1. Strategy integrated and coordinated set of commitments and actions used to exploit core competencies in order to gain a competitive advantage
2. Strategic competitiveness firm is successful in creating and implementing a strategy 3. Strategic Management Process
i. External and internal observation to determine core competencies
i. Formulation and implementation
i. Enacting strategy with the intent to generate aboveaverage returns
4. Perpetual innovation how rapidly and consistently new technologies replace older ones 5. Hypercompetition excessive competition that causes instability and requires constant actions from firms to maintain
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6. Knowledge information, intelligence, and expertise that is the basis of technology and application and is gained through experience, observation, and inference
7. Strategic Flexibility responding to the variety and unpredictability of a dynamic market environment
8. Industrial Organization Model
a. External environment is assumed to put restraints on activities that would generate above average returns
b. Firms competing with one another are assumed to have similar resources and strategies Don't forget about the age old question of What are the types of sleep disorders?
c. Resources are assumed to be highly mobile, so any differences between firms will be very brief
d. Decision makers are assumed to act rationally and in attempt to maximize firm profit
e. Assumes that the firm’s success is based on commitments and actions flowing from the characteristics of the industry in which is it operating
9. Resource Based Model
a. Assumes that firms are unique in resources and abilities, and their success is based on how they use those, not on the industry’s structure
i. Valuable allow firm to take advantage of opportunity or neutralize threat ii. Rare possessed by few other firms If you want to learn more check out What is the gender nonconformity?
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iii. Costly to Imitate other firms cannot obtain them in a costeffective way 1. Unique historical conditions
2. Organized culture
3. Casually ambiguous
4. Social complexity
iv. NonSubstitutable have no other structural alternatives
10. Vision picture of what the firm wants to achieve, gives shape to organizational future, vision endures, mission changes
11. Mission specifies the businesses and customers it wants to serve, establishes individuality, is relevant and inspiring to shareholders
12. Stakeholders individuals that can affect the firm’s vision and mission and are affected by any strategic position the firm chooses
a. Capital Market Stakeholders shareholders and main source of capital b. Product Market Stakeholders customers. suppliers, communities, unions c. Organizational Stakeholders employees and personnel
1. General Environment firms cannot directly control these factors, but can predict based on past trends
a. Environmental segments
i. Demographic population size, age structure, geographic distribution
ii. Economic inflation rates, interest rates, trade/budget deficits
iii. Political/Legal antitrust laws, taxation laws Don't forget about the age old question of What was the jones act?
iv. Sociocultural women in workforce, diversity, attitude about quality of life v. Technological product innovations, application of knowledge
vi. Global important political events, critical global markets
vii. Sustainable Physical energy consumption, renewable energy efforts 2. Industry Environment directly influences firms
a. Threat of new entrants
i. Barriers to entry successful firms try to try to create barriers in order to keep new competition out
1. Economies of scale
2. Product differentiation
3. Capital requirements
4. Switching costs
5. Access to distribution channels
6. Cost disadvantages independent of scale
7. Government policy
ii. Expected retaliation companies entering an industry anticipate reactions of firms already in the industry
b. Power of suppliers
i. Only a few large companies and is more concentrated than the industry to which it sells
ii. Satisfactory substitutes are not available to industry firms
iii. Industry firms are not significant customers for the supplier group If you want to learn more check out In biology, what is the somatic nervous system?
