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Summary - Strategic Management
1 What is Strategy?
What is strategic management?The integrative management field that combines AFI in the quest for a comparative advantage.
Analysis, Formulation, Implementation
1.1 What Strategy Is: Gaining and Sustaining Competitive Advantage
What is Strategy?A set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.
What do companies do to achieve superior performance? (+Example)By competing for resources
Example: universities compete for the best students
What is a Good Strategy?1) Diagnosis of the competitive challenge. (A)
2) Guiding Policy to address the competitive challenge. (F)
3) Set of coherent actions to implement the firm's guiding policy. (I)
What is a comparative advantage?A firm that achieves superior performance relative to other competitors in the same industry or the industry average.
What is a Sustainable Competitive Advantage?A firm that is able to outperform its competitors or the industry average over a prolonged period of time.
What is a Competitive Disadvantage?A firm that underperforms its rivals or the industry average.
What is a Competitive Parity?Two or more firms performing at the same level.
It refers to the optimal expenditure needed on branding and advertising activities to stay on par with the competitors of a particular brand, product or company as a whole.
What can be a reward of creating superior value?- Profitability
- Market Share
What is Economic Contribution?The difference between value creation and cost.
The greater the difference, the greater the firm's economic contribution.
What is Strategic Positioning?Creating superior value while controlling the cost to create it.
When firms are able to stake out a unique position within an industry that allows the firm to provide value to customers, while controlling costs.
What Strategy is Not:1) Grandiose Statements
-They provide little managerial guidance
2) A Failure to Face a Competitive Challenge
-They cannot measure progress if they do not define a clear competitive challenge)
3) Operational effectiveness, competitive benchmarking,..
-insufficient strategies (pricing, internet, HR strategies,...)
What are the 2 FACTORS that determine FIRM PERFORMANCE?1) Industry Effects
2) Firm Effects
What are Industry Effects?They describe the underlying economic structure of the industry. The structure of an industry is determined by common elements of all industries.
Examples: barriers to entry/exit, size of firms, types of products offered
(Only determines around 20% of firm performance)
What are Firm Effects?The result of actions taken by managers to influence firm performance.
(Very important, determines 55% of performance)
What is Competition?The ongoing struggle among firms to gain and sustain a competitive advantage.
What Strengthens a Unique Strategic Position?- Marketing skills
- Operational effectiveness
- Other functional expertise
1.2 Stakeholders and Competitive Advantage
What is Value Creation?
When firms are able to provide products and services at an affordable price point while making profit at the same time and both parties benefit from trading as they both capture a part of the value created.
Affordable Price Point + Profit
BOTH parties benefit
What is Superior Performance?When firms can reinvest some of its profits and grow, which will result in more opportunities for employment and fulfilling careers.
What are Black Swan Events?Events that are very improbably and unexpected. But when they occur, they have a very profound impact.
Example: Financial Crisis
What are Stakeholders?Organisations, groups, individuals that can affect or be affected by a firm's actions.
What are examples of Internal Stakeholders?Stockholders, Employees, Board Members
What are examples of External Stakeholders?Customers, Creditors, Suppliers, Governments, Alliance Partners, Communities, Unions,...
What is the Stakeholders Strategy?An integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage.
What are Primary Stakeholders?Shareholders and other investors
What is the Stakeholder Impact Analysis?It provides a decision tool with which managers can recognise, prioritise and address the needs of different stakeholders.
What are the 3 Important Stakeholders' Attributes?
From the 3 important stakeholders' attributes, explain: POWERA stakeholder has POWER over a company when it can get the company to do something it wouldn't do otherwise
From the 3 important stakeholders' attributes, explain: LEGITIMATE CLAIMA stakeholders has a LEGITIMATE CLAIM when it is perceived to be legally valid or otherwise appropriate.
From the 3 important stakeholders' attributes, explain: URGENT CLAIM
A stakeholder has an URGENT CLAIM when it requires a company’s immediate attention and response.
What are the steps in the Five-step process of recognising stakeholders' claims?Step 1: Identify Stakeholders
Step 2: Identify Stakeholders' Interests
Step 3: Identify Opportunities & Threats
Step 4: Identify Social Responsibilities
Step 5: Address Stakeholders' Concerns
Five-step process of recognising stakeholders' claims. Explain step 1Q: "Who are our stakeholders?"
The firm identifies their most powerful internal and external stakeholders. They focus on stakeholders that currently or potentially have a material effect on the company.
If the needs of these stakeholders are not met, they can materially affect the company's operations.
For public-stock companies, they most powerful stakeholders are shareholders.
Dissatisfaction can result in depreciation of the firm’s market value. (ex. when shareholders sell their stock because they are not satisfied with their ROI)
Five-step process of recognising stakeholders' claims. Explain step 2Q: What are our stakeholders' interests and claims?
Managers need to specify and assess the interests and claims of the pertinent stakeholders using the PLU criteria*
*power, legitimacy and urgency criteria
What are ESOPs?Employee Stock Ownership plans
(turning employees into shareholders)
It allows employees to purchase stock at a discounted rate or use company stock as an investment vehicle for retirement savings.
Five-step process of recognising stakeholders' claims. Explain step 3Q: What opportunities and threats do our stakeholders present?
In the best case, managers transform threats into opportunities.
Five-step process of recognising stakeholders' claims. Explain step 4Q: What economic, legal, ethical and philanthropic responsibilities do we have to our stakeholders?
Use CSR framework to identify responsibilities
What is the CSR Framework?It helps firms recognise and address the economic, legal, ethical and philanthropic expectations that society has of the business enterprise at a given point in time.
CSR Framework: Economic responsibilitiesGICCS
Governments: expect firms to pay taxes and manage natural resources (air, water,...)
Investors: expect return for their risk capital
Creditors: expect the firm to pay back their debts
Consumers: expect safe products and services at appropriate prices and quality.
Suppliers: expect to be paid on time
CSR Framework: Legal responsibilitiesManagers must insure that firms obey all the laws and regulations.
(labor, consumer protection and environmental laws)
CSR Framework: Ethical responsibilitiesManagers must go beyond what is required by law. They are expected to do what society deems just and fair.
CSR Framework: Philanthropic responsibilitiesPhilanthropic responsibilities are often subsumed under the idea of corporate citizenship. (= voluntarily giving back to society)
Five-step process of recognising stakeholders' claims. Explain step 5Q: What should we do to effectively address any stakeholder concerns?
Managers need to decide the appropriate course of action for the firm, given all of the receding factors.
Latest added flashcards
(Pursuing an activity internal costs less than buying it on markets)
(Example: printer + inkt)
Focal = kern
Example: sophisticated customers
! Competitive advantage often based on human capital or know-how !