Term
| What is competitive advantage? |
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Definition
| When a firm implements a strategy that its competitors are unable to duplicate or find too costly to try to imitate |
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Term
| What are above-average returns |
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Definition
Returns in excess of what an investor expects to earn from other investments with a similar amount of risk.
AKA Excess of opportunity costs of capital (risk adjusted) |
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Term
| Why are some firms more successful than others? |
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Definition
Macroeconomic Factors
Industry Factors: Growth, competition, Entry barriers, Technological innovation
Firm-Specific Factors: Strategy implementation, productivity through efficient and effective resource allocation, adaptability to market conditions |
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Term
| What are the two key perspectives of strategic management for analyzing above-average returns? |
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Definition
Industrial Organization Model (I/O model)
Resource Based Model |
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Term
| Describe the Industrial Organizational Model |
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Definition
Industrial Organization Model: Above-average returns are determined primarily by factors EXTERNAL to the firm.
---Industry structure
---Attractiveness of the external environment
The industry in which a firm competes has a stronger influence on the firm's performance than do the choices managers make inside their organizations. |
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Term
Within the Industrial Organizational Model:
1. Define: Opportunity Recognition
2. Define: Positioning |
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Definition
1. Strategy is dictated by the external environment of the firm ("What opportunities exist in these environments")
2. Developing internal skills required by external environment ("what can the firm do about the opportunities?") |
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Term
| Four Assumptions of the Industrial Organizational Model |
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Definition
1. Environmental constraints - External environment imposes pressures and constraints that determine strategies leading to above-average returns
2. Even Resources - Most firms competing in an industry control similar strategically relevant resources and pursue similar strategies.
3. Mobile Resources - Resources used to implement strategies are highly mobile across firms
4. Rational Management - Organizational decision makers are assumed to be rational and committed to acting in the firm's best interests (profit-maximizing)
Note: Strategies is listed on 3 assumptions |
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Term
Industrial Organization Model
Algorithm |
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Definition
External Environment +
Attractive Industry +
Strategy Formulation +
Assets and Skills +
Strategy Implementation =
Superior Returns (above average returns) |
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Term
Resource Based Model
Algorithm |
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Definition
Resources* +
Capability* +
Competitive Advantage* +
Attractive Industry +
Strategy Formulation and Implementation =
Superior Returns |
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Term
| Resources (think of what constitutes assets) |
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Definition
Inputs into a firm's production process:
---Capital equipment
---Skills
---Patents
---Finances
---Talented managers |
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Term
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Definition
Capacity of a set of resources to perform in an integrative manner.
NOT: So simple that it can be imitated
NOT: So complex that it defies internal steering and control |
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Term
Resource Based Model
4 Assumptions |
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Definition
1. Resources/Capabilities - Each organization is a collection of unique resources and capabilities that provide the basis for its strategy and that is the primary source of its returns
2. Dynamic Capabilties - Capabilities evolve within and must be managed dynamically
3. Unique resources - Differences in firms' performances are due primarily to their unique resources and capabilities rather than structural characteristics of the industry
4. Resources->acquired Capabilities -> developed |
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Term
| Resources and Capabilities give competitive advantage when (4): |
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Definition
Valuable
Rare
Nonsubstitutable
Costly to imitate |
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Term
Brief Summary of Industrial Organization Model
Brief Summary of Resource Based Model |
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Definition
Focuses on exploiting environment outside the firm
Resource Based Model: Focuses on use of competencies inside of the firm |
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Term
| External Environment Analysis Process (4) |
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Definition
Scanning: (Look at environment) Identify early signals of environmental changes and trends
Monitoring: (Strategy in the back of the mind) Detect meaning through ongoing observations of environmental changes and trends.
Forecasting: (daydream about strategy) Project anticipated outcomes based on monitored changes and trends
Assessing: (crucial strategizing) Determine the timing and importance of environmental changes and trends with regard to their strategies and management |
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Term
Analysis of the External Environment
Different levels of environments to consider (3)? |
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Definition
General: Thinking about everything, the economy, new technologies, up and coming workforce, whatever
Industry: (money) Focused on factors and conditions influencing a firm's profitability within an industry
Competitor: (defense) Focused on predicting the dynamics of competitors' actions, responses and intentions |
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Term
Porter's 5 Forces
Name them |
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Definition
Bargaining Power of Suppliers
Bargaining Power of Consumers
Threat of new entrants
Threat of substitute products
Rivalry among competing firms |
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Term
Threat of new entrants
List a few concerns |
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Definition
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Government policy |
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Term
Bargaining Power of Suppliers
Suppliers power increases when: |
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Definition
Few suppliers with high capacity
Substitute products unavailable
Substitute products create switching costs
Suppliers pose a threat to vertically climb the distribution channel into your industry |
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Term
Bargaining Power of Buyers
Buyer power increases when: |
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Definition
Substitute products are available
Buyers purchase large portions of output
Buyers can pose a threat to vertically climb down into the suppliers industry |
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Term
Threat of Substitute Products
This threat increases when: |
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Definition
Switching costs are low
Low differentiation
Lower price from competitors
Quality/Performance are equal to or greater than the existing product |
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Term
Industry Rivalry increases when:
List a few |
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Definition
Industry growth slows or declines
Numerous competitors
Equally balanced competitors
High fixed costs or high storage costs
Lower differentiation or low switching costs
Exit barriers are high |
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