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57 Cards in this Set
- Front
- Back
- 3rd side (hint)
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main aims of the course are
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understand driveers of firm financial performance and make recommendations to improve LT performance/profits
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Strategy defined by Grant
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unifying theme that gives a choerence and direction to the actions and decisions of an individual or an organization
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3 criteria for successful strategy
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1. long-term, simple objectives
2. deep understanding of competitive environment 3. objective appraisal of internal resources |
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Business Unit Strategy
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decisions about how a firm will compete in a particular market/industry
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Corporate Strategy
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decisions regarding the industries and value chain steps in which a firm competes
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Fundamental Fact of Strategy Game
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1. some industries have higher profits than others
2. some firms have higher profits than others w/in their industries |
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ROA
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profit/assets
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Leverage
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Assets/Equity
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(Liabilities/equity)+1
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ROE
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Profit/Equity
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ROA * Leverage = ROE
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ROS
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Profit/sales
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Asset Turnover
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Sales/Assets
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ROA
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ROS*Asset Turnover
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Key figures for comparison
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avg. ROA = 5-6%
avg. ROE = 14-15% avg. ROS = 3-4% |
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Purposes of 5 forces analysis
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1. assess current avg. industry profitability of incumbent firms
2. help understand the impact of trends and events on future avg. industry profitability 3. help make recommendations to firm on how to improve overall industry envt & firm's position in env't. |
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5 forces
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Buyer Power, Supplier power, threat of entrants, rivalry among existing competitors, threat of substitutes
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Monopoly Power
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quantity where marginal revenue =marginal cost; price on demand curve
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When does a firm have monopoly power
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when demand curve is downward-sloping
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industry
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similar products that have common suppliers and buyers
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suppliers
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organizations that firms in the industry pay
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buyers
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organizations that pay firms in the industry
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rivals
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firms in the same industry
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substitutes
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things that could be alternative to industry's products
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potential entrants
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firms that could enter industry
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Supplier Power
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powerful = raise cost or lower quality
weak = forced to accept lower prices or deliver higher quality |
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Buyer Power
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powerful = force to keep prices low or deliver higher quality
weak = forced to accept high prices or low quality |
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switching costs
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costs that customers bear when switching from one product to another: economic or psychological or both
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Effects of substitutes
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close substitutes drive prices down or force costs & quality up
weak substitutes allow prices to stay high |
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Effects of rivalry
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intense = drive prices down or force costs & quality up
weak = allows prices to stay high |
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factors affecting barriers to entry
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economies of scale, product differentiation, capital requirements, cost disadvantages, access to distribution channels, government policy
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economies of scale
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average costs decline as output increases
big firms --> lower avg. costs happens when very large fixed costs |
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cross-price elasticity
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(change in Px/Px) / (change in Py/Py)
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Porter's Generic Strategies
i.e. Competitive positioning |
Broad Low- Cost; Broad Differentiation
Focused Low-Cost; Focused Differentiation |
Scope vs. Customer Needs
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trade-offs in strategic positioning
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low cost vs. differentiation
narrow vs. broad segment |
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Broad Cost Leadership
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high volumes of standardized goods; exploit economies of scale
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withstands price competition;
size gives protection from buyer&supplier leverage; high fixed costs = barrier for entrants; low cost means low price against substitutes |
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Low Cost Strategy activities
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efficient operations, low cost logistics & distribution, efficient processes, simple products, good labor supervision
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Cost Drivers: economies of scale
economies of scope experience curve supply costs |
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Differentiation Strategy activities
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innovative products, brand image promotion, quality customer service, staff training, quality assurance
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Differentiation drivers: service quality and levels
product features delivery times image |
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customer willingness to pay
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dependent on next-best alternatives and on presence of complementary products
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supplier willingness to sell
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dependent on next-best alternatives and on presence of complementary selling opportunities
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value creation through cooperation w rivals
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complements for customers (video games and video consoles)
complements for suppliers (airlines and boeing) |
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Productivity Frontier
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Differentiation & relative cost position
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Competitive positioning
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unique point on the productivity frontier
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Operational effectiveness vs. strategy
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OE is extent to which firms perform differently relative to similar products
strategy is performing diff product/service in diff way |
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Why is activities configuration hard to imitate?
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causal ambiguity
complexity competitor constraints |
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Purpose of resource-based view
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why do some firms sustain better economic performance?
-->firm's resources & capabilities are drivers of competitive advantage |
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resources
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used to conceive & implement strategies; intangible & tangible
Financial, physical, human and organizational |
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capabilities
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subset of resources that enable firm to take full advantage of other resources
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assumptions of RBV
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Resource heterogeneity
resource immobility |
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VRIO Framework
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Value
Rarity Imitability Organization |
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VRIO Disadvantage when:
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not valuable,rare, costly to imitate or organized
below normal |
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VRIO Parity when:
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Valuable but not rare
Normal |
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VRIO temporary advantage when:
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valuable and rare but not costly to imitate
above normal |
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VRIO sustained advantage when:
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valuable, rare, costly to imitate and exploited by organization
above normal |
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Dominant Designs
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agreement on:
technical solutions customer needs business models |
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S curve
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performance is non-linear function of effort expended
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Innovator's dilemma
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when new technology introduced (disruption) but it's still inferior to existing technology at first (during ferment)
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architectural innovation
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disruption in activities dealing w buyers and suppliers at the same time
-hard to see & respond to -requires re-configuring of linkages btwn functions and knowledge capital |
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Regular innovation
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same customers & suppliers & incrementtal improvement on existing tech
favors incumbents |
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