WPC 480 Final Exam 2023 with verified questions and answers

What is strategy? An integrated set of goal-directed actions a firm takes to gain and sustain competitive advantage. What are the 2 business analysis? Internal and External. What are the 3 business strategies? 1) Cost, 2) Differentiation, 3) Innovation. What is competitive advantage? Superior performance relative to other competitors in the same industry or the industry average. How do you assess competitive advantage? Compare firm performance to a benchmark. What is sustainable competitive advantage? Outperforming competitors or the industry average over a prolonged period of time. What is competitive disadvantage? Underperformance relative to other competitors in the same industry or the industry average. What is competitive parity? A performance of two or more firms at the same level. What is the key to successful strategy and gain competitive advantages? Combine activities for a unique position in an industry. Where does competitive advantage come from? 1) Performing different activities, or 2) Performing the same activities differently than rivals. What does strategic positioning require? Trade-offs. What is the fist step of a strategic goal to gain and sustain competitive advantage? Define a firm's vision, mission, and values. What is a firm's vision? What do we want to accomplish? What is a firm's mission? How do we accomplish our goals? What is a firm's values? What commitments do we make? What guardrails do we put in place? How can we act legally and ethically in pursuit of the vision and mission? What are the key aspects of an effective vision? 1) Capture an organization's aspiration . 2) Identifies what it ultimately wants to accomplish. 3) Motivates employees to aim for a target. 4) Leaves room for contributions. What is a product-oriented vision statement? Defines a business in terms of a good or service provided. What is a customer-oriented vision statement? Defines a business in terms of providing solutions to customer needs. What things can a firm do to vision statements and firm performance to be positively associated? 1) The vision is customer-oriented, 2) Internal stakeholders help define the vision, 3) Organizational structures align with the vision statement. What does a firm's mission statement do? 1) Describes how to accomplish goals and 2) Describes what the organization does (the products and services it provides and the markets in which it competes). What is the difference between vision and mission statements? Vision statements: WHAT an organization wants to accomplish (ie: to). Mission statements: HOW the vision will be accomplished (ie: by). What does establishing a firm's value do? Guides an organization to achieve its vision and fulfill its mission. Who are the stakeholders? Organizations, groups, individuals that can affect or are affected by a firm's actions and have a vested claim or interest in the performance and continued survival of the firm. What is a firm's stakeholder strategy? 1) Managing stakeholders in order to gain and sustain competitive advantage, 2) Benefits of effective stakeholder strategy to firm performance. What are the layers of the corporate social responsibility pyramid (from the top-down)? 1) Philanthropic responsibilities, 2) Ethical responsibilities, 3) Legal responsibilities, 4) Economic Responsibilities. What is strategic leadership? 1) Successful use of power and influence, 2) Directing the activities of others, 3) Pursuing an organization's goals, 4) Enabling organizational competitive advantage, 5) Upper Echelon's Theory (organizational outcomes reflect the values and attributes of the top management team). What is the AFI Framework for Top-Down strategic planning? Analysis, Formulation, Implementation What are the 3 types of strategies? 1) Intended strategy, 2) Emergent strategy, 3) Realized strategy. What is intended strategy? The outcome of a rational and structured top-down strategic plan. What is emergent strategy? Any unplanned strategic initiative, bubbles up from the bottom of the organization, can influence and shape a firm's overall strategy. (ie: Starbucks manager creating the frappuccino) What is realized strategy? Combination of intended and emergent strategy. What are the 2 EXTERNAL business analysis models? 1) The PESTEL Framework, 2) The 5 Forces Model (Porter's). Why do we want to use the PESTEL Framework in understanding the external environment? It helps us identify the threats and opportunities that a firm faces in its industry. What does PESTEL stand for? Political factors, Economic factors, Sociocultural factors, Technological factors, Ecological factors, Legal factors. What are the Political factors? Processes and actions of government bodies (lobbying, public relations, contributions, litigations). What are the Economic factors? Macro economic climates (growth rates, employment, interest rates, price stability, currency exchange rate). What are the Sociocultural factors? Demographic trends (cultures, norms, and values). What are the Technological factors? Innovations in process and product technology. What are the Ecological factors? Involve environmental issues (natural environment, global warming, sustainable economic growth). What are the Legal factors? Official outcomes of political processes ((de)regulations, court decisions, laws). What is an industry? Group of incumbent (current) companies with relatively the same set of suppliers and buyers and tend to offer similar products and services. What is the purpose of the Industry Analysis method? 