop over time.

5. What are the four criteria used to determine which of a firm’s capabilities are core competencies are?

1. Valuable

2. Rare

3. Costly-to-Imitate: historical, ambiguous cause, social complexity

4. Non-substitutable: no strategic equivalent

Why is it important for firms to use these criteria in developing capabilities?

Only when ALL of these are used are above average returns achievable and a sustainable competitive advantage created.

6. What is value chain analysis?

Allows the firm to understand the parts of its operations that create value and those that do not. This is important bc firms earn above-average returns only when the value it creates is greater than the costs incurred to create that value. Broken down into primary and support activates

What does the firm gain when is successfully uses this tool? Above average returns

7. What is outsourcing? Is the purchase of value-creating activity from an external supplier

Why do firms outsource? Increase their flexibility, mitigate risks, and reduce their capital investments.

Will outsourcing’s importance grow as we progress in the twenty-first century? If so why?

Yes, increases interdependency, global economy, more efficient for companies as they realize this.

8. How do firms identify internal strengths and weaknesses?

By identifying resources, capabilities, and core competencies. They must acquire those resources and build the capabilities and competencies needed.

Why is it vital that managers have a clear understanding of their firm’s strengths and weakness?

Once these are understood it will lead to a better selection of a business-level strategy that will help reach firm’s vision and mission.

Chapter 4

1. What is the business level strategy (BLS)?

The business level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies

2. What is the relationship between a firm’s customers and its business-level strategy in terms of who, what and how? Why is this relationship important?

Customers are the foundation of successful BLS, they should never be taken for granted. The customer must be taken into consideration when selecting a BLS, hence the firm determines

#1 who will be served?

#2 what needs those target customers have

#3 how those needs will be satisfied

This relationship is important because of Global competition, there are many attractive options for customers **my words** ** basically if a firm doesn’t have the right strategy they will lose their customers in no time**

3. What are the differences among the cost leadership, differentiation, focused cost leadership and, focused differentiation and integrated cost leadership/differentiation business-level strategies

Cost leadership (Broad Target) - set of actions taken to produce goods or services with features that are acceptable to customers at the LOWEST COST, relative to that of competitors.

(sell standardized goods or services w/ competitive levels of differentiation)

RISK-#1 If competitors’ innovations find a way to allow them to produce at a lower cost #2 Too much focus on having the lowest cost. Example walmart customers say there aren’t enough sales people or ppl at the register aka walmart is super cheap by cut all corners possible

Differentiation (Broad Target)- set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them.

(target customers for whom value is created where firm’s products differ from competitors. Product Innovation is huge- benefits customer and sponsoring company.

Differentiated products and a competitive cost- unique products for customers who value differentiated features more than they value low cost

RISK- #1 price differential between the differentiator’s product and cost leader’s product is too large. #2 If imitation by rivals causes customers to perceive that competitors offer essentially the same good or service, but at a lower price aka KNOCK OFF BRANDS.

Focused Cost Leadership (Narrow Target) – below IKEA

Set of actions take to produce goods or services that serve the needs of a particular competitive segment. PARTICUALR INDUSTRY SEGMENT OR NICHE to the exclusion of others.

Examples. Buyer -Youths or senior citizens, product line professional painters, geographic northern Italy

Focus Strategies succeed when effectively serve a segment whose unique needs are so specialized broad-based competitors choose not to serve that segment.

RISKS- Same as there broad counterparts with 3 additional risks

#1 competitor may be able to more narrowly defined competitive segment “outfocus”

#2 Company competing on an industry wide basis may decide to incorporate that market segment and it is worthy of competitive pursuit.

#3 needs of narrow segment may become more industry-wide over time (shift away from focus) Ritz camera- went could not shift away from selling cameras

Focused Differentiation (Narrow Target)- defined above . Tattoo removal, plastic surgery, rolex

Integrated Cost Leadership/ Differentiation- simultaneously pursue low cost and differentiation, objective is to efficiently produce products w/ some differentiated features.

These companies adapt quickly to new technologies and rapid changes in their external environment. **Zara**

FMS- flexible manufacturing system- increases the flexibilities of human, physical, and information resources.

Information Networks improve product quality and delivery speed. UPS all right turns.

TQM- total quality management emphasizes an organizations commitment to the customer and to improvement of every process through the use of data-driven problem-solving approaches based on the empowerment of employee teams. **Harley Davidson** **Sony**

1. Increase customer satisfaction

2. Cut costs

3. Reduce the amount of time required to introduce innovative products to the marketplace

RISKS- #1 it is difficult to product inexpensive products w/ differentiation at a low cost.

#2 firms must simultaneously reduce cost incurred by production while increasing differentiation.

4. How can each one of the business-level strategies be used to position the firm relative to the five forces of competition in a way that helps the firm earn above-average returns?

Read in Chapter for now

Threat of new entrants

Rivalry among competing firms

Threat of substitute products

Bargaining power of suppliers

Bargaining power of buyers

5. What are the specific risks associated with using each business-level strategy?

Already answered in number 3

Chapter 5

1. Who are competitors? How are competitive rivalry, competitive behavior, and competitive dynamics defined in the chapter?

Firms operating in the same market, offering similar products, and targeting similar customers are competitors.

Competitive rivalry is the ongoing set of competitive actions and competitive responses that occur among firms as they maneuver for an advantageous market position.

Competitive behavior is the set of competitive actions and responses the firm takes to build or defend its competitive advantages and to improve its market position.

Competitive dynamics is ALL competitive behavior that is the total set of actions and responses taken by all firms competing within a market

2. What is market commonality? What is resource similarity? What does it mean to say that these concepts are the building blocks for competitor analysis?

Market commonality is the number of markets w/ which the firm and a competitor are jointly involved and the degree of importance of the individual markets to each. AKA when firms produce similar products and compete for the same customers, the competitive rivalry is likely to be high.

Resource similarity is the extent to which the firm’s tangible and intangible resources are comparable to a competitor’s in terms of both type and amount. Firms w/ similar types and amounts of resources will have similar strengths and weaknesses and use similar strategies.

Competitor Analysis is the first step the firm takes to be able to predict the extent and nature of its rivalry w/ each competitor. Firms w/ high market commonality and highly similar resources are “clearly direct and mutually acknowledge competitors” These to concepts are building blocks because they are needed to understand competitors and further to predict competitor’s behavior

3. How do awareness, motivation, and ability affect the firm’s competitive behavior?

Awareness is a prerequisite to any competitive action or response taken by a firm. It refers to the extent to which competitors recognize the degree of their mutual inter-dependence that results from market commonality and resource similarity.

Motivation concerns the firm’s INCENTIVE to take action or to respond to a competitor’s attack, relates to perceived gains and losses.

Ability relates to each firm’s resources and the flexibility they provide. Firm must be able to attack a competitor or respond to its actions.

Firm will not be able to compete if they do not have these three

These three affect the firm’s competitive behavior because they are the actions and responses the firm takes to improve its market position.

4. What factors affect the likelihood a firm will take a competitive action?

A First-mover is a firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position.

(must allocate funds for product innovation and dev, advertising and r&d)

First mover may get loyalty of customers and market share will become difficult for competitors

Second mover responds to first mover typically through IMITATION

Late mover respond significant amount of time after first and second.

Organizational size- smaller firm can launch a competitive action quickly as they are flexible. Larger firms are likely to initiate a strategic action.

Quality exists when the firm’s goods or services meet or exceed customers’ expectations. This may be the most critical component in satisfying the customer.

5. What factors affect the likelihood a firm will initiate a competitive response to the action taken by a competitor?

A firm is likely to respond to a competitor action when

1 the action leads to better use of competitor capabilities to gain or produce stronger competitive advantages or an improvement in its market position

2 the action damages the firm’s ability to use its capabilities to create or maintain an advantage

3 firm’s market position becomes less defensible

Types of competitive action in response:

Reputation- a positive corporate reputation is of strategic value. Positive reputation may be a source of above-average returns.

