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Strategic Management Chapters 1-5

Strategic management
An integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage.

Never ending cycle of analysis, formulation, implementation, and feedback.

Competitive advantage
Superior performance relative to other competitors in the same industry or the industry average.

A firm that formulates and implements a strategy that leads to superior performance relative to competitors has this.

Sustainable competitive advantage
Outperforming competitors or the industry average over a prolonged period of time.
Competitive disadvantage
Under performance relative to other competitors in the same industry or the industry average.
Competitive parity
Performance of two or more firms at the same level.
Strategy
The goal-directed actions a firm intends to take in its quest to gain and sustain competitive advantages.

Manager’s “theory” about how to gain and sustain.

Strategic positioning
Staking out a unique position in an industry that allows the firm to provide value to customers while controlling costs.
Co-opetition
Cooperation by competitors to achieve a strategic objective.
Firm effects
The results of managers’ actions to influence firm performance.

Have stronger effect on the firm.

Industry effects
The results attributed to the choice of industry in which to compete.
Corporate-level strategy
Involves decisions made at the highest level of the firm about where to compete. Which industries, markets, and geographies their company should compete, and how well they can create synergies across different business units.
Business-level strategy
Involves deciding how to compete in order to achieve superior performance within the business unit. Formulated by general managers.
Functional-level strategy
Involves deciding how to implement the business-level strategy. Functional managers within a single functional area (accounting, HR, finance, IT, customer service) are responsible for decisions and actions.
Strategic business unit (SBU)
Standalone division of a larger conglomerate, with its own profits and losses.
Business model
The translation of the strategy into action takes place here, and it details the firm’s competitive tactics and initiatives. How the firm intends to make money.
Network effects
The increase in value of a product of service as more people use it.
Bottom of the pyramid
The largest but poorest socioeconomic group of the world’s population. Can yield significant business opportunities.
Externalities
Side-effects of production and consumption that are not reflected in the price of a product.
Crowdsourcing
A process in which a group of people voluntarily performs tasks that were traditionally completed by a firm’s employees.

Threadless T-shirt company used this.

Stakeholders
Individuals or groups who can affect of are affected by the actions of a firm.
AFI strategy framework
A model that links three interdependent strategic management tasks that together help firms conceive and implement a strategy that can improve performance and result in a CA.
Strategic management process
Method by which mangers conceive of and implement a strategy that can lead to a sustainable CA.

Vision, mission, values.

Vision
A statement about what the firm ultimately wants to accomplish, it captures the company’s aspiration. Helps employees find meaning in their work.
Strategic intent
The staking out of a desired leadership position that far exceeds a company’s currents resources and capabilities. Allows managers to operationalize their visions because it is not only forward-looking and future-oriented but also helps in ID’ing steps that need to be taken to make a vision become reality. “Stretch Goals”
Mission
Description of what an organization actually does (what its business is) and why it does it. Can be customer or product oriented.
Strategic commitments
Actions that back up a firm’s mission statement. They are costly, long-term oriented, and difficult to reverse.
Organizational values
Ethical standards and norms that govern the behavior of the individuals within a firm or organization. Must form solid foundation to build mission and long term success, as well as help the company stay on track when pursuing its mission in its quest for a CA.
Strategic (long-range) Planning
A rational, top-down process through which executives can program future success. Concentrates strategic intelligence and decision-making responsibility in the offices of the CEO.
Scenario planning
Strategy-planning activity in which managers envision different what-if scenarios to anticipate plausible futures.
Dominant strategic plan
The strategic option that managers think most closely matches a reality at a given point in time.
Strategic initiative
Any activity a firm pursues to explore and develop new products and processes, new markets, or new ventures.

Top down or bottom up. Can be random, luck, or anything.

