New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Strategic Management Study Guide 2

by: Dominique LaSalle

Strategic Management Study Guide 2 STRT 4500

Marketplace > University of Colorado Colorado Springs > Business > STRT 4500 > Strategic Management Study Guide 2
Dominique LaSalle

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Another study guide. Lucky you!
Strategic Management
Eric M. Olson
Study Guide
Bsuiness, Marketing
50 ?




Popular in Strategic Management

Popular in Business

This 10 page Study Guide was uploaded by Dominique LaSalle on Tuesday October 4, 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 32 views. For similar materials see Strategic Management in Business at University of Colorado Colorado Springs.


Reviews for Strategic Management Study Guide 2


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 10/04/16
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  Strategic Management Week 5 Notes The strategic analysis of vertical integration  - Vertical integration can be considered in two dimensions  - Forward v. backward along the distribution channel  - Make vs. Buy Decisions  o Typically made on a cost analysis  o Porter argues that make vs. buy decisions should be based at least in part on the  strategic implications and the administrative complexity   (hard to quantify)  - Volume of Throughput vs. Efficient Scale  o If the firm’s needs do not exceed the scale of an efficient unit, the firm must either  Build inefficient small facilities or,   Build large efficient facilities and try to sell excess product on the open  market  o Firms in different parts of the distribution chain seldom have the same efficient  scale requirements  o Scale efficiencies frequently change due to a wide variety of economic criteria  o These criteria may not affect all firms equally  - Strategic Benefits of Vertical Integration o Economies of integration o Economies of combined operations  o Economies of internal control and coordination  o Economies of information  o Economies of avoiding the market  o Economies of stable relations  o Tap into technology o Assure supply and/or demand  o Offset bargaining power  o Enhanced ability to differentiate  o Elevate entry and mobility barriers  o Enter a higher return business  o Defend against foreclosure  - Strategic costs of Integration o Cost of overcoming mobility barriers  o Increased operation leverage  o Reduced flexibility to change partners  o Higher overall exit barriers  o Capital investment requirements  o Foreclosure of access to supplier or consumer research and/or know how o Maintaining balance  o Dulled incentives  o Differing managerial requirements   (transfer pricing issues) - Issues in Forward Vertical Integration o Improved ability to differentiate product  o Access to distribution channels  o Better access to market information  o Higher price realization - Issues in Backward Vertical Integration o Proprietary knowledge  o Differentiation  - Alternatives to Vertical Integration o Long­term contracts and the economics of integration  When Vertical Integration risks are great, long­term contracting may be a  superior way to achieve some of the benefits of Vertical Integration o Tapered integration  Partial forward or backward vertical integration  Fewer fixed costs   Less risk   Some access to outside R&D  Give knowledge on how to operate in a new industry  Firm may have to sell to competitors   May actually increase coordination costs o Quasi­Integration  Somewhere between long­term contracts and full ownership  Minority equity investment   Loans or loan guarantees  Pre­purchase credits   Exclusive dealing agreement   Specialized logistics facilities   Cooperative R&D - Illusions in Vertical Integration Decisions o A strong market position in one stage can automatically be extended to the other  o It is always cheaper to do things internally  o It often makes sense to integrate into a competitive business  o Vertical Integration can save a strategically sick business  o Experience in one part of the vertical chain automatically qualifies managers to  directupstream of downstream units The Core Competence of the Corporation  “Core competencies are the collective learning in the organization, especially how to  coordinate diverse production skills and integrate multiple streams of technologies.” - 3 Tests to Identify Core Competencies  o Does the competency provide access to a wide variety of markets? o Does it make a significant contribution to the perceived customer benefits of the  end product? o Is it difficult for competitors to imitate?  - Limitations  o Few companies will be able to develop more than 5 or 6 core competencies that  pass these tests  - Core products  o Core products are links between core technologies and end products  o To sustain leadership in a chosen core competence area firms seek to maximize  their world manufacturing share of core products  - Core Technologies  o core technologies are the basic technologies employed in core products that make  them distinctive and hard to imitate  - End products  o End products are the actual products purchased by consumers. They are  comprised of various components including core products  - Managerial Questions  o How long could we preserve our competitiveness in this business if we did not  control this particular core competence? o How central is the core competence to perceived customer benefits? o What future opportunities would be foreclosed if we were to lose this particular  core competence?  - Two Managerial Lessons o The cost of losing a core competence can only partially be calculated in advance  o Because the development of core competencies may take a decade or longer,  companies that fail to continuously improve and enhance product/technologies  may find themselves unable to enter attractive new markets unless simply as a  distributor  The Value Chain Week 6 Notes - The value chain is a system of interdependent activities conectd by linkages  - These connections require that activities be coordinated and tradeoffs be made  - A company’s activities can be divided into technologically and economically distinct  activities it performs to do business - Value Activities  o Primary  Inbound logistics   Operations   Outbound logistics   Marketing and sales   Service  o Support   Firm infrastructure   Human resources management   Technology development   Procurement  - Value system o Ultimately competitive advantage in either cost or differentiation is a function of a company’s value chain  o Firms often differ in their competitive scope when trying to achieve competitive  advantage   Segment scope (number of P/M segments)  Vertical scope (vertical integration)  Geographic scope (geographic markets)  Industry scope (range of industries) - Transforming the Value Chain o Every value activity has both physical and an information­processing component  o Every value activities both uses and creates information of some kind  - The role of Information of Technology  o In the past, information technology was used primarily for accounting and record  keeping functions  o Now, Information Technology is spreading through the value chain and is  performing optimization and control functions as well as more judgmental  executive functions  - The IT Problem o How to deal with all of the information that is being created?  