LO 1-1 / Explain the role of strategy in a firm's quest for competitive advantage. + Strategy is the set of goal-dreeted actions that a firm takes to gain and sustain supetiox performance relative to competitors. + A good strategy enables firm to achieve supetiox performance It ests from three elements 1. A diagnosis ofthe competitive challenge 2, A guiding poliey to address the competitive challenge 3. Ast of coherent act os to implement the firm's guiding policy + A success strategy requires three integrative management tasks—analysis, formulation, ad implementation, LO 1-2 Define competitive advantage, sustainable competitive advantage, competitive disadvantage, and competitive parity, + Competitive advantage is always judged relative to other competitors or the industry average + To obtain a competitive advantage, «firm mu ether create more value for evstomers while keep ts cost comparable to ‘competitors ort must provide value equivalent to is competitors but ata lower cost. + A fim that isable to eutperform competitors for prolonged periods of time has a sustained competitive advantage. + A fm that continuously underperform its rivals or the industry average has a competitive disadvantage. + Two or more firms that perform atthe same level have competitive parity + An effective strategy sequites thot strategic trade-offs be recognized and addressed-for example, the tradeoff between value ereation ‘and the cost to eveate the value LO 1-3 / Assess the relationship between stakeholder strategy and sustainable competitive advantage. + Stakeholders are individuals or groups that have claim on or interest in the fiem’s performanee and continued survival. They make specific contributions for whieh they expeet read in return. Inemial stakeholders include stockholders, employees (for instanee, executives, managers. and workers), and board members External stakeholders include customers, suppliers, alliance partners, exeditors, unions, communities, gover and the media ents at various levels, + The effective management of stakeholders is necessary to ensure the firm's continued survival and to sustain any competitive advantage. These goals are achieved through stakeholder strateL044 / Conduct a stakeholder Impact analysts. PEM, + Stakeholder impact analysis considers the needs of different stakeholders, enabling the fim to perform optimally and to live up to the expectations of good citizenship + Ina stakeholder impact analysis, managers pay partoular attention o three Important stakeholder artsibutes: power, legitimacy. and urge. + Stakeholder impact analysis is fvestep prosess that answers the following questions forthe firm: 1. Who are our stakeholders? 2, What are our stakeholders interests and clans? '3, What opportunites and threats do our stakeholders present? 4, What are our economie, legal ethical, and philanthropie responsibilities to our stakeholders? 5. What should we do to effectively adres the stakeholder concerns? LO1-5/ Apply the Analysis, Formulation, Implementation (AFI) Strategy Framework. +The Analisis, Formulation, Implementation (AFD) Strategy Framework (1) explains and predicts diferenees infirm performance, and (2) helps managers formulate and implement a strategy that ean res in superior performance. + Effectively managing the strategy process isthe resut of the followin: 1. Analysis (A) 2. Formulation (F) 3. Implementation (1)LO 24 / Explain the role of strategic leaclers and what they do. + Executives whose vision and decisions enable ther organizations to achieve competitive advantage demonstrate strategic leadership, + Strategie leaders use formal and informal power to influence the behavior of ther organizational members co do things, including ‘things they would not do otherwise, + Strategie lenders can have a strong (postive or negative) performance impaet on the organizations they lea. LO 22 / Outline how you can become a strategic leader. + To become an effective strategie leader, ou need to develop skills to move sequentially through five leadership levels: highly capable individual, contributing team member, competent manager, effective leader, and executive (see @ Exhibit 2.2). + The Level strategie lendership pyramid applies to both distinct corporate positions and personal growth. LO 2.3 / Compare and contrast the roles of corporate, business, and functional managers in str Implementation. + Conorate executives must provide answers tothe question of where r compete, wether in industries, mackes, or geographies, and how to erate synergies among different business units. tegy formulation and + Genera! managers in strategie business units must answer the strategie question of how 1 compete in order to achieve superior performance. They must manage ane align the fms diferent funetional area for competitive advantage. + Functional managers ave responsible for inplementing business srategy within a single Funetional area, LO 2-4 / Describe the roles of vision, mission, and values ina firm's strategy. =F + Avision captures an organization's aspirations. An effetive vision inspires and motivates members ofthe organization. + Aission statement desosibes what an organization actually does—whar its business [sand why and how It does I + Cove values define the ethieal standards and norms that should govern the behuviorof individuals within the fm, LO 2.5 / Evaluate the strategic Implications of product-orlented and customer-orlented vision statements. + Produetoviented vision statements define a business in terms ofa good or service provided. + Customeroriented vision statements define a busines in terms of providing