iv. Supplier’s goods are critical to buyers’ marketplace
c. Power of buyers
i. They purchase a large portion of industry’s total output
ii. Sales of product being purchased are significant portion of seller’s
iii. They could switch to another product without difficulty
iv. Products are undifferentiated or standardized
d. Threat of product substitutes
e. Intensity of rivalry among competing firms
3. External Environment Analysis
a. Scanning identifying early signs of environmental changes
i. Study of all segments in the general environment
ii. Especially important in volatile markets
b. Monitoring finding meaning in ongoing observations of environmental changes i. Important to identify stakeholders and figure out ways to serve their
c. Forecasting making projections of anticipated outcomes
d. Assessing determining timing and importance of environmental changes i. Specifying implications
ii. Interpreting the meaning of trends
4. Factors that affect the intensity of rivalries among firms:
a. Numerous/equally balanced competitors
b. Slow industry growth
c. High fixed costs or high storage costs
d. Lack of differentiation or low switching costs
e. High strategic stakes
f. High exit barriers
5. Competitor Analysis:
a. Future objectives what drives the competitor
b. Current strategy what the competitor is doing and can do
c. Assumptions what the competitor believes about the industry
d. Strengths/weaknesses competitor’s capabilities
6. Competitor Intelligence: set of data and information the firm gathers to better understand and anticipate competitors’ objectives, strategies, assumptions, and capabilities
7. Complementors companies or networks of companies that sell complementary goods or services that are compatible with the focal firm’s good or service
1. Uncertainty exists about the characteristics of the firm’s general and industry environments and customer needs
2. Complexity results from the interrelationships among conditions shping a firm 3. Intraorganizational Conflicts exists among managers making decisions as well as among those affected by the decisions
a. Tangible resources assets that can be observed and quantified
i. Financial ability to borrow and generate funds
ii. Organizational formal reporting structures
iii. Physical plant, equipment, distribution facilities, inventory
iv. Technological availability of copyrights, patents, trademarks, trade
b. Intangible resources assets that are rooted deeply in the firm’s history, accumulate over time, and are relatively difficult for competitors to analyze i. Human knowledge, trust, skills, collaboration
ii. Innovation ideas, scientific capabilities, innovation capacity
iii. Reputational brand name, perception of quality, durability, and reliability 5. Capabilities
a. Distribution effective use of logistics management techniques
b. Human resources motivating, empowering, retaining
c. Management information systems control of inventories
d. Marketing effective promotion, customer service, merchandising
e. Management envisioning the future
f. Manufacturing design and production skills, product design quality
g. Research and development innovative technology, digital technology 6. Value Chain activities tasks that produce products and then sell, distribute, and service those products in ways that create value for customers
a. Supply chain management
e. Followup service
7. Support Functionstasks done to support the work being done to produce, sell, distribute, service, etc.
1. Business Level Strategy integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in a specific product market
a. Cost leadership
c. Focused cost leadership
d. Focused differentiation
e. Integrated cost leadership/differentiation
2. Reach concerned with the firm’s access and connection to customers 3. Richness concerned with the depth and detail of the twoway flow of information between the firm and the customer
4. Affiliation concerned with facilitating useful interactions with customers 5. Differentiation strategy integrated set of actions taken to produce goods or services at an acceptable cost that customers perceive as being different in ways that are important
6. Focus Strategy integrated set of actions taken to produce goods or services that serve needs of a particular competitive segment
a. A particular buyer group
b. A different segment of the product line
c. A different geographic market
7. Integrated strategy involves engaging in primary valuechain activities and support functions that allow a firm to simultaneously pursue low cost and differentiation 8. Total Quality Management managerial process that emphasizes an organization’s commitment to customer and to continuous improvement of all process through problem solving approaches based on employee empowerment
a. Increased customer satisfaction
b. Cut costs
c. Reduce time required to introduce innovative products
1. Competitive rivalry ongoing set of competitive actions and competitive responses that occur among firms as they maneuver for an advantageous market position 2. Competitive behavior set of competitive actions and responses a firm takes to build or defend its competitive advantages and to improve its market position
3. Multimarket competition occurs when firms compete against each other in several product or geographic markets
4. Competitive dynamics all competitive behaviors/ the total set of actions and responses taken by all firms competing within a market
5. Market commonality concerned with the number of markets with which the firm and a competitor are jointly involved/the degree of importance of the individual markets to each
6. Drivers of competitive behavior
a. Awareness the extent tow which competitors recognize the degree of their mutual interdependence
b. Motivation concerns the firm’s incentive to take action or respond to an attack c. Ability firm’s resources and flexibility
d. Dissimilarity the greater the difference between resources, the longer it tkes the lacking firm to catch up
7. Strategic action or response market based move that involves significant commitment or organization resources and is difficult to implement
8. Tactical action or response market based move that is take to finetune a strategy, involves fewer resources, easy to implement
9. First mover firm that takes initial competitive action in order to build or defend its competitive advantages or improve market position
10. Second mover firm that responds to the first mover’s competitive action through imitation
11. Late mover firm that responds to a competitive action significantly later than the first and second movers
12. Product Quality Dimensions
h. Perceived quality
13. Service Quality Dimensions
14. Slow cycle markets the firm’s competitive advantages are shielded from imitation for long periods of time
15. Fast cycle markets firm’s capabilities that contribute to competitive advantages are not shielded from imitation
16. Standard cycle markets firm’s competitive advantages are partially shielded from imitation
Southwest is the only airline company to generate a profit every year for the last 40 years. They are also the airline leader in fewest customer complaints. Their obviously successful business strategy is something that other companies have tried to imitate, but none was able to establish a business that lasted for more than a few years. Prior to 2007, Southwest’s business strategy consisted of a “onesizefitsall” mentality, to quote CEO Gary Kelly. The airline was focused on efficiency, which meant there was no assigned seating, no meals, only Boeing 737 aircrafts, and mostly short, domestic flights. These policies allowed the company to decrease operating costs by hiring half of the gate crew of other airlines and having every pilot able to operate every company plane. Low operating costs led to low ticket prices for customers and a huge competitive advantage over other airlines. The company’s low prices ousted Braniff Airlines from the route between Houston and Dallas in Texas and offered a flight from Cleveland to Chicago for about 20 percent the price of competitors.
