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What is strategy?
An integrated and coordinated set of commitments and actions designed to gain a competitive advantage”
purpose of strategy?
Increase the long term profitability of a firm
An investor’s uncertainty about the economic gains or losses that will result from a particular investment
Returns equal to those an investor expects to earn from other investments with a similar amount of risk
above average returns
returns in excess of what an investor expects to earn from other investments with a similar amount of risk
when a firm successfully formulates and implements a value creating strategy
Sustainable competitive advantage
When competitors are unable to duplicate a company's value creating strategy
strategic management process
The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above average returns.
people responsible for the design and execution of strategic management processes
what are strategic managers concerned with
- A. Strong and well thought-out strategy
- B. Customer satisfaction and loyalty
- C. Business leadership
- D. Quality products and services
- E. Strong and consistent profits
focused on the broader society
focused on factors and conditions directly influencing a firm's profitability within an industry
focused on predicting the dynamics of competitors actions, responses and intentions
what is an industry
a group of firms producing products that are very close substitutes to serve a market
single firm with pricing often above marginal cost
few firms limited entry
many firms easy entry,( price taking behavior)
Industry analysis is used because:
Industry structure partly determines economic profitability
Industry analysis is useful because:
It helps identify areas for investment
when is the intensity of rivalry high?
- There are numerous or equally balanced competitors
- Industry growth slows or declines
- There are high fixed costs or high storage costs
- There is a lack of differentiation opportunities or low switching costs
- When the strategic stakes are high
- When high exit barriers prevent competitors from leaving the industry
when is there a threat of new entrants?
When barriers to entry are low
when do buyers possess bargaining power?
- Buyers are large and few in
- Buyers’ purchases are a significant
- portion of a supplier’s annual revenues
- Buyers can switch to another product without
- incurring high switching costs
- Buyers are informed about market prices,
- supplier costs
- Buyers pose threat to integrate backward into the
- sellers’ industry
when do sellers possess bargaining power
- Suppliers are large and few in
- Suitable substitute products are
- not available
- Individual buyers are not large (or important)
- customers of suppliers
- Suppliers’ goods are critical to buyers’
- marketplace success
- Suppliers pose a threat to integrate forward into
- buyers’ industry
product that fulfill the same function but are different products
When is there a threat of substitute products?
Buyers face few switching costs
Buyers’ search costs are low
- The substitute product’s price is
- Substitute product’s quality and performance are
- equal to or greater than the existing product
participants whose business enhances the value of yours
characteristics of an attractive industry
- Low Threat of Entry
- (High entry barriers)
- Suppliers and buyers
- have weak positions
- Few threats from
- substitute products
- Low-Moderate rivalry
- among competitors
characteristics of an unattractive industry
- High Threat of Entry
- (Low entry barriers)
- Suppliers and buyers
- have strong positions
- Strong threats from
- substitute products
- Intense rivalry
- among competitors
- “fast but comprehensive view of the business”
- Brings together, in one management report,
- disparate elements of company’s competitive
- agenda (customer measures, internal measures,
- financial measures, etc.)
- Authors use analogy of dials and instruments in
- an airplane cockpit
four perspectives within the balanced scorecard?
- customer perspective
- internal business perspective
- innovation and learning perspective
- financial perspective
How do customers see us?
internal business perspective
What must we excel at
innovation and learning perspective
can we continue to improve and create value?
How do we look to shareholders?
financial analysis overview
an assessment of the company's past, present and future financial condition(purpose is to diagnose a company's financial strengths and weaknesses)
main financial stmnts
- bal sheet
- inc stmnt
- stmnt of cash flows
Why do ratio analysis?
- It is a means of evaluating and diagnosing performance
- ratios standardize numbers and facilitate comparisons
a snapshot in time
summarizes the revenues and expenses of a business
cash flow stmnt
summarizes the levels of cash being generated or consumed by the business
why do ratio analysis?
a means of evaluating and diagnosing performance
by studying the _____ environment, firms identify what they might choose to do.
by studying the______ environment, firms identify what they can do
2 basic assumptions of rbv
- 1. resource bundles are different across firms
- 2. Resources don't move easily across firms
resources and capabilities that serve as a source of competitive advantage for a firm over its rivals
four criteria of sustainable competitive advantage
- valuable capabilities
- rare capabilities
- costly to imitate capabilities
- non-substitutible capabilities
is imitation a successful long term strategy?
can core competencies erode?
yes and they create core rigidities
what is value?
The Question of Value
- Creates value for the customer. It does not mean that it is
- Only value-adding resources can lead to competitive advantage,
- whereas non-value-adding capabilities may lead to competitive
- If firms do not shed non-value-adding resources and
- capabilities, they are likely to suffer below-average performance
- or become extinct.
what is rarity?
What you have and most/all competitors don’t have.
- Valuable common resources and capabilities can lead to
- competitive parity but no advantage.
- Valuable rare resources and capabilities can provide, at best,
- temporary competitive advantage.
- Resources and abilities that add value in new areas needed to
- keep up with the competition (benchmarking).
costly to imitate? examples
- Unique Historical Conditions
- Firm developed in an unusual way that supported the development
- of certain competencies (eg. Southwest, Coca Cola)
- • Causal Ambiguity
- Cannot detect how a firm uses its competencies as a foundation for
- competitive advantage. (Wal-Mart, Intel)
- • Social Complexity
- Complex interpersonal relationships, trust, and friendships among
- managers or a firm’s reputation with suppliers and customers or
- government. (Particularly for firms with a differentiation strategy)
• Speed of Change
vris framework substitutes
• Valuable and rare resources and capabilities are a source ofcompetitive advantage also if competitors cannot find a resource orcapability that is different but is a strategic equivalent.• Warning: Our definition of substitutes here is different than what wesaid for Porter’s Five+ Forces.• Substitutability Barriers: Patents Legal barriers Lack of knowledge
Activities, such as materials handling, warehousing, and inventory control, used to receive, store, and
disseminate inputs to a product.
Activities involved with collecting, storing, and physically distributing the final product to customers.
Examples include finished goods warehousing, materials handling, and order processing.
Activities necessary to convert the inputs provided by inbound logistics into final product form.
Machining, packaging, assembly, and equipment maintenance are examples of operations activities.
- inbound logistics
- outbound logistics
- mktg and sales
- tech development
- firm infrastructure
Activities completed to purchase the inputs needed to produce a firm’s products. Purchased inputs include
- items fully consumed during the manufacture of products (e.g., raw materials and supplies, as well as
- fixed assets—machinery, laboratory equipment, office equipment, and buildings).
Activities to improve a firm’s product and the processes used to manufacture it. Tech development takes
many forms, such as process equipment, basic research and product design, and servicing procedures.
Firm infrastructure includes activities such as general management, planning, finance, accounting, legal
- support, and governmental relations that are required to support the work of the entire value chain.
- Through its infrastructure, the firm strives to effectively and consistently identify external opportunities
- and threats, identify resources and capabilities, and support core competencies.