Module 3 - Strategic Management

Competitive advantage is based upon what?

Are firm-specific strengths that allow a company to differentiate its products from those offered by rivals, and/or achieve substantially lower costs than its rivals. Distinctive competencies arise from two complementary sources: resources and capabilities.

Refers to the assets of a company.

A company’s resources can be divided into two types:

Are physical entities, such as land, buildings, manufacturing plants, equipment, inventory, and money.

Are nonphysical entities that are created by managers and other employees, such as brand names, the reputation of the company, the knowledge that employees have gained through experience, and the intellectual property of the company, including patents, copyrights, and trademarks. Resources are particularly valuable when they enable a company to create strong demand for its products, and/or to lower its costs.

Are more likely to lead to a sustainable competitive advantage if they are rare, in the sense that competitors do not possess them, and difficult for rivals to imitate; that is, if there are barriers to imitation. For example, the software code underlying Windows is rare because only Microsoft has full access to it. The code is also difficult to imitate. A rival cannot simply copy the software code underlying Windows and sell a repackaged version of Windows because copyright law protects the code, and reproducing it is illegal

Refer to a company’s resource-coordinating skills and productive use. These skills reside in an organization’s rules, routines, and procedures, that is, the style or manner through which it makes decisions and manages its internal processes to achieve organizational objectives.

Shapes the strategies that the company pursues, which lead to competitive advantage and superior profitability. However, it is also very important to realize that the strategies a company adopts can build new resources and capabilities or strengthen the existing resources and capabilities of the company, thereby enhancing the distinctive competencies of the enterprise.

Refers to the idea that a company is a chain of activities that transforms inputs into outputs that customers value. The transformation process involves both primary activities and support activities that add value to the product.

Include the design, creation, and delivery of the product, the product’s marketing, and its support and after-sales service. The primary activities are broken down into four functions: research and development, production, marketing and sales, and customer service.

Refers to the design of products and production processes. Although we think of R&D as being associated with the design of physical products and production processes in manufacturing enterprises, many service companies also undertake this design.

Refers to the creation process of a good or service.

For physical products, this generally means manufacturing. For services such as banking or retail operations, "_____" typically takes place while the service is delivered to the customer, as when a bank makes a loan to a customer.

Creates value by discovering customer needs and communicating them back to the R&D function of the company, which can then design products that better match those needs.

There are several ways in which the __________ functions of a company can help to create value. Through brand positioning and advertising, the marketing function can increase the value that customers perceive to be contained in a company’s product (and thus the utility they attribute to the product).

The role of the service function of an enterprise is to provide aftersales service and support. This function can create superior utility by solving customer problems and supporting customers after they have purchased the product.

Provide inputs that allow the primary activities to take place. These activities are broken down into four functions: materials management (or logistics), human resources, information systems, and company infrastructure.

Function controls the transmission of physical materials through the value chain, from procurement through production and into distribution. The efficiency with which this is carried out can significantly lower cost, thereby creating more profit.

There are numerous ways in which the _____________ function can help an enterprise to create more value. This function ensures that the company has the right combination of skilled people to perform its value creation activities effectively.

It's job is to ensure that people are adequately trained, motivated, and compensated to perform their value creation tasks. If the human resources are functioning well, employee productivity rises (which lowers costs) and customer service improves (which raises utility), thereby enabling the company to create more value.

Are, primarily, the electronic systems for managing inventory, tracking sales, pricing products, selling products, dealing with customer service inquiries, and so on. Information systems, when coupled with the communications features of the Internet, are holding out the promise of being able to improve the efficiency and effectiveness with which a company manages its other value creation activities.

Is one whose profitability is substantially lower than the average profitability of its competitors; it has lost the ability to attract and generate resources and its profit margins and invested capital are rapidly shrinking.

What are the three related reasons for failure?

This argument states that companies find it difficult to change their strategies and structures in order to adapt to changing competitive conditions.

One reason companies find it so difficult to adapt to new environmental conditions is the role of capabilities in causing ________.

Organizational capabilities—the way a company makes decisions and manages its processes—can be a source of competitive advantage, but they are often difficult to change. Power struggles and the hierarchical resistance associated with trying to alter the way in which an organization makes decisions and manages its process—that is, trying to change its capabilities—bring on __________.

Not only limit its ability to imitate rivals but may also cause competitive disadvantage.

Who has postulated that the roots of competitive failure can be found in what he termed the “Icarus paradox.”

Danny Miller has postulated that the roots of competitive failure can be found in what he termed the

Is a figure in Greek mythology who used a pair of wings, made for him by his father, to escape from an island where he was being held prisoner. He flew so well that he climbed higher and higher, ever closer to the sun, until the heat of the sun melted the wax that held his wings together, and he plunged to his death in the Aegean Sea. The paradox is that his greatest asset, his ability to fly, caused his demise.

According to him many companies become so dazzled by their early success that they believe more of the same type of effort is the way to future success. As a result, they can become so specialized and myopic that they lose sight of market the way to future success. As a result, they can become so specialized and myopic that they lose sight of market realities and the fundamental requirements for achieving a competitive advantage. Sooner or later, this leads to failure.

Is a set of unique capabilities that certain firms possess allowing them to make inroads into desired markets and to gain advantage over the competition; generally, it is an activity that a firm performs better than its competition.

Is used to describe all the business activities it takes to create a product from start to finish (e.g., design, production, distribution, etc.)