GBA 490 Test 1 notes ch 1,2,3,4
GBA 490 Test 1 notes ch 1,2,3,4 GBA 490
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This 14 page Study Guide was uploaded by Sody Gentry on Sunday September 11, 2016. The Study Guide belongs to GBA 490 at University of Alabama - Tuscaloosa taught by Joyce L. Meyer in Fall 2016. Since its upload, it has received 9 views. For similar materials see Strategic Management in Business at University of Alabama - Tuscaloosa.
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Date Created: 09/11/16
GBA 490 CH 1 A company’s strategy is the set of actions that its managers take to outperform the company’s competitors and achieve superior profitability Strategy is all about How: How to attract and please customers How to compete against rivals How to position the company in the marketplace and capitalize on attractive opportunities to grow the business How to respond to changing economic and market conditions How to manage each functional piece of the business How to achieve the companys perfomance targets Strategy is about competing differently from rivals— Doing what rival firms don’t do or what rival firms cant do o Appealing to buyers in ways that set a company apart from its rivals o Staking out a market position that is not crowded with strong competitors Competitive Advantage Meeting customer needs more effectively and efficiently Giving buyers what they perceive as superior value compared to the offerings of rival sellers or giving buyers the same value as others at a lower cost to the firm. Sustainable Competitive Advantage If it persists despite the best efforts of competitors to match or surpass this advantage. Strategies for Building Sustainable Competitive Advantage Low- Cost Provider Focused Low-Cost Best- Cost Provider Focused Differentiation Broad Differentiation Managers modify strategy in response to: Means: “pay attention to what’s going on out there” A company’s strategy tends to evolve because of changing circumstances and ongoing efforts by management to improve the strategy Realized (current) strategy is a blend of: Proactive: anticipating market and competition changes in advance of their actual occurrence and making appropriate organizational shifts in response. Reactive: changing in response to what someone else is doing The Profit Formula Creating a cost structure that allows for acceptable profits, given that pricing is tied to the customer value proposition. o V—the value provided to customers o P—the price charged to customers o C—the firm’s costs A company’s business model sets for the logic for how its strategy will create value for customers and at the same time generate revenues sufficient to cover costs and realize a profit Strategy provides: A prescription for doing business. A road map to competitive advantage. A game plan for pleasing customers. A formula for attaining long-term standout marketplace performance. Strategy is about asking the right questions: Strategy requires getting the right answers: Ch 2 CHARTING A COMPANY’S DIRECTION: Its Vision, Mission, Objectives, and Strategy What does the strategy-making, strategy-executing process entail? 1. Developing a strategic vision, a mission statement, and a set of core values. Strategic vision describes “where we are going” management’s aspirations for the company and the course direction charted to achieve them o Delineates management’s future aspirations for the firm to its stakeholders. Mission statement: “who we are, what we do, and why we are here.” o Uses specific language to give the firm its own unique identity. o Describes the firm’s current business and purpose A company’s core values are the beliefs, traits, and behavioral norms that company personnel are expected to display in conducting the company’s business and pursuing its strategic vision and mission 2. Setting objectives for measuring the firm's performance and tracking its progress. The Purpose of Setting Objectives: To convert the vision and mission into specific, measurable, timely performance targets. Specific, measurable, deadline for achievement, challenging/motivating Setting stretch objectives promotes better overall performance 3. Vision: the future 4. Executing the strategy Converting strategic plans into actions requires: 1. Directing organizational action. 2. Motivating people. 5. Evaluating performance and initiating corrective adjustments A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective, concentrating the full force of its resources and competitive actions on achieving that objective. Indicates firm’s intent to making quantum gains Involves establishing a grandiose performance target Entails sustained, aggressive actions Short-Term Objectives: Long-Term Objectives: Financial Objectives Communicate top management’s goals for financial performance. Examples: An x percent increase in annual revenues Annual increases in after-tax profits of x percent Annual increases in earnings per share of x percent Annual dividend increases of x percent Profit margins of x percent An x percent return on capital employed (ROCE) or return on shareholders’ equity investment (ROE) Increased shareholder value—in the form of an upward-trending stock price Bond and credit ratings of x Internal cash flows of x dollars to fund new capital investment Strategic Objectives Are the firm's goals related to marketing standing and competitive