solutions to customer needs + Customer oriented vision statements provide managers with more strategic flexibility than productoriented visions do. += Tobe effective, visions and missions need to be backed up by fundamentals, rarc-toseversestratenie commitments and tied to esonomieLO 2.6 / Justify why anchoring a firm in ethical core values Is essential for long-term success. + Ethical core values underti the vision statement to ensure the stability of the strategy and thus lay the groundwork for long-term + Ethieal core values are the guardrails that help keep the company on track when pursul advantage, i ts quest for competitive LO 2-7 / Evaluate top-down strategic planning, scenarlo planning, and strategy as planned emergence, Identifying the pros and cons of each. + Topdowen strategie planning is a sequential linear process that works reasonably well when the environment dees not change much, + Ta scenario planning, managers envision whatif scenarios and prepare contingency plans that ean be called upan when necessary. + Strategie initiatives ean be the result of top down planning or can emerge through a bottonrup provess fiom deep within the organization. They have the potential to shape a firm's strategy: + A.firm’s realized strategy is generally a combination of ts top-down intended strategy and bottom-up emergent strategy, resulting in planned emergence. LO 28 / Explain the causes of strategic dissonance and how to navigate strategic inflection points. + When a firm’s static fit no longer matches competitive realities, strategic dissonance emerges. + Strategic dissonance is present when a firm's current strategy no longer provides the expected outcomes, + Astrategic inflection point Is the moment when the fundamentals of a business and its Industry are about to change. + The decisions that leaders take when traversing a strategic inflection point are critical because they decide whether the firm will capitalize on the opportunity that a strategic inflection point provides to create forward momentum, or if the firm has started to deciine. LO 2.9 Describe and evaluate the two distinct modes of decision making. + When faced with decisions, individuals tend to satsfice rather than optimize due to cognitive limitations. + Our decision making is governed by two distinct ways of thinking: System I and System 2 + System Lis ir default mode of thinking beesuse itis automatic, fast, and efficient, requiring litle energy or attention, System 1 is prone to cognitive biases that can lead to snap judgments and systematic errors in deeision making, + System 2is based on attempting to apply rationality to our decision making by relying on analytical and logical reasoning. It is an effortfl, slow, and deliberate way of thinking. + In addition to facing cognitive limitations, humans are prone toa lost of cognitive biases, which can lead to spstematie errors in decision making. LO 2-40 / Compare and contrast devil's advocacy and dialectic Inquiry as frameworks to Improve strategic decision making. + Devil's advocacy and dialectic inquiry are two techniques to improve strategie decision making + Devil's advocacy ean help to improve strategie decision making. A key element ofthis technique i a separate team or individual carefully serutinizing a proposed course of action by questioning and critiquing underlying assumptions and highlighting potential downsides. + Dialectic inquiry ean also help to improve strategie decision making: the key clement is that two teams generate etiled but alternate plans of action (thesis and antithesis). The goal, i feasible, is co achieve a synthesis between the two plans.LO 3.41/ Generate a PESTEL analysis to evaluate the Impact of external factors on the firm. + A firm's macroenvizonment consists of a wide range of politial, economic, sociocultural, technological, ecological, and legal (PESTEL) factors that ean affect industry and firm performance. These external factors have both domestic and global aspects. + Polteal factors describe the influence that governmental bodies ean have on fms. + Economic factors to be considered are growth rates, interest rates, the employment level, price stability (inflation and deflation), and currency exchange rates. + Sosioeultural factors capture a sosiery’s cultures, norms, and values. + Technological factors capture the application of knowledge to create new processes and products. + Ecologia! factors concern a firs regard for environmental isues such asthe natural environment, climate change, snd sustainable economic growth, + Legal factors capture theofficial outcomes of the political processes that manifest themselves inlaws, court decisions. ndates, regulations, and LO 3.2 / Differentiate between firm effects and Industry effecte In determining firm performance. + A firm's performance is more closely related to its managers’ actions (firm effects) than to the external circumstances surrounding it (ndstry effects) + Firm and industry effects, however, are interdependent, Both are relevant in determining frm performanee. LO.3.3 / Apply Porter's five competitive forces to explain the profit potential of different Industries. + The profit potential of an industry i a function ofthe fve forces that shape competi 2: (1) threat of entry, (2) power of supplies, @) power of buyers, (4) threat of substitutes, and (5) rivalry among existing competitors. + The stronger a competitive foree. the greater the threat it represents, The weaker the competitive fotee, the greater the opportunity it presents + A fro enn shape an industry's structure ints favor through ts strategy.03.4 / Examine