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78 Cards in this Set

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  • Back
what are the five definitions of strategy?
Plan, ploy, pattern, position, and perspective
what is strategy as a plan
plans are made in advance and developed consciously and purposely
EX: Military, Game theory, management
Strategy as plan
A purposeful and conscious course of action (a set of guidelines for using means to achieve ends).
- thought of in advance and purposeful
Strategy as ploy
A set of tactics used to outsmart rivals
Strategy as pattern
Consistency in a firm’s behavior or pattern in a stream of actions
Strategy as position
Creation of a unique and valuable position vis-a-vis rivals involving different set of activities.
Strategy as perspective
Ingrained way of perceiving the world; Organizational culture, ideology or “collective mind”
Roles of Strategy
1) focuses effort by creating a unifying theme
2) Defines the organization by acting as a communication device
3) Provides consistency
Differences in various definitions of strategy can be summarized as follows:
Explicit vs. Implicit
Intended vs. Emergent vs. Realized
Business level vs. Corporate level
Corporate Strategy: Where to compete?
Business (competitive) strategy: How to compete?
Competitive advantage
Creation of superior value through the difference between 1) the market’s willingness to pay for a unit of output and
2) the firm’s cost for producing that unit of output
What is Superior Advantage and how do you create it?
Superior refers to better than/greater than rivals
1) Increasing customers’ willingness to pay (product attractiveness)
2) Decreasing the firm’s unit cost
3) A combination of the two
The I/O Model Stages
1) Study the external environment, especially the industry environment:
2) Locate an attractive industry with a high potential for above-average returns.
3) Identify the strategy called for by the attractive industry to earn above-average returns
4) Develop or acquire assets and skills needed to implement a chosen strategy
5) Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy
Assumptions of the I/O Model
1) External environment imposes constraints, must choose strategy that fits the environment
2) Industry firms have similar resources and pursue similar strategies
3) Resources used to implement strategies are highly mobile and transferable across firms
4) Managers are assumed to be rational actors; with complete information and unlimited information-processing ability
Attractive Industry
High entry barrier, low suppliers and buyer power, few threats from substitute products, moderate rivalry
Porter: Strategy rests on unique activities
Variety-based positioning -- based on the choice of product or service varieties rather than customer segments
Needs-based positioning -- serving most or all of the needs of a particular group of customers
e.g. Ikea
Access-based positioning -- segmenting customers who are accessible in different ways
• e.g. urban vs rural
What is Strategy according to Michael Porter (1996)?
o Creating a fit between companies activities
o Success depends on doing many things well, not just a few, and integrating them
What is the difference between strategic positioning and operational effectiveness?
o Operational effectiveness -- performing similar activities better than rivals
o Pushes productivity frontier outward, raising the bar for everyone, however no relative improvement for anyone
o Strategic positioning -- performing different activities from rivals or similar activities in different ways
Why are trade-offs critical for Porters definition of Strategy?
o Leads to image or reputation inconsistencies
o Different activities require different product configurations, skills, employee behaviour, management systems, etc.
o Limits on internal coordination and control
• Organizational priorities become unclear
“Stuck in the Middle” argument
Each strategy involves compromises
Becoming neither the lowest cost nor the most differentiated firm.
Differentiator cannot reduce the costs at the same level as cost leader without sacrificing their quality or image.
Cost Leaders cannot achieve differentiation without increasing their costs

According to Porter, firms that are “stuck in the middle” will be less profitable than rivals achieving generic strategy.
RBV Model
Resource-Based View of Strategy that leads to superior returns
Includes: Resources, Capabilities, competitive advantage, attractive industry, strategy formulation & implementation
What are and explain the aspects of RBV?
1. resources- strengths and weaknesses compared with competitors
2. capabilities—what it can do better than its competitors
3. competitive advantage- whats their potential
3. find an attractive industry and strategic position with in it
4. select a strategy that allows a firm to utilize its capabilities and opportunities
What are the assumptions and propositions of the RBV model?