The job culture is very important for maintaining business success at Southwest Airlines. Founder and CEO (until 2001) Herb Kelleher created an atmosphere of fun, lightheartedness, and positive relationships between management and employees. Their focus is strongly on
customer service, which Kelleher believed reflected how the employees themselves were treated. The company invested in their employees through fun activities and games that promoted team building and further established the business culture. Emphasis on good communication and employee profit sharing options created deeper feelings of camaraderie at all levels of the company. The extremely low employee turnover rate at Southwest Airlines suggests a positive, nurturing work environment. Because employees were treated so well, they were better equipped to engage in “Positively Outrageous Service” while interacting with customers. Southwest’s workers went the proverbial “extra mile” to assist travelers with tasks widely outside their job description. This initiative coupled with the airline’s advanced training at the University of People created a very successful team of workers who made the customer experience unbeatable.
In 2007, Southwest Airlines decided to revamp their business strategy under CEO Gary Kelly. He wanted to make some major changes and get away from their onesizefitsall mentality. While that had been a very successful strategy for the company, he felt that Southwest should focus on making the business traveler a priority in order to remain at the top of the airline industry. Changes included new fare categories, the ability to pay extra to board first, a new frequent flier program, and increased promotion for allowing two free bags per customer. The airline also expanded its reach into the northeast United States. Southwest acquired AirTrain, giving them access to Atlanta’s HartsfieldJackson International Airport and some international locations.
While many of these changes are beneficial to the growth of the company, they have brought about some challenges that the management will need to address. Expansion into the northeast caused Southwest to encounter more air traffic and congested airports, leading to delayed flights. Since the company is known for their speed and efficiency, the delays need to be addressed in some way. They face a similar issue if they decide to fly internationally through their acquisition of AirTran. Successfully managing international flights while keeping their reputation for efficiency could prove challenging. Another problem created by the merger with AirTran is keeping the Southwest culture alive. Arguably the main reason for the company’s continued success is the positive work environment and exceptional customer service, so it is likely that business will suffer if anything changes within their culture. Rising operating costs and increased competition from smaller airlines mean that Southwest needs to reevaluate their business strategy to stay on top of the industry.
While offering international flights to the Caribbean might be attractive to vacationing individuals and families, it does not provide much added value to Southwest’s target market of business professionals. Expanding operations internationally will likely cost more than any additional revenue earned and will therefore be detrimental to the bottom line. Selling all of the aircrafts acquired through the deal with AirTran and replacing them with the standard Boeing 737 will ensure that all pilots will still be able to fly every aircraft. It might prove beneficial to offer different services in different areas of the country. In the western region, they can rely on their reputation for efficiency to gain customers without incurring additional costs. In the northeast, congested airports cannot really be avoided, so the company should focus on factors
that they can control to make up for slower service. Offering a specialized service in that region which provides snacks, entertainment, and an overall enhanced customer service could help the airline make up some lost business due to the inability to distinguish their operations on the basis of efficiency. Any additional costs and concentrated efforts associated with building a different
reputation in the northeast region will likely be rewarded in the long run. The company should continue to invest in their employees through training, benefits, and team building activities. This is especially important for all of the AirTran employees who will be integrated into Southwest. Making those new employees feel accepted and like they are part of a bigger picture will maintain the culture and exceptional customer service.