how competitive Industry structure shapes rivalry among competitors. + The competitive structure ofan industry is largely eaptured by the number and size of competitors in an industry, whether the firms possess some deuree of pricing power, the type of produet or service the industry offers (commodity or differentiated produet). and the heiaht of entry brie, + A perfectly competitive industry is characterized by many small firms, a commodity product, low entry barriers, and no prising power fr individu fs + A monopolistic industry is characterized by many Arms, 9 diferentated produc, mem entry barriers, and some pricing power. ‘An oligopoliste industry is characterized by few (large) ftms a diferentiated product, high entry barriers, and some desree of pricing power: + A monopoiy exists when there is only one (large) firm supplying the market, In such instances, the frm may offer a unique product the barriers to entry may be high, and the monopolist usually has considerable pricing power LO3.5// Describe the strategic role of complements In c ting positive-sum co-opetition, + Coopetition cooperation among competitors) can create a positivestum game, resulting in a lager pie for everyone involved. + Complements increase demane fr the primary product, enlzancing the profit pote for the industry and the frm. + Attractive industries for eo-opetition are characterized by high entey barriers, low exit barriers, low buyer and supplier power, alow theest of substitutes, and the anilability of complements LO.3-6 / Explain the five cholces required for market entry. ae + The more profitable an industry. the more attractive it becomes to competitors, who mst consider the wo, wien, hw, what and whore of ents + The fve choices constitute more than parts ofa single decision point; their consideration forms a strategie process unfolding over time, Each ehoice Imolves multiple deisions ineluding many dimensions. + Who includes questions about te fll range of stakeholders, and not just competitors: wen, questions about the industry life eyele: ‘ov about overcoming barriers to entry: whar, about options regarding produet market, value ein, geography, and business model and wher, about product positioning, prising stratgy, and potential partnersLO 3-7 / Appraise the role of Industry dynamics and Industry convergence in shaping the firm's external environment. + Industries are dynamie-they change overtime. + Different conditions prevail in different industries, directly affecting the firms competing in these industries and their profitability + In industry convergence, formenty unrelated industries begin to stisty the same customer need. Such eonvergenee is often brought on by technological advances. 10 3-8 / Generate a strategie group model to reveal performance differences betws Industry. + Asstrategic group isa set of firms within a specific industry that pursue a similar strategy in their quest for competitive advantage. n clusters of fms In the came Generally there are two stratesieeroups in an industry based on two different business strategies: one pursues a lowcost strateay and ‘the other pursues a differentiation stratesy: Existing strateic eroups may break into subgroups defined by the new stratesic positioning of the breakaway cluster of firms Rivalry among firms of the same strategic sroup is mote intense than the rivnlry between strategie groups: Lata ztoup rivalty exceeds nter group rivalry Strategie groups are affected dfferentiy by the external environment and the fve competitive forces. Some strategic groups are ore profitable than others. + Movement betwen strategic groups i restricted by mobility barriers. which are industry specific factors that separate one strategic ‘group from another. Movement between strategie subgioups can be acileved more easlyLO 4.1/ Explain why and how internal firm differences are the root of competitive advantage. + Because companies that compete inthe same industy fae similar external opportunites and threats, the souree ofthe observable performance diferenes must be found inside the frm salyze its resources, capabilities. and core competencies allows strategic leaders to understand the firm's strengths and weaknesses. Linking the insights from a firm's external analysis tothe insights from an internal analysis allows managers to determine their strategic options + Surategi leaders should aim to leverage ther ms’ ternal strengths to exploit external opportunities andl to mitigate internal ‘weaknesses and external threats, + Suatepe fr allows frm to exploit extemal opportunities while mitigating external threat, L0 4.2 / Differentiate among a firm's core competencies, resources, capabilities, and activities. + Core competencies ae unique, deeply embedded. femrspecifiestengths that allow companies to differentiate their produets and services and thus ereate move value for customers than their rivals, or offer produets and serviees of acceptable value at lower cost + Resources are ary assets that @ company ean draw on when crafting ad excouting strategy + Capabilities are the organizational and managerial skills necessary to orchestrate a divers set of resources to deploy them strategically Actes are distinct and fneained business provesses that enable firms to add is and services eremental value by transforming inputs into goods LO 4.3/ Compare and contrast tangible and intangible resources. + Tangible resources have physical atributes and ace visible + Iniaugibie esourees have no physial atsibutes and are invisible + Competitive advantage is more likely to be based on intangible resources. LO 4-4 / Evaluate