1. Define and describe the balance scorecard tool and elements. How does the concept
of leading and lagging indicators apply to this tool and its relevance to strategy
management analysis?
- Meant to forecast how a company will perform in future
- Customer Perspective: customer satisfaction, customer retention, and market share in
target segments
- Financial Perspective: operating income, return on capital employed, and economic
value added
- Learning and Growth Perspective: employee satisfaction, employee retention, skill sets
- Business Process Perspective: cost, throughput, quality. These are for business
processes such as procurement, production and order fulfillment
- Learning and growth lead to better business processes, which lead to increased value to
customer, which leads to improved financial performance
- Scorecard includes objectives, measures, targets and initiatives
- Lagging indicators are those statistics or measures that tell you what has happened in the
past while leading indicators try to determine what will happen in the future (ex. Number
of catalogues issued is a leading indicator of future sales at a store)
2. Discuss and describe in details the measures that make up the two axes of the
Performance Matrix. What insights (2) does this tool provide in assessing
organizational performance? Describe (2) how the outputs of this tool can influence
strategy formulation and implementation.
- Organizational health
o Enthusiasm, boundaries, problem solving, learning, sustainability
- Operating performance
o Profit margins, ROE, ROA, Liquidity Ratios, Market share, Sales growth
- Where was business 3 years ago, where today, which way is it trending?
- Tool allows us to see how the company is trending, where it was in the past and where it
is headed
- If in Q1; strategy is fine tuning, perhaps taking a farther than usual look into the future;
make sure you are not complacent
- If in Q2; People enjoy work, but not efficient will be hard to make currently happy
employees convert into uncomfortable changes to improve performance
- If in Q3; good performance, unhappy employees; often a result of companies downsizing
and forcing workers to do more work with less people
- If in Q4; bad performance and unhappy employees must act fast, shortcuts must be
taken drastic changes must be made 3. Describe the four basic functions of a general manager as it applies to STRATEGY
and their relationship as depicted in the diagram. Which one is a more useful
starting point for an existing firm within the context of Strategic Management
analysis and why?
- Assessing Performance: most important because if you misconstrue performance
than everything the follows will be wrong
o Based on Operating Performance (hard measures/quantitative) and Org Health
(Soft Measures/qualitative)
- Setting Direction: need strong sense of direction (vision, mission, values)
- Creating Strategy: must now link company vision to strategy; must translate the vision
into the strategy
- Implementing Change: making it happen
o Assessing Performance Should be first
Ex. McDonald‟s saw its first loss in 2003; it was more focused on opening
new stores (McDonald‟s is paid rent from franchise owners as well as
royalties) - all profits were coming from this, instead of same-store sales
4. Please define the concept of Value Proposition. Why this concept is considered a
key component of strategy? What is the relationship of the value proposition to the
other components of business strategy? Please describe those elements. Provide an
example of a company discussed in class or the textbook that leveraged its value
proposition to create a competitive advantage.
- Value Proposition: how does the business intend to attract customers? What benefits
constitute its offer or value proposition to the marketplace
- Porter suggests low cost and differentiation as two generic strategies for VP
- It is a key component of strategy because it is crucial for companies to distinguish
themselves from the many competitors in their industry, so they must add some sort of
value to their products that are not found elsewhere
- Costco offers low unit prices on quantity purchases of food and general merchandise
items price advantage is important to small commercial customers and to households
with cash and storage capacity to inventory items. Prices are hard for competitors to match as long as they incur the costs associated with the smaller package and lot sizes
that many customers want
5. In applying the diamond-E model to strategic analysis, “the tighter the fit, the
better the strategy and the performance.” Inconsistency between the components
creates risks. Describe two types of strategic risk and how those risks manifest
themselves in the short and long terms.