1) To identify an industry's profit potential, and 2) Derive implications for a firm's strategic position. What does the 5 forces model help us determine? The overall attractiveness and the profit potential of an industry and shape a firm's competitive strategy. What are the 5 Forces? 1) Threat of Entry, 2) Threat of Substitutes, 3) Power of Suppliers, 4) Power of Buyers, 5) Rivalry among existing competitors. What are the 3 Competition and Rivalry forces? 1) Threat of Entry, 2) Rivalry among existing competitors, 3) Threat of Substitutes. What are the 3 Power and Dependence forces? 1) Power of Suppliers, 2) Rivalry among existing competitors, 3) Power of Buyers. What is Treat of Entry? Entry barriers - economies of scale, network effects, switching costs, capital requirements, advantage independent of scale, government regulation, credible threat of retaliation. What is Threat of Substitutes? 1) Substitutes offers an attractive price-performance trade-off, 2) Buyer's switching cost to the substitute. What is Power of Suppliers? 1) Concentrated (or limited) suppliers, 2) Suppliers dependence on the focal industry, 3) Incumbent firms supplier switching costs, 4) Suppliers offering differentiated products (no supplier substitutes), 5)Likelihood of forward integration. What is Power of Buyers? 1) Concentrated or limited number of buyers, 2) Standardization of products sold to buyers, 3) Buyers face low or no switching costs, 4) Likelihood of backward integration, 5) Buyers price sensitivity and pressure to achieve higher product quality. What is Rivalry among Incumbents? Intra-Industry Rivalry - 1) Competitive industry structure, 2) Industry growth, 3) Strategic commitments, 4) Exit barriers. What are the 4 Intra-Industry Rivalry Competitive industry structures? 1) Perfect Competition, 2) Monopolistic Competition, 3) Oligopoly, 4) Monopoly. What is Perfect Competition? Fragmented, low profit potential, many small firms, firms are price takers, commodity product, low entry barriers. What is Monopolistic Competition? Slightly fragmented, medium-low profit potential, many firms, some pricing power, differentiated product, medium entry barriers. What is Oligopoly? Slightly consolidated, medium-high profit potential, few (large) firms, some pricing power, differentiated product, high entry barriers. What is Monopoly? Consolidated, high profit potential, one firm, considerable pricing power, unique product, very high entry barriers. What happens to intra-industry rivalry during HIGH industry growth? Consumer demand rises, Price Competition among firms decreases (b/c focused on capturing new customers, not focused on taking profitability away from each other). What happens to intra-industry rivalry during NEGATIVE industry growth? Rivalry is fierce, Rivals can only gain at the expense of one another. What are strategic commitments to an industry? Firms actions that are 1) Costly, 2) Long-term oriented, and 3) Difficult to reverse. What are the intra-industry rivalry exit barriers? 1) Affects intensity of rivalry among competitors, 2) Obstacles that determine how easily a firm can leave that industry. (ie: Contractual obligations, emotional attachments, ripple effects through supply chains). What is the 6th force? Availability of complements. Why are the external models only a snapshot and not the whole picture? 1) Leaders need information about changing speed of an industry, rate of innovation, 2) Industries aren't stable over time, 3) Need to consider industry dynamics. What is industry dynamics? Industry structures are not stable over time, rather they are dynamic (constantly changing). Regarding the Cola Wars, was the Concentrate Production Industry Attractive? Yes. Regarding the Cola Wars, what was the Concentrate Production Industry Threat of Entry? Low Regarding the Cola Wars, what was the Concentrate Production Industry Threat of Substitutes? Moderate Regarding the Cola Wars, what was the Concentrate Production Industry Power of Suppliers? Low Regarding the Cola Wars, what was the Concentrate Production Industry Power of Buyers? Low Regarding the Cola Wars, what was the Concentrate Production Industry Intra-Industry Rivalry? Moderate Regarding the Cola Wars, was the Bottling Industry attractive? No, it was Unattractive. Regarding the Cola Wars, what was the Bottling Industry Threat of Entry? Low Regarding the Cola Wars, what was the Bottling Industry Threat of Substitutes? Low/Limited Regarding the Cola Wars, what was the Bottling Industry Power of Suppliers? Very High for CP's, Low for raw materials. Regarding the Cola Wars, what was the Bottling Industry Power of Buyers? Medium-High Regarding the Cola Wars, what was the Bottling Industry Intra-Industry Rivalry? Rivalry is Moderate. T/F, The relative bargaining power of suppliers is low when incumbent firms face low switching costs when changing suppliers? True T/F, The industry's attractiveness for incumbents is high when barriers to entry is low? False What are strategic groups? A set of companies that pursue a similar strategy in a specific industry. What is the strategic group model framework? It clusters different firms into groups and is based on key strategic dimensions. What are mobility barriers? Barriers to movement from one strategic group of firms within an industry to another group. Separate one strategic group from another. Insights from strategic group mapping, competitive rivalry? Strongest between firms in the same strategic group. Insights from strategic group mapping, external environment? Affects strategic groups differently. Insights from strategic group mapping, five competitive forces? Affects strategic groups differently. Insights from strategic group mapping, profitability? Some strategic groups are more profitable than others. Cola Wars, who had the greatest profitability across the value chain? Concentrate Producers had a 34% profit, while bottlers had an 8% profit. Cola Wars, Changing Industry Economics: Market? 