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ADMS 4900 Management Policy Textbook Notes

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Department
Administrative Studies
Course Code
ADMS 4900
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You- Ta Chuang

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ADMS 4900 Management Policy Notes Ch 1 – Strategic Management: Creating Competitive Advantages Strategic management- decisions that orgs undertake to create competitive advantages that lead them to organizational success -all managers in an org contribute to this External control- focuses on outside factors; the market, instead of assuming that the leader is the most important contributor to determining org’l performance -leaders in strategic management must be proactive, anticipate change, be flexible -they must first decide on strategies that provide advantages -then effective execute them -managers must be able to recognize what to strategically analyze the situation Defining Strategic Management -it consists of the analyses, decisions, and actions an org undertakes to create competitive advs -focuses on superior quality, specific customer needs, features, lower-priced products It consists of three ongoing processes: analysis of strategic goals, along with the analysis of internal and external envs of the org strategic decisions made by leaders; which industries to compete in, how to compete actions to implement the strategies; allocating necessary resources -strategic management is also a study of the reasons for some firms outperforming others 2 main questions that are asked: How should we compete to create competitive advs in the marketplace How to create competitive advs in the marketplace that are unique, but also hard for others to copy -sustainably c.a is only possible through performing diff activities from rivals Four Key Attributes of Strategic Management 1) It is directed toward overall organizational goals and objectives -it must be based on what is best for the total org -is essentially organizational vs. individual rationality 2) It includes multiple stakeholders in decision making -incorporates the demands of many stakeholders -in doing so, financial performance can increase 3) It incorporates but LT and ST perspectives; creative tension 4) Involves the recognition of trade-offs between effectiveness and efficiency -the diff b/n “doing the right thing” (effectiveness) and “doing things right” (efficiency) Strategic Management Process -Henry Mintzberg says that decisions in an org are seldom based on optimal rationality alone -he proposed that decisions deriving from analysis constitute the intended strategy of the firm -the intended strategy rarely survives in its original form -the final realized strategy of any firm is a combo of deliberate and emergent strategies Strategy Analysis -is the advanced workt hat must be done to effectively formulate and implement strategies -it starts with an appreciation of the org’s goals and objectives -a firm’s vision, mission and strategic objectives, understanding of the external env -competitors, opportunities, threats -also focuses on a firm’s internal env; what does the firm do, how does it create products -this helps identify strengths and weaknesses Strategy Formulation -is developed at several levels; Business-level strategyhow to compete in given bus envs to attain c.a can be achieved through cost leadership, differentiation Corporate-levelwhich businesses to compete in; and how bus’s can be managed to achieve synergy International strategyfinding the best method to develop int’l strategies Entrepreneurshiphow indivs recognize new business opportunities, create new bus ventures Strategy Implementation -managers align their firm’s activities with those of their suppliers, customers, alliance partners -encompasses systems and structures that make things happen within orgs -firms adopt org’l structures and design that are consistent with their strategies; should be flexible -the structure should align managers’ interests with those of those of the owners of the firm Role of Corporate Governance and Stakeholder Management Corporate governance- relationship among various participants in determining the direction and performance of corporations (shareholders, management, board of directors) Alternative Perspectives of Stakeholder Management -role of management is to consider various stakeholders competing for the attention of the org -the gain of one individual is the loss of another -co-operation of stakeholders is needed for the firm to undertake its business activities -and in return for their co-operation, stakeholders receive payoffs Stakeholder symbiosis- recognizes that stakeholders are dependent on each other for their success -managers acknowledge the interdependence among employees, suppliers, customers Crowdsourcing- a firm finds ways for some of its stakeholders to depart from their trad’l fixed roles and play multiple roles (Internet leading to online reviews, etc) Social Responsibility: Moving Beyond the Immediate Stakeholders -firms acting in a socially responsible way to improve the welfare of society -labour practices, env’l sustainability, financial and accounting reporting Triple bottom line- assessing financial and env’l, social performance First bottom line financial measures that all leaders are familiar with Secondecological and material capitals Thirdhuman and social capitals Strategic Management Perspective: Imperative Throughout the Organization -the firm must align its workers throughout the org to strive toward overall