- Environmental Risk – inconsistency between strategy and environment
o Short-Term: Errors in reading the environment cause strategic failure
Misread timing, potential, competitive reaction
Ex Canon‟s early, heavy investment in digital photography
o Long-Term: Environmental changes make the strategy obsolete
Missing or underestimating environmental change
Ex. Kodak procrastinated for years in changing to digital
photography and is now playing catch-up
- Capability Risk – inconsistency between firm‟s goals and capabilities
o Short-Term: Strategic demands exceed the capacity to execute
Strategies demand too much
Ex. Proctor and Gamble tried to aggressively launch a number of
new products and brands; but failed as costs escalated and morale
tumbled
o Long-Term: Internal capabilities develop inconsistently with strategy
Demands of strategy increase while capabilities of firm stay stagnant/or
even erode with complacency
Ex. Jim Kilts was brought in to replace CEO of Gillette as it had
been floundering
6. Please define and describe the notion of “Strategic Tension” and what are the
implications (2) within the context of strategic management analysis? Provide an
example discussed in class or the textbook where a firm experienced strategic
tension.
- Strategic tension suggests that there is no perfect strategic choice and firms will always
experience some stretch or tension
o Strategic analysis triangle shows that firms must manage the tension between
what they need to do given the competitive environment, what they can do given
their organization, resources and capabilities, and what they want to do given
management preferences
- Want: Management Preferences (Individual)
- Can: Resource Capabilities and Organization (Firm)
o What they can do considering their organization, resources and capabilities
- Need: Given competitive Environment (Industry) - A firm may satisfy key stakeholder interests at the expense of not delivering exactly what
the market needs, as found in many entrepreneurial firms who are guided by what an
entrepreneur wants to do
7. Please explain the relationship between trade-offs and strategy. Please define and
describe three trade-offs between the “differentiation” and “cost leadership” generic
strategies.
- Strategy is the process or plan which a company
o Strategy consists of
Goals (what a company wants to achieve),
Product market focus (what are the products/services the company wants
to sell and in what markets),
Value Proposition (how the business will attract customers), and
Core activities (what the primary value adding activities the business
intends to perform and how it will perform it)
- Trade-offs are the sacrifices that firms must make in order to pursue a certain strategy
- Trade-offs between differentiation and cost leadership
o Cost leadership appeals to price sensitive consumers; while differentiation appeals
to high-quality or value seeking customers
o Differentiation seeks to serve customers with products that are vastly
different/superior to competitors, while cost leadership seeks to provide the same
products as competitors at a lower price
o Goals of Cost leadership are often to sell in more volume whereas differentiation
has high enough margins that it does not
o The experience one often receives with the differentiation strategy is sacrificed
with cost leadership
8. Define and describe core activities. Why core activities are considered a key
component of business strategy? Which tool(s) can be used to help identify the core
activities? Provide an example discussed in class or the textbook of a company and its
core activities.
- Core Activities: Activities which are critical to the effective operation of the business
- As illustrated in the definition, core activities are considered a key to component of
business strategy because they are required to be done extremely well otherwise the firm
will not excel in its industry – it will have no competitive advantage
- Firms can decide on what they want their core activities to be; in order to
o Ex. In pursuing vertical integration, you will have to decide on what basic
building blocks in the industry value chain you intend to perform and those you
will access through a market
o Your core activities would be best described in terms of the building blocks that
represent fundamental aspects of the industry such as raw material supply,
manufacturing, distribution, etc.
- Kmart: Kmart decided to outsource transportation activities as well as its information
technology, in order to focus on merchandising (ITS CORE ACTIVITY) Wal-Mart was investing heavily in distribution and information technology at the same time, which
allowed it to lower costs. Kmart was unable to match Wal-Mart‟s costs partly because it
did not have control over some of the fundamental cost elements of the business. Kmart
soon became bankrupt because having a core activity of Merchandising was not enough
to offset the cost differences
9. Please define and describe the “focus” generic strategic strategy. Please define and
describe three internal attributes / elements required by a firm to support this
generic strategy.
