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38 Cards in this Set

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what is competitive advantage?

competitive advantage is superior performance relative to competitors.

can either create more value for the same cost as competitors, or have same value with lower cost. sustained when it keeps happening.

competitive disadvantage - continuously underperforming firm

competitive parity - two or more firms performing at the same level

what is strategy?

strategy is goal-oriented actions to gain and sustain competitive advantage.

not zero sum. win-win scenarios possilbe with co-opetition

requires tradeoffs between value creation and its cost for strategic positioning

successful strategy requires analysis, formulation, and implementation

strategy provides a manager’s roadmap, learn from previous strategic mistakes of self and others

firm effects v. industry effects

firm effects - managers' actions

industry effects - external environment

firm’s performance more related to firm effects than industry effects

firm and industry are still interdependent and thus relevant to performance

what is the difference between corporate, business, and functional managers?

corporate executive - execute corporate strategy. provide answers of where to compete (industries, markets, geographies) and how to create synergies among business units

business managers - execute business strategy. answer how to compete to achieve superior performance. manage and align all value chain activities for competitive advantage

functional managers - execute functional strategy. implement business strategy within single value chain activity

what are business models?

business models put strategy into action. they must translate strategy into effectively implemented tactics and initiatives to make money for the firms

what are stakeholders? what is the difference between internal and external stakeholders?

stakeholders - individuals or groups that have claim or interest in performance/survival of firms

internal stakeholders - employees, stockholders, and bondholders

external stakeholders - customers, suppliers, communities, governments, etc.

what is the AFI strategy framwork?

analysis - vision, mission, and values. external and internal analysis.

formulation - corporate, business, and functional strategy

implementation - structure, culture, and control. corporate governance and business ethics.

what are vision, mission, and values?

vision - what a firm ultimately wants to accomplish. an effective vision inspires employees.

mission - what the firm stands for and why

values - how to accomplish goals. ethical standards and norms

visionary firms begin with the end in mind

why are ethics and values important to long-term success?

ethics enable employees to make day-to-day decisions guided by correct principles

values are guardrails to keep company on track for competitive advantage

what is strategic intent?

strategic intent - staking out a desired leadership position in the long term that far exceeds current position

effective strategic intent creates an obsession with winning throughout the entire organization

what are SMART goals? what are their pros and cons?

S - specific

M - measurable

A - achievable

R - relevant

T - time-specific

pros - increase motivation, provide clear direction, enables management by objective

cons - can trigger unethical actions

what are the different types of missions?

customer oriented - defined firm in terms of solutions for customers. enhanced strategic flexibility over product-oriented missions.

product oriented - defined in terms of products or services

what are the three types of strategic management?

strategic planning - top-down rational planning using the AFI framework. works well in stable environment

scenario planning - envision different what-if plans and choose the best one using AFI framework. other scenarios are kept in the event of change.

planned emergence - realized strategy generally combo of top-down intended strategy and bottom-up emergent strategy, resulting in planned emergence

what is mintzberg's planning framework?

intended strategy - top down strategic plan

unrealized strategy - comes up due to unpredictable events

bottom up emergent strategy - comes up due to: autonomous actions, serendipity

realized strategy - what you finally end up with

what is the PESTEL framework?

P - political - gov't pressure, subsidies/incentives, differences in country/state law

E - economic - growth rates, interest rates, employment levels, inflation, foreign exchange rate

S - sociocultural - lifestyle changes, career expectations, demographics, geographic distribution of population

T - technological - innovation, diffusion, r&d

E - ecological - global warming, sustainability, pollution, etc.

L - legal - antitrust regulations, environmental protection laws, hiring/firing laws, etc.

what are the four types of structure-conduct performance?

perfect competition - many small firms, commodity products, most fragmented - lowest profit (ex. pet supply store)

monopolistic competition - many firms, differentiated products, less fragmented - more profit (ex. computer hardware, organic food)

oligopoly - few large firms, interdependent, less consolidated - fairly high profit (ex. soft drinks)

monopoly - one supplier, most consolidated - highest profit (ex. utilities)

what are porter's five forces?

threat of entry - high if customer switching costs are low, capital needs are low, retaliation not expected, and incumbents don't have proprietary technology, established brands, or closed distribution channels

power of suppliers - high if forward integration is credible threat, no substitutes, suppliers products differentiated, incumbents face high switching costs, and product is important to buyers. exert power by threatening to raise prices/reduce quality.

power of buyers - high if a few large buyers, buyers are large relative to seller, products are standardized, buyers face few switching costs, backward integration is credible, buyer has full information. exert power by bargaining prices, forcing higher quality, and playing firms off of each other.

threat of substitutes - high if substitute is a good price-performance trade off, buyers switching costs are low

rivalry among existing competitors - high if many competitors in industry, firms are equal size, industry growth is slow/shrinking, exit barriers are high (contracts + geographic/historical attachments), products/services are direct substitutes

how do industries change over time?

growth rates of industries are highly variable

industries often change structurally

industries converge - formerly unrelated industries collide

what are strategic groups?

strategic groups - set of firms in an industry that pursue similar strategy for competitive advantage.

