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Flashcards in 1: Foundations of Strategy Deck (21)
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1
Q

Strategy:

goal

+ how it was

+ then

+ now

A
  • > for managers to position their firms relative to competitors
  • Strategy often revealed after the fact – based on (un)successful firms’ strategic moves
  • practitioners, consultants, academics have sought to find “rules” to predict success
  • Strategy research is based on statistical analysis of many firms + single cases of successful and less successful firms
2
Q

Strategy research answers 3 key Qs:

A
  • Why do some firms financially outperform for some time?
  • How to deal with opportunities n threats in environment?
  • How to manage own strengths n weaknesses?
3
Q

Historical dev. of strategy 50’s to 00’s

17=2+3+3+3+3+3

A
  • 1950’s Financial planning
    • Functional control
  • 1960’s Long range planning
    • Planning for growth
    • Resource allocation
  • 1970’s Strategic planning
    • Response to markets
    • Alternative strategies
  • 1980’s Strategic Mgmt
    • Strategic processes
    • Competitive positioning
  • 1990’s Quest for Strategic Advantage
    • Capabilities
    • Resources
  • 2000’s New Economy
    • Business Models
    • Disruptive technologies
4
Q

current 10=3+3+3+1 forces pushing to radical rethinking of strategic mgmt

A
  • Structural change
  • Scarcity of expertise
  • Mergers transforming industries
  • Environmental concerns
  • New industry substitutes
  • Rapidly changing customer expectation
  • Rate of innovations
  • Increased entrepreneurial activity
  • Global competition
  • Deregulation
5
Q

Basic 8=2+2+4 radical devs. in strategy

A
  • Knowledge and technology
  • Processes and routines
  • History and path-dependence
  • Cooperation and networks
  • Resource-based theory
  • Knowledge-based view
  • Capabilities-based view
  • Entrepreneurial view
6
Q

Today’s 4 trends

A
  • Corporate social responsibility (CSR) and business ethics
  • Global strategies Sustainability / green strategies
  • Competing for standards
7
Q

Competitive Strategy

def

goal

key author

A

Competitive strategy is concerned with ”Creating and maintaining a competitive advantage in each and every area of business“

–> outperform competitors

by Porter

8
Q

Porter’s 2 fundamental competitive strategies

A
  • Cost leadership = company prices around the market average, and enjoys superior profits because its costs are lower than those of its rivals
  • Differentiation = company adds value in areas of significance for the customer, who then accepts a premium price for distinctiveness of products and services
9
Q

Backup 3 levels of firm’s economic performance

A

Below-normal, Normal, Above-normal = with its resources and knowledge, a firm generates economic value below/equal to/above what owners of that resource and knowledge expect

10
Q

Backup 6=(2+1)+(2+1) Profitability ratios in strategy

each w name, formula, meaning

A
  • Return on total assets (ROA)
    • profit after tax
  • / total assets*
    • =Return on total investment in a firm
  • Return on equity (ROE)
    • profit after tax
  • / total stockholder equity*
    • =Return on total equity investment in a firm
  • Gross profit margin
    • (sales - cost of goods sold)
  • /sales*
    • =Sales available to cover operating expenses and still generate profit
  • Earnings per share (EPS)
    • (profits after tax - preferred stock dividends)
  • /number of shares of common stock outstanding*
    • =Profit available to owners of a common stock
  • Cash flow per share
    • (after-tax profits + depreciation)
  • /no. of common shares outstanding*
    • =Funds available to fund activities above current levels of costs
  • Price-earning ratio
    • current market price per share
  • /after-tax earnings per share*
    • =Anticipated firm performance
11
Q

Backup - 5=2+1+2 Liquidity and leverage ratios in strategy name, formula, meaning

A
  • Quick ratio
    • (current assets - inventory)
  • / current liabilities*
    • =Ability to meet short- term obligations without selling current inventory
  • Current ratio
    • current assets
  • / current liabilities*
    • =Ability to cover short-term liabilities with short-term assets
  • Times interest earned
    • profit before interest and tax
  • / total interest charged*
    • =How much a firm‘s profit can decline and still meet its obligations
  • Debt to asset
    • total debt
  • ​/ total assets*
    • =The extent to which debt has been used to finance a firm‘s business
  • Debt to equity
    • total debt
  • ​/ total equity*
    • =The use of debt versus equity to finance business activities
12
Q

