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93 Cards in this Set
- Front
- Back
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Strategy define
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allocation of resources, critical actions that imply consistency, integration, or cohesiveness
making choices, where and how to compete |
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Corporate Strategy
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scope of the firm in terms of industries, and markets...vertical integration, aquistion, diversification
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Business Strategy
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how firm competes within an industry or market.
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Business model
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statement of the basis on which a business will generate revenue and profit. Preliminary basic business concept on how to make money.
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Strategy Plan
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performance goals, and how resources will be allocated over a time peroid, cycle of decision processes.
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Intended vs. Realized
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Intended-top mgmt. through negotiating, and bargaing, within organization. Emergent is 10-30% inv. managers interpret and adapt to changing external factors.
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Competitive Advantage
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Vision of Competitive Advantage
Create distinctive capabilities that generate extraordinary value in the anticipated environment |
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Mission Statement
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This is the management providing a purpose or strategic intent to its employees and consumers.
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Value Added
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created by production and commerce, difference between the firm's output and the cost of its material inputs.
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Sustainable Competitive Advantage
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when the firm’s competitors cannot match the value the firm provides at a comparable cost
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Determinants of Performance
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1. Environmental determinant (monopoly rents), barriers to exit, industry position
2. Change (Schumpeterian Rents Demand/supply shock, new regulation and tech. 3. Firm Specific Determinants (Ricardian Rents)Build and Leverage,Unique Capabilities |
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Economic Profit Equation
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Revenue-variable costs-fixed costs or (p*Q) -(AVC * Q)-FC
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Econmomies of Scale
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what scale to operate on minimum economies of scale is firms are producing at already minimal cost efficency making it hard for firms to compete.
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Absolute Cost Advantage
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aqusiton of low-cost sources of raw materials, or result from economies of learning speed in moving down the learning curve.
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Criteria to survive
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1. supply what a customer wants
2. survive the competition. |
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Criteria of Attractive Industry
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1. Threat to entry low,
2. They prohibit competitive forces from working so firms see an above average return 3. the intensity of competition should be low and no price competition 4. |
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Learning Curve
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Only help full if kept propitiatory,info. learned about the production process.
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Bad rivalry
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There are higher number of firms in an industry
It is not easy to differentiate the product When the market is stagnant, or shrinking Firms cannot exit the market easily |
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Capabilities
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“The capabilities of a firm are what it can do as a result of teams of resources working together” (Grant)
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VRIO Framework
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Achieve SCA-
V=Value R= Resources I=not easily imitated O=rganized to exploit potential |
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When do they provide a competitive advantage?
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When they add value, are rare or not imimtated
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Evolve of strategy and capablities.
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1. Design strategy to leverage core resources and capabilities
2. Invest in capabilities to support and extend current strategies. 3. Over time, existing capabilities/routines may constrain “viable” strategic options |
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Type of Resources
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Tangible: financial, physicical= debt/equity ratio, borrowing capacity, scale of plants, FA
Intangible: Tech.Reputation= R&D staff and expenditure, patents, recognition HR=expertise, training, etc |
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Value Chain componets
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1. Inbound logistics, operations, outbound logisitcs, services
2. human resource, firm infrastructure, procurement, sales and marketing. |
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Why outsource?
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Outsourcing activities in which it lacks capabilities (or which do not create advantage), the firm can concentrate fully on those areas in which it can create value.
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Overcome inertia
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1. experimentation
2. incentive systems 3. Cross functional teams 4. Training process 5. knowledge creation |
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distinctive vs. core competencies
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distinctive: things that an organization does particularly well relative to its competitors.
core: fundamental to the firm's firm's strategy and performance. |
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Leveraging Resources
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1. concentrating Resources through processes of converging, focusing, and targeting the activities that are most important than individually attacking
2. Accumulate 3. Complementing 4. Conserving |
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When to use cost advantage?