Differences in firms performances are based on their unique resources and capabilities
1) Resources are not perfectly mobile across firms
2) Competitive advantages are sustainable
3) Superior profits exist when rivals cease their efforts to erode firms’ competitive advantages
What are resources?
A firm’s assets that are inputs into a firm’s production process. they are Tangible resources
(Financial, Physical, Technological) and Intangible resources (Human. innovation, reputation)
What are capabilities?
Capabilities (competences): firm’s capacity to deploy resources for developing superior products and services - learned, patterned, repetitious collective activity or simply a routine
What are the properties of Core Competencies?
Value, Rarity, Inimitability,
Competences are valuable when they are relevant for developing superior products and services
They are needed to compete in an industry
Competences need to be scarce to contribute to a firm’s competitive advantage
If a firm controls a competence that is controlled by a numerous competitors, then the competence is unlikely to be a source of competitive advantage
What are the sources of sustainable competitive advantage?
Inimitability: Competences need also be difficult to imitate
Nonsubstitutability: Competences do not have strategic equivalence
Why do rivals find difficult to imitate a focal firm’s competences?
Four reasons:
Time Compression Diseconomies
Asset Mass Efficiencies
Social Complexity
Causal Ambiguity
What are some of the mechanisms for sustaining first mover advantages?
1. Brand Loyalty and Reputation 2. Learning Curve
3. Rival response lag:
• time it takes for competitors to recognize, evaluate, and formulate a response
• waiting times for specialized equipment
• rivals are unwilling to let go of their existing profitable businesses.
4. Patents and Trade marks
What are some of the disadvantages of being the first mover?
1) Free-rider effects
2) First movers can quickly lose their advantage when commercialization is high, shifts in technologies are frequent and they are reluctant to self cannibalize
What is ACF and what are the types?
AFC= Advantage-creating Frequency
1) Disruptive ACF- Technological innovation (discover radically new technologies) and Product innovation (frequently introduce new products ahead of rivals)
2) Incremental ACF: frequently improve and upgrade the value of their existing products and services.
What are some of the early mover advantages?
- early movers can quickly respond through imitation
- able to study customer reactions
- avoid both mistakes and huge costs of first movers
- can develop more efficient processes and technologies
Economies of scope
onomies of scope are cost advantages that result when firms provide a variety of products rather than specializing in the production or delivery of a single product or service. Economies of scope also exist if a firm can produce a given level of output of each product line more cheaply than a combination of separate firms, each producing a single product at the given output level
Economies of substitution
The costs of designing a brand new complex product is higher than the costs of designing an upgraded system through partial retention of existing components
What are the acceleration costs trade offs (as advantage creating frequency increases, why do costs also increase?
Three reasons:
– Increased rate of self-cannibalization
– Time compression diseconomies
– Red Queen phenomenon
what are strategic networks?
• Products are complex systems consisting of many interdependent components designed and manufactured by different companies
• Interfirm collaboration and coordination are critical for achieving compatibility across components
From Competing on the Edge Strategy, what does it mean to manage change?
– Reacting
– Anticipating
– Leading
Characteristics of competing on the edge
– Unpredictable – Uncontrolled – Inefficient
– Proactive
– Continuous
– Diverse
Competing on the Edge Strategy Assumptions
– Unclear industry boundaries
– Unpredictable competition
– Uncertain environmental changes
(technological advances or customer
– Decentralized decision making (at business
How do firms achieve semicoherent strategic tendency? (Edge strategy)
Edge of Chaos, Edge of time, and Time Pacing
How do firms create competitive advantage according to the I/0, RBV, and DS models?
I/O: Selecting favorable industry or position within industry
RBV: Identifying/developing strategic resources
DS: Recognizing and exploiting profit opportunities
How do firms sustain competitive advantages according to the I/0, RBV, and DS models?
I/O: Defend your market position;
RBV: Ex-post limits to competition (inimitability and nonsubstitutability); Leveraging core competences across markets;
DS: Competitive advantages are not sustainable. Firms create series of temporal advantages
What is the role of top managers according to the I/0, RBV, and DS models?