position. Examples: Winning an x percent market share Achieving lower overall costs than rivals Overtaking key competitors on product performance or quality or customer service Deriving x percent of revenues from the sale of new products introduced within the next five years Having broader or deeper technological capabilities than rivals Having a wider product line than rivals Having a better-known or more powerful brand name than rivals Having stronger national or global sales and distribution capabilities than rivals Consistently getting new or improved products and services to market ahead of rivals A balanced scorecard measures a firm’s optimal performance Tracks both measures Good financial performance is not enough: Lagging indicators- a financial sign that becomes apparent only after a large economic shift has taken place Stretch strategic objectives - Leading indicator - Strategy making involves managers at all organizational levels Chief Executive Officer (CEO) o Ultimate responsibility Senior Executives o In charge of different subsidiaries Managers of subsidiaries, divisions, geographic regions, plants, and other operating units (and key employees with specialized expertise) Corporate level business level functional level operational level Obligations of the Board of Directors: Oversee the firm’s financial accounting and reporting practices compliance with the Sarbanes-Oxley Act. Critically appraise the firm’s direction, strategy, and business approaches. Ch 3 evaluating a company’s external environment PESTEL Analysis o Political factors: these factors include political policies, including the extent to which a government intervenes in the economy -tax policy, tariffs, political climate, strengths of the federal banking system o Economic conditions (local to worldwide): these conditions inculde the general economic climate and specific factors such as interest rates, exchange rates, inflation, unemployment, etc. o Sociocultural forces: include the societal values, attitues, cultural influences, and lifestyles that impact demand for particular goods and services, as well as demographic factors such as population, growth rate, and age distribution. Vary by locale and change over time Ex: the trend toward healthier lifestyles o Technological factors: these factors include the pace of technological change and technical developments that have the potential for wide-ranging effects on society, such as genetic engineering and nanotechnology. o Environmental factors (the natural environment): these include ecological and environmental forces such as weather, climate, and associated factors like water shortages. o Legal/regulatory conditions: these factors include the regulations and laws with which companies must comply. Ex: consumer laws, labor laws, antitrust laws, and occupational health and safety regulations. Assessing a company’s industry and competitive environment 1. How strong are the industry’s competitive forces? ● The Five Competitive Forces: Competition from rival sellers Competition from potential new entrants Competition from producers of substitute products Supplier bargaining power Customer bargaining power 2. What are the driving forces in the industry, and what impact will they have on competitive intensity and industry profitability? ● Something that changes everything in a dramatic way, for better or worse Ex: government policy, war, location 3. What market positions do industry rivals occupy—who is strongly positioned and who is not? 4. What strategic moves are rivals likely to make next? 5. What are the industry’s key success factors? 6. Is the industry outlook conducive to good profitability? Competitive pressures associated with the threat of new entrants Entry Threat Considerations: ● Expected defensive reactions of incumbent firms Incumbent firms typically lower prices and increase defensive actions in an attempt to deter new entry when the treat of entry is high ● Strength of barriers to entry ● Brand preferences ● High start up cost Competitive pressures from the sellers of substitute products Substitute Products Considerations: o Substitute product: substitute goods or substitutes are products that a consumer perceives as similar or comparable, so that having more of one product makes them desire less of the other product Indicators of Substitutes’ Competitive Strength: o Good substitutes are readily available and attractively priced o Buyers view the substitutes as comparable or better in terms of quality, performance, and other relevant attributes o The cost that buyers incur in switching to the substitutes are low Supplier Bargaining Power Depends On: Strength of demand for suppliers products and the producs are short in supply Suppliers provide differentiated inputs that enhance the performance of the industry’s product It is difficult or costly for industry members to switch their purchases from one supplier to another The supplier industry is dominated by a few large companies and it is more concentrated than the industry it sells to Industry members are incapable of integrating backward to self- manufacture items they have been buying from suppliers Whether suppliers provide a differentiated input that enhances the performance of the industry’s product. Buyer (consumer) Bargaining Power Considerations: o Strength of buyers’ demand for sellers’ products o Degree to which industry goods are differentiated o “if I were to just walk away” Mcdonalds would sell to next customer- they don’t need to bargain Is the state of competition in the industry stronger than “normal”? Even one of the factors being too powerful could make the industry less attractive and we wouldn’t want to participate in that specific industry Driving forces analysis has three steps: 1. Identifying what the driving forces are in that particular industry. 