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4481 Exam 1
| Question | Answer |
|---|---|
| Why does "the firm" exist? | Efficiency |
| Hard Position Power | Power from the organization |
| What is strategy? | Link between the means and the ends, lead to competitive advantage |
| Vision | What do we want to accomplish |
| Competitive advantage | the unique, sustainable edge that allows a company to outperform rivals through superior value, lower costs, or unique branding |
| Leadership | The ability to influence people toward the attainment of goals |
| How do people lead others? | Use power to influence others |
| Scale economies | Average cost of production decreases, the more you produce |
| Scope economies | Average cost of production decreases, the greater variety of what you produce |
| Mission | How do we accomplish our vision |
| Values | What principles govern our behavior in this process |
| Legitimate power | actual authority |
| Reward Power | hold rewards |
| Coercive Power | holds penalties |
| Personal Soft Power | Power from the individual |
| Expert Power | know how |
| Referent Power | peoples admiration |
| Personal Effort | Ex. group projects |
| Network of Relationships | Knowing people |
| Information Power | Unique knowledge, could be gossip |
| Strategic Leadership | Executives use power and influence to direct the activities of others when pursuing an org's goals |
| Level 1 of Leadership | capable- contributes talent, skills, and knowledge |
| Level 2 of Leadership | Contributing - Contributes individually; works well in groups |
| Level 3 of Leadership | Competent - manages team members and assets to reach set objectives |
| Level 4 of Leadership | Effectiveness - Stimulates high standards; champions dedication to vision |
| Level 5 of Leadership | Build excellence through dedication and humility |
| Upper - echelon theory | Top management team; shapes and reflects into the company |
| Strategic Business Unit | an independent business unit owned by another entity that is also profit-center. |
| Strategic Planning | long-term, big-picture decisions about where the organization wants to go and how it will compete. |
| Scenario Planning | imagining different possible future environments (best case, worst case, trends) and planning how the firm would respond. |
| Tactical Planning | detailed, short-term planning about how to execute the strategy day-to-day |
| External Environment | Consists of all factors that can affect its potential to gain and sustain a competitive advantage. Threats and opportunities originate from here |
| External Environment - Factors | PESTEL |
| P in PESTEL | Political Factors |
| E1 in PESTEL | Economic Factors |
| S in PESTEL | Sociocultural factors |
| T in PESTEL | Technological factors |
| E2 in PESTEL | Ecological factors |
| L in PESTEL | Legal Factors |
| Political Factors | The process and actions of the govt. bodies that can influence the decisions and behavior of firms |
| Economic Factors | Driven by macroeconomic phenomena. Growth rate, levels of employment, interest rate, price stability and currency exchange |
| Sociocultural Factors | Capture a society's culture, norms, and values |
| Technological Factors | Capture the application to create new process and producers |
| Ecological Factors | involve environmental issues such as the natural environment, global warming and sustainability concerns |
| Legal Factors | Official outcomes of political processes as manifested in laws, mandates, regulations and court decisions |
| Threat of New Entrants | Porter's five forces: Analyzes how easy or difficult it is for new competitors to enter the market, affected by barriers like economies of scale, capital requirements, and brand loyalty. |
| Rivalry among existing competitors | Porter's five forces: Examines the intensity of competition among existing firms in the market, often considered the most powerful force. High, intense rivalry can reduce profitability. |
| Bargaining Power of Buyers | Porter's five forces: Evaluates the pressure customers can exert on businesses to lower prices or increase service quality |
| Threat of Substitutes of Products or Services | Porter's five forces: Assesses the likelihood of customers switching to alternatives from different industries, which can limit pricing power |
| Bargaining Power of Suppliers | Porter's five forces: Measures the influence suppliers have on increasing prices or reducing the quality of goods and services. |
| Why does internal analysis matter | Analyze resources and capabilities |
| V in VRIO | Valuable |
| R in VRIO | Rare |
| I in VRIO | Inimitable |
| O in VRIO | Are the Organized use the value |
| Resources | Any asset that the firm can potentially utilize in executing its strategy |
| Capabilities | Organization and management skills necessary to orchestrate a diverse set of resources and deploy them strategically |
| Core Competencies | the unique skills, resources, or capabilities that give a firm a competitive advantage and are difficult for competitors to imitate. |
| Value Chain | set of activities the firm engages in |
| SWOT Analysis | Strengths, weakness, opportunities and threats |
| Strengths and Weaknesses | Internal analysis |
| Opportunities and threats | External analysis |
| Intended Strategy | strategy that managers plan and intend to implement. |
| Realized Strategy | strategy that a firm actually ends up implementing in practice. |
| Discarded Strategy | portion of the intended strategy that was not implemented due to changes in the environment, poor performance, or unforeseen challenges. |
