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Week 7
March 3, 2020 12:23 PM
"When two or more firms compete within the same market, one firm possesses a competitive
advantage over its rivals when it earns (or has the potential to earn) a persistently higher rate of
profit"
• Look at survival: Is the company alive or not?
○ Honest way of looking at the organization
○ Why is it alive?
○ What does it do?
• Look at who they have alliances with
Managing Change
• Born with a set of resources
○ Every firm is born with a bundle
○ Entrepreneurial team, access to capital
○ Born with a heterogenous set of resources
• History of experiences
○ Successes
○ Failures
○ Based on how they evaluate success and failure, they know it should be reflected
somewhere.
○ Reflected in
• Products and services (reflected in their change)
• Brand should be able to reflect it, especially if I have the ability to tell a story about my
firm.
• ROUTINES/PROCESSES: Organizational memory
• System --> Links to the external
Innovation --> Information
• The idea is to be ahead its competitors
• Sources of Knowledge
○ Local
• Geography
• Time
• Tech
○ Non Local
Competitive Advantage from initiating change -> strategic innovation
Cost Advantage --> Efficiency (great value at low cost, so you're managing your system very well)
Differentiation Advantage --> Effectiveness (giving customer value. Addressing the needs of the
customers. I know the gaps and I'll go the extra mile to address their needs).
When to Pursue a Cost Leadership Strategy
• Economies of scale does not work with differentiation
• Standardized products don't always work --> small batches
1. Many sellers
2. Identical or very similar products and few opportunities to differentiate
3. Industry with vigorous price competition
4. Buyers use them the same way
5. Low switching costs
6. Fast Fashion Industry e.g., GAP
Reward/Risk Considerations
• Reward
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○ Increased market share
○ Larger profit margins at the same prices as rivals
• Risk:
○ If Low pricing does not attract new buyers (need Volumes!!)
○ Rival's retaliatory price cutting set off a price war
○ Compromise quality/brand
Strategy and Differentiation Advantage
• Collaboration is important --> difficult for collaboration between different departments.
○ Brought up thinking only one could be at the top
○ Difficult to measure
○ How much info do you share?
• Not about values but addressing the gap
• Causal ambiguity: causes of why i'm doing well is not clear
• Example: Amazon
Questions: True False
1. Strategy today is essentially a detailed plan which every member of the organization must follow
to ensure success.
FALSE
2. Strategy is in essence a long-term plan for an organization to achieve its long-term objectives.
TRUE
3. For most firms, although good luck may play a part, success is more likely to be a result of a
soundly grounded and well executed strategy.
TRUE
4. Sound strategy and implementation largely determine the probability and extent of success of the
firm.
TRUE
5. A sound strategy relies on four factors: simple, long-term and consistent goals; profound
understanding of the competitive environment; objective appraisal
TRUE
6. Usually, Business resources has been proved to rely in the end on superior resources
FALSE
7. From the military arena, tactics are about actions and techniques for winning badles but strategy
is about winning the war.
In the 1970s and 1980s, strategy evolved to be viewed more in terms of competition, competitive
advantage, market share, and profit
TRUE
In strategy, strategy has evolved from "strategy as a detailed plan" to become "strategy as direction" in
the early 21st century
TRUE
Corporate strategy is called business strategy, or competitive strategy.
FALSE
The essential purpose of a commercial firm can be seen as creating value for customers, ands then to
appropriate a portion of this value for the firm. TRUE
Company law throughtout the developed, industrial world including Asia and Europe obliges firms to
solely focus on profit for shareholders
FALSE
Paradoxically, the most consistently profitable companies are those whos primary goals are NOT??
FALSE???????
Strategy is about
A) being ebtter than rivals
B) Success in achieving LT goals
C) Satisfying all shareholders
D) Being a excellent corp citizen
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Select the best answer, success is linked fundamentally to:
D) a soundly formulated and effectively implemented strategy
Strategic goals should be
A) simple
B) Consistent
C) Long-term
D) All of the above
Appraising a firm's resources consists of
A) Protecting the firm from its weaknesses and trying to eliminate/reduce them
Leveraging the firm's ???
Modern strategy applied to the business world shares with military strategy
Decisions of significance to overall success, and major resource commitment
Strategy and tactics
Relative to the achievement of overall LT objectives, and multiple ST objectives
The shift from corporate planning to strategy making implies
From the sources of profit outside the firm to the sources of profit within the firm
A contemporary phenomenon is known as winner take all markets shown by
C) Microsoft (PC software) and Intel (PC Core Processes) no space for another player
Corporate and business strategy differ mainly in that
A) Corporate strategy has a broader scope, including decisions about which industries to operate in
A good starting point to identify a large firm's strategy is
A) To read the annual corporate report (not the website because it's more biased)
The difference between intended and realized strategy is
A) so great that arguably only 30% of intended strategy becomes realized
Profit-making firms are about creating value:
B) they must create value for several stakeholder groups to result in sustainable LT profit generation
C) value to some stakeholders may be difficult to quantify money
The approach taken in the textbook primarily assumes that
A) Profit making firms are seeking to maximize profits for owners over the long-term
CHAPTER 5:
1. Formally scanning and analyzing the whole range of external influences continuously is the best
approach.
FALSE
2. ) to understand the effect of the external environment, one must be able to rank the factors in
orders of importance
TRUE
3. Consumer surplus is the extra product consumers get through special offers and bulk
FALSE
4. Big Data provides insights into consumer trends and the impact this industry
TRUE
5. Understanding the external environment of a firm requires one to ultimately identify
A) the opportunities to make profit in the industry
6. One can view the connection between the general environment and the industry as
C) the industry environment includes customers, competitors and supplies, whereas the general
government matters to the extent that if effects the industry environment
7. If top management understand the customers, suppliers, competitors, and how the general
environment affects the firm's industry
8. C) they will have a sound basis for developing an effective company
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One value is created, it is, in general
B) not equally shared between customers and producers
In an industry, the profits earned by firms are determined by
D) the value of the product for customers, the intensity of competition, and the relative bargaining
power of producers, their suppliers and their buyers
Industries such as pharmaceuticals earn very high returns on investments such industries:
D) tend to have high entry barriers and differentiated products
The bargaining power of supplies is likely to be high
A) when the suppliers' industry is concentrated
When suppliers are differentiated products
When the something is fragmented
The value to managers of understanding KSF is
D) to help maintain a strategic perspective of what needs ot be done to survive, and help them avoid
degenerating into a fire fighting approach
Suppose that an industry's profitability is zero or negative overall
D) then even so it's entirely possible that some firms are generating profit
Netflix Case Team Challenge: In your teams prepare a one page memo that identifies what Netflix's
current strategic approach is to creating a competitive advantage and given the industry driving forces
and KSF do you recommend a shift in approach and if so, why?
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