American Express (AXP) has been around since the mid1800s. Its origins were as a freighting company (hence the name), but soon evolved into a banking business. Their strategy for success was service and reputation differentiation. AXP’s main service was the traditional credit card, competing for business with Visa and Mastercard. The competitors were focused on increasing the volume of transactions (the number of times a customer used their card). They provided low interest rates and fees and partnered with financial institutions to offer discounts. AXP, on the other hand, focused on the amount of money customers spent per card use. The company provided the cards through their own banks, choosing not to partner with other institutions. They made a profit due to their slightly elevated discount fees and the interest they made from their loans to customers, one of the main factors that differentiated them from competitors. Visa and Mastercard did not offer loans to customers, but AXP took on the risk of loans in order to earn interest.
An advantage to the American Express business model was the information it provided on consumers. By providing cards through their own banks, AXP created a “closedloop” network that gave them better information about customers’ spending habits. This allowed them to create better reward systems and provide merchants with trends and business patterns. Since customers spent more money per transaction with AXP than with Visa or Mastercard, merchants who wanted wealthier customers targeted AXP card holders. In order to promote this image of affluence and attract customers who would spend more money, the company used celebrities in commercials and advertisements. Differentiating their image provided AXP with a richer customer base willing to pay the elevated discount fees for the reputation of being an American Express customer.
In 2011, CEO Kenneth Chenault decided to revamp AXP’s business strategy. He felt that the company needed to take steps to reach into the prepaid industry and change up existing business models. He created the Enterprise Growth group (EG) which was tasked with bringing the standard banking system into a new era through the incorporation of technology. This group
believed that they should focus efforts on reaching a different market segment. American Express had previously only focused on the wealthy consumers, but EG knew that the best way to advance the company was to concentrate on getting new customers. There was a whole market segment of underbanked individuals that were not being reached by any of the major players. The leaders of EG, Chokshi and Wright, conducted research into the new target market. They personally engaged in banking transactions without having access to credit cards or checking accounts. They had to stand in long lines and pay large fees just to convert money and be able to pay bills. Underbanked individuals, they discovered, lost both time and money engaging in everyday transactions. This was the market segment they wanted to reach, so EG started working on a digital payments initiative.
The Enterprise Growth group’s new service idea was called Bank 2.0. It was not a bank or traditional prepaid card, but a debit and checking alternative that was accessible to the underbanked market segment. Because it was not credit score dependent, had no minimum account balance and no overdraft fees, individuals who were turned down by the traditional banking system could participate in Bank 2.0. The consumer would use their mobile phone like a branch bank and have access to features such as mobile deposit, peertopeer transfers, no annual fees, and subaccounts for other family members.
While this new banking method seemed like a nobrainer, there were downsides and potential complications to consider. First of all, there were other competitors in the online banking industry. Green Dot had partnered with Walmart to become a very successful participant in mobile banking, and GoBank and NetSpend had already forged relationships with check cashers to enter that niche. Brick and mortar stores were becoming harder to maintain, so many established banking companies were already looking into mobile banking. AXP realized that Bank 2.0 would have to work hard to replicate the customer service and relationships that regular banks provided in order to personalize their services. The company could do this by building brick and mortar stores or partnering with an existing company; however, each of these options has drawbacks. Another potential downside to Bank 2.0 is the impact on the brand image. AXP has a reputation for serving the most affluent members of society, so opening themselves up to “poorer” customers may dilute their prestigious image. The company had previously tried to create something similar to Bank 2.0 called PASS. It was a reloadable card for teenagers that allowed them to make internet purchases that they could not make with cash and allowed parents to track spending. Unfortunately, this card did not take well to the market and ended up being defunct, suggesting that it might be difficult to market Bank 2.0 and make it a success.
There are some serious potential downsides to rolling out Bank 2.0 that would need to be addressed. It might be best to alter the new system and keep it within the current target market. By offering the service to rich, affluent individuals the American Express brand would maintain its image while still entering into the mobile banking arena. If they were to partner with a higher end department store or specialty health food store they might be able to provide the customer relationships that regular banks have. An American Express/Whole Foods partnership would reach the affluent target market, provide a brick and mortar location, and maintain the company
image. There are things that could be done to mitigate the consequences of rolling out Bank 2.0, but the potential costs might outweigh the gains.