Market Dependence denotes the extent to which a firm’s revenue or profits are derived from a particular market. Competitors w/ high market dependence will respond strongly to attacks threatening their market position.

6. What competitive dynamics can be expected among firms competing in slow-cycle markets? In fast-cycle markets? In standard-cycle markets?

Slow-cycle markets- competitive advantages are sustainable over long periods of time.*Disney**

Fast-cycle markets- Imitation is RAPID and inexpensive. Competitive advantages are NOT sustainable. Time and Speed are important. Reverse engineering and tech diffusion facilitate rapid imitation.

Standard-cycle markets competitive advantages are partially shielded from imitation and imitation is moderately costly. Competitive advantages are partially sustainable, but only when the firm is able to continuously upgrade the quality of its capabilities. Gain customer loyalty through brand names; consistently provide the same positive experience for customers.

Chapter 6

When a company is to DIVERSIFY itself this means to “diversify” their operations from a single business competing in a single market into several product markets and several businesses.

1. What is corporate- level strategy and why is it important?

Corporate-level strategy specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets.

This is important because a CLS helps companies select new strategic positions – positions that are expected to increase the firm’s value

2. What are the different levels of diversification firms can pursue by using different corporate-level strategies?

Low Levels

Single Business- 95% or more of revenue comes from a single business

Dominant Business- between 70% and 95% of revenue comes from single business

Moderate to High Levels

Related Constrained- less than 70% or revenue comes from the dominant business (all businesses share product, technological, and distribution linkages

Related Linked (mixed related and unrelated)- Less than 70% of revenue comes from dominant business, there are only LIMITED links between business

Very High Levels (Conglomerates)

Unrelated- less than 70% of revenue comes from the dominant business; there are NO common links between businesses.

3. What are the three reasons firms choose to diversify their operations?(pg 161)

Value-Creating Diversification

Economies of scope (related diversification), sharing activates, transferring core competencies, vertical integration, business restructuring, internal capital allocation, financial economies

Value-Neutral Diversification

Antitrust regulation, tax laws, low performance, uncertain future cash flows, risk reduction for firm, tangible and intangible resources

Value-Reducing Diversification

Diversifying managerial employment risk, increasing managerial compensation

4. How do firms create value when using a related diversification strategy?

By using:

Economies of Scope are cost savings that the firms creates by successfully sharing some of its resources and capabilities or transferring one or more corporate level core competencies that were developed in one of its business to another of its businesses

Transferring Corporate level core competencies –they come with intangible benefits.

Market Power- exist when a firm is able to sell its products above or below the price point of its competitor and support its primary and support activities

Blocking competitors through Multipoint competition

Vertical integration- produces its own input or its own source of output distribution

5. What are the two ways to obtain financial economies when using an unrelated diversification strategy?

Financial economies are cost saving realized through improved allocations of financial resources based on investments inside or outside the firm

1. Efficiently allocating resources and capital

2. Restructuring a target firm’s assets and placing them under rigorous financial controls. Further selling the restructured companies’ assets in the external market

6. What incentives and resources encourage diversification?

Incentives to diversify

External – antitrust regulation and tax laws

Internal- Low performance, uncertain future cash flows, pursuit of synergy and reduction of risk for the firm

Synergy exits when businesses value is greater when they work together opposed to when they work independently

The degree which resources are valuable, rare, difficult to imitate, and non substitutable influence a firm’s ability to create value through diversification. TANGIBLE AND INTANGIBLE resources encourage diversification

7. What motives might encourage a manager to over-diversify their firm?

Desire for increased compensation and reduced managerial risk ( execs may diversify a firm in order to diversify their own employment risk, as long as profitability does not suffer

Also executive compensation increases with the diversification of a firm (greatly)