Midterm Study Guide
Midterm Study Guide 301
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This 15 page Study Guide was uploaded by Ashley Butz on Sunday October 4, 2015. The Study Guide belongs to 301 at Washington State University taught by Dr. Leah Sheppard in Winter2015. Since its upload, it has received 66 views. For similar materials see Principles of Managment and Operations in Business, management at Washington State University.
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Date Created: 10/04/15
MGMT 491 Section 4 Midterm Review 37 questions multiple choice Chapter 2 1 Three components of external environment and factors that are part of each component a Industry Environment i Focus on industry pro tability 1 lO economics ii Threat of new entrants iii Power of suppliers iv Power of buyers v Product substitutes vi Intensity of rivalry b Competitive Environment i Focus on competitors 1 Competitors actions responses intentions c General Environment i Focus on future 1 Projectstrends 2 Figure 21 The General Environment Segments and Elements a Demographic segment geographic distribution ethnic mix income distribution etc b Economic segment in ation rates budget de cits personal savings rate GDP etc c PoliticalLegal segment antitrust laws taxation labor training laws etc d Sociocultural Segment women in workforce quality of life career preferences etc e Technological segment product innovations application of knowledge new communication technologies etc f Global segment political events global markets newly industrialized countries etc g Physical environment segment energy consumption renewable energy available of water as resource reacting to natural and man made disasters etc 3 General environment s seven segments dimensions in uencing industry and rms a Competitor Environment i Global ii Technological iii Politicallegal b Industry Environment i Demographic ii Economic iii Physical iv Sociocultural 4 External Environmental Analysis Process a Scanning i Identify early signals of environmental changes and trends b Monitoring i Detect meaning through ongoing observations of environmental changes and trends ii Understand stakeholders c Forecasting i Anticipate outcomes based on monitored trends and changes d Assessing i Determine the timing and importance of environmental changes and trends for rms strategies and their management 5 Industrial Organization ModelNiew a Above average returns are determined primarily by factors EXTERNAL to rm i Industry structure ii Attractiveness of the external environment iii lndustry rm competes in has stronger in uence on rm s performance iv Positioning is key 6 Five competitive forces and explain how they determine an industry s pro t potential a Threat of new entrants i Barriers to entry HIGH when 1 Economies of scale a Quantity T Price l 2 Product differentiation a Perceived product uniqueness customer loya y 3 Capital requirements a Capital necessary to enter 4 Switching costs a Onetime costs when customers buy a different product 5 Access to distribution channels 6 Cost disadvantages independent of scale 7 Government policy ii Expected retaliation 1 Swift and vigorous reactions of rms in industry 2 Airline industry 3 Honda targeted market niche b Bargaining power of suppliers i Types of suppliers 1 Manufacturers 2 Distributors and wholesalers 3 Importers 4 Independent SuppliersCraftspeople ii Bargaining power of suppliers increases when 1 Suppliers are large and few in number 2 Suitable substitute products are not available 3 Individual buyers are not large customers of suppliers and there are many of them 4 Supplier s goods are critical to the buyers marketplace success 5 Suppliers products create high switching costs 6 Suppliers pose a threat to integrate forward into buyers industry c Bargaining power of buyers i Buyer power increases when 1 Buyers are large and few in number 2 Buyers purchase a large portion of an industry s output 3 Buyers purchases are a signi cant portion of a supplier s annual revenues Buyers switching costs are low 5 Buyers can pose threat to integrate backward into the sellers industry a Industry s products are undifferentiated or standardized d Threat of substitute products increases when i Buyers face new switching costs ii Price of substitute product is lower iii Substitute product quality and performance are equal to or greater than the existing product iv Reduce threat by developing differentiated products customers value e Rivalry among competing rms increases when i Numerous or equally balanced competitors ii Industry growth slows or declines iii High xed costs or high storage costs iv Lack of differentiation opportunities or low switching costs v Strategic stakes are high vi High exit barriers prevent