Backup - 3=1+2 Activity ratios

A
  • Inventory turnover
    • sales
  • / inventory*
    • =Speed with which a firm‘s inventory is turning over
  • Accounts receivable turnover
    • annual credit sales
  • / accounts receivable*
    • =Average time it takes to collect on credit sales
  • Average collection period
    • accounts receivable
  • /average daily sales*
    • =Time it takes to receive payment after sale has been made
13
Q

Competitive advantage:

measurable how,

4 possible situations

A

from P/E ratio of firm relative to avg. competitor

  • disadvantage
  • parity
  • temporary advantage
  • sustainable advantage
14
Q

Relative Revenue Growth rates segmented by geographic market

A

Cos based in emerging markets VS dev.ed economies have a 10%+ growth rate advantage, regardless of

home/foreign X dev./em. markets!

15
Q

Competitive strategy

def

+ 2x2 matrix

A

“Creating and maintaining a competitive advantage in each and every area of business”

Strategic advantage (perceived uniqueness /Low-cost )
x
Strategic target (industry wide / particular segment only)
=
Product differentiation (+focus) / Cost leadership (+focus)

16
Q

Cost leadership’s 5 sources of cost advantage with explanation and key underlying concept

A
  • Size differences and economies of scale = economies of scale in manufacturing, marketing, sales, or administration for larger firms up to a certain point (there is an optimal volume)
  • Experience differences learning- economies = unit costs go down on value ~20-30% every time total production experience (=cumul.prod.) doubles for whole industry or individual producer, till physical lower bound (there is accumulated learning) –> Relationship between competitors stabilizes at constant market shares but different profit margins
  • Differential low-cost access to factors of production = cheaper raw materials, land, labor, capital, maybe through bargaining power thanks to high volume
  • Technological advantage independent of scale = more R&D inv. or better exploitation of (purchased) tech
  • Policy choices = no variation, everyone focuses on cutting costs of standardized products
17
Q

Differentiation strategy def + econ. conseq.

A

The firm attempts to gain competitive advantage by enhancing the perceived value of its own products and services, in various ways, relative to that of the firm‘s competitors (including substitutes)

-> no more pure competition, but monopolistic competition w buyers n sellers pairing based on prefs.

18
Q

Differentiation’s 7=1+2+3+1 sources

A
  • Product features = Quality, Design, Color, Style, Trademarks, Patents (matching pref. of certain customers)
  • Timing = 1st mover: aggressive R&D, prod.dev., marketing -> +use (up) slack resources, + capture loyal customers - uncertainty; 2nd mover responds/imitates, late mover much time later
  • Location and presence = close to Suppliers/Distributors and retailers/Customers
  • Linkages between functions and complexity = more complex features or delivery, often through links of sales X (distrib./financing/prod.dev./service) or fin. X prod.dev.
  • Product mix = when sets of products are linked and/or bought together by some customers
  • Links with other firms = like inter-function links, but w other firms’ functions
  • Reputation (KEY SOURCE) = consistent behavior -> brand name n perception of quality/dur-n reliability w suppliers n customers
  • => optimal reputation cheating: dangerous*
19
Q

Integrators’ strategy explained

A

maximize Value - Cost even though neither is optimized overall

20
Q

Value-based model of firm strategy:

(3 factors) n 3 elements of _biz-level strategy_ for Value Creation and Appropriation

A
  • Competitors =
    • direct,
    • entrants,
    • substitutes
  • Resources =
    • internal/
    • external=
      • acquired,
      • shared,
      • complementors
  • Customers =
    • intermediaries,
    • industrial,
    • final
  • Co-Cu: market positioning: to whom, how differentiate?
  • Co-Re: competititve dynamics: barriers, interaction
  • Re-Co: resource mgmt process: which, how config.
21
Q

The 3 basic ways to create value for customers

w (value nature) <= key cost to firm

A
  • product (features) < production
  • professional services (solution) < HR
  • network (connectivity to others) < network capacity n use