Block 3

Question 1

What are the three best indicators of how well a company’s strategy is working?

Answer 1

1. Whether the company is achieving its
   stated financial and strategic objectives.
2. Whether its financial performance is
   above the industry average.
3. Whether it is gaining customers and
   increasing its market share.

Question 2

How do you evaluate a firm’s internal situation?

Answer 2

The following questions should be asked:
1. How well is the firm’s present strategy working?
2. What are the firm’s competitively important resources and capabilities?
3. Is the firm able to take advantage of market opportunities and overcome external threats to its well-being?
4. Are the firm’s prices and costs competitive with those of key rivals, and does it have an appealing customer value
proposition?
5. Is the firm competitively stronger or weaker than key rivals?
6. What strategic issues and problems merit front-burner managerial attention?

Question 3

What are some specific indicators of strategic success? (5)

Answer 3

• Trends in the firm’s sales and earnings growth.
• Trends in the firm’s stock price.
• The firm’s overall financial strength.
• The firm’s customer retention rate.
• The rate at which new customers are acquired.

Question 4

What are Competitive assets?

Answer 4

They:
● Are the firm’s resources and capabilities
● Are the determinants of its competitiveness and ability to succeed in the marketplace.
● Are what a firm’s strategy depends on to develop sustainable competitive advantage over its rivals.

Question 5

Define a resource:

Answer 5

A resource is a competitive asset that is owned or controlled by a firm.

Question 6

Define a capability:

Answer 6

A capability or competence is the capacity of a firm to perform an internal activity competently through deployment of a firm’s resources.

Question 7

What is the importance of Resource and capability analysis:

Answer 7

Resource and capability analysis is a powerful tool for sizing up a firm’s competitive assets and determining if they can support a sustainable competitive advantage over market rivals.

Question 8

What does bad financial performance show?

Answer 8

Sluggish financial performance and second-rate market accomplishments almost always signal weak strategy, weak execution, or both.

Question 9

What are the two types of company resources?

Answer 9

1. Tangible resources
2. Intangible resources

Question 10

What type of tangible resources does a company have? (8)

Answer 10

• Physical resources: land and real estate; manufacturing plants, equipment, or
  distribution facilities.
• Financial resources: cash and cash equivalents; marketable securities.
• Technological assets: patents, copyrights, production technology.
• Organizational resources: IT and communication systems (satellites, servers,
  workstations, etc.); other planning, coordination and control systems.

Question 11

What type of intangible resources does a company have? (8)

Answer 11

• Human assets and intellectual capital: The education, experience, knowledge, and talent of the workforce, cumulative learning, and tacit knowledge of employees.
• Brands, company image, and reputational assets: brand names, trademarks, product or company image, buyer loyalty and goodwill.
• Relationships: alliances, joint ventures, or partnerships that provide access to
  technologies, specialized know-how, or geographic markets
• Company culture and incentive system: the norms of behavior, business principles, and ingrained beliefs within the company.

Question 12

What is an organizational capability?

Answer 12

An organizational capability:
* Is the intangible but observable capacity of a firm to perform a critical activity proficiently using a related combination (cross-functional bundle) of its resources.

• Is knowledge-based, residing in people and in a firm’s intellectual capital or in its organizational processes and systems, emboding tacit knowledge.

Question 13

Define a resource bundle:

Answer 13

A resource bundle is a linked and closely
integrated set of competitive assets centered around one or more cross-functional capabilities.

Question 14

What does the VRIN test ask about a resource?

Answer 14

The VRIN Test for sustainable competitive
advantage asks if a resource is Valuable, Rare, Inimitable, and Non-substitutable.

Question 15

What questions does the VRIN test ask about the competitive power of a firm’s resources?

Answer 15

● Is the resource (or capability) competitively valuable?
● Is the resource rare—is it something rivals lack?
● Is the resource hard to copy (inimitable)?
● Is the resource invulnerable to the threat of substitution of different types of resources and capabilities (non-substitutable)?

Question 16

Explain ‘Value’ of the VRINE model:

Answer 16

The review of the Value Chain of the
organisation, looking for assets that have
optimised certain pieces of the chain. In
most of the cases, this assets can be
considered inside the Value concept of
VRINE.

Another interpretation of the Value
concepts is for those resources/capabilities
that increase the perceived value of the
customer.

Question 17

Explain ‘Rarity’ of the VRINE model:

Answer 17

The rarity concept of the VRINE
framework requires that the
resource/capability labelled meet the short
supply and persistence over time condition.

Question 18

Explain ‘IMITABILITY and/or
NON-SUBSTITUTABLE’ of the VRINE model:

Answer 18

Is the resources/capability difficult to imitate? Or Does this resources/capability generate a cost disadvantage to the competing organisations trying to obtain, develop, or duplicate it?

Question 19

Explain ‘Exploitable’ of the VRINE model:

Answer 19

Is the organisation structured,
built and able to exploit the
resources/capability?