| Balanced Scorecard | A tool to assess firm performance, combining internal and external performance metrics in order to balance financial and strategic goals |
| Limitations of Balanced Scorecard | Not a strategy formulation tool (implementation- and control/feedback-related) Doesn’t define specific metrics to be used (flexible, open-ended) |
| Triple Bottom Line | A tool to assess firm performance, combining economic, social, and ecological aspects -> can potentially drive sustainable strategy |
| Measure of value creation | Accounting Profitability |
| Accounting Profitability | Enable a direct comparison of performance across the firm, internal measures, readily available financial data |
| ROIC | Return on Invested Capital |
| ROA | Return on Asset |
| ROE | Return on Equity |
| Limitations of Accounting Profitability | Only tells the past, stuck to just the balance sheets, can be falsified. |
| Measure of value creation | Shareholder value creation |
| Shareholder value creation | Return on their risk capital, involves external and forward looking. Involves share price, market capitalization and total return to shareholders |
| Limitations of shareholder value creation | Stock prices are volatile, effected by macroeconomics |
| Measure of value creation | Economic value creation |
| Economic value creation | the difference between a buyer’s willingness to pay for a product or service and the firm’s total cost to produce it. |
| Limitations of economic value creation | Determine the value of a product/service is not easy |
| Dynamism | The value of a product/service changes based on income, preferences, time, and other factors. |
| Value appropriation | A firm should not only create value, but also capture it |
| Value | $ amount the consumer attaches to a good or service (a.k.a. the consumer’s maximum willingness to pay; reservation price). |
| Business model | Is how the firm strategy is translated into $ Is a broad statement of how the firm intends to make money. |
| A business model is not | Merely what the firm sells (i.e., a product/service) A resource/capability A strategy on its own |
| Business Strategy | The goal-directed actions managers take in their quest for competitive advantage when competing in a single product/service market. |
| Business Strategy Question | How should we compete? |
| Differentiation Strategy | add unique features that will increase the perceived value of goods/services. Competition tends to be on unique product features, service, and new product launches, or on marketing and promotion rather than price. |
| Cost-leadership strategy | The goals (concurrently): 1. reducing the firm’s cost below that of competitors 2. offering similar or identical value (differentiation parity) 3. offering lower prices |
| Value Drivers | Product features, customer service and complements |
| Economies of scope | is salient in controlling costs while pursuing a differentiation strategy. |
| Cost drivers for cost leadership | Cost of input factors. Economies of scale. Learning-curve effects. Experience-curve effects. |
| Learning-curve | depicts the relationship between cost and output. Decreasing costs indicates increased efficiency driven by increasing experience. |
| Experience Curve | involves process innovation, a new method or technology that introduces a steeper curve. |
| Blue Ocean | untapped market space; creation of additional demand, rather than competing in the existing markets. |
| Red Ocean | market space of existing industries, associated with cut-throat and zero-sum competition |
| Value Innovation | A strategic action that creates a leap in both the value created for the firm (which involves cost cutting) and the perceived value for the consumer |
| Corporate-level strategy | pertains to the organization as a whole and the combination of business units and product lines that makes up the corporate entity |
| Functional-level strategy | pertains to the major functional departments within the business unit |
| Corporate Strategy | The decisions and the goal-directed actions a firm takes to gain and sustain competitive advantage in several industries and markets simultaneously. |
| A firm needs these to grow and expand | Greater profits, lower costs, reduced risks, greater market share/power, or increased morale for the management |
| The three Ds | Diversification, vertical integration, and geographic scope |
| Transaction costs | expenses incurred when buying or selling goods, services, or financial assets, distinct from the item's base price |
| Vertical Integration | What percentage of a firm’s sales is generated within the firm’s boundaries? Industry (vertical) value chain Firm operate in a continuum, varying from vertically disintegrated to fully vertically integrated |
| Ethics | The set of moral principles and values that governs human behavior with respect to what is right or wrong |
| Ethical dilemma | situation concerning right or wrong when values are in conflict |
| Domain of Codified Law (Legal Standrad) | High amount of explicit control |
| Domain of Ethics (Social Standard) | Moderate explicit control |
| Domain of Free Choice (Personal Standard) | Low explicit control |
| Corporate governance | A system of mechanisms to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally. |
| Board of directors | Elected by shareholders to oversee the corporate governance, composed of internal and external members. |
Created by:
c22shaferv