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1. Mature industries
2. high fixed costs industry 3. homogenous customer preferences 4. Innovation- proesses vs. product.propietray process technology. 5. Min. efficent scale high related to demand. |
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Differentiation
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providing something unique to the customer worth paying a premium for.
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Tangible differentiation
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Observable product characteristics
size, color, materials, etc. performance packaging complementary services |
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Intangible
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Unobservable and subjective
characteristics relating to image, status, exclusively, identity |
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Risks of Differentiation
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Extra costs may exceed value to customers
2. Not enough customers in segment 3.Customers don’t value services or characteristics 4. Brand image can’t be created or is easily duplicated |
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Broad Scope Differentiation
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Appealing to what is in common between different customers (McDonalds hamburgers, Honda cars, Sears)
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Focus Differentiation
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Appealing to sub groups of customers BMW
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Differnatiation Advantage
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occurs when a firm is able to obtain a price premium in the market which exceeds the cost of providing differentiation.
Differentiated in some way to customers Not necessarily on product characteristics alone Eg: Cereals, Sodas are highly differentiated since the leading firms charge substantial premiums for their products over “generic” alternatives (private labels) |
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Added Value
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Total value created is the difference between consumer’s willingness to pay and the firm’s opportunity cost
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Value Chain Insights for cost/differentiation
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1. exploit internal linkages for cost advantage
2. Exploit external linkages for product differentiation. |
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Levers of Strategy
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1. Revenue
2. Cost 3. Risk |
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Exogenous circumstances
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1.Payoffs are determined exogenously or by chance
2.Results in decision theoretic analysis (as in Finance) E.g. natural causes or outside shocks to industry |
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Endogenous actions and mutual interdependence
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Caused due to strategic reactions of competitors
Results in game theoretic analysis (as in industrial organization) E.g. actions and reactions in competitive rivalry |
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Risk vs. Uncertainty
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1. Risk is where expected values can be determined, there is a value of impact
2. Uncertainty: cannot be determined by a value. |
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When is risk good in choice?
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Strategic choices that enhance firm flexibility and keep options open are of greater value under conditions of high uncertainty and risk than otherwise
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Limitation of risk in NPV
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1. All cash flow value is unknown
2. risk and uncertainty are constant over the life of the startegy 3. future startegies from current, value in it |
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Strategic Flexibility
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In dynamic markets, quick response capabilities often increase the value of a firm’s strategic options if the firm can devise ways to exercise options faster than competitors.
Having options and the availability of excercising those options. |
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Commitment importance
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uncertainty does increase value of flexiblity but, commitment can give first mover advantage and flex. can stem from a commiment
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Game theoretic models
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1. involve comptetive circumstances, non-cooperative behavior-action-reaction payoffs.
Collusion-payoffs, or incentive for startegic alliance. |
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Nash Equilibrium
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No player can increase his/her payoff by a unilateral change in strategy. The best response for every player.
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First Mover Advantage
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Firm that takes an initial competitive action. If successful higher average returns and build customer loyalty.
Disadvantage: High risk, demand unknown, and high development costs. |
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Second mover
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firm that responds to a first mover’s competitive action often through imitation or a move designed to counter the effects of the initial action.
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Advantage/Disadvantage of Second Mover
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1.Reduction in demand uncertainty
2.Market research to improve satisfying customer needs 3.Learn from the first mover’s successes and shortcomings 4.Gaining time for R&D to develop a superior product Disadvantage: 1. Loss of opportunity to establish brand loyalty 2.If significant learning curve through moving first, then giving up competitive advantage |
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Cooperative strategies
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1. COllusive- when several firms in an industry cooperate to reduce industry competivness, explicit, or tact-steel or big three
2. strategic allinace: cooperate but competivness is not reduced. |
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Role of Past and the Future in Game theory
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single peroid games create little incentive, finite games with uncertain endings, past relationship with trust, future retaliation if they don't follow the game.