the two critical assumptions about the nature of resources in the resource-based view. + The Art ertial assumption—resourceheterogencitis that bundles of resourees, capabilities, and competencies difer across firms. ‘The resource bundles of firms competing in the same industry (or even the same strate ditfer from one another rup) are unique to some extent and thus + The second eritical assumption-resource imnebiinis that resourees tend to be “stioky” and don’t move easily from frm to firm, Because ofthat stickiness, the resouree differences that exist between firms are dificult to replicate and therefore can last along time,LO 4.5 / Apply the VRIO framework to assess the competitive Implications of a firm's resources. + Fora firm's resource tobe the bass of a competitive advantage, it must have VRIO attributes: waluable (1), rare (R). and east 10 Jitate (2) The frm must leo be able to organize (O) in order to capture the value of the resowe. + Aresouce is valuable (7) iit allows the frm to take advantage ofan external opportunity and/or neutralize an external threat. A ‘valuable resouree enables a firm to increase its economic value exeation (V'~ ©) + Aresource is rare (A) ifthe number of firms that posses its smaller than the numberof firms necessary to reach a state of perfect ‘competition. + A resouree is costly to imitate (Z) if firms that do not possess the resource are unable to develop or buy the resource ata comparable ‘cost. +The firm is organized (O) to capture the vale of the resouuce iit has an effective organizational structuve, processes, snd system in place to fully exploit the competitive potential. ae LO 4.6 / Evaluate different conditions thet allow a firm to sustain a competitive advantage. «Several conditions make it costly for competitors to imitate the resourees, capabilites, oF competencies that underlie a firm’ ‘competitive advantage: (1) better expectaions affiure resource valve, (2) path dependence, (3) causal ambiguity; (4) social complexin, and (3) intellectual propery (IP) protection. + These barriers o imitation are isolating meshanisms besause they prevent rivals fom competing avay the advantage a frm may enjoy LO 4-7 / Outline how dynamic capabilities can help a flrm sustain a competitive advantage. + Tosustain a competitive advantage, any i between a firm's internal strengths and the external environment ast be dynamic, + Dinamie capabilities allow a um to create, deploy, modify, reconfigure, and/or upgrade its resouree base to gain and sustain ‘competitive advantage in a constantly changing environment LO 4.8 / Apply a value chaln analysis to understand which of the firm's activities In transforming Inputs Into outputs generate differentiation and which drive costs. + The value chain describes the internal activities a firm engages in when transforming inputs into output + Each aetivty the firm performs along the horizontal chain adds incremental value and inetemental costs + A careful analysis ofthe value chain allows managers to obtain a more detailed and fine grained understanding of how the fim's ‘economic value creation breaks down into a distinct set of activities that helps determine pereeived value and the costs to create i. + When a firm's st of distnet activites is able ro generate vale greater than the costs to ereae it, the Frm obxai prof margin (assuming the market pre the frm is able to command exseeds the cost of vale creation).LO 4.9 / Identity competitive advantage as residing In a network of distinct activities. + A.strategic activity system conceives of a firm as a network of interconnected firm activities. + Annetwork of primary and supporting fim activities can create a strategie fi that ean lead to a competitive advantay + To sustain a competitive advantage, fins need to hone, fnecune, and upgrade their strategie aetivty systems overtime, in response to changes in the external environment and to competitors’ moves. LO 4-40 / Conduct a SWOT analysis to generate Insights from external and internal analysis and to derive strategic Implications. + Formulating a strategy that inereases the chances of gaining and sustaining a competitive advantage is based on synthesizing insights ‘obtained from an internal analysis ofthe company’s strengths (S) and weaknesses (7) with those from an a ‘opportunities (0) and threats (7). lysis of external ‘The strategic implications of a SWOT analysis should help the firm leverage is internal strengths, exploit external opportunities, and ‘mitigate internal weaknesses and external threats LO 5.1 / Compare and contrast shareholder capitalism and stakeholder capitalism while highlighting the strengths and. weaknesses of each. + Shareholder capitalism is an esonomie system in which the investors who own shares, as the providers of risk capital, re the ‘onmers of public companies. + As legal owners, shareholders therefore have the most legitimate and dominant ela m1 profits, among al stakeholders. + The idea that companies that focus on maximizing profits also inerease soeietal welfare rests on three fundamental assumptions: (1) ‘ree markers are perfectly efficient, (2) individual freedom should be the primary goal of a society, and (3) managers are agents of sharsholders. + The public stock company enjoys four characteristics that make it an tractive corporate form: (1) limited lability for investors, (2) lity, and (4) separation of legal ownership and management contrl ‘transferability of investor ownership, (3) legal pers + Over the past two decades, shareholder capitalism fas eome under fire due to a number of erses. + Stakeholder capitalism is a