I/O: To identify profitable industry context, strategic positioning
RBV: To identify strategic resources and design strategy based on those resources
DS: Create flexible structure; entrepreneurial culture; strategy emerges from below; from middle managers and knowledgeable employees
What are the main propositions of the Blue Oceans Strategy
- Firms that compete in “blue oceans” gain above average profits.
-Technological innovation is not critical driver of discovery of “blue oceans”
-Incumbents are not at a disadvantage
-Strategic moves are basic unit of analysis
How does “Blue Ocean” strategy lead to competitive advantages:
-They proactively change the industry structure
-They make competitors irrelevant
-They create new market spaces (product categories)
-They pursue cost leadership and differentiation strategy simultaneously (trade-offs become irrelevant)
Within the "Action-Reaction" Framework, how is strategy defined, and how do you define competitors?
Strategy- a unique position that evolves around exploiting core competences and creating a series of temporal advantages
What is competitor intelligence?
An ethical gathering and interpretation of all information about the companies that a firm competes against
Includes: Knowing a competitors direction (future objectives), capabilities and intentions (current strategy), beliefs about the industry (its assumptions) and their capabilities
In the Strategy as Action model, how are firms successful?
Success is based on a firms
- ability to make new competitve actions
- ability to anticipate and respond to a competitors competitive action
- ability of rivals to react to your first move (max value when the likelihood and speed is low)
Explain Competitive Analysis for the A-M-C Moel
1. Market Commonality (# of markets both compete in, and the degree of importance of those markets)
2. Resource Similarity: how comparable the tangible and in tangible resources are (if similar, strengths, weaknesses, and strategies)
What are the drivers of competitive behavior in the A-M-C
Awareness of rivals actions
Motivation to attack or react/respond
Capability to attack and respond
Explain the Model of Multi-Market Competition (part of AMC model/Market commonality)
In other words, what is MUTUAL FORBEARANCE?
- Awareness (greater interdependence and attention)
and Capability (ability to hurt and opportunity to attack)
are HIGH, there is a decreased Motivation to attack
Forbearance Hypothesis
A firm is less likely to attack a rival with whom it has high market commonality
How does resource similarity impact Motivation?
When firms have equal resource potential to attack and respond (awareness and capability are HIGH)
- they are less likely to attack, but retaliation is high
- more likely to quickly respond
Dissimilar resources: a rival with resource disadvantage has a longer response time and the rival with the advantage is more likely to attack
Which has higher predictive power, market commonality or resource similarity (why?)
Market Commonality because resources are both tangible and intangible, making awareness very challenging
In the Action Response Frame Work, what are the three types of competitive stances?
1. Ignore the move: choose this when no significant impact on firms performance or when using a "wait and see" attitude
2. Accommodation: choose when entry can contribute to the market size, cooperation is less costly then destructive battle *this strategy can show signs of weakness which encourages attack on you
3. Retaliation: protect market position *could lead to Red Queen competition
4. Abandonment: attacker has a large competitive advantage and the market is unattractive for the incumbent
In the Action-Response Frame Work, what are the different magnitudes for response?
1) Match the attackers move- signals that the incumbent is unwilling to cede/surrender market share
2) Out do the attacker- signals that the incumbent has the ability to prevent the attacker from building a strong position (new entrants usually compete on price)
In the Action-Response model, how fast should an incumbent react to an attack?
1) Immediately: helps reduce the potential impact & prevents the attacker from building a unique position
2) Delayed reaction: helps to avoid over reaction and waste of resources
3) Preemptive strike: prevent the attacker from entering the market
What should be the domain of response?
Respond in the market of attacker (use when you have competitive advantage and dont want to show weakness)
Respond in the attackers market (create mutual forbearance)
Respond in a neutral market/segment (creates new market space and potentially less powerful rivals)
According to the Competitive Behavior model, what are the characteristics for competitive actions?
