Test 1 Review SheetChap 1Competitive landscape (CL)Pace of change is rapidPartnerships created by mergers and acquisitionsEconomies of scale and advertising budgets not as effective as before, change in managerial mind-set from “traditional” to more flexible and innovativeHypercompetition – extremely intense rivalry among competing firms, characterized by:Escalating and increasingly aggressive competitive movesAssumptions of market stability replaced by notion of instability and changeGlobal economy (CL)Europe, through the EU is the world’s largest single market (700m potential customers)Emerging major competitive forces: BRIC (Brazil, Russia, India, China)Technological Change (CL) Technology diffusion – perpetual innovation: describes how new information intensive technologies are replacing older formsSpeed to market may be primary competitive adv (12-18 month timeframe to gather info)Disruptive technologies – tech that destroys value of existing tech and create new marketsI/O modelBasic premise is to explain the dominant influence of the external environment on a firm’s strategic actions and performanceBased on I/O econ (bain-mason SCP paradigm, porter’s 5 forces)Underlying assumptions: External environment imposes pressures and constraints; most firms compete within a particular industry/segment; resources for implementing strategies are highly mobile across firms (resource differences are short lived); profit maximizing behaviorFive forces modelEntry barriers; reinforces the importance of economic theory; analytical tool previously lacking in field of strategy; determines the nature/level of competition and profit potential in an industryLimitations: only two strategies are suggested(cost leadership/differentiation)Resource based modelA firm’s unique internal resources and capabilities Resources: inputs into a firms productionBasis for competitive adv – valuable, rare, inimitable, nonsubstituteablePhysical/human/organizational capitalCapability – capacity for a set of resources to perform a task or activity in an integrative mannerSummary – a firm has superior performance because of the unique resources and capabilities, and the combination makes them different, and better, than their competitionVision – picture of what the firm wants to be, foundation for missionMission – specific businesses in which firm intends to compete and customers it intends to serve (more specific than vision)StakeholdersBasic premise – a firm can effectively manage stakeholder relationships to create a competitive advantage and outperform its competitorsCapital market (shareholders) – expect returns commiserate with risk accepted by investments; higher dependency relationship, the more direct and significant firm’s responseProduct market (primary customers, suppliers, host communities, unions) – the 4 groups benefitdue to competitive battlesOrganizational (employees, managers, nonmanagers) – the employeesStrategic leaders – people located in different parts of the firm using the strategic management process to help the firm reach its vision and missionStrategy – create unique and valuable position, make trade-offs, create a fit among company activitiesOperational effectiveness IS NOT strategyProductivity frontier – sum of all existing best practices at a point in timeCompetitive convergence – trend in which firms in an industry become increasingly similarStrategic positioning – performing different activities than competitors or performing similar activities differentlyFit – activities should be consistent with the firm’s strategy, should be internally reinforcing, and should optimize efforts/outcomesChap 2External environmentGeneral environment – the broader society dimensions that influence an industry and the firms within itIndustry environment – set of factors directly influencing firm’s profit potential within its industry (related to porter’s 5)Competitor Competitor analysis – gather and interpret competitor informationExternal environments are turbulent, complex, and global, and information about them is uncertain, ambiguous, and incompleteScanning – ID early signalsMonitoring – detecting meaning through observationForecasting – developing projections of outcomesAssessing - determining significance for firmGeneral environmentDemographic segment – population size, age structure, geographic/income distributionEconomic segment – inflation/interest rates, trade deficits/surpluses, budget deficits/surplusesPolitical/legal segment – antitrust laws, taxation laws, deregulation philosophies, training lawsSociocultural segment – women in the workforce, diversity, attitudes about QOL(work)Tech segment – product innovations, new communication tech, application of knowledgeGlobal segment – importance of political events, critical global markets, industrialized countriesPhysical environment – energy consumption, renewable energy efforts, availability of waterIndustry environmentIndustry – groups of firms producing products that are close substitutesIndustry environment, in comparison to the general environment, has more direct effect on firm’s strategic competitiveness and the ability to achieve above-average returnsPorter’s 5Threat of new entrants: barriers to entry, expected retaliationBargaining power of suppliersPowerful when: no substitutes, few large companies, supplier’s goods are critical to buyer’s success, high switching costs, threat of forward integrationBargaining power of buyersPowerful when: purchase large portion of industry’s total output, product sales accountsfor significant seller annual revenue, low switching costs, backward integr.Threat of substitute productsGoods or services outside of given industry perform same or similar functions at a competitive price, places a ceiling on prices firms can chargeIntensity of rivalry among competitorsChap 3Sustainability of CASustainability of a CA is a function of:The rate of core competence obsolescence due to environmental changesThe availability of substitutes for the core competenceImitability of the core competenceFoundations of competitive advantageResources – bundled to create organizational capabilities, tangible and intangibleCapabilities – source of a firm’s core competencies and basis for CACore competencies – capabilities that serve as a source of CA over its rivalsCompetitive consequences include: disadvantage, parity, temporary