- Focus: producing a product/service which focuses on the need of a particular buyer
group, segment or product line or geographic market
o Built around serving a particular target market VERY well – either more
effectively (differentiation) or efficiently (cost leadership)
o Defensible from competition because the firm is achieving low cost or
differentiation in its narrow market segment
- Required Attributes:
o Strong Marketing abilities: must be able to describe product‟s differences from
the market
o Creative flair: must be a product which appeals to customers
o Strong cooperation from channels: this is key in order to minimize costs
10. Please define and describe the “differentiation” generic strategic strategy. Please
define and describe three internal attributes / elements required by a firm to
support this generic strategy.
- Differentiation: product/service that is perceived industry wide as being different
o Firm differentiates product/service along same dimensions that are valued by
customers
o Creates brand loyalty in customers which is hard to break by competitors; also
makes customers less price sensitive
o Makes significant entry barriers for new competitors to enter market
- Required Attributes:
o Strong marketing abilities: must be able to tell public your product is superior
o Creative flair: must provide something that the public is interested in, which is
different from current competitors
o Reputation for quality or technology leadership: must be trusted by consumers as
a company which provides high quality, high value products
11. Please define and describe the “cost leadership” generic strategic strategy. Please
define and describe three internal attributes / elements required by a firm to
support this generic strategy. - Cost Leadership: requires aggressive construction of efficient-scale facilities, pursuit of
cost reduction from experience, tight cost and overhead control as well as avoidance of
marginal customer accounts
o Yields above average return; defence against rivalry from competitors as it can
earn returns after competitors have competed away profits through rivalry
o Relies on economy of scale and/or experience curve as entry barrier
o Strategy particularly dependent on pre-emption
- Required Attributes:
o Low-cost distribution system: do not want distribution channel members adding
on lots of costs
o Process engineering skills: need to produce efficiently to ensure low price
o Products designed for ease of manufacture: easily manufactured items means
economy of scale is easier to obtain
12. Define and describe four models / frameworks/ tools that may be used in
environmental analysis and note their major strategic purpose?
- Porter‟s Five Forces
o Potential Entrants, Suppliers, Substitutes, Buyers, rivalry among existing firms
o Who has the power and how attractive is the industry?
- PEST
o Political, Economic, Social, Technology
Supply, competition demand
o More macro than Porter‟s: Early warning signs of changes in industry
o Can provide long lead time in their evolution or development, although the final
outcome or impact of the force may be less than precise
o Ex. Demographics can be used to assess demand many years in advance – for
schools for ex.
- Game Theory
o It is illegal for companies to tacitly collude with competitors; therefore they must
read and understand the signals sent by one another to determine motivation and
intent to cooperate or compete
o 8 industry attributes that facilitate the development and maintenance of tacit
collusion
1. Small number of firms enables monitoring
2. Product homogeneity focuses attention on price (easily monitored)
3. Cost homogeneity enables common price structure and level of output
4. Price leaders to provide order and discipline to the market
5. Industry social structure or recipe that defines the standards of operating in the
industry
6. High order frequency adn small order size minimize the cost of losing an
order and incentive to compete
7. Entry barriers as noted by Porter in his Five Forces Model
o Zero-Sum games = one player‟s gain is exactly equal to the other player‟s loss o Non-zero-sum games = allows cooperation and competition
o Purpose is to see that it is possible to have mutual gain in industries, there are
often non-zero-sum games
- Stakeholder Analysis
o Method which identifies all stakeholders of a business, values their importance to
the business and adopts a strategy in order to align it with the stakeholders‟
interests.
o Stakeholders can have Power, legitimacy, or urgency, or a combination of any/all
of the three
13. Define and describe the "Economic Deterrence / Expected Retaliation" concept
within the context of the 5 forces model and how this concept can impact the
industry profitability. Please provide an example in your textbook, articles or
discussed in class that relates to the concept.
- Economic Deterrence: companies pre-empt competitors by investing heavily in an asset;
competitor can buy the same asset but will not because of limited market potential
o Ex. Float-glass plants require a huge investment, and most markets can only support one
facility; because this investment cannot be transferred the first mover always ensures
sole ownership of the market
- Would fall under rivalry among existing firms
14. Define and describe the PEST analysis tool. Please describe how this tool should be
used in the context of strategy assessment and formulation.