Question 20

Explain how the VRINE model creates different levels of advantage for a firm:

Answer 20

Valuable + Rare = Temporary
Competitive Advantage

Valuable + Rare +Difficult to
Imitate = Sustainable Competitive Advantage

Valuable + Rare+ Difficult to
Imitate +Organised to Exploit =
Core Competence

Question 21

What does social complexity and casual ambiguity create for a firm:

Answer 21

Social complexity (company culture etc.)
and causal ambiguity are two factors that inhibit the ability of rivals to imitate a firm’s most valuable resources and capabilities.

Causal ambiguity makes it very hard to figure out how a complex resource contributes to competitive advantage and therefore exactly what to imitate.

Question 22

Define dynamic capability:

Answer 22

A dynamic capability is the ongoing capacity
of a firm to modify its existing resources and capabilities or create new ones by:

• Improving existing resources and capabilities incrementally.
• Adding new resources and capabilities
  to the firm’s competitive asset portfolio.

Question 23

What are some threats to resources and capabilities?

Answer 23

● Rivals providing better substitutes over time
● Capabilities decaying from benign neglect
● Disruptive competitive environment change.

Question 24

How can a firm manage capabilities dynamically?

Answer 24

● Attending to the ongoing modification of existing competitive assets.
● Taking advantage of any opportunities to develop totally new kinds of capabilities.

Question 25

Explain a SWOT Analysis:

Answer 25

● It Is a powerful tool for sizing up a firm’s: - Internal strengths (the basis for strategy) - Internal weaknesses (deficient capabilities) - Market opportunities (strategic objectives) - External threats (strategic defenses)

Question 26

Define the different types of competencies a firm can have:

Answer 26

- A competence: ● Is an activity that a firm has learned to perform with proficiency—a true capability - A core competence: ● Is a proficiently performed internal activity that is central to a firm’s strategy and competitiveness. - A distinctive competence: ● Is a competitively valuable activity that a firm performs better than its rivals.

Question 27

Define 'weakness' for the firm and give three types of weaknesses:

Answer 27

A weakness (competitive deficiency): ● Is something a firm lacks or does poorly (in comparison to others) or a condition that puts it at a competitive disadvantage in the marketplace. - Types of weaknesses ● Inferior skills, expertise, or intellectual capital ● Deficiencies in physical, organizational, or intangible assets ● Missing or competitively inferior capabilities in key areas

Question 28

Describe the characteristics of market opportunities:

Answer 28

● An absolute “must pursue” market: - Represents much potential but is hidden in “fog of the future” ● A marginally interesting market: - Presents high risk and questionable profit potential ● An unsuitable or mismatched market: - Is best avoided as the firm’s strengths are not matched to market factors

Question 29

What are the two types of threats a company can experience?

Answer 29

● Normal course-of-business threats ● Sudden-death (survival) threats

Question 30

What should a firm do when considering threats?

Answer 30

● Identify the threats to the firm’s future prospects. ● Evaluate what strategic actions can be taken to neutralize or lessen their impact.

Question 31

What are some Potential Strengths and Competitive Assets:

Answer 31

* Competencies that are well matched to industry key success factors. * Ample financial resources to grow the business. * Strong brand-name image or company reputation. * Other cost advantages over rivals.

Question 32

What are some Potential Weaknesses and Competitive Deficiencies:

Answer 32

* No clear strategic vision * No well-developed or proven core competencies. * No distinctive competencies or competitively superior resources. * Lack of attention to customer needs.

Question 33

What are some Potential Market Opportunities:

Answer 33

* Meeting sharply rising buy demand for the industry’s product. * Serving additional customer groups or market segments. * Expanding into new geographic markets. * Expanding the company’s product line to meet a broader range of customer needs.

Question 34

What are some Potential External Threats to a Company’s Future Profitability:

Answer 34

* Increasing intensity of competition among industry rivals—may squeeze profit margins. * Slowdowns in market growth. * Likely entry of potent new competitions. * Growing bargaining power of customers or suppliers.

Question 35

What can be gained from the company's SWOT analysis?

Answer 35

1. Conclusions regarding the company's overall business situation. - How attractive/unattractive are aspects of the company's situation? 2. Implications for improving company's strategy: - Use company strengths as foundation for the company's strategy. - Pursue market opportunities best suited for company's strengths. - Correct weaknesses and deficiencies.

Question 36

What are some sign's of a firm's competitive strength:

Answer 36

● Its prices and costs are in line with rivals ● Its customer-value proposition is competitive and cost effective. ● Its bundled capabilities are yielding a sustainable competitive advantage.

Question 37

Explain the concept of a company's value chain:

Answer 37

● Identifies the inner workings of the firm's customer value proposition and business model. ● Permits a deep look at the firm’s cost structure and its ability to profitably offer low prices. ● Reveals the emphasis that a firm places on activities that enhance differentiation and support higher prices. A company’s value chain identifies the primary activities and related support activities that create customer value.

