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Strategic Management Study Guide Pt.1

by: Dominique LaSalle

Strategic Management Study Guide Pt.1 STRT 4500

Marketplace > University of Colorado Colorado Springs > Business > STRT 4500 > Strategic Management Study Guide Pt 1
Dominique LaSalle

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About this Document

Cover chapters and notes from weeks 2 and 3
Strategic Management
Eric M. Olson
Study Guide
business, Marketing
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This 7 page Study Guide was uploaded by Dominique LaSalle on Sunday October 2, 2016. The Study Guide belongs to STRT 4500 at University of Colorado Colorado Springs taught by Eric M. Olson in Fall 2016. Since its upload, it has received 26 views. For similar materials see Strategic Management in Business at University of Colorado Colorado Springs.


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Date Created: 10/02/16
Strategic Management Week 2 The Structural Analysis of Industries  - The essence of competitive strategy is relating a company to its environment  - The key element in defining the environment is identifying the industries in which the  company competes  - Definition of an industry: o Groups of firms producing products that are close substitutes for each other  o Companies may be in many industries at the same time  - Five competitive forces o Competition in an industry is based on five basic competitive forces  o It is the collective strength of these forces that determines the ultimate profit  potential in an industry  o Examples  Potential entrants: Hooters Airlines  Existing competition: Frontier, United, Southwest  Bargaining power of suppliers: Pilots, Fuel  Bargaining power of buyers: Passengers  Pressure from Substitute Products: Train - Economic Law o Competition drives the rate of return on invested capital to a floor rate measured  against long­term government securities  o Poor performers go out of business  o Very good performers see competition through the influx of new investment  - A fresh look at industry and market analysis  o Porter’s five forces model was introduced in 1980 o Since then industry dynamics have change - Underlying premises of Porter’s model o Industry is the appropriate unit of analysis   Porter defines an industry as close substitutes   Very vague   Minivans/SUVs  Fresh/frozen vegetables   Industrial adhesive/nuts and bolts  o Industry factors determine the average return on capital  o Industry factors influence competition  - Market vs Industries o We prefer a customer­oriented demand­side definition of industry o We also prefer the term markets over industries  - Identifying markets o Step 1: define a group of buyers who have relatively homogeneous needs  Focus groups, survey research, conjoint analysis  o Step 2: determine potential demand in market (must be sufficient to make it  economically viable)  o Step 3: determine if a market is strategically distinctive (if not, merge it with  another market) - Industry factors  o Average ROI for firms operating in unattractive markets is 13.4% o Average ROI for firms operating in attractive markets is 31.3% o Industry affects account for between 40 and 75% of the difference in industry  returns  o Rate of change:  Stable forces (e.g., brands, patents) do not change rapidly – rare  exceptions   Transient forces (e.g., demand for full­sized luxury cars) may change  rapidly   Market analysis must consider the rate and predictability of change as  these impact profitability, strategy formation and content  o Collective  strength of market forces   Substantial variation of ROI performance occurs within industries  - Industry factors influence completion  o some competitive actions (i.e., sets of actions including the development and  deployment of resources, that position the business to exploit opportunities and  avoid threats) are more effective than others in particular environments (e.g.  turbulence) - an augmented model for market analysis  o the new model reconfigures and expands Porter’s five forces to eight  o each of these forces directly impacts:  profitability   risk   strategy  o 1­3: composite competitive rivalry   1: direct competii - Barriers to entry o Economies of scale  o Product differentiation  o Capital requirements  o Switching costs  o Access to distribution channels  o Cost disadvantages independent of scale  o Government policies  o Expected retaliation  - Existing competitors  o Numerous small competitors or a few equally balanced larger competitors  o Slow industry sales growth  o Lack of differentiation or switching costs  o Capacity augmented in large increments  o High strategic stakes  o High exit barriers  - Pressure from substitute products o Products that are subject to trends improving their price­performance trade­off  with the industry’s products  o Product produced by firms generating high profit margins  - An augmented model for market analysis  o 4. Complementors   The impact of network effects on market evolution  Network effects occur when demand for a product rises with the number  of complementary products   An example being Microsoft’s relationship with Intel o 5. Customer power  Greatest when they are large, few in number, and able to switch suppliers  easily  Powerful customers frequently mean that firms will either accept profit  margins that approach their cost of capital or, will attempt to create  customer loyalty (benefits, reduce non­price costs, lower prices)  o 6. Supplier power   Greatest when large, few in number and can readily sell to alternate  customers   Customer can attempt to bargain either for lower costs or more benefits if  sellers see an expanded