goals -managers must address the demand to think globally, and act locally -move resources around the world -managers must also be more literate to foreign customers, commerce, competition -globalization requires managers to manage diversity, complexity, ambiguity -successful firms create an env with strong social and professional relationships -everyone needs to be involved in the strategic management process There are three types of leaders: Local line leadersprofit and loss responsibility Executive leadersthey champion and guide ideas, establish a domain to take action Internal networkershave little formal authority, but generate their power through the conviction and clarity of their ideas Ensuring Coherence in Strategic Direction -all elements of the org must be pushing in the same direction -orgs form a hierarchy of goals, which include its vision, mission, strategic objectives -these all connect all parts horizontally and vertically Organizational Vision -is a LT goal; conveys management’s intent -inspires employees to strive to achieve more -implementing a vision is one of a leader’s central roles -a good vision statement tells everybody what it stands for -the statement can be a slogan, picture or diagram Visions fail for many reasons; management’s behaviour isn’t consistent with the vision -the vision is unrelated to env’l threats or an org’s resources -visions are seen as a cure to help save the firm -the ideal future is irreconciled with the present -too much focus on a concrete vision, no flexibility Mission Statements -effective statements incorporate the concept of stakeholder management - helps build a common understanding and promote a nurturing of purpose and commitment -a good statement communicates why an org is special -it specific and addresses the org’s reason for being -it should also change when competitive conditions change Strategic Objectives -they help provide guidance on how the org can fulfill or move toward the higher goals -is more specific and covers a more well-defined time frame The SMART criteria is used to achieve a meaningful objective: Specificclear message Measureable Appropriateconsistent with the vision Realistic Timelyissue a timeline -these criteria help direct employees throughout the org toward common goals -it can motivate and inspire employees -keeps everybody in the company o the same page -there is a greater sense of equity and fairness when rewards are allocated Ch 2- Analyzing the External Environment of the Firm -managers need to analyze both general and industry/competitive environment -substitute products are also considered -definitions of an industry may arise from identical products offered by diff firms -time is a factor in defining boundaries of an industry, as well as tech developments -the past may be instructive, but there are no guarantees that it will repeat itself in the future Creating the Environmentally Aware Organization *Exhibit 2.1 Scanning, Monitoring, Competitive Intelligence, Forecasting, Scenario Analysis Environmental Scanning -surveillance of a firm’s external env to predict future env’l changes and detect changes -companies seek insights from studies conducted by outside experts -globalization, time to market, shifting roles Environmental Monitoring -evolution of env’l trends, sequences of events -managers should study trends with their own suppliers in purchasing, project mgmt, engineering -monitoring allows firms to evaluate how env’l trends are changing the competitive landscape -other trends to monitor include demographics, GDP, shifts in insurances, housing starts Competitive Intelligence -CI helps firms understand their industry as well as identify rivals’ strengths and weaknesses -collection of data on competitors and interpretation of the data for decision making -it helps avoid surprises by anticipating competitors’ moves -can look through newspapers, periodicals, Internet -a firm’s aggressive efforts to gather CI may lead to unethical behaviours though -execs must be careful to avoid spending so much time that they ignore new competitors Environmental Forecasting -development of projections about the direction, intensity of env’l change -purpose is to predict change -asks how long it will take a new tech to reach the marketplace, are current lifestyles likely to continue Danger of this; managers may ignore gray areas; they may either assume the world is open to predictions, or that it is completely unpredictable -underestimating uncertainty can lead to strategies that neither defend against or take advantage of opportunities -a just do it approach has led many execs to place uninformed bets on emerging products that have resulted in record write offs Scenario Analysis -more in-depth approach to forecasting -begins with a discussion of participants’ thoughts on ways in societal trends, economics, politics affect the issue under discussion -it helps by considering how these could be upset by unpredictable events General Environment (6 Segments) Demographic/Psychographic Segment -aging population, rising/declining affluence, ethnic composition, geographic distribution, income levels -attitudes and interests among individuals -impact of a demographic trend varies across industries -the shift in what constitutes a family; households are now smaller Sociocultural Segment -values, beliefs, lifestyles of a society -women in the workforce, dual income families, concern for healthy diets, interest in the env -sociocultrual norms impact attitudes about entrepreneurship -higher educational attainment among women Political/Legal Segment -regulations that