In order to enhance the productivity within the value chain and value  systems  - Conclusions  o In order to enhance the productivity within the value chain and value systems:  Managers must understand information technologies and,  IT personnel must understand the business functions they support  - 5 Steps to Take Advantage of the Information Revolution  1. Assess the information intensity of products and processes  2. Assess the role of information technology in industry structure  3. Indentify and rank ways in which information technology could create a  competitive edge  4. Consider which information technology could create a new businesses  5. Develop a plan to take advantage of information technology  - Putting Strategy into Shareholder Value Analysis  o Economic Value Added   EVA is a company’s net operating profit after taxes and after deducing the cost of capital   Cost of capital is the minimum rate of return demanded by lenders and  shareholders and varies with the risk level of the company  Capital is all the money tied up in things such as heavy equipment, real  estate, computers, and working capital (cash, inventories, accounts  receivable)  When you make more money than your cost of capital you create wealth  for you shareholders   Shareholders have traditionally demanded 6­7% higher returns on stocks  than government bonds   If long­term treasury rates are at 7%, then shareholder cost of equity  ranges from 13­14% o Shareholder Value Analysis   SVA is a technique or set of techniques for analyzing the financial  consequences of strategies  However, SVA has its detractors:  Criticisms of SVA o Operating managers often feel victimized by complexities  and restrictive assumptions of SVA o It is easily manipulated  o Managers seldom agree on issues of discount rate, planning period, or projected cash flows o Excessive number crunching suppresses strategic thinking  o Linking SVA and Strategic Thinking   Competitive Advantage: outperforming competitors in terms of cost,  technology, service, raw material acquisition (sustainable)  Value Creation: shareholder value is increased when the company earns  more than its cost of capital   Sound Strategy: Creates Both! o Separate but Complimentary Concepts  Strategy Analysis: establishing superior value in the eyes of the customer  or achieving the lowest delivered costs   SVA: maximizing returns to shareholders  o Reasons why SVA is sometimes an untrustworthy measure of a strategy’s  potential   Undervaluing a strategy  Two types of investment strategies that are often undervalued: o Investing in future options  The option of making future investments if the  technology takes off   The ability to learn   Failure to invest may preclude the company from  entering that market   Options are intangible assets that can account for a  large protion of a firm’s assets   Discounted cash flow procedures don’t recognize  that value and underestimate the attractiveness of  new growth areas   Why?  No projected cash flows  However, the market recognizes the value of future  growth options (Growth Stocks)   Unnecessarily high risk hurdles exacerbate the  problem of undervaluation (HP 35%)  o Investing to hold customers   SVA falls short in measuring the value of keeping  customers   It is harder to document the damage to competitive  advantage from not investing than the savings from  not making an investment   Overvaluing a strategy   Good forecasting is very important and very difficult   Numbers, whether good or bad, tend to become accepted as gospel  Forecasters are often overly optimistic: o Managers fail to anticipate:  Competitors countermoves   Customers resisting new offerings   Delays in production   Extra costs   Past trends tend to dominate over future assessments   However, excess capacity floods the market with products or new  technology reduces competitors’ costs   People are also inclined to withhold information to protect their  own interests   Overlooking a strategy   Reasons why the best strategies are not adopted: o Managers already committed to a strategy that suits their  needs or fits their assumptions  o Because business as usual promises to deliver acceptable  performance  o Because they don’t want to push themselves (straw man  arguments to maintain the status quo)  Sometimes alternative strategies become implausible due to game  playing in spread sheets: o Market growth improved  o Gross margins improved  o Working capital cut   Result: fantasy adopted as true or probable  o Successfully linking SVA to Strategic Analysis  Include more options in your strategic analysis process   Find solid evidence that a strategy will outperform the competition   Scrutinize the validity of underlying assumptions   Candor is essential   Management should then assess the vulnerability of each strategy   What will happen to key results if: important assertions are wrong   Critical tasks are not accomplished   Program schedules slip badly  Does the organization have the necessary skills and resources to  implement the alternative strategy successfully?  If not, is there enough time and money to develop them?  Used correctly, Shareholder Value Analysis is much more like an  examination of the strategic fundamentals than a number crunching  exercise   SVA should be the last step in a rigorous evaluation of how strategic  alternatives are likely to fare in the marketplace


Buy Material

Are you sure you want to buy this material for

50 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Amaris Trozzo George Washington University

"I made $350 in just two days after posting my first study guide."

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.