competitors from leaving industry 7 Strategic groups and describe their in uence on competition a Attractive industry high pro t potential i High entry barriers ii Suppliers and buyers weak positions iii Few threats from substitute products iv Moderate rivalry among competitors b Strategic group collection of rms following similar strategies along similar dimensions P i lntrastrategic group competition is more intense than interstrategic group competition due to 1 Similar market positions 2 Similar products 3 Similar strategic actions 4 Same industry ii Competitive rivalry greater within strategic group than between strategic groups iii Strategic dimensions 1 Technology leadership product quality pricing policies distribution channels customer service iv Competitor analysis 1 Help rm understand competitors intentions and strategic implications 2 Data Info competitor intelligence 3 With analysis rm better able to predict competitor behavior 4 Future Objectives Current Strategy Assumptions Capabilities Response Chapter 3 1 Describe the differences between tangible and intangible resources a Tangible Resources i Financial 1 Borrowing capacity 2 Ability to generate internal funds ii Physical 1 Sophistication and location of plant and equipment 2 Attractiveness of location 3 Distribution facilities 4 Product inventory iii Technological 1 Availability of technologyrelated resources such as copyrights patents trademarks trade secrets iv Organizational 1 Formal reporting structure b Intangible Resources i Human 1 Knowledge 2 Trust 3 Skills Hlnnovann 1ldeas iii Reputational 1 Brand name 2 Perceptions of quality durability reliability 3 Positive reputation with stakeholders such as suppliers and customers 2 Describe four criteria used to determine whether resources and capabilities are core competencies a Valuable i Help a rm neutralize threats or exploit opportunities b Rare i Not possessed by many others c Costly to imitate i Historical unique and valuable organizational culture or brand name ii Ambiguous cause causes and uses of competence are unclear iii Social complexity interpersonal relationships trust friendship among managers suppliers customers d Nonsubstitutable i No strategic equivalent 3 Know outcomes from the four criteria on competitive advantage and market outcome a Core competencies i Resources and capabilities that are the sources of a rm s competitive advantage ii Activities that a rm performs especially well compared to competitors iii Activities through which the rm adds unique value to its goods or services over a long period of time 4 De ne outsourcing and discuss reasons for its use a The purchase of a valuecreating activity from an external suppHer i Bene ts 1 Freeing resources for other purposes 2 Fewer capabilities improving focus 3 Sharing risks Hlssues 1 Do not outsource activities in which the rm itself can create and capture value 2 Do not outsource activities that simulate 5 Table 35 6 Figure 33 7 Value Chain Analysis a Shows how a product moves from rawmaterial stage to nal customer b Allows a rm to understand parts of operations that create value and those that do not i Firm can concentrate on areas it can create value ii Specialty suppliers can perform outsourced capabilities more ef ciently c Primary activities i Product39s physical creation ii Product39s sale and distribution to buyers iii Product39s service after sale d Support activities i Provide assistance necessary for primary activities to take place e Value Chain model i Supply chain management gt operations gt distribution gt marketing including sales gt followup service 8 Outsourcing a Purchase of a valuecreating activity from external supplier b Bene ts i Freeing resources for other purposes ii Fewer capabilities improving focus iii Sharing risks iv Reduces investment requirements and makes rm more exible dynamic and better able to adapt to changing opportunities v Redirects efforts from noncore activities toward those that serve customers more effectively c DON T i Outsource activities the rm can create and capture value with ii Outsource activities that stimulate development of new capabilities and competencies iii Outsource capabilities critical to rm39s success even though capabilities are not actual sources of competitive advantage Chapter 4 1 What is businesslevel strategy a Integrated and coordinated set of commitments and actions the rm uses to gain a competitive advantage by exploiting core competencies in speci c product markets i Reach rm s access and connection to customers ii Richness depth and detail of twoway ow of info btw rm and customer iii Af liation facilitation of useful interactions with customers b Who the customers to serve i Market segmentation identifying groups 1 Demographic 2 