1) Strategic
-require substantial commitment of time and resources to develop
- highly visible and complex
- elicit fewer numbers of competitive responses (less motivation and capability) and create a longer delay for response
2) Tactical Actions- competitors will respond quickly to tactical actions
According to the action types and response characteristics (competitive behavior models) how do competitors react to PRICE AND NON PRICE
PRICE- 75% chance of response, 98% matching move in Short period (5.8 days)
NON PRICE; 17% chance of response, 90% matching move in longer time period (14.7)
How does the organization size impact competitive activity? SMALL
Likelihood of attack:
Like more motivated to be fast to execute and compete with a wide range of action types (guerilla warfare)
likelihood of response: lower capability to respond effectively and timely, less motivated to quickly respond
How does the organization size impact competitive activity? LARGE
Likely to
- initiate more competitive actions and strategic actions
- quickly respond
- have lots of resources to launch both tactical and strategic actions
- rivals are more likely to respond to large firms because they are more visible
How can we predict a rivals performance?
Future preformance- by looking at their market depedance (extent that revs are derived from one market) - high dependance means they will respond to protect their position, however response will be slow
- looking a past performance, poor preforming rivals are likely to respond more quickly then better preforming
Describe how REPUTATION impacts firms
- reputation is a positive or negative attribute that one rival ascribes to another
- based on previous responses when attacked
innovative firms: Apple is closely monitored by competitors
aggressive and unpredictable firms: delay in responses by rivals
What is a standard and why is it important?
A standard is a format, an interface or a system that allows interoperability - can be public or private
- important because control over standards is the basis for competitive advantage
Why do standards appear?
NET WORK EFFECTS- winner takes all markets: value of a given product is contingent on the number of other consumers that have it (telephones, fax, electronic mil, video games)
Explain the theory of network externalities
Network dep- direct value is from the # of users/installed base, indirect is derived from availability of complementary products that are critical to use the product
Network independant- intrinsic features/aspects of the product
Why do network effects lead to winner takes most markets?
1. path dependance: future performance is based on past events
2. positive feedback: leading firms become more successful and follow firms decline
How is strategy defined in Network Industries?
strategic actions
- installed base development
- managing complementary products
- assessing network intensity
Why do market leaders fail to adequately respond to disruptive technologies?
Performance trajectories
- those in sustaining technologies expect next generation items and upgrades but disruptive technologies produce low end products that appeal to new/different markets- start much lower in demand, but eventually meet and surpass
What are the main principles of Disruptive Innovation theory?
1. Companies depend on customers and investors
2. Small markets do not solve the growth needs of large companies
3. Markets that do not exist cannot be analyzed
4. An organization capabilities define its disabilities
5. Technology supply may not equal market demand (preformance over shoot)
How can Managers embrace disruptive technologies?
1. determine whether the technology is disruptive
2. define the strategic significance of the disruptive technology
3. locate the initial market for it
4. set up a separate organization (small enough to get excited by small gains) - leaders should be able to respond if they recognize the technology in a timely manner and establish a separate market
What are the FOUR CONSTRAINTS against non consumers?
1. skill related constraints
2. wealth-related constraints- draw a consumption pyramid
3. Access-related constraints- occasions where you cant get it,
4. time-related- takes too long to consume
How do organize an internal structure to innovate?
Idea Discovery (stimulate): Innovation training units Innovation Discovery Boards
Idea Evaluation (shepherd): growth council or intrepreneur funds
Opportunity Assessment (Spearhead): incubator group or autonomous growth groups
Opportunity Commercialization (strengthen): Corporate venture investment unit or business development units
Product Innovation and the Missile Approach
Discovery Stage (34-30 weeks prior), Idea Evaluation Stage (30-27 weeks prior), Opportunity Assessment Stage (26-14 weeks prior), Concept Development Stage (14-0 weeks prior)
Why does time depression dis economies occur?
1) higher development costs because aceleated learning leads to costly mistakes, higher testing costs, takes more people to complete quickly
2) Lower learning potential because learning is a cumulative process and it takes time to make sense of complex issues
What are the limitations of the VRIN Model?
- doesnt tell us how to develop core competences, only how to evaluate them
-doesnt suggest how firms should adapt to changes in the environment
- begs the question can a firm develop socially complex resources
- suggests that a company cant explain how their cc's were developed because of casual ambiguity