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Wrap up of Uncertainty
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When dealing with exogenous uncertainty
Scenario analysis Real-options analysis When dealing with endogenous uncertainty Strategic analysis (competitive and cooperative response) Managing risk when dealing with partners Often the situation includes both types of uncertainty e.g. high-tech products (MP3 players, utility computing) |
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Invention vs. Innovation
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1. Creating new products and processes by developing new knowledge or combining existing knowledge in new ways.
2. initial commercialization of invention by producing and marketing a new good or service, or by using a new method of production |
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Observations on Tech
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Underpreform intitally in reliablity, function, quality. Additional niche filled. New supplant old some fail to improve fast enough
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Tech-S Curve
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Advance down well defined course , will not improve for forever, R&D inefficient when focused on early prototypes or mature technologies. Move to new s curve
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Radical Innovations
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Architectural in design, and disruptive in the market, they are competence destroying. More commonly, radical innovations require entirely new knowledge and capabilities
Eg: Diesel locomotives, CNC machine tools Architectural innovations change the way the separate modules of a product interact |
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Where do Innovations Come From?
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1. Company's own operations or research,
2. Suppliers-new inputs uses of machings, upstream research 3. Customers |
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Key Attributes of Innovative organizations.
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1. Acute Awarness(people), prior innovative experince, and exchange information
2. Supportative Infrastructure, org. mechanisms for idea generation, quesitoning and investment processes 3. Inspired Motivation (Values) Leaders as Role-Models -- Strategic Intent Support Failure as a Learning Tool Stress Immersion in Needs Value Small Markets |
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Caveat of Innovations
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1. Don't isolate your R&D department, autonomous=isolation
limits ability to access org. resources. Limits new learning will be transferred back 2. Support innovation before you hit the wall Demand profits but be patient in terms of market take-off |
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Complementary Resources
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Support innovation before you hit the wall
Demand profits but be patient in terms of market take-off |
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Why Lead time?
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if the tech is imitatable than lead time is a major advantage, requires continuous innovation.
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Competing with Standards(tech)
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Open-decrease the ability to appropriate profits, rival imitate easily, loss of control of innovation.
They can increase market acceptance-low switching costs for buyers increase demand. Encourage innovation for your standard instead of rival Open source not Microsoft |
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Visible Hand
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Visible Hand -- administrative mechanism of firms where decisions over production, supply, and the purchase of inputs are made by managers and imposed through hierarchies. Coordination through planning
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Relative Costs Determine Firm Scope
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if costs are lower for an activity within the firm than the outside market do it.
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Diversification
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Choices of businesses or value chains to operate in:
diversfication implies: aquiring new businesses down-scoping implies divesting existing businesses. |
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Value enhancing Motives for div.
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Scope: shared activities to reduce costs. Tangible assets(excess distribution), leveraging, exportable brand name, R&D.
2. Stretching(new competencies) 3. Financial Motives: Internal capital allocation & restructuring Risk Reduction 4. Increase Market Power |
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Motives for diversification that Devaluate
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Growth max., unemployment risk, max. management compensation.
or value neutral performing badly in current business. Diversification is shown to have value when there are valuable synergies between the different holdings. |
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Benefits of Integration
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1. market power, entry barriers, down stream price maintenance, up stream power over price
2. Specialized assets & the holdup problem, protecting product quality. |
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Cost of integration
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1. Weaker incentives
2. Managing strategically different businesses 3. rigidity |
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Options not with internal development
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1. spot exchanges,
2. mergers/aquistoins 3. contracts or outsourcing 4. strategic alliances. |
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Strategic Alliance importance
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alliance is a collaboration between indpendent org. retain strategic autonomy, commit to resources to a joint activity.
More popular to gain adv. Learning from partners, more capabilities, and competencies |
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M & A success
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less than 50% are succesful and increase shareholder value. Key to renewing capabilities, involve the transfer of resources between aquirer and target to enhance performance.
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M&A pre-acquisition activities
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Develop the Vision
Corporate Strategy dictates Acquisition Strategy Assign Responsibility Assess Capability Needs & Sourcing Alternatives Identify Potential Targets Conduct Expanded Due Diligence Value Creation Opportunities, People Issues Begin Integration Planning -- Appoint Manager |
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M&A post-acquisition activities
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Communicate Vision, Goals, Direction
Minimize the Uncertainty, Calm the Nerves Create Integration Teams -- Jointly Formulate Integration Strategy Why not leave it as a separate unit? 100 day plan for acquisition integration Focus on Talent Identification and Retention Exchange people and resources In both directions! One direction is less successful Integrate with Action -- Achieve Quick Wins Communicate Keep a Customer Focus Re-deploy and Divest Assess Performance, integrate the business |
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Effective Acquisition attributes
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Complementary Assets or Resources
Friendly Acquisitions Careful Selection Process Maintain Financial Slack Low-to-Moderate Debt Sustain Emphasis on Innovation Flexibility |
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Challenge of coordination
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The challenge of coordination: The challenge of designing an optimal organization assuming that everyone in the firm fully internalizes its goals and puts self-interest aside in helping it purse those goals.
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Organizational Structure Purpose
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1. Creates Divsion of labor
2. Enables memebers to coordinate activities-mechanisms 3. Defines boundaries with enviro. and other org. 4. Allocates decision rights |
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Types of Grouping into organizational units
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Functional: Finance, manufacturing, marketing etc.
Divisional or Market based: Region, product-classes of customers. |
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Functional grouping
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Advantage: sharing specilized information about business processes across functions. Good for strategies that emphasize innovation. Scale adv. cost minimization
Dis: Does not naturally produce coordinated action across functions. |
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Divisional (market based)
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Adv: facilitates cross-functional learning about customers, coordinatoin, and local adaptability
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Matrix
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1. enviromental pressure form two dimenisions are stron, task is complex, economies of scale are needed.
Adv: org to meet multiple demands of enviro. provides employees with oppr. for skill development multiple dimensions. Dis: 2 bosses=conflict dual reporting |
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Modular
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volatile environments that change rapidly, inn. is key source
adv: adaptability-interface with environment dis: duplication of effort and resources |
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Linking the units
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1. Hierarchy
2. rules & procedures 3. liaison roles 4. matrix structures |
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Motivation
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The motivation challenge: The challenge of inducing people whose private goals might diverge from the firm’s to take actions that are consistent with achieving the firm’s goals.
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Reinforcement
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Law of effect=needs satisfaction
Give the workers something he wants when the worker behaves appropriately Punish the worker when the worker behaves inappropriately Counter conditioning reinforces behavior, but gives the employee a choice. |
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Successive approximations
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Reinforce the desired behavior more stringently over time (as the employee gets better and better)
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Vicarious learning
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Learning by observing others
In reality, generally combined with learning by doing |
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Rewards get you?
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Temporary compliance
Lower productivity People who expect no reward perform better than people who expect one The more creativity, cognitive sophistication, and open-ended thinking that was required, the worse people performed when working for a reward Lower quality Lack of creativity, thinking When people focus on rewards, they are less inclined to take risks or explore possibilities. “Rewards are the enemy of exploration” “Crowding out” of intrinsic motivation, Competition for rewards |
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Why are rewards used so frequently?
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Historical precedent
Expected by employees, Ones who value the reward stay others leave |
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Problems with intrinsic motiv
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Intrinsic motivation is hard to boost or create. “Creating” it, if possible, will involve changing job descriptions and business processes. It may involve making jobs interesting and challenging – and finding people who want that
Extrinsic motivation is known to have a negative impact on intrinsic motivation in many cases: “crowding out” external only rewarded |
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4 Rules for Selecting Indicators of Performance
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Choose indicators that are highly correlated with the direct profit impact of the unit’s work
‘Net out’ the effects of factors beyond the control of the unit Use several indicators Consider the costs of monitoring |