2. Assessing whether the drivers of change are, on the whole, acting to make the industry more or less attractive. 3. Determining what strategy changes are needed to prepare for the impact of the driving forces. Most common drivers of industry change Changes in the long-term industry growth rate Increasing globalization Emerging new internet capabilities and applications Shifts in buyer demographics Technological change and manufacturing process innovation Product and marketing innovation Entry or exit of major firms Diffusion of technical know-how across companies and countries Changes in cost and efficiency Reductions in uncertainty and business risk Regulatory influences and government policy changes Changing societal concerns, altitudes, and lifestyles Assessing the impact of the factors driving industry change 1. Are the driving forces as a whole causing demand for the industry’s product to increase or decrease? 2. Is the collective impact of the driving forces making competition more or less intense? 3. Will the combined impacts of the driving forces lead to higher or lower industry profitability? Strategic Group: a cluster of industry rivals that have similar competitive approaches and market positions Consists of those industry members with similar competitive approaches and positions in the market: o Having comparable product-line breadth o Emphasizing the same distribution channels Strategic group mapping is a technique for displaying the different market or competitive positions that rival firms occupy in the industry Constructing a strategic group map: o Identify the competitive characteristics that delineate strategic approaches used in the industry. o Plot the firms on a two-variable map using pairs of the competitive characteristics. Competitive Intelligence o Studying competitors past behavior and preferences provides a valuable assist in anticipating what moves rivals are likely to make next and outmaneuvering them tin the market place. Signals of the Likelihood of Strategic Moves: o Strategy- how the company is competing currently o Objectives- strategic and performance objectives o Resources- key strengths and weakness o capabilities Current Strategy o How is the competitor positioned in the market? o What is the basis for its competitive advantage? o What kinds of investments is it making (as an indicator of its expected growth trajectory)? Key Success Factors (KSFs) o Are the strategy elements, product and service attributes, operational approaches, resources, and competitive capabilities that are necessary for competitive success by any and all firms in an industry. CH 4 Evaluating a company’s resources, capabilities, and competitiveness EVALUATING A FIRM’S INTERNAL SITUATION 1. How well is the firm’s present strategy working? 2. What are the firm’s competitively important resources and capabilities? 3. Is the firm able to take advantage of market opportunities and overcome external threats to its external well-being? 4. Are the firm’s prices and costs competitive with those of key rivals, and does it have an appealing customer value proposition? 5. Is the firm competitively stronger or weaker than key rivals? 6. What strategic issues and problems merit front-burner managerial attention? QUESTION 1: HOW WELL IS THE FIRM’S PRESENT STRATEGY WORKING? The three best indicators of how well a company’s strategy is working are: How you are meeting your financial and strategic objectives Specific indicators of strategic success: Trends in the firm’s sales and earnings growth. Trends in the firm’s stock price. The firm’s overall financial strength The company’s customer retention rate The rate at which new customers are acquired Evidence of improvement in internal processes such as defect rate, order fulfillment, delivery times, days of inventory, and employee productivity. Financial ratios page 81 – pick 3 that you think you could make a case for given the financial statements. There must be a table in the written case. QUESTION 2: WHAT ARE THE FIRM’S MOST IMPORTANT RESOURCES AND CAPABILITIES, AND WILL THEY GIVE THE FIRM A LASTING COMPETITIVE ADVANTAGE OVER RIVAL COMPANIES? Competitive Assets: a company’s resources and capabilities represent its competitive assets and are determinants of its competitiveness and ability to succeed in the marketplace Identifying the firm's resources and capabilities Identifying the firm’s resources and capabilities by testing the competitive power of its resources and capabilities: o Is it Valuable? o Is it Rare? Scarce o Is it Inimitable? Difficult to imitate o Is it Non-substitutable? Other types of resources cannot be functional substitutes. Resources: trucks, machines Tangible Resources: Physical resources: land and real estate; manufacturing plants, equipment, and/or distribution facilities; the location of stores, plants or distribution centers, including the overall pattern of their physical locations; ownership of or access rights to natural resources (such as mineral deposits) Financial resources: cash and cash equivalents; marketable securities; other financial assets such as company’s credit rating and borrowing capacity Technological assets: patents copyrights, production technology, innovation technologies, technological processes Organizational resources: IT and communication systems (satellites, servers, workstations); other planning, coordination, and control systems; the company’s organizational design and reporting structure Intangible Resources: Human assets and intellectual capital: the education, experience, knowledge, and talent of the workforce, cumulative learning, and tacit knowledge of employees; the knowledge of key personnel concerning important business functions; managerial talent and leadership skill. Brands, company image and reputational assets: brand names, trademarks, product or company image, buyer loyalty and goodwill; company reputation for quality, service, and reliability; reputation with suppliers and partners fair dealing Relationships: alliances, joint ventures, or partnerships that provide access to technologies, specialized know-how or geographic markets; networks of dealers or distributors; the trust established with various partners Company culture and incentive system: the norms of behavior, business principles, and ingrained beliefs within the company; attachment of personnel to the company’s ideals; the compensation system and the motivation level of company personnel A Capability- production capacity, process that your company follows, superior skills in marketing, etc. An Organizational Capability: intangible and reservable Threats to Resources and Capabilities: pg 89 Managing Capabilities Dynamically: QUESTION 3: WHAT ARE THE FIRM’S STRENGTHS AND WEAKNESSES IN RELATION TO THE MARKET OPPORTUNITIES AND EXTERNAL THREATS?? SWOT Analysis o Is a powerful tool for sizing up a firm’s: Internal Strengths Internal Weaknesses Market Opportunities External Threats Identifying a company’s internal strengths A Competence: an activity that a company has learned to perform with proficiency. o Competencies that are well matched to industry key success factors A Core Competence: an activity that a company performs proficiently and that is also central to its strategy and competitive success A Distinctive Competence: a competitively important activity that a company performs better than its rivals – it thus represents a competitively superior internal strength IDENTIFYING A FIRM’S WEAKNESSES AND COMPETITIVE DEFICIENCIES A Weakness: competitive deficiency, something a company lacks or does poorly in comparison to others. o No distinctive competencies or competitively superior resources o Lack of attention to customer needs o Inferior or unproven skills, expertise or intellectual capital in competitively important areas of the business o Deficiencies in competitively important physical, organizational, or intangible assets o Missing or competitively inferior capabilities in key areas Types of Weaknesses IDENTIFYING A COMPANY’S MARKET OPPORTUNITIES Characteristics of Market Opportunities: o Sharply rising buyer demand for the industry’s product o An absolute “must pursue” market o A marginally interesting market o An unsuitable\mismatched market IDENTIFYING THE THREATS TO A FIRM’S FUTURE PROFITABILITY Types of Threats: o Increasing intensity of competition among industry rivals – may squeeze profit margins Considering Threats: QUESTION 4: HOW DO A FIRM’S VALUE CHAIN ACTIVITIES IMPACT ITS COST STRUCTURE AND CUSTOMER VALUE PROPOSITION? Signs of a Firm’s Competitive Strength: The Value Chain o Identifies the primary activities and related support activities that create and deliver customer value Benchmarking: a potent tool for improving a company’s own internal activities that is based on learning how other companies perform them and borrowing their “best practices” Sources of Benchmarking Information: Places in the total value chain system for a firm to look for ways to improve its efficiency and effectiveness: IMPROVING INTERNALLY PERFORMED VALUE CHAIN ACTIVITIES Implement best practices throughout the firm, particularly for high- cost activities. Eliminate some cost-producing activities altogether by revamping the value chain. Relocate high-cost activities to areas where they can be performed more cheaply. IMPROVING SUPPLIER-RELATED VALUE CHAIN ACTIVITIES Pressure suppliers for lower prices. Switch to lower-priced substitute inputs. IMPROVING VALUE CHAIN ACTIVITIES OF FORWARD CHANNEL ALLIES Achieving Cost-Based Competitiveness: o Pressure forward channel allies to reduce their costs and markups. QUESTION 5: IS THE FIRM COMPETITIVELY STRONGER OR WEAKER THAN KEY RIVALS? Assessing the firm’s overall competitive strength: o How does the firm rank relative to competitors on each of the important factors that determine market success? o Does the firm have a net competitive advantage or disadvantage versus major competitors? QUESTION 6: WHAT STRATEGIC ISSUES AND PROBLEMS MERIT FRONT- BURNER MANAGERIAL ATTENTION? Strategic “How To” Issues: o How to meet challenges of new foreign competitors. o How to combat the price discounting of rivals. Strategic “Should We” Issues: o Expand rapidly or cautiously into foreign markets. o Reposition the firm to move to a different strategic group.
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