1) Flat growth in carbonated drinks, 2) health concerns linked to CSD's, 3) Growth in Non-CSDs market: water, flavored water, & other substitutes. Cola Wars, Changing Industry Economics: Retailers & Suppliers? 1) Increasing power of mass merchandisers, 2) New forms of packaging, refrigeration, vending machines. Cola Wars, Case Summary? 1) Firms can create and exercise market power (they created the business and structured the industry, industry structure can be endogenous (not always exogenous)). 2) Classic case of "smart" competitors: when they go to war, they kill the bystanders-not themselves. What are the 3 internal business analysis factors? 1) Core competencies, 2) The Resource-Based View, 3) Dynamic capabilities. Why do firms in the SAME industry have differing profits? Because firms have different resources & capabilities that are costly for other firms in the industry to acquire. What internal framework helps us understand which resources & capabilities lead to superior and sustained profits for a firm? VRIO Framework. What is a firm? A bundle of resources. What are a firms resources? HAVE: The tangible and intangible assets that a firm controls that it can use to conceive of and implement its strategies. (ie: factories, brand equity, firm reputation). What are a firms capabilities? CAN DO: Subset of a firm's resources defined as the tangible and intangible assets that enable a firm to take full advantage of the other resources it controls. (ie: marketing skills, managerial skills, culture). Why do we use the Resource-Based View (RBV) of the firm? To explain the variation in firm performance among firms in the same industry. What are the 4 firm resources and capabilities? 1) Financial, 2) Physical, 3) Human, 4) Organizational/Social. What are core competencies? Unique strengths, embedded deep within a firm, allows a firm to differentiate its products and services from those of its rivals, results in creating higher value for the customer or offering products and services at a lower cost. What are the 2 critical assumptions of the RBV? 1) Resource Heterogeneity, 2) Resource Immobility What is resource heterogeneity? Different firms in the same industry may possess different bundles of resources and capabilities. What is resource immobility? A firm has resources that tend to be "sticky" and that do not move easily from firm to firm. (some o f these resource and capability difference among firms may be long lasting because it may be very costly for firms without certain resources and capabilities. What does the VRIO Framework stand for? Valuable, Rarity, Imitability, Organization What is valuable in the VRIO Framework? The resource/capability increase economic value creation (V-C): increase revenue and/or decreases cost. (ie: Levi's brand name is a source of higher revenue). What is rare in the VRIO Framework? The resource/capability is scarce. Only a few firms possess or can access it. (ie: Diamond mines controlled by De Beers). What is imitable in the VRIO Framework? Do firms without the resource face a cost disadvantage in obtaining or developing it? (due to unique historical condition, causal ambiguity, social complexity, IP). (ie: Patents, Toyota system). What is organization in the VRIO Framework? A firm has an organizational structure (ie: policies and procedures) that supports exploitation of its resource/capabilities and captures value. (ie: Southwest Airlines). What is the VRIO decision tree? Is the resource, capability, or competency: Valuable (No-Competitive Disadvantage) Yes, Rare (No-Competitive Parity) Yes, Costly to Imitate (No-Temporary Competitive Advantage) Yes, Organized to Capture Value (No-Temporary Competitive Advantage) Yes, Sustained Competitive Advantage. What is isolating mechanisms? 1) Barriers to imitation (they prevent rivals from competing away the advantage a firm may enjoy), 2) Protect resources, capabilities, or competencies that underlie a firm's competitive advantage. How do isolating mechanisms sustain competitive advantage? 1) Better expectations of future resource value, 2) Path dependence, 3) Causal ambiguity, 4) Social complexity, 5) Intellectual property (IP) protection. What is path dependence? A situation in which the options one faces in the current situation are limited by decisions made in the past. What is causal ambiguity? A situation in which the cause and effect of a phenomenon are not readily apparent. (managers need to have some kind of understanding about what causes superior or inferior performance). What is social complexity? A situation in which different social and business systems interact with one another. What are dynamic capabilities? A firm's ability to create, deploy, modify, reconfigure, upgrade, and leverage its resources over time. What does dynamic capabilities do? Helps prevent core rigidity. What is core rigidity? A former core competency that turned into a liability as the environment changed. Dynamic capabilities emphasize a firms ability to? 1) Modify and leverage its resource base, 2) Gain and sustain competitive advantage in a constantly changing environment. What is the internal value chain? Internal activities a firm engages in when transforming inputs into outputs. Each activity adds incremental value (primary activities directly add value, support activities add value indirectly). What is a SWOT Analysis? A framework that allows managers to synthesize insights obtained from an internal and external analysis to derive strategic implications. What is the purpose of a SWOT Analysis? To leverage internal strengths to exploit external opportunities and to mitigate internal weaknesses and external threats. Trader Joes, Is the Grocery Retailing Industry attractive? Unattractive to Attractive for Trader Joe's by Firm Strategy. Trader Joes, what is the grocery retailing industry threat of entry? Moderate Trader Joes, what is the grocery retailing industry threat of substitutes? High Trader Joes, what is the grocery retailing industry power of suppliers? High Trader Joes, what is the grocery retailing industry power o f buyers? High Trader Joes, what is the grocery retailing industry intra-industry rivalry? High What is Trader Joe's R&C analysis? 