industries must comply with; env’l regulation, health and safety legislation, immigration policies, deregulation of utilities, increase in minimum wage -changes that benefit one industry may affect others negatively Technological Segment -new products and services -innovations can create new industries and alter the boundaries of existing industries -genetic engineering, nanotech, research in artificial/exotic materials -Internet has reduced the cost of getting info -downsides; ethical issues, threats to the earth’s env; greenhouse gases Economic Segment -interest rates, unemployment rates, CPI, GDP, disposable income Global Segment -it gives opportunities to reach large markets as well as access a broader base of factors of production -exchange rates, global trade, fast growing Indian/Chinese economy, trade agreements -few industries are as global as the automobile industry Competitive Environment -more directly influenced by developments in the competitive environment Porter’s Five Forces Model: Threat of New Entrantsspreading the costs of production over a large number of units produced -per-unit cost decreases as the volume produced increases -product differentiation; capital requirements; switching costs; access to distribution channels; cost disadvantages independent of scale Bargaining power of Buyersforcing down prices, bargaining for higher quality -playing competitors against each other Bargaining Power of Supplierthreatening to raise prices, alter terms of supply, lower the number of features, reduce the quality of goods Threat of Substitute Products and Servicessubstitutes limit the returns of an industry by placing a ceiling on the prices that firms in that industry can charge Intensity of Rivalry Among Competitors in an Industryprice competition, advertising battles, product introductions, increased customer service -advertising battles expand overall demand or enhance the level of product differentiation for the benefit of all firms in the industry How the Internet and Digital Techs are affecting the 5 Competitive Forces -it has changed the ways businesses interact with each other and customers -threat of new entrants increase -competitors from other countries can compete with local businesses -buyers’ bargaining power may increase as consumers can access more info faster -they can now compare diff companies’ products -businesses can access consumers directly -consumers can co-create products and personalize their purchases -rivalry among firms is more intense Using Industry Analysis -companies must collect and evaluate a wide variety of info from diff sources -it helps a firm consider ways to strengthen its position via the five forces -suppliers and manufacturers can provide the greatest value at the lowest possible cost *Exhibit 2.7 for the Value Net -reps all the players in the game,analyzes how their interactions affect a firm’s ability to generate value -point of industry analysis is to understand the underpinnings of competition and the root causes of profitability -analysts should look at industry structure quantitatively, rather than qualitative factors Strategic Groups within Industries -no two firms are totally different; and no two firms are exactly the same Strategic groups- firms that are mostly similar to each other -classifying an industry into strategic groups involves judgment -it includes the breadth of product and geographic scope, price or quality -strategic groupings help a firm identify barriers to mobility Mobility barriers- factors that deter the movement of firms from one strategic position to another -strategic groups help a firm identify groups whose competitive position may be marginal -it is also useful in thinking through the implications of each industry trend Ch 3- Analyzing the Internal Environment of the Firm -SWOT is a helpful starting point, but can’t answer questions about competitive advantage Value-Chain Analysis -based on the notion that a firm engages in activities that combine inputs to create an output Value is the amount that buyers are willing to pay for what a firm gives them -Porter described two categories of activities; -five primary activities (inbound logistics, operations, outbound logistics, marketing & sales, service) contribute to the physical creation of the product -support activities (procurement, tech development, HRM, firm infrastructure) add value, either by themselves, or through relationships with primary and support activities -to get the most out of value-chain analysis, managers must place their org within a value system that includes the firm’s suppliers, customers, partners -managers need to be aware of how value is created for other orgs Primary Activities (*Exhibit 3.3) Inbound Logisticsreceiving, storing, distributing inputs to the product -handling, warehousing, inventory control, returns to suppliers, JIT systems Operationsall activities associated with transforming inputs into the final product -machining, packaging, assembly, testing, printing -creating environmentally friendly manufacturing Outbound Logisticscollecting, storing, distributing product to buyers -finished goods, warehousing, material handling, delivery vehicle operation, order processing -electronic networks are also used Marketing and Salesfirm’s efforts to gather market intel, understanding its customers -inducements used to get them to make purchases -market research, consumer analysis, advertising, promotion, sales force -channel selection, pricing, quoting Serviceactivities associated with enhancing the value of the product -installation, maintenance, support, repair, training Support Activities -facilitates primary activities, ensures they take place efficiently and effectively General Admingeneral management, planning, finance, accounting, legal -supports the entire value chain -can be a powerful source of competitive advantage HRMactivities of recruiting, hiring, training, development, compensation -supports both primary and support activities Technology Development technologies used to prepare docs and transport goods to those in process -it supports the whole value chain Procurementfunction of purchasing inputs to be used in the firm’s value chain -raw materials, supplies, assets; machinery, lab/office equipment Resource-Based View of the Firm -a firm may contract out for the use of certain resources, and also own other resources -RBV combines two perspectives; -internal analysis of phenomena within a company -external analysis of the industry -resources themselves don’t yield a competitive advantage; RBV allows managers to build on the insights from their SWOT analysis Types of Firm Resources Tangible Resources assets that are easy to identify, measure and value -real estate, cash, production facilities, raw materials, components -rarely provides for competitive advantage Intangible Resourcesharder to identify and quantify -brand name, company reputation, knowledge, tech, patents, copyrights, trademarks -expertise, company secrets -are combined with tangible assets to create the firm’s product offerings -more difficult for competitors to imitate Organizational Capabilitiesskills that a firm employs to transform assets into outputs -what a firm does with the resources in its control -lean manufacturing, excellent product development capabilities -innovation processes, flexibility Firm Resources and Sustainable Competitive Advantages -for a resource to provide a firm with the potential for a c.a, it must meet 4 criteria *Exh 3.5 Is the Resource Valuable? -they’re valuable when they contribute to the fulfillment of customers’ needs at a price the customers are willing to pay Is the Resource Rare -the resource must be uncommon relative to other competitors Can the Resource Be Imitated Easily? -is critical to value creation; constrains competition -managers need to realize this isn’t forever though; at some point competitors will catch on Managers can forestall this through physical uniqueness; Path dependencyresources are unique and scarce because of all that has happened in the course of their development, accumulation -resources must be built up over time in ways that are difficult to accelerate (brand name) Causal Ambiguitycausally ambiguous resources are org’l capabilities -involves a complex web of social interactions Social Complexitywhen c.as are avbsed on social complexity, it’s hard for other firms to imitate -interpersonal r/ns among firm managers, its culture, reputation with its suppliers -exploitation of physical technology Are Substitutes Readily Available? -may be impossible for a firm to imitate, but may be able to substitute The Generation and Distribution of a Firm’s Profits: Extending the RBV of the Firm -a firm may be successful in creating c.as while most of the profits can be retained by its employees and managers instead of flowing to the owners of the firm (shareholders) -profits will flow to the owners of the resources that are responsible for the creation of the profits -there are 4 factors to explain the extent to which employees/managers are able to obtain a high level of the profits they generate: Employee bargaining powerif employees are vital, they will earn high wages Employee replacement costif their skills are rare, they have high bargaining power Employee exit costsit reduces their bargaining power; there are often high personal costs when leaving the organization; and some of the expertise are also firm specific Manager bargaining powerbased on how well they create resource-based advantages Evaluating Firm Performance (2) Financial Ratio Analysis -compute and analyze ST solvency, LT solvency/measures, asset turnover, profitability, market value -is an analysis of how ratios change over time, and how they’re interrelated -historical comparisons provides a means of evaluating trends -comparison with industry norms puts a firm’s performance in perspective -banks use comparisons when evaluating a firm’s creditworthiness -comparisons with key competitors allows firms to gain insight into their financial/competitive position Integrating Financial Analysis and Stakeholder Perspectives: Balanced Scorecards, Strategy Maps, and Executive Dashboards -actions that managers undertake may greatly expand a firm’s market potential and create LT shareholder value -these investments aren’t positively reflected in ST financial reports because they usually measure expenses, not the value created -scorecards, maps and dashboards link strategic objectives, operational activities, org’l outcomes -it gives managers with a fast but comprehensive view of the business Balanced scorecard enables managers to consider their business from 4 key perspectives: Customer perspectiveis a top priority for management; translates their general mission statements on customer service -they must articulate goals for time, quality, performance and service, cost Internal Business Perspectivewhat the firm must do internally to meet customers’ expectations -processes, decisions, actions that occur throughout organizations in a coordinated fashion Innovation and Learning Perspectivetechnologies, global competition are constantly changing -firm’s ability to improve, innovate learn -firm’s ability to do well is dependent on its intangible assets Financial Perspectiveindicates whether the co’s strategy, implementation, execution are contributing to the improvement of the bottom line -profitability, growth, shareholder value *Exh 3.9 example of balanced scorecard -it gives a win-win approach; but is often viewed as a quick fix that can be easily manipulated -dubious effectiveness Strategy maps explicitly link strategic objectives with activities and anticipated outcomes -helps employees see how their jobs are related to the overall objectives of the org -visual representation, causal arrows aids management in communicating its choices throughout the org Executive dashboards are reps of an org’s functions and performance -draws data from multiple sources and info systems -processes the info in real time and displays it in an easy to understand form at so management can more effectively run the business -conveys what ought to be, as opposed to what is Ch 4- Assessing the Intellectual Assets of the Firm Central Role of Intellectual Capital in Today’s Economy -more than half of GDP in developed economies is knowledge based - intellectual assets, intangible people skills -service industries, R&D, process design, product design, logistics, marketing -in the knowledge economy, wealth is created through management of intellectual assets and knowledge workers instead of physical and financial assets -in firms where knowledge workers are key contributors, the ratio of market to book value is higher Intellectual capital- the difference between a firm’s market value and book value -value of a firm’s intangible assets -employee loyalty and commitment, customer relationships, company value -human, social capital; intellectual property, brands -they all contribute to a firm’s ability to create value through new knowledge Human capital- individual capabilities, knowledge, skills of the company’s employees Social Capital- network of relationships that individual have throughout the org -firm and its suppliers, customers and partners Explicit Knowledge- codified, documented, easily reproduced Tacit knowledge- based on experiences Intellectual Property- ideas, innovations, contribute to c.a only when a firm is able to protect its exclusive right to extract value from them for a long period -people are less likely to leave an org if there are structures to promote teamwork and information sharing, strong leaders Human Capital: Foundation of Intellectual Capital -continually developed, strengthened, reinforced, employee must be motivated and focused -knowledge workers place professional development and personal enrichment above co loyalty -attracting, recruiting and hiring is the first step in building intellectual capital -hiring is the first process; firms must also develop employees so that they fulfill their potential -firms provide the working environment to retain their best *Exhibit 4.2 Attracting Human Capital -many HR professionals still approach employee from a “lock and key”; by fitting a key (job candidate) into a lock (the job) -precise matching approach places its emphasis on task-specific skills, and less on general knowledge and experience, social skills “Hire for Attitude, Train for Skill” -orgs place more emphasis on the general knowledge today; social skills, values, beliefs, attitudes Sound Recruiting Approaches and Networking -when someone refers former colleagues for a job, employees tend to be careful in recommending people for employment unless they’re confident -hiring the right people, less need for monitoring and hierarchy Developing Human Capital -training and development must take place at all org levels -entails widespread involvement, progress monitoring, evaluation, feedback Encouraging Widespread Involvement -involvement of leaders at all levels of the organization Monitoring Progress and Tracking Development -tracking individual progress, sharing them with both employee and key managers Evaluating Human Capital -sharing knowledge and working together to achieve collective goals -360 degree evaluation and feedback systems -GE’s 360 leadership assessment evaluates managers on 10 characteristics -evaluation systems must ensure that a manger’s success doesn’t come at the cost of compromising the org’s core values Retaining Human Capital -provide the work env to keep productive employees or rely on legal means such as employment contracts and non-compete clauses Identifying with an Org’s Mission and Values -people who identify with the core mission and values are less likely to leave an org -likewise, leaders can arouse passions and loyalty by constantly communicating it Challenging Work and a Stimulating Environment -intrinsic motivation to work on something because it is interesting and exciting -orgs keep employees excited about the challenges available Financial and Non-Financial Rewards and Incentives -money can mean diff things to people; some security, some recognition -money isn’t the absolute most important reason why people take or leave jobs though -companies often offer on site stores, dry cleaning services, banks, ATMs, cafeterias, athletic facilities, accommodating working families with children -orgs recognize the benefits of managing a diverse workforce through enhanced creativity, diversity of ideas, greater flexibility Vital Role of Social Capital -development of social capital becomes important as it helps tie knowledge workers to a given firm -knowledge workers often exhibit greater loyalties to their colleagues than to their employing org -if employees are working effectively in teams and sharing their knowledge, they are more likely to add value to the firm, as well as less likely to leave the org How Social Capital Helps Attract and Retain Talent Pied Piper Effect- networks of people leaving one company for another -hiring via personal networks -some companies have been damaged by groupthink; when people strongly identify with a group even if the decision is wrong -effects of high social capital are strongly positive; loyalty, persistence, dedication Using Technology to Leverage Human Capital and Knowledge -use of email and networks for product development, uses that enhance the competitive position of knowledge-intensive firms in industries -email to communicate information efficiently, share ideas, relate decisions -it enables professionals to work in virtual teams and enhance the speed and effectiveness Codifying Knowledge for Competitive Advantage -challenges of knowledge-intensive orgs is to capture the knowledge and experience that resides in the heads of its employees -use of info tech helps a firm integrate value-chain activities with its customers and suppliers Retaining Knowledge when Employees Leave -info tech can help employers cope with turnover by saving tacit knowledge that the firm would otherwise lose -customer relationship software can automate sales and give salespeople access to client histories *Exhibit 4.3 for diff issues to consider when creating value Protecting the Intellectual Assets of the Org: Intellectual Property and Dynamic Capabilities -contracts with confidentiality and on-compete clauses, copyrights, patents, trademark -effective protection of intellectual property is necessary before and investor will finance anything -dynamic responsibilities entail the capacity to build competitive advantage, which rests on knowledge, assets, competencies -dynamic capabilities are built within a firm through its org’l form, and ability to strategize Ch 5- Business-Level Strategy: Creating and Sustaining Competitive Advantages -strategy formulation is about the decisions managers make to address: What business they should be in (corporate strategy); How to compete in those businesses (business strategy) Business strategythe ways a firm competes in its chosen business -ways to create superior value compared with its competitors -sustainability is from the ongoing relevance of the competitive adv against competitors -business strategy choices for orgs depend on what views as important considerations -c.a is about two choices; target market and the type of c.a Target marketfocuses on a narrow strategic market Type of c.apursuing a low cost strategy vs differentiation Types of Competitive Advantage and Sustainability Porter came up with three generic strategies; Overall cost leadership based on creating a low cost position Differentiation requires a firm to create products that are unique A firm with a focus strategy must direct its attention toward targeted geographic markets Overall Cost Leadership -cost minimization in all activities in the firm’s value chain -analyzing the behaviour of specific cost drivers can show area where a firm can develop sustainable cost advantages Economies of scale- decline in per unit costs with target product runs Experience/learning curve-how a bus learns to lower costs as it gains experience w/ product’n processes -in comparison to the five forces, cost leadership protects a firm from competitors because it allows a firm to earn returns even if its competitors are eroding profits through intense rivalry -it protects firms against powerful buyers -gives more flexibility to cope with demands from powerful suppliers -high entry barriers -puts the firm in a favourable position in substitute products Disadv; too much focus on one or a few value-chain activities -vulnerability to raw material costs; firms that compete on low cost strategies are vulnerable to price increases in the factors of production -a strategy that is imitated too easily -lack of parity on differentiation -erosion of sot advantages when the pricing info available to customers increases Differentiation -crating something that is perceived as unique industry-wide -could be prestige or brand image; quality, technology, innovation, features, customer service *Exh 5.4 shows differentiation can derive from anywhere in the value chain -firms achieve differentiation advantages when their price premiums exceed the extra costs incurred in being unique -a differentiator will justify price premiums greater than the costs incurred for differentiating -in relation to 5 forces, it protects against rivalry since brand loyalty lowers customer sensitivity to price -avoids the need for a low cost position -reduces buyers’ power because they lack comparable alternatives -high entry barriers -gives higher margins that enable a firm to deal with supplier power -low supplier power -less threat from substitutes Disadv; uniqueness that’s not valuable (it’s not enough to just be different) -too much differentiation; higher than what their customers desire -price premium is too high -easily imitated differentiation -dilution of brand through product-line extensions -perceptions of differentiation ha vary between buyers and sellers Focus -based on narrow competitive scope within an industry -selects a segment or group of segments -achieves c.as by dedicating itself to these segments exclusively Cost focus-a firm strives to create a cost advantage with a price lower than the rivals’ prices Differentiation focus- firm seeks to differentiate itself within a narrow segment -could be to give better service, prestige, image, quality -in relation to the five forces, it requires a firm to have a low cost with high differentiation, or both -entry barriers are high for rivals trying to gain market share -there is some protection against substitute products Disadv; erosion of cost advantages within the narrow segment (if cost advs erode over time) -competition from new entrants and from imitation -too much focus on satisfying buyer needs (product or service that’s too narrow) Combination Strategies: Integrating Overall Low Cost and Differentiation -combining multiple forms outperformed businesses that used only a single form -integrated strategy is harder for competitors to duplicate -it also enables a firm to give two types of value to customers; differentiation and lower prices Automated and Flexible Manufacturing Systems -advances in technologies allow firms to manufacture unique products in small quantities at lower costs; aka mass customization Exploiting the Profit Pool Concept for C.A Profit pool- the total profits in an industry at all points along the industry’s value chain -the potential pool of profits will be deeper in some segments of the value chain than in others, and depths will vary within an individual segment -it can also vary by customer group, product category, geographic market Coordinating the “Extended” Value Chain by Way of IT -enables a firm to add value through its own value-creating activities and to pass this value to its customers and suppliers -in relation to the five forces, it drives down costs and gives an outstanding product selection -high entry barriers to potential competitors that have neither the financial nor physical resources Disadv; failing to attain both strategies, thus being stuck in the middle -underestimating the challenges and expenses with coordinating value-creating activities in the extended value chain -miscalculating sources of revenue and profit pools; bias may arise -some have criticized the model for focusing too narrowly on economic analysis -it lacks dynamism; and emphasizes stability, staying in an attractive position, rather than analyzing how to get there Evaluating Business Strategy -managers should have a process that allows them to assess whether their choices are good, mediocre, or poor -they should systematically test for the consistency and consonance of a strategy, whether it provides a competitive advantage, and whether it’s feasible Consistencywhether the strategy is in alignment with the org’s goals Consonancethe fit between the strategy and the external env -does the strategy take into account what’s going on in the env; diff trends Advantagecompetitive stance of the strategy and whether it’s creating competitive advantages that are enduring and difficult to duplicate Feasibilityis the strategy realistic, does the org possess resources to carry out the strategy Ch 8- Industry Change and Competitive Dynamics Industry Life Cycle Stages: Strategic Implications -life cycle of an industry include introduction, growth, maturity, decline *Exhibit 8.1 for industry life cycle -managers need to emphasize the key functional areas during each of the four stages -we can’t predict when an industry will transition from one phase to the next -industries can actually revert back to an earlier stage of growth -maturity stages of an industry can be transformed or followed by a stage of rapid growth if consumer tastes change -industries are transformed by innovation or major shifts in the external env; regulation, globalization -changes in patent laws as well -an industry whose core activities and assets face obsolescence will follow 1 of 4 change trajectories *Exhibit 8.2 for the 4 trajectories Radical changewhen core assets and core activities face the threat of obsolescence Eg. Overnight delivery industry Intermediating changecore assets aren’t threatened, but core activities are Eg. Automobile dealerships Creative changecore assets are threatened, core assets aren’t Eg. Film production, pharmaceutical industry -there is quick asset turnover but stable relationships with suppliers Progressive changeneither core assets or activities face obsolescence -incremental changes may occur but over time these events accumulate to result in substantial change Industry Life Cycle: Strategies in the Introduction Stage -products are unfamiliar with consumers; product features aren’t specified -low sales growth, quick technological change, operating losses, limited competition -success requires an emphasis on R&D and marketing -challenges are to develop the product and find a way to get users to try it; and -generating exposure so the product emerges as the standard -by being the “first mover” there is an advantage, but also a benefit to a “late mover” too Strategies in the Growth Stage -strong increases in sales -key to success is to build consumer preferences for specific brands -strong brand recognition, differentiated products, customer service, R&D -there are new consumers trying the product -growing proportion of satisfied consumers making repeat purchases Strategies in the Maturity Stage -demand begins to slow, markets are saturated -direct competition is predominant -marginal competitors begin to exit the market -the rivalry among existing competitors is focused on price competition -it becomes harder for firms to differentiate their offerings at this point; they offer the same thing -by repositioning their products in unexpected ways, firms can change how customers categorize them Strategies in the Decline Stage -firms face choices of either exiting or and attempting to consolidate their position in the industry -industry sales and profits begin to fall -there are changes in consumer tastes, technological innovation -as profits decline, competitors may begin to cut their prices to raise cash -a firm’s strategic options become dependent on its rivals’ actions 4 strategies that are available: Maintainingkeep the product without changing anything, in hopes competitors will exit the market Harvestingtaking as much profit as possible and making minimal investments Exitingdropping the product from the firm’s portfolio Consolidationone firm acquiring a number of its competitors -the surviving firm enhances its market power Turnaround Strategies -decline can be reversed by strategies that lead to turnaround and rejuvenation -it may occur at any stage in the life cycle, but more likely during maturity or decline -a firm needs to undertake a mix of internally and externally oriented actions to effect a turnaround 3 strategies used by successful companies: Asset and cost surgeryfirms in these situations try to cut admin expenses and speed up the collection of receivables Selective product and market pruningdiscontinue unsuccessful product lines, cut off unprofitable clients, focus resources on profitable areas Piecemeal productivity improvementsways in which a firm can eliminate costs and improve productivity; one by one they will accumulate to yield large gains Competitive Dynamics -new entry into markets always threaten existing competitors -a competitive dynamic begins among the firms competing for the same customers in a marketplace -competitive dynamics has the potential to change a company’s strategy -new entrants may be forced to change their strategies **Exhibit 8.3 for model of C.D New Competitive Action -new entry, price cutting, imitating, expanding production capacity -companies launch new competitive actions so they can improve market position -capitalize on growing demand -innovate new solutions -obtain first mover advantages -they want to build their reputation for innovativeness or efficiency Threat Analysis -prior to actually observing a competitive action, companies need to become aware of potential competitive threats -it allows a firm to understand what type of competitive response maybe necessary -c.ds are most intense among companies that are competing for the same customers 2 factors used to assess whether companies are close competitors: Market commonalitywhether competitors are vying for the same customers Resource similaritythe degree to which rivals draw on the same types of resources -there is a stronger competitive threat if two firms are high in both those factors Motivation and Capability to Respond -competitors need to evaluate how they will respond, as well as their reasons for responding and capability to respond as well -they need to be clear about what response is expected to address and what problems it might create -a company might be motivated to launch an attack rather than respond to one -should also take into consideration the age and size of a firm when deciding how to respond Types of Competitive Actions -actions taken are determined by its resource capabilities and its motive for responding -there are also marketplace considerations Strategic actions- commitments of distinctive and specific resources Eg. Launching a breakthrough innovation, merging Tactical actions- extensions of strategies; cutting prices, improving gaps, strengthening marketing -some competitive actions are actions aimed at taking business from another company -some companies limit their competitive responses to defensive actions -it can lower the risk of being attacked and deter new entry Likelihood of Competitive Reaction -before mounting an attack, a firm should evaluate how competitors rae likely to respond -this helps companies pan for future counterattacks How a competitor responds depends on three factors: Market Dependence- a co with a high concentration of its business in a particular industry has more at stake because it depends on that market for its sales -single industry businesses are more likely to mount a competitive response Competitor’s Resources- small firm may be unable to mount a serious attack; lack of resources -firm with more resources can sustain a costly counterattack Actor’s Reputation- whether a company responds depends on who launched the attack -competitors are more likely to respond by market leaders than small firms w/ small mkt power Forbearance- refraining from reacting at all Ch 6- Corporate Level Strategy- Creating Value Through Diversification Making Diversification Work: an Overview -diversification initiatives must be justified by the creation of value for shareholders -individuals can also diversify their own portfolios of stocks as private investors too Synergy can be achieved in different ways; it can diversify into related businesses -from sharing intangible to tangible resources -they can increase dominance in a mrket to become a more critical supplier; vertical integration -they can also diversify into unrelated businesses -they can leverage some of the support activities in the value chain, like IS or HR practices -the benefits derived from related and unrelated relationships aren’t mutually exclusive Related Diversification: Economies of Scope and Revenue Enhancement -related diversification enables a firm to benefit from r/ns across diff businesses by leveraging core competencies and sharing activities Economies of scope- cost savings from leveraging core competencies, sharing resources -a firm can also enjoy greater revenues fr
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