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30 Cards in this Set
- Front
- Back
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PESTEL Environment |
Political: policies, tax laws Economic: Inflation, interest rates Socioculture: mindsets, lifestyles Technology Ecological: geographic location, climate, weather Legal: Regulations |
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What is Strategy? |
What makes you shine, your core competencies and how you are going to use them to create perceived value |
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Stakeholders Vs. Shareholders |
Similarities: both care about company performance Differences: STAKE- care about more than stock price- bond holders, employees, suppliers, customers, shareholders SHARE- interested in making money on their shares, part owners of the company |
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Economic Value |
Value -(minus) Cost |
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ROCE (return on capital employed) |
EBIT/Capital employed capital employed = total assets - current liabilities |
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Accounting Profit vs. Economic Profit |
Accounting profit: Total revenue - dollar cost of producing the good/service Economic profit: Total revenue - total opportunity cost of all the resources used by the firm |
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Industry Structures: perfect, monopolistic, oligopoly, monopoly |
Perfect: many small firms, price takers, commodity product, low barriers to entry Monopolistic: many firms, some price power, differentiated products, medium barriers to entry Oligopoly: few large firms, some pricing power, differentiated product, high barriers to entry Monopoly: one firm, pricing power, unique product, very high barriers to entry |
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Porters 5 Forces |
Rivalry Threat of new entrants Threat of substitutes Supplier power Buyer Power |
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Porters: Rivalry |
Greatest when... lots of competitors w/ equal size industry growth is slow exit barriers are high - keeps firm in industry firms cannot read each others signals well |
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Porters: Threat of new entrants |
If high...downward pressure on price, increase cost -Barriers to entry -supply side economies of scale (buying in bulk)deters entrants -demand side benefits of scale (network effects: people pay more for popular products) -switching costs -capital requirements (more capital required, higher barriers) -unequal access to distribution channels -restrictive government policy |
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Porters: Threat of Substitutes |
High: if industry profitability suffers, many other types of products a consumer could buy instead, low switching costs |
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Porters: Supplier Power |
High: suppliers can charge more, supply does not depend heavily on one industry, industry participants face switching costs, supplier has differentiated products, no substitutes for what they offer Low: suppliers succumb to buyers demands, low switching costs + other options |
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Porters: Buyer Power |
High: few buyers in the industry, industry products are standardized, low switching costs Low(price sensitive): product its buying represents a significant fraction of it's cost structure, buyer earns low profits |
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AFI framework |
Analyze, Formulate, Implement |
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Strategic Interaction |
taking your competitors behaviors into account when making decisions about how to maximize profits |
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Game Theory Dominant Strategy Nash Equilibrium |
Game: a way to look at what decision to make based on what you think your competitor will do, helps understand the structure of interaction between players Dominant: when one firm is better off making a certain decision no matter what the other firm does Nash: when both firms have a dominant strategy where they choose the same outcome |
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NPV formula |
Net cash inflow during the period / (1+r)^time - Initial investment |
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Resource-based view |
Intangible and tangible assets that provide an opportunity for competitive advantage Competitive advantage is more likely to come from intangible core competencies than tangible 2 assumptions: -each company has their own set of bundle or resources and capabilities -resources are sticky and don't move easily from firm to firm |
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VIRO Framework |
Valuable - if no: competitive disadvantage Rare - if not: competitive parity (every has it) Costly to imitate - if no: temp comp advantage Organized to capture value - if no: temp comp advantage |
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Strategic Group |
set of companies that pursue a similar strategy within a specific industry |
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Mapping strategic groups - steps |
1) identify the most important strategic dimensions for the industry 2) choose 2 key dimensions for the axis which exposes differences between competitors 3) dimensions chosen should not be high correlated 4)position firms in the strategic group indicating each firm's market share by the size of the bubble |
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Aspects of strategic groups |
- competitive rivalry is strongest between firms that are within the same group - each group affected differently by the external environment - each group affected differently by the competitive forces - some more profitable than others - mobility barriers may prevent firms from switching strategic groups 2 shortcomings 1) mapping is static (one point in time) 2) doesn't help us understand why there are performance differences among firms in the same group (must look inside the firm to find out) |
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Differentiation vs. Cost leadership |
differentiation: focusing on being unique in order to charge higher prices cost leadership: having the lowest cost |
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Cost Leadership Explained |
-ability to withstand a price war -economies of scale are vital (usually larger companies, creates barriers to entry) -strong ability to absorb price increases through accepting lower profits as they make up for it with high volume -want to provide more economic value (value-cost) than competitors -Cost Drivers: cost of inputs, economies of scale, learning curve effects, experience curve effects (attempt to capture both learning curve and economies of scale) |
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Risks of Cost Leadership |
-competitors with relevant knowledge take market share, profits may erode due to attempts to create new capabilities -if acceptable quality is not maintained market share will be lost -others can copy tangible low cost logistical elements but do them more effectively -difficult to compete when consumers preferences switch from price only to price and non-price attributes |
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Differentiation Explained |
-strategy that can benefit from imperfect competition -reduces rivalry -more likely to be based on intangible resources -threat of entry is reduced because intangible resources difficult to copy -protection against supplier power if customers perceived value is high and brand loyalty is present -only add features that customers perceive as valuable |
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Risks of Differentiation |
Value drivers: product features, customer service, customization, complements Risks: -when customer focus is shifted to price -commoditized products are usually about price -potential to be too differentiated - add features that customers don't see as added value |
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What makes a chosen strategy (cost or differentiation) successful? |
1) how well the strategy leverages the firm's internal strengths while mitigating its weaknesses 2) how well it helps the firm exploit internal opportunities while avoiding external threats |
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Why are some firms more profitable than others? |
1) compete in a structurally attractive industry 2) leverage unique and difficult to imitate resources and capabilities 3) secure and exploit a superior position |
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Goal of a firm |
increase their spread between buyers willingness to pay and their costs - don't want to get stuck in the middle of two strategies for very long |