In recent years, movie exhibitors have faced great challenges. Their business is directly dependent on the movie production studios, and the business strategy of the studios has changed quite a bit. Producers started creating films that would translate easily into international markets. Action movies with little dialogue and lots of special effects have proven to be successful in other languages and cultures, and as the studios expand into those markets, they are no longer so dependent on domestic exhibitors for business, giving them greater bargaining power and the ability to increase prices to exhibitors. These greater costs meant that movie exhibitors had to change their business strategy in order to remain profitable, which has not proved easy.
The theater companies began merging lots of different movie theaters so that they could control a larger amount of screens which would help even out the bargaining power with studios. This gave them more control over access to and prices of new films and greater flexibility with the price of concessions. There is not much room for differentiation of service between the major movie exhibitors, but each company has tried to meet customer expectations by offering a wide selection of concessions and providing more locations to purchase those concessions. Some theaters opened bars to serve alcohol and some provided intheater service with a wait staff. While these are good strategies, the exhibitors have to balance the additional cost of implementing them with any increased revenue they get from customers. Theaters have conducted extensive research into the target market in order to find the optimal price for concessions, but they still receive constant complaints that the concessions are too expensive. Unfortunately for the theaters, concession prices are completely dependent on attendance and cost of materials, which continue to increase, forcing them to increase prices just to cover those costs. The food sales are the main source of profit for the exhibitors, but if they are losing business due to exorbitantly high concessions prices, they could be headed for bankruptcy.
Different theater companies operate in different market segments. Regal Cinemas focuses on midsized markets and provides a large number of screens in order to boost business. AMC focuses on urban areas and has the highest number of screens per location. Cinemark focuses on smaller markets but makes a profit because they are usually the only theater in their area. Carmike serves both small and midsized markets but focuses on populations that do not have any alternative entertainment. They have the smallest number of screens per location but stay afloat because of the greater demand in their areas. Many of the movie exhibitor companies have expanded into international markets in attempt to catch up with studios. Since producers are focusing on creating content that is attractive overseas, theater companies rushed to meet the growing demand in those markets.
Despite their efforts to differentiate and to expand into new markets, theaters are still struggling to make a profit. They have focused on weekend showings where they make the most of their revenue and began showing ads in the lobby and the theaters in attempt to earn more revenue. They are paid to show ads but increasing the number of ads shown causes customer complaints and decreased attendance, so it is a balancing act between show more paid content and keeping customers happy.
The main challenge to theaters is the recent upgrades to athome viewing systems. Years ago, the main draw of the movie theater was the big screen and immersive surround sound, but tech companies have been creating new athome systems that rival the theater experience. Televisions, despite getting cheaper overall, have increasingly large and higher definition/higher resolution screens. The bluray player allows individuals to watch DVDs at home at a theater quality resolution. Smart TVs coupled with streaming services such as Netflix, Hulu, and Disney+ allow greater access (an even exclusive access in the case of Disney+) to content in the comfort of one’s own home. Studios experimenting with “simultaneous release” eliminate another draw for theaters. Traditionally, the only place to see a new movie was in theaters weeks before it was released on DVD or a streaming platform, but with simultaneous release, there would be no reason to head to the theater when you could get a DVD from Redbox or stream the movie on Netflix.
In response to these challenges, theaters have begun upgrading equipment, installing IMAX screens that still offer what homeviewing cannot, playing with 4D movies and interactive ads, and showing alternative content during slow times. This alternative content such as live concerts, Drum Corps International performances, and special features of old TV shows have proven to generate greater revenue that movies played at the same times in the middle of the week. Theaters are offering highend and luxury experiences in order to draw more customers, and the ability to offer reserved seating for a higher ticket price is another possible avenue to draw customers.
Unfortunately, all these responses to dying demand cost money to implement, which means that the theaters will need to draw even more customers to make up for the increased costs. The theater industry seems to be a dying business due to all of the advances in home technology, and unless movie exhibitors can find a cost effective way to expand their own technology or create a different kind of experience that cannot be recreated at home, they might have to shift their focus completely to alternative content or close some theaters to decrease operating costs. There does not seem to be a good solution, and besides creating a monopoly by merging the big companies, studios will continue to have greater bargaining power than the theaters potentially leading to their demise.