management approach in which a company must benefit all its stakeholders, inchuding sharcholders, éemplogees, customers, and the communities in which it operates + Frequently, the interests of various stakeholders such as shareholders and employees stand in conflict. LO 5.2 / Explain the shift in emphasis from corporate social responsibilty (CSR) to creating shared value (CSV). Three defining problems of our time led to the vise of stakeholder capitalism: (1) climate change, (2) economic inequality, and (3) beleaguered institutions. ‘The shared valve ereation framework proposes that strategie leaders maintain a dual focus on shareholder value ereation and value creation for sosiey. Inthe corporate socal responsibilty perspective (CSR). fi that do well (“make profits") should do good by engaging in corporate philanthropy. Providing societal benef is an afterthoushe ("a responsibilty”), assuming the firm ean afford it + To the creating shared value (CSV) framework, the question of how to create value is focused from the beginning on both economic and societal benefits + CSR is externally focused to address pressures that aise, such asthe issue of child labor in the supply chain, while CSV is internally focused and derives from a deeper purpose.LO 5.3 / Appraise accounting metrics and shareholder value creation as measures of competitive advantage. + To measure competitive advantage, we must he able to (1) accurately assess frm performance, and (2) compare and benehmark the ‘cms performance to other competitors in the same industry othe industry average + To measure accounting profitably, we use standacd metces derived from publelyavallable accounting dat, Peto ‘Commonty used profitability metres in strategie management are return on assets (ROA), return on equity (ROE), return on invested capital (ROIC), and return on revenue (ROR), See the key financial ratios in five tables in @ How to Conduct a Case Analysis. Accounting data are historial and thus baekwardHooking. They focus mainly on tangible assets and do not consider intangibles that such a innovation competency are hard or impossible to measure and quanti + Investors are primarily interested in total return to shareholders, which includes stock price appreciation plus dividends received over 1 specie period + Total return to shareholders i an external performance metri. It indicates how the market views all publicly available information abot a fr 's past, current state, and expected future performance. + Applying a shareholders’ perspective, key metrics to measure and assess competitive advantage are the rtura on (sk) capital and ‘market capitalization, + Stock prices can be highly volatile, which makes it dificult to assess firm performance. Overall macroeconomic factors have a direct bearing on stock prices. Alco, tock prices frequently reflect the peyshological mood of the investors, which ean at times be ional + Shareholder value creation is a better measure of competitive advantage over the fone rm die to the “noise” introduced by market volatility, external fators, and investor sentiment. LO 5-4 / Link economle value creation to different sources of competitive advantage. + The relat ship berween eeonomic value creation ancl competitive advantage is fundamental in strategie management. Tt provides the ‘foundation upon which to formulate a firm's competitive strategy of cost leadership or differentiation. + Thiee components are crtial to evaluating any good or service: value (F), price (P, and cost (C). Cost ineludes opportunity costs. + Economie value crested is the difference between a buyer's willingness to pay fora W-o. + A fiom has a competitive advantage when iis able to create more eeonomie value than its rivals The source of eompettive advantage 00d or service and the i's cost to produce it ‘can stem from higher peresived value creation (assuming equal eost) or lower cost (assuming equal value cretion), LO 5.5 Apply a balanced scorecard to assess and evaluate competitive advantage. + The balanced scorecard approsch attempts to provide a more integrative view of competitive advantage + Its goal sto harness multiple internal and extemal performance dimensions to balance finaneial and strategie goals + Managers develop strategie objectives for the balanced scorecard by answering four hey questions: (1) How do customers view us? (2) How do we create value? (3) What core competencies clo we need? (4) How do shareholders view us? L0.5.6/ Apply a triple bottom line to assess and evaluate competitive advantage. + Noneconomie factors can have a significant impact on a firm's financial performance, eputation, and customer goodwill, ‘Three dimensions-eeonomic, socal, and ecological, also known as profs, poopie, and planet-make up the triple bottom lin (auch as employees, customers, suppliers, and commun “Managers are frequently asked to maintain and improve not only the fms economie performance but aso its social and eeotogieal performance, Achieving postive results in al three areas can lead toa sustainable strategy that can endure over time. A sustainable strategy produces not only positive financial resus but also positive results along the social and ecological dimensions. ‘Uslug a triple ottonine approach, managers audit eheic company’s fulflment of ts seta and ecological obligations to stakeholders is) 0s seriously as they rack its flnaneial performanee. ‘The tiple bottomline framework i related to stakeholder theory, an approach to understanding a firm as embedded ina network of ternal and external constituencies each make contributions and expect consideration in return,