Question 38

List the primary activities and costs of the value chain:

Answer 38

- Supply chain management - Operations - Distribution - Sales and marketing - Service - Profit margin

Question 39

List the support activities and costs of the value chain:

Answer 39

- Product R&D, Technology, and system development - Human resource management - General Administration

Question 40

Define a value chain analysis:

Answer 40

● Facilitates a comparison, activity-by-activity, of how effectively and efficiently a firm delivers value to its customers, relative to its competitors.

Question 41

Describe the value chain analysis process:

Answer 41

● Segregates the firm’s operations into different types of primary and secondary activities to identify the major components of its internal cost structure. ● Uses activity-based costing to evaluate the activities. ● Does the same for significant competitors.

Question 42

Describe the industry value chain:

Answer 42

- Value chain system for an entire industry. Industry value chain: ● The firm’s internal value chain ● The value chains of industry suppliers ● The value chains of channel intermediaries

Question 43

What are the effects of the industry value chain:

Answer 43

● Costs and margins of suppliers and channel partners can affect prices to end consumers. ● Activities of channel partners can affect industry sales volumes and customer satisfaction.

Question 44

Define and explain Benchmarking:

Answer 44

Benchmarking is a potent tool for improving a company’s own internal activities that is based on learning how other companies perform them and borrowing their “best practices.” ● Assesses whether the cost competitiveness and effectiveness of a firm’s value chain activities are in line with its competitors’ activities.

Question 45

What are some sources of benchmarking information?

Answer 45

● Reports, trade groups, analysts, and customers. ● Visits to benchmark companies. ● Data from consulting firms.

Question 46

How can a firm improve internally performed value chain activities?

Answer 46

● Implement best practices throughout the firm, particularly for high cost activities. ● Eliminate cost-producing activities altogether by redesigning products and revamping the internal value chain. ● Relocate high-cost activities to areas where they can be performed more cheaply. ● Outsource activities that can be performed by vendors or contractors more cheaply than if done in-house.

Question 47

What are areas in the total value chain system for a firm, to look for ways to improve its efficiency and effectiveness:

Answer 47

● The firm’s own internal activity segments. ● The suppliers’ part of the value chain system. ● The forward channel portion of the value chain system.

Question 48

How can you improve the effectiveness of the customer value proposition and enhance differentiation?

Answer 48

● Implement best practices for quality of high-value activities. ● Adopt best practices and technologies that spur innovation, improve design, and enhance creativity. ● Implement the best practices in providing customer service.

Question 49

Give ways to improve supplier-related value chain activities

Answer 49

● Pressure suppliers for lower prices. ● Switch to lower-priced substitute inputs. ● Collaborate closely with suppliers to identify mutual cost-saving opportunities. ● Work with suppliers to enhance the firm’s differentiation.

Question 50

How can you improve value chain activities of distribution partners?

Answer 50

By Achieving cost-based competitiveness ● Pressure forward channel allies to reduce their costs and markups. ● Collaborate with forward channel allies to identify win-win opportunities to reduce costs. ● Change to a more economical distribution strategy, including switching to cheaper distribution channels.

Question 51

Explain how to enhance differentiation through activities at the forward end of the value chain system:

Answer 51

● Engage in cooperative advertising and promotions with forward channel allies. ● Use exclusive arrangements with downstream sellers or other mechanisms that increase their incentives to enhance delivered customer value.

Question 52

What are two options for translating proficient performance of value chain activities into competitive advantage?

Answer 52

Option 1: Beat rivals by creating more customer value from the value chain activities, for a differentiation-based comp. advantage. Option 2: Beat rivals by conducting value chain activities more efficiently, for a cost-based comp. advantage.

Question 53

What are the 5 steps in the competitive strength assessment process:

Answer 53

1. Make a list of the industry’s key success factors and measures of competitive strength or weakness. 2. Assign weights to each competitive strength measure based on its perceived importance. 3. Score competitors on each competitive strength measure and multiply by each measure by its corresponding weight. 4. Sum the weighted strength ratings on each factor to get an overall measure of competitive strength for each company. 5. Use overall strength ratings to draw conclusions about the company’s net competitive advantage or disadvantage and to take specific note of areas of strength and weakness.

Question 54

Explain the strategic implications of competitive strength assessment:

Answer 54

● The higher a firm’s overall weighted strength rating, the stronger its overall competitiveness versus rivals. ● The rating score indicates the total net competitive advantage for a firm relative to other firms. ● Firms with high competitive strength scores are targets for benchmarking.

Question 55

What type of issues need strategic priority and why is it important for a firm to compile them? (10)

Answer 55

Two types, namely "how to" and "should we?" issues: Strategic priority “how to” issues: ● How to meet challenges of new foreign competitors. ● How to combat the price discounting of rivals. ● How to both reduce high costs and prepare for price reductions. Compiling a list of problems and roadblocks creates a strategic agenda of problems that merit prompt managerial attention. Strategic priority “should we” issues ● Expand rapidly or cautiously into foreign markets? ● Reposition the firm to move to a different strategic group? ● Counter increasing buyer interest in substitute products? A good strategy must contain ways to deal with all the strategic issues and obstacles that stand in the way of the company’s financial and competitive success in the years ahead.