future relationship  o 7. Market change: Growth  Growth comes from an increase in the  Number of buyers   More purchases by existing buyers, or  Creation of a solution to a latent needs   First two cases are not disruptive – anticipated   Third case is disruptive – which can significantly alter market structures  o Growth: disruptive  Early adopters embrace change in order to give their firms an advantage  over competition   To significantly impact an existing industry firms must move beyond the  early adopters to mainstream customers (crossing the chasm)  (e.g., 35mm film – digital photography)  o Market change: turbulence   Market turbulence – rate of change in customer’s needs and preferences   Competitive turbulence – rate at which other firms change their  competitive methods (including development and introduction of new  technologies)  The needs of early adopters are often different than the early or late  majority   Not all firms (or markets) are equally susceptible to the disruptions or  market or competitive turbulence   Barriers to imitation are strong deterrents  - Strategic positioning in competitive markets  o Create a market­focused organization o Market oriented firms:  Scan the market broadly   Have a long term focus   Work closely with lead users   Conduct small scale market experiments, learn from results, and modify  offerings  o Establish relationships with key customers and suppliers   Build a foundation of trust   Demonstrate the value of the relationship – even if products are  commodity  o Create new market space   Avoid head to head competition by finding untapped market demand   (e.g., Home Depot slipped between traditional hardware stores) o Conceive of strategy as a series of real options   Traditional approaches to financial analysis have placed too great an  emphasis on risk management   Strategic options analysis takes a broader view and recognizes that  managers are active decision makers  Strategic Management Week 3  Competitive Strategy  - Business units are any group within a firm that has a defined strategy and manager with  both sales and profit responsibility. Typically SBU’s sells groups of related products or  services  - The essence of competitive strategy is determining how the business unit will compete  - The taking of offensive or defensive actions to create a defendable position in an industry to cope successfully with competitive forces and thereby  - Typologies  o Porter’s Generic Strategy  Focus is on competitors   Low Cost Leader (overall cost leadership) o relatively high market share or,  o access to other advantages  o bulding volume through wide product line and/or  serving many customer segments  o large up­front capital  o aggressive pricing  o initial loses to build market share  o Example: Hyundai   Differentiation  o Defined as something that is viewed as unique industry  wide  o May preclude high market share  o Requires close relationship with key customers  o Requires continual investment and R&D service, or  other differential advantage  o Margins are typically high but must not become so high as to negate the beneficial advantage  o Example: Mercedes Benz   Focus  o Assumes that a narrow market can be more effectively  or efficiently served than by bigger competitors  o Requirements:  identification of market niche not being  adequately addressed   Directing firm energies on a particular buyer  group, product line segment, or geographic niche  Meeting buying criteria of niche (either low cost  or differentiation) o Examples:   Ferrari (differentiated focus)  Yugo (low cost focus) o Stuck in the middle   Failure to adhere to one of the three strategies   Failure to sustain a strategy  Erosion of a strategy due to industry revolution  o Miles & Snow   Focus on internal capabilities with regard to the development of new  products or services   Four competitive strategies   Prospectors   Analyzers   Defenders   Reactors  o Hybrid typologies   Walker & Ruekert and Slater & Olson combined Porter’s external focus  with Miles and Snow’s internal focus:  Prospectors (Apple)  Analyzers (Microsoft)  Low cost defenders (Motel 6)  Differentiated defenders (Ritz­Carlton)  o Treacy and Wiersema   Focus on customers buying patterns rather than competitors or product  development   Operational excellence   Objective: to lead the industry in price and convenience by  aggressively seeking ways to reduce costs: o Minimize overhead  o Eliminate production steps  o Reduce transaction costs  o Deliver products at competitive price with minimal  inconvenience  o Examples:   Dell computer and Walmart   Customer intimacy   Objective: to continually tailor products and services to fit an  increasingly fine definition of the customer  o Expensive to implement but builds long­term customer  loyalty  o Focus on customer’s lifetime value  o Employees receptive to customer requests  o Examples   Nordstrom’s   Broadmoor Hotel/Resort   Product leadership  Objective: to strive to produce continuous state­of­the­art products  and services  o Embrace new ideas that may originate outside of the  company  o Quickly commercialize new ideas  o Aggressively pursue new solutions  o Examples:   Hewlett Packard  3M  Rubbermaid   Apple   Brand champion  Objective: to strive to build brand equity across mass­markets o Heavy promotion of brands to build brand equity  o Identify segments with sufficient numbers or profit  potential  o develop products to reach a wide audience  o price premiums based on perceived quality  o example:   Nike  Sustaining the lead   Choose a value discipline that capitalizes on the firm’s capabilities  and culture while considering 


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