example: auto industry groups are gas and electric

rivalry is strongest in the same groups. some groups are more profitable than others.

mobility barriers - factors that separate firms and prevent them from moving to profit spots

what are core competencies?

core competencies - unique strengths that differentiate firms and drive competitive advantages

what is strategic fit?

strategic fit - internal strengths change with the external environment

how is superior performance achieved?

superior performance is achieve with a combination of resources and capabilities. core competencies need to be built up. competencies drive activities. activities can produce competitive advantage and performance. profits should be reinvested for superior performance, to hone and upgrade core competencies.

what is the resource-based view?

resource-based view - view of a company in terms of its resources. resources are made up of tangible resources (visible, physical attributes) and intangible resources (invisible, no physical attributes)

comparative advantage is more likely from intangible resources.

what is resource heterogeneity?

resource heterogeneity - bundles of resources/capabilities differ across firms

what is resource immobility?

resource immobility - resources tend to be sticky and don't move easily

what is the VRIO framework?

it is a way to evaluate resources in a firm

V - valuable - attractive features, lower costs/price (higher profits)

R - rare - only a few firms possess the resource

I - costly to imitate - unable to develop/buy at a reasonable price

O - organized to capture value - the resource is utilized to exploit its competitive potential

what is the value chain?

value chain - made up of primary and supporting activities

primary activities - add value directly in transforming inputs to outputs

supporting activities - indirectly add value. provide support for primary activities (ex. HR, accounting, r&d, etc.)

what are dynamic strategic activity systems?

dynamic strategic activity systems - a network of interconnected activities in the firm. it evolves over time as the external environment changes (adding new activities and upgrading/removing obsolete ones)

what are dynamic capabilities?

dynamic capabilities - firms can modify their resource base to gain + sustain competitive advantage. dynamic capabilities are intangible resources.

how do you protect competitive advantage?

better expectations of future values - buy resources at a low cost

path dependence - current alternatives are limited by past decisions (ex. US only industrial nation not using metric)

causal ambiguity - cause of success or failure not apparent

social complexity - two or more systems interact creating many possibilities

what is a SWOT analysis?

S - strengths

W - weaknesses

O - opportunities

T - threats

strengths and weaknesses are internal and can be analyzed with VRIO

opportunities and threats are external and can be analyzed with PESTEL

firms need to leverage internal strengths to exploit external opportunities. achieving such a dynamic fit yields sustained competitive advantage.

what is the SWOT matrix? what are its categories?

SWOT matrix - utilizes SWOT analysis to develop strategic alternatives for the firm based on internal and external factors

strength-opportunity - offensive alternatives, utilize strength to address an opportunity

weakness-threat - defensive alternatives, eliminate or minimize a weakness in order to minimize the effect of a threat

strength-threat - utilize a strength to minimize the effect of a threat

weakness-opportunity - shore up a weakness to enable the firm to take advantage of an opportunity

how is competitive advantage measured?

competitive advantage is measured relative to other firms. there are three questions to judge it by:

how much economic value does the firm generate?

what is the firm's accounting profitability?

how much shareholder value does the firm create?

what is economic value? what are its components? drawbacks?

value - dollar amount consumer is willing to pay for good/service

price - cost of good/service

cost - amount it takes to produce good/service

consumer surplus - value sub price

producer surplus - price sub cost

economic value - value sub cost

opportunity cost - next best alternative use for resources

competitive economic advantage - economic value created is greater than rivals

competitive economic parity - economic value created is equal to rivals

competitive economic disadvantage - economic value created is less than rivals


- determining value isn't easy

- value may be widely varied (due to income, preferences, time, etc.)

- firm level comparative advantage - must have economic value for all goods/services (easy for small firms, not for conglomerates)

what is accounting profitability? what are its drawbacks?

accounting profitability - profit computed by standard accounting measures. permits direct firm comparisons using standalone metrics. necessary to use more than one year of data.


- based on historical data - like driving a car by using rear-view mirror

- does not consider off-balance sheet items like healthcare, pension, etc.

- focuses on tangible assets, which are not strategically relevant

what is shareholder value creation? what are its drawbacks?

shareholder value creation - total return to shareholders (return of risk capital + dividends). determined with stock price, which contains all available information (efficient market hypothesis)


- stock prices can be volatile, so difficult to assess performance in the short-term

- affected by macroeconomic factors (unemployment, inflation, interest rates, etc.)

- stock prices reflect psychological mood of investors, which can be irrational

what is the balanced scorecard? what questions does it address? what are it's pros and cons?

balanced scorecard - multiple internal and external metrics for integrative view of comparative advantage. considers financial and strategic.

four key questions:

- how do customers view us?

- how do we create value?

- what core competencies do we need?

- how do shareholders view us?


- communicates vision throughout firm

- translates vision into measurable goals

- designs business processes

- implements organizational learning


- tool for strategy implementation, not formulation

- limited guidance on selecting metrics

- limited insight on how to get back on track to meet goals

what is the triple bottom line?

triple bottom line - financial, social, and ecological considerations (aka people, planet, and profits)