Socioeconomic 3 Geographic 4 Psychological 5 Consumption ii Competitive advantage 1 Broad scope many segments 2 Narrow scope exclusive segment or group 2 Explain the differences among businesslevel strategies cost leadership differentiation etc a Cost leadership broad target and lowest cost i Standardized products ii Features acceptable to many iii Lowest competitive price 1 Determine and control cost drivers a Finance gt Human Resources gt Management info Systems 2 Recon gure value chain a Supplychain management gt Operations gt Distribution gt Marketing Including Sales gt Followup Service iv Rivals hesitate to compete price 1 Lack of price competition leads to greater pro ts v Mitigate buyer s power by driving prices far below competitors 1 Shifting power with buyers back to firm vi Mitigate suppliers power by absorbing cost increases due to low cost position 1 make bulk purchases reduce chance of supplier using power vii Frighten new entrants by their need for large scale 1 Time it takes to move down industry learning curve viii Substitutes avoided by adding features unavailable for dupHcann 1 Lower prices to maintain value position 2 Make investments to add features unavailable to substitutes 3 Buy intellectual property and patents developed by potential substitues ix Competitive risks 1 Processes used to produce and distribute good or service may become obsolete due to competitors innovanns 2 Too much focus on cost reductions may occur at expense of customers perceptions of differentiation 3 Competitors using their own core competencies may successfully imitate the cost leader s strategy b Focused Cost Leadership narrow target and lowest cost c Differentiation broad target and distinctiveness i Product or service at an acceptable cost customers perceive as being different in ways that are important to them 9 Nonstandardized products defends against competitors differentiated products reduce customer sensitivity to price T Customers value differentiated features more than low cost Rivalry with existing competitors new products better than present products w performance and cost Competitive risks a Price differential between the differentiator s product and the cost leader s product becomes too large b Differentiation ceases to provide value customers are willing to pay c Experience narrows customer s perceptions of value d Counterfeit goods replicate the differentiated features of the firm s products Competitors defends against competitors because customer s brand loyalty is differentiated product offsets price competition Buyers well differentiated products reduce customer sensitivity to price increases Suppliers absorbing price increases due to higher margins passing along higher supplier prices because buyers are loyal to differentiated brand New Entrants new products must surpass proven products at least equal to performance of products and lower prices Substitutes brand loyalty reduces customer s testing of new products or switching brands d Integrated Cost LeadershipDifferentiation Strategy i Firm uses an integrated cost leadershipdifferentiated strategy ii Often involves compromise 1 Becoming neither the lowest cost nor most differentiated rm iii Becoming quotstuck in the middlequot 1 Lack strong commitment and expertise iv Lack strong commitment and expertise that accompanies rms following either a cost leadership or a differentiated strategy e Focus strategies i Set of actions taken to produce goods or services that serve the needs of a particular competitive segment 1 Particular buyer group a youths teenagers seniors b Geographic markets east coast west coast etc 2 Types a Focused cost leadership b Focused differentiation ii Competitive Risk 1 Large rms overlook small niches 2 Firm may lack resources needed to compete in broader market 3 Firm is able to narrow market segment more effectively 4 Focusing allows rm to direct resources to certain value chain to build comp adv 5 Large competitor may set sights on rm s niche market 6 Customer preferences in niche market may change to broader market 3 Use the ve forces of competition model to explain how aboveaverage returns can be earned through each businesslevel strategy 4 Describe the risks of using each of the businesslevel strategies Chapter 5 1 De ne competitors competitive rivalry competitive behavior and competitive dynamics a Competitors i Firms operating in same market offering similar products targeting similar customers b Competitive behavior i Set of competitive actions and responses the rm takes to build or defend its competitive advantages and to improve its market position c Competitive rivalry individual rms i Actions and responses taking place between an individual rm and its competitors for advantage in market 1 Market