SI 422SI422MidtermStudyGuide. SI422 Midterm Study Guide Module #1: Introduction

Cases  Zappos.com o Culture and customer service make them different o Hard to imitate their culture and success o Shows impact of strategy on the FIRM level within a difficult competitive environment  Within a p ...

Cases  Zappos.com o Culture and customer service make them different o Hard to imitate their culture and success o Shows impact of strategy on the FIRM level within a difficult competitive environment  Within a particular competitive environment or industry, strategy can affect a firm’s performance relative to its rivals  An effective strategy requires tradeoffs  Such as kinds Freiburg made  Is zappos doing enough to make itself truly different?  German Soccer o Formed a team rather than having stars o Shows the impact of strategy at the firm level o TRADEOFFS are key to strategy  Taxis o Shows how difficult it is for taxi drivers to make high profits in the industry  This is not because taxi drivers are unintelligent and/or lazy  But no matter how smart or hard working they are, they will find it tough to make profits because their industry is extremely competitive o Medallion owners make the profit in this industry o Costs drivers $45000 /yr. before they make money o Firms do not compete on price Concepts o Principal aims of course  Understand determinants of organizational performance  Make recommendations to organizations that can help them improve their long run performance o Performance = economic profits (focus is mainly on firms) oo What is Strategy? Porter  Operational effectiveness  Refers to the extent to which perform similar activities better than rivals (or “at least as good”)  Strategy  Refers to performing different activities from rivals or performing them in a different way  Choose the right configuration of activities, incentives, systems  Make the right tradeoffs  Strategy rests on unique activities o Who wins and why? Porter  “Operational Effectiveness: Necessary but Not Sufficient”  Operational effectiveness (“OE”) is necessary for superior profitability  Necessary, but not sufficient for long-term competitive advantage  Having a STRATEGY that fits the environment  A cogent configuration of activities, incentives, systems  That supports successful positioning  And makes the right tradeoffs  Ultimately, Porter believes that firms can achieve sustainable competitive advantage only if they have both operational effectiveness and a superior strategy o Strategic Activities Maps  Picture that identifies the key activities of a firm (their tradeoffs and the investments that they make) and identifies the linkages between them (via lines)  These can be further linked to costs and customer willingness-to-pay (and, therefore, to firm profits as well)  The “web” of activities makes company strategies’  (Tough to imitate) Southwest o Long term organizational firm performance depends, to a large degree, on the environment (industry) in which the organization competes o Fundamental Fact of Strategy  Profits vary across industry and within industry  Some industries have higher average profit than others  Some firms have a higher average profit than others  These patterns persist overtime o Grant’s Definition of Strategy o “Strategy is not a detailed plan or program of instructions; it is a unifying theme that gives a coherence and direction to the actions and decisions of an individual or an organization” o Long-term simple and agreed objectives + deep understanding of the competitive environment + objective appraisal of resources  effective implementation  Successful strategy o Strategy is designed to help the firm use its internal resources and characteristics to deal with its industry and competitive environment o Strategy must FIT with the Firm and its Environments  Harry Mintzberg o Strategy Design VS. Strategy Emergence o Strategy as Design  TOP DOWN  Planning an rational choice  Intended Strategy “Deliberate”  Realized Strategy o Strategy as a Process  BOTTOMS UP  Many decision makers responding to multitude of external and internal forces  “Emergent”  Realized Strategy o It is incomplete to consider Strategy to be something that an simply be designed (analyzed); instead, it is important to recognize that strategy emerges and changes over time, regardless of how carefully it is plan o 1. Sound analysis is a pre requisite for successful strategy o 2. Processes are managed by Senior execs, whereas analysis is pervasive throughout the firm  Resourced based view of strategy focuses on the firm’s resources and its internal capabilities  Strategy VS. Tactics o Strategy  Plan to deploy resources o Tactics  Managerial decisions Module #2: Industry Analysis  Cases o Retail street-level drugs  Local retail sale of drugs  only operate in this step in the value chain  Gangs leader making $100000+ per year, promoted to the board of directors  Shut down by federal indictment  Employees pay dues for protection, supply of drugs  Possible for members to rise up in hierarchy  Tribute to gang leader costs almost as much as drugs did  > 50% operating income  Employees have low wages, high risk, poverty  During the pre expansion time period, they move from peace to gang ware caused major declines in profitability  Revenue decreases o Price declines: unit prices dropped 25% o Quantity declines: went down 29%  Cost increases o Employee wage costs: foot soldier pay climbed 69% o Nonrecurring costs of violence (mercenaries, funerals and weapons costs increased by 8.7X  Monthly profits down from 8400 to 1000  Lack of substitutes  Price to value ratio  Addictive quality of crack  Low price to get high o Cola Wars (Coke v. Pepsi)  Two industries  Concentrate producers o 19% above industry average, 29% industry profitability  Bottlers (and distributors) o -1% industry influence below economic average 9% industry profitability  If Coke and Pepsi decided to compete on price rather than advertising, things could look different  Both heavily invested in branding  Concentrate Producers (CPs)