Emergent strategy
Any unplanned strategic initiative undertaken by mid-level employees of their own volition. If successful, these have the potential to influence and shape a firm’s strategy.
Intended strategy
The outcome of a rational and structured, top-down strategic plan. First important step in strategy-making.
Unrealized strategy
When unexpected events have dramatic strategic implications, part or all of a strategic plan becomes this.
Realized strategy
Combination of an intended and emergent strategy.
Strategic group
The set of companies that pursue a similar strategy within a specific industry. Consists of the firms closest competitors.
PESTEL Model
A framework that categorizes and analyses an important set of external forces (political, economic, sociocultural, technological, ecological, and legal) that might impinge upon a firm. These forces are embedded in the global environment and can create both opportunities and threats for the firm.
Industry
A group of companies offering similar products or services. It makes up the supply side of the market, while customers make up the demand side.
Structure-conduct-performance (SCP) Model
A framework that explains differences in industry performance. It ID’s four different industry types.
Porter’s five forces Model
A framework that identifies five forces that determine the profit potential of an industry and shape a firm’s competitive strategy.
Entry barrier
Obstacle that determines how easily a firm can enter an industry. Often of the most significant predictors of industry profitability.
Exit barriers
Obstacles that determine how easily a firm can leave an industry. Lower the better.
Complement
Product, service, or competency that adds value to the original product offering when the two are used in tandem. Increase demand and enhance profit potential.
Complementor
A company that provides a good or service that leads customers to value your firm’s offering more when the two are combined.
Industry convergence
a process whereby formerly unrelated industries begin to satisfy the same customer need.

Ex: newspapers, magazines, TV, movies, radio

Strategic group model
a framework that explains firm differences in performance in the same industry by clustering different firms into groups based on a few key strategic dimensions.
Mobility barriers
Industry-specific factors that separate one strategic group from another.
Core competencies
Unique strengths, embedded deep within a firm, that allow a firm to differentiate its PnS from those of its rivals. This creates higher value for the customer or offering products and services of comparable value at a lower cost.
Resources
(In)tangible assets such as cash, buildings, or intellectual property that a company can draw on when crating and executing a strategy.
Capabilities
Organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically. Intangible by nature.
Activities
Allow firms to add value by transforming inputs into goods and services.
Resource-based view
A model that sees resources as key to superior firm performance. If a resources exhibits VRIO attributes, the resource enables the firm to gain and sustain a CA.
Tangible resources
Have physical attributes and are visible. Capital, land, buildings, plant, equipment, and supplies.
Intangible resources
Have no physical attributes thus are invisible. Firm’s culture, knowledge, brand equity, reputation, and intellectual property.
Resource heterogeneity
Assumption that in resource-based view that a firm is a bundle of resources and capabilities that differ across firms.
Resource immobility
Assumption in the resource-based view that a firm has resources that tend to be “sticky” and do not move easily from firm to firm.
VRIO framework
A theoretical framework that explains and predicts firm-level CA. A firm can gain a CA if it has resources that are valuable, rare, and costly to imitate; the firm must also organize to capture value of the resources.
Valuable resource
Allows the firm to take advantage of an external opportunity and/or neutralize an external threat.
Rare resource
When only a few firms possess this, they can perform in a unique way.
Costly to imitate resource
When firms do no possess this, they are unable to develop or buy the resource at a comparable cost.
Organized to capture value
The characteristic of having in place an effective organizational structure and coordination systems to fully exploit the competitive potential of the firm’s resources and capabilities.
Value chain
The internal activities a firm engages in when transforming inputs into outputs.
Primary activities
Add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along the internal value chain.
Support activities
Add value indirectly but are necessary to sustain primary activities. R&D, information systems, operations management, HR, accounting, finance.
SWOT Analysis
A framework that allows managers to synthesize insights obtained from an internal analysis of the company’s strengths and weaknesses, with those from an analysis of external opportunities and threats.
Value
The dollar amount a consumer would attach to a good or service. The consumers MAX willingness to pay. AKA reservation price.
Economic value created
Difference between value and cost (V – C). AKA economic contribution. Also
Producer surplus
Difference between prices charged (P) and the cost to produce (C). AKA profit.
Consumer surplus
Difference between the value (V) a customer attaches to a good or service and what he or she paid (P) for it.
Opportunity costs
The value of the best forgone alternative use of the resources employed.
Risk capital
Capital provided by shareholders in exchange for an equity share in a company. Cannot be recovered if the firm goes bankrupt.
Total return to shareholders
Return on risk capital that includes stock price appreciation plus dividends received over a specific period. External performance metric. Indicates how the stock market views all available info about a firm’s past, present, and future state.
Balanced scorecard
Strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals.
Triple bottom line
Combination of economic, social, and ecological concerns that can lead to a sustainable strategy.

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