commonality and resource similarity 2 Awareness motivation ability 3 First mover incentives size and quality d Competitive dynamics all rms ongoing actions and responses taking place between all rms competing for market advantage i Market speed slowcycle fastcycle and standardcycle ii Effects of market speed on actions and responses of all competitors in market 2 Figure 52 A Model of Competitive Rivalry a Competitor analysis i Market commonality ii Resource similarity b Drivers of competitive behavior i Awareness ii Motivation iii Ability c Competitive rivalry i Likelihood of attach 1 Firstmover bene ts 2 Organizational size 3 Quality ii Likelihood of response 1 Type of competitive action 2 Actor s reputation 3 Market dependence d Outcomes i Market position ii Financial performance 3 What is market commonality a Number of markets a rm and a competitor are jointly involved b Mutimarket competition rms competing against one another in several or many markets i Firm more likely to attach rival with low market commonality than one competing in multiple markets with ii Degree of importance of individual markets to each competitor iii Firm with greater multimarket contact is less likely to initiate attack 1 More likely to respond aggressively when attacked 4 What is resource similarity a How comparable a rm s tangible and intangible resources are to a competitor s in terms of both types and amounts i Firms with similar types and amounts of resources will likely have similar strengths and weaknesses ii Use similar strategies b Dif cult to assess if resources intangible rather than tangible 5 Discuss factors affecting the likelihood a competitor will take competitive actions 6 Drivers of competitive behavior a Awareness extent competitors recognize the degree of their mutual interdependence resulting from i Market commonality ii Resource similarity b Motivation i rm s incentive to take action ii or respond to competitor attack iii relates to perceived gains and losses c Ability i Firm s resources ii Flexibility resources provide 1 wo available resources rm lacks ability to attach competitors or respond to attack d Firstmover incentives i Firm takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position 1 Gain customer loyalty and market share 2 Allocate funds for product innovation and development aggressive advertising advanced research and development e Secondmover incentives i Second mover responds to rst mover s competitive action imitation 1 Studies customer s reactions 2 Tries to discover mistakes made by rstmover to avoid 3 Can avoid huge spending and mistakes made by rstmover 4 May develop more ef cient processes and technologies f Latemoverincentives i Late mover responds after considerable time ii Any success will be slow and much less compared to rst and second movers iii Competitive action allows it to earn only average returns and delays its understanding of how to create value for customers g Organizational Size i Small rms more likely to launch competitive actions and be quicker ii Large organizations generally have slack resources better competitive actions iii quotThink and act big and we ll get smaller Think and act small and we ll get biggerquot h Quality i Quality exists when rm s goods or services meet or exceed customer s expectations ii Product quality dimensions include 1 Performance 2 Features 3 Flexibility 4 Durability 5 Conformance 6 Serviceability 7 Aesthetics 8 Perceived quality 7 Describe factors affecting the likelihood a competitor will respond to actions taken by its competitors a Type of competitive action i Strategic actions receive strategic responses 1 Marketbased move involves signi cant commitment of resources and is difficult to implement and reverse a Time needed to implement and assess a strategic action delays responses ii Tactical responses are taken to counter the effects of tacUcalacUons 1 Marketbased move taken to netune a strategy a Usually fewer resources b Relatively easy to implement and reverse c Competitor will respond quickly with tactical acUons b Actor s reputation i Positive or negative attribute ascribed by one rival to another based on past competitive behavior ii Firm studies responses a competitor has taken previously when attacked to predict likely responses c Market dependence i Extent a firm s revenues or pro ts are derived from a particular market ii Competitors with high market dependence are likely to respond strongly to attacks threating market position 8 Explain competitive dynamics in slowcycle in fastcycle and in standardcycle markets a Slowcycle i Competitive advantages are shielded from imitation for long periods of time and imitation is costly ii Competitive advantages are sustainable b Fastcycle i Firm s competitive advantages aren t shielded from imitation ii Imitation happens quickly and somewhat expensively iii Competitive advantages are not sustainable 1 Competitors use reverse engineering to imitate or improve product iv Nonproprietary technology diffused rapidly c Standardcycle i Moderate cost of imitation can shield competitive advantages ii Competitive advantages partially sustainable if quality continuously upgraded iii Firms seem large market shares iv Gain customer loyalty through brand names Chapter 6 1 De ne corporatelevel strategy and discuss its purpose How is it different from business level strategy that we discussed in chapter 4 a Corporate level strategy i Firm has competitive advantage by selecting and managing a group of different businesses competing in different product markets b Diversi cation i A corporate strategy that extends the scope of products and markets in which the rm competes 2 Understand different levels of diversi cation achieved using different corporatelevel strategies a Low level i Single business 1 More than 95 revenue comes from a single business 2 A ll Dominant business performance drops 1 Between 7095 revenue comes from a single business 2 A B b Moderate to High Level i Related constrained performance peaks 1 Less than 70 revenue comes from a single business and all businesses share product technological and distribution linkages 2 ABCA ii Related linked mixed related and unrelated 1 Less than 70 revenue comes from the dominant business and there are only limited links between businesses a A and B are connected and B and C are connected i A B BC c Very High Levels i Unrelated Diversi cation performance drops 1 Less than 70 revenue comes from the dominant business and there are no common links between businesses a A B C 3 Figure 61 Reasons for Diversi cation a Valuecreating diversi cation i Economies of scope related diversi cation 1 Sharing activities 2 Transferring core competencies ii Market power Related diversi cation 1 2 Blocking competitors through multipoint competition Vertical integration b Valueneutral diversi cation i Antitrust regulation 1 4 Antitrust laws in 19605 and 19705 discouraged mergers that created increased market power vertical or horizontal integration 2 Mergers tended to be unrelated 3 Relaxation of antitrust enforcement results in more and larger horizontal mergers Early 2000 antitrust concerns emerging and mergers more closely scrutinized ii Tax laws 1 4 5 High tax rates on dividends cause a corporate shift from dividends to buying and building companies in highperformance industries 2 1986 Tax Reform Act 3 Reduced individual ordinary income tax rate from 50 28 Treated capital gains as ordinary income Created incentive for shareholders to prefer dividends to acquisition investments iii Low performance 1 2 3 High performance eliminates the need for greater diversi cation Low performance acts as incentive for diversi cation Firms plagued by poor performance often take higher risks diversi cation is risky iv Uncertain future cash ows 1 2 3 4 Diversi cation may be defensive strategy if Product line matures Product line is threatened Firm is small and is in mature or maturing industry v Risk reduction and synergy for rm 1 Synergy when value created by businesses working together exceeds the value created by them working independenUy Synergy creates joint interdependence between business units Firm may become risk averse and constrain its level of activity sharing 4 Firm may reduce level of technological change by operating in more certain environments vi Tangible resources vii Intangible resources c Valuereducing diversi cation i Diversifying managerial employment risk 1 Managerial risk reduction 2 Desire for increased compensation 3 Build personal performance reputation ii Increasing managerial compensation iii Effects of inadequate internal rm governance 1 Diversi cation fails to earn even average returns 2 Threat hostile takeover 3 Selfinterest actions of entrenched management 4 Discuss the incentives that encourage diversi cation a Firms create value by building upon or extending i Resources iL CapabM es iii Core competencies b Economies of scope c Sharing activities i Using complex resources and capabilities to link different businesses through managerial and technological knowledge experience expertise d Market power i Reduces cost of primary and support activities below competitive levels e Vertical integration i Backward Integration 1 Firm produces own inputs ii Forward integration 1 Firm operates its own distribution system for delivering its outputs f Multipoint competition i Two or more diversi ed rms simultaneously compete in same product areas for geographic markets 5 Table 6
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