1) DIFFERENT - offbeat, fun discovery zone. Low-cost yuppie-friendly staples, firm sets trends, worldly and smart, customer trust in quality of products. 2) Friendly employees reflect the firm's image. 3) Scaled down strategy. 4) Supplier's dream. (Built R&Cs that are valuable, rare, and costly to imitate. With its unique organizational culture and structures, the firm has succeeded to create sustainable competitive advantages.) What is the VRIO Analysis of Trader Joe's? Atmosphere (cultural experience) and Employees (empowered and engaged). How do we measure and assess firm performance? 1) Accounting profitability, 2) Shareholder value creation, 3) Economic value creation. What is accounting profitability? Helps assess competitive advantage, profitability ratios, standardized accounting metrics, form 10-K statements. What are the limitations of accounting data? 1) All accounting data are historical and thus backward looking. 2) Accounting data do not consider off-balance sheet items (pension, leasing obligations). 3) Accounting data focus mainly on tangible assets. What is shareholder value creation? 1) Shareholders, 2) Risk capital, 3) Total return to shareholders, 4) Market capitalization. What are the limitations of shareholder value creation? 1) Stock prices can be highly volatile. 2) Macroeconomic factors affect stock prices. 3) Stock prices can reflect the mood of investors. What is economic value creation? Competitive advantage goes to the firm that achieves economic value created, which is the difference between V, the consumer's willingness to pay, and C, the cost to produce the good or service. What is the economic value strategic objective? To maximize (V-C), or the economic value created. What is the producer and consumer surplus? Producer surplus (aka profit) is the difference between the price charged (P) and the cost to produce (C). The consumer surplus (aka buyer surplus) is the difference between what you would have been wiling to pay (V) and what you paid (P). Both parties capture some of the value created. What are the limitations of economic value creation? 1) Determining value for consumers is not simple. 2) The value of a good in the eyes of consumers changes. 3) To measure firm-level competitive advantage, we must estimate the economic value created for all products and services offered by the firm. What are opportunity costs? The value of the best forgone alternative use of the resources employed. What is the triple bottom line? 3 dimensions fundamental to sustainable strategy - 1) Profits (economic), 2) People (social), 3) Planet (ecological). What are Walmart's R&C's enabling its activities? Logistic System (Hub-Spoke)-Valuable and Rare. IT Network - Valuable and Rare. Rural Location - Valuable, Rare, Inimitable. Overall Information Processing - Valuable, Rare, Inimitable. Corporate Level Strategy specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets. (Helps companies to select new strategic positions that are expected to increase the firm's value.) Single-business diversification strategy corporate level strategy wherein the firm generates 95% or more of its sales revenue from its core business area. Dominant-business diversification strategy the firm generates between 70% and 95% of its total revenue within a single business area. Related constrained diversification strategy when the links between the diversified firm's businesses are rather direct. Related linked diversification strategy A diversified company with a portfolio of businesses that have only a few links between them is called a mixed related and unrelated firm. (Used by firms seeking to create value through corporate relatedness.) Unrelated diversification strategy A highly diversified firm that has no relationships between its businesses. (Firms using this strategy are called conglomerates. ) Economies of Scope cost savings that the firm creates by successfully sharing some of its resources and capabilities or transferring one or more corporate-level core competencies that were developed in one of its businesses to another of its businesses. Corporate-level core competencies complex sets of resources and capabilities that link different businesses, primarily through managerial and technological knowledge, experience, and expertise. Market Power exists when a firm is able to sell its products above the existing competitive level or to reduce the costs of its primary and support activities below the competitive level, or both. Multipoint competition exists when two or more diversified firms simultaneously compete in the same product areas or geographic markets. Vertical Integration exists when a company produces its own inputs (backward integration) or owns its own source of output distribution (forward integration). Financial economies cost savings realized through improved allocations of financial resources based on investments inside or outside the firm.