- PEST (Politics, Economics, Social, Technological) [macro forces]
o Supply, Competition, Demand (micro forces)
- More macro than porter‟s five forces, and act as the early warning signals about changes
in the industry
- Can provide long lead time in their evolution or development, although the final outcome
or impact of the force may be less than precise
o Ex. Demographics can be used to assess demand many years in advance – for
schools for ex.
o Ex. Exchange rates, interest rates, and unemployment rates will all affect supply,
demand and competition within an industry this can be successfully predicted
using the Economic section of PEST
15. Define and describe the concepts forward integration and backward integration. How
and why are each one of these two concepts relevant to strategy?
- Forward Integration: A business strategy that involves a form of vertical integration
whereby activities are expanded to include control of the direct distribution of its
products.
o Controls distribution centers and retailers where its products are sold. - Backward Integration: A form of vertical integration that involves the purchase of
suppliers in order to reduce dependency.
o controls subsidiaries that produce some of the inputs used in the production of its
products.
For example, an automobile company may own a tire company, a glass
company, and a metal company. Control of these three subsidiaries is
intended to create a stable supply of inputs and ensure a consistent quality
in their final product.
- These two concepts are relevant to strategy because implementing them are a legitimate
way that companies control the value chain and can therefore dictate the final cost that
the consumers are going to pay. This is a great way for cost leadership firms to limit costs
and know exactly what their product will sell for in the store
16. Define, describe and contrast the value system and the value chain? What insight
can the value system provide? What insights does the value chain provide? ( Note:
Value system is sometimes referred to Industry value chain),
- Value Chain: primary activities selected from the industry‟s value chain that have been
integrated into the structure of an organization
- Industry Value Chain: includes all activities from raw materials to sale to the final
consumer and disposal
o Ex. Automobile manufacturer (Value Chain) makes parts, assembles cars, and
then market and distributes them
While the whole (industry) value chain would include mining the iron ore,
manufacturing paint, producing radial tires, and disposing of old vehicles
o Value Chain illustrates how any product/service could be described in terms of a
set of primary activities and a set of supporting activities
Primary activities include: inbound logistics, operations, outbound
logistics, marketing and sales and after-sale service
Support activities include firm infrastructure, human resource
management, technology development and procurement
Primary and support activities contribute to both a firm‟s costs as well as
the ability for a firm to deliver value to its customers
Value is created, less the costs, dictates the margin (or lack thereof)
derived by each activity along the value chain
17. Define and describe the concept of strategic myopia and the implications within the
context of strategy assessment and formulation. Define and describes two
approaches that can reduce the strategic myopia impact.
- Strategic Myopia: focus on environmental analysis is too specific, you miss the
emergence of a new market opportunity, or the arrival of unconventional competition
o Also; if you concentrate overly on a particular time horizon you may get
blindsided by events that lie just beyond that limit - You can reduce the risks of focus by ensuring that your analysis is accompanied by
continuous macro-environmental scanning, and that the analysis is recycled as it
proceeds, to incorporate the redefinition as necessary, of both the relevant environment
and questions being addressed
o Macroeconomic Scanning – maintaining a concurrent awareness of the events and
institutions surrounding the relevant business environment (use PEST)
PEST is good b/c it identifies broad forces and basic changes in the total
environment of a business (most useful when uncertainty is very high)
Essentially an issue-seeking process; ongoing search for basic
developments that may offer a firm brand new opportunities or present
unconventional threats to its continuing performance
o Identifying Market Intrusions – keep your eyes open for newcomers into your
industry
Trucks and aircraft have taken business that historically belonged to the
railroads
Low fare airlines are challenging the traditional hub and spoke network
airplanes
Plastics have replaced wood, paper and metals in numerous applications
The development of new technology is often at the edge that allows
outsiders to break into an industry and successfully penetrate its markets
Simply watch patent registrations, technical reports, and products or
processes already in use in other industries that may be applicable in your
own situation
There should be enough time to respond, as long as a clear and
imaginative view is taken of the potential of the innovation and the
intentions of its sponsors (given time lags associated with truly
novel commercial development and market diffusion)
o Recycling Analysis – ensure that the analytic process stays open (that you are
prepared to incorporate new information and to double back or recycle your work
as the need arises)
Recycling breaks the momentum of a proposal and may require substantial
additional analysis; you may be reluctant (especially in ambiguous
situations) to go back a step, perhaps to the beginning and redefine and
reassess the situation
Fight this tendency or you will lose the important benefits of
learning about new possibilities as the work develops
18. One model that can be used to assess the strategy-environment linkage is the
Business Environment Analysis Model. (BEAM) Define and describe the four
components of the model, how and when it should be used. How does it compare to
the Porter 5 forces model?
- Demand: Customer needs and performance, market growth, buyer bargaining power
o does it anticipate opportunities and create advantages in the way that it addresses
customer requirements and trends in the market? Is the strategy aimed at growing
market segments? Does the strategy tap into new customer needs? In this process it is particularly important for you to gauge the degree to which a strategic
proposal incorporates (1) the needs and preferences of current and potential
customers; (2) the scale and timing of market development; and (3) the bargaining
power of customers
- Competition: aggregate competitive conditions, individual competitor strategies
- Supply: advances in product, process technology; supplier competence and bargaining
power; competition for raw materials and people
- Government: industry support programs; economic and trade policy; regulation of
structure and conduct
- Similar to Porter‟s 5; understanding supply, demand and competition is crucial
o Add government to the list since in many economies the regulatory environment
has a direct impact on the industry. Simply examining the political factors that
affect the industry, as in the PEST model, does not adequately capture the micro-
processes of industry analysis
19. Please define and describe three (3) insight / conclusions that a GM seeks to acquire
when he/she analyze the industry structure in which his/ her firm is competing
within. How should the GM best apply this knowledge while reviewing the current
strategy or formulating a new one?
Vague so I‟ll assume you‟re looking for Porter‟s five forces
- Potential Entrants
o Threat of new entrants
- Supplier
o Bargaining power of supplier
- Industry Competitors
o Rivalry among existing firms
- These three factors are of great importance to General Managers when they are
contemplating their own firm‟s strategy. They must be aware of what is happening within
the industry. With respect to potential entrants, the GM must attempt to build entry
barriers through relationships with suppliers/distributors, or investing in assets. The firm
must understand how much power their supplier has; in which case the firm can think
about backwards integration, or spreading out its orders to multiple suppliers. Lastly the
firm can use Game Theory to see what is happening within the industry to discover how
to best react to competitor actions
20. Please define and describe the "switching costs" concept. How does this concept,
when applied, impacts profitability (2). Please provide an example in your textbook,
articles or discussed in class that relates to the concept.
- Switching costs
o If your product is tied to a certain system or supplier; you need them, you cannot
switch suppliers because they won‟t fit that system
o This will affect profitability because supplier will have significant power over the
buyer as they will be forced to purchase from that specific supplier because they
are integrated so closely Ex. CANNOT FIND ONE (p 62 in “Buyers” section is where switching
costs are)
Ex from Suppliers. In 2007 the price of hops drastically increased;
which in turn hurt the beer industry greatly due to its dependence
on hops as it is the main ingredient of beer.
21. Please define and describe three (3) options a General Manager should seriously
consider when the industry he/she is competing in is experiencing high power of
buyers and high threat of entry? Please provide an example in your textbook,
articles or discussed in class that relates to one of more of these options.
- Suppliers can build strategies to link their customers into their unique capabilities
o This will lower the strength of buyers as it forces them to work exclusively with
your company, as you offer a unique product that
- Spread the risk of individual projects by maintaining a broad portfolio of contracts and
customers
o This is self explanatory; if one particular buyer accounts for a large percentage of
your sales, that buyer will have significant influence on price negotiations.
Therefore, whenever possible companies should try to refrain from „putting all its
eggs in one basket‟
Ex. When inexpensive music became widely available via the internet, the
music industry took a big hit
- Use a focus strategy (either differentiation or cost leadership)
o A great way to negate buyer power is to offer something that they need that is not
offered by competitors; this will in effect also lower the threat of entry as you will
gain brand loyal customers while creating barriers to entry for new firms to enter
the market
Wal-Mart is an example of this. Wal-Mart uses cost leadership to appeal
to consumers (it can be argued that all consumers have considerable
buying power; as there is an unlimited number of options available to
them for purchasing choices) by offering the lowest prices available, and
at the same time the company sets barriers to entry as new competitors
will be unable to offer similar prices while still turning a profit
22. Please define and describe three (3) options a General Manager should seriously
consider when the industry he/she is competing in is experiencing high rivalry and
high power from substitutes? Please provide an example in your textbook, articles
or discussed in class that relates to one of more of these options.
- Using generic focus strategies such as differentiation or cost leadership
- Seek to lower costs through forward or backward integration
- Invest in Research and Development or other core activities so you can better serve your
current customers
- Ex build a bear offers something that its customers do not; an experience along with the
actual product it sells 23. Crossan Fry and Killing suggest using the firm’s profit model as a tool for focusing
strategy-environment analysis. Define and describe the following profit models and
their implications for strategic RISK analysis:
· High variable cost structures
· Inflexible Investment structures
- High Variable Cost Structures: ensure you take care to assess the accuracy of the
assumptions about the significant input costs.
o Consider the problems that a large agrochemicals company has with one of its
ammonia plants. The plant has a high variable cost structure and a large part of
these costs are for the natural gas used in the conversion process. So much so in
fact that the profitability of the plant hinges directly on access to natural gas at
prices that are competitive with other regional producers. Some miscalculations at
the time of proposing the plant about continuing political support for
advantageous gas supply, however, have left this company with a major
investment that simply cannot make money
- Inflexible Investment Structures: sometimes you will find that the nature of the
investment required by a strategic proposal is such that there will be little salvage value if
things do not work out. The impact of such investments on the availability and cost of
capital needs to be carefully considered
o A small winery that intended to age all of its products for example, had to revise
its proposal bc its bankers were not prepared to finance the inventory
o A group with a uniquely designed restaurant had difficulty raising money from
lenders who were concerned about the fact that the building had no alternative
uses if the restaurant failed
o In circumstances such as these you should carefully explore the probabilities of
external forces that would lead to such worst case scenarios
24. Crossan Fry and Killing suggest using the firm’s profit model as a tool for focusing
strategy-environment analysis. Define and describe the following profit models and
their implications for strategic RISK analysis:
· High fixed cost structures
· High Break Even
- High Fixed Cost Structures - if high fixed costs; special care should be given to assessing
the prospects for price stability in the market
o Airline industry: once airline has set schedule for season; costs are fixed battle
is to maximize total contribution. Since Variable cost are quite low in airline
industry there is a strong temptation in this structure to cut price to capture
additional volume; unfortunately this structure leads to fierce price wars and
serious profitability problems for the industry as a whole
- High Break Even – if Break even is high compared to target market; you need to make a
careful assessment of your ability to achieve the required share position. You should also
weigh the possibility that if you do achieve the high share position you may have
established a significant barrier to new competition 25. From the article “Strategy and the Internet”, define and describe the concepts of
cannibalization and channel conflict as they relate to the Internet in business. Porter
discusses a number of shortcomings of the Internet. Define and describe two
shortcomings of the Internet and how traditional business models can strategically
overcome them.
- “Cannibalization”
o Point of view that the internet will replace all conventional methods of doing business
and overturn all traditional advantages
o Companies were afraid of being replaced of business; had to get over that fear and find
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