Strategic Management Questions

Midterm

Week 2

1) According to Michael Porter Why is operational effectiveness a necessary but insufficient condition for a firm's superior performance?

 It is necessary but not efficient help a firm to achieve superior profitability because there is no differentiation and competition. O.E can be imitated and followed by competitor. It is also mutual destruction completion.

- Cost reduce

- Competitive convergence:

+ A lot of competitive imitation between competitors in term of cost reduce

+ Competitors will be looking like each other

+ Advantages in cost will eventually lose

+ Mutually destructive competition

2) What is strategic positioning?

 Strategic Positioning: performing similar activities in different ways/ performing different activities from rivals.

 Operational Effectiveness: performing similar activities better than rivals perform them.

3) What are the three ways to position a firm?

A. Variety-based positioning:

- This positioning based on the product

- Focus on subset/segments of products or services

- Example: Southwest Airline focus on smaller cities (small market) do not rent a big airport

B. Need-based positioning:

- This positioning based on customer segment. Firms focus on groups of customers

- Cater to multiple needs of the same target customers

- Example: Costco focus on middle class, small business, big families/ Wal-Mart focus on low-middle class/ Andronicos focus on rich neighborhoods

C. Access-based positioning:

- The ways forms reach customers are different. Or best configuration of activities to reach customer is different

- Example: Amazon.com => reach customers online/Borders => physical bookstores, which have supply-chain management, inventory, customer service.

4) Why is it not easy for a firm to switch strategic positions?

 It means that it is not easy for a firm to switch from a strategic position to another. Firms will occur costs when switching positions.

 Different positions entail/need different set of activities or skills.

3 reasons why a firm is not easy to switch strategic position

* Trade-offs between positions => switching cost, no interchangeability between skills sets

* Inconsistencies in image and reputation

* Limitations in the capacities of a management team => bounded rationality. As a result, it's hard for management to manage multiple form tasks

2. What is the textbook's definition of strategy?

 Strategy: a set of related actions that managers take to increase their company's performance.

3. What is a business model?

 Manager's conception of how the set of strategies that the company pursues should mesh together into a congruent whole

4. What are the two measures of a firm's performance?

a. Profitability (ROIC): the return that makes on the capital invested in the enterprise. At a specific time period

b. Profit growth: can be measured by the increase in net profit over time.

5. What is ROIC?

 ROIC is defined as its net profit over the capital invested in the firm.

ROIC = Net profit after tax/ Capital invested

Capital invested = (Equity + Debt to creditors)

6. What are the two components of a shareholder's value?

* Capital appreciation: related to profit growth

* Dividend payments: related to profit growth

 Dividend is important, but capital profit growth is more important than dividend

7. Why is profit growth important to capital appreciation?

 Profit growth important to capital appreciation because the sustainable profit growth help nurture a positive belief about a firms future performance and about its stock prices which is long-term profitability.

 Among existing or potential shareholder about the firm's.

8. What is the definition competitive advantage?

 A firm's profitability and profit growth higher than the industry average

Example: industry average = ROIC = 15%. Firm's ROIC = 20% => Competitive advantage

9. What is emergent strategy?

 Emergent strategies are the unplanned response to unforeseen circumstances

10. What is Autonomous Action (page 20 of the textbook)?

* Strategy making by lower-level manager

* Top manager are likely to focus on company's established strategy while they are conservative force that promote inertia. Lower level manager have less commitment to status and have more gain from new technology and lobby for strategic changes.

11. What is Google's business model? Where did the model come from?

* Google adopted the pay-per-click model. In addition to the price and advertiser had paid for a keyword; ads were ranked according to relevance. The model comes from Bill Gross' GoTo.com

* Google used a bidding system Vickery second Price Auction methodology to auction of keywords

Week 3

12. What