ASM Revision Notes PDF

CHAPTER 1 Importance of Strategic Management 1. Why Study Strategic Management? - Helps improve financial performance. - Strengthens competitive position. - Enables gaining a sustainable competitive advantage. 2. Key Benefits of Strategy: - Produces above-average...

CHAPTER 1 Importance of Strategic Management 1. Why Study Strategic Management? - Helps improve financial performance. - Strengthens competitive position. - Enables gaining a sustainable competitive advantage. 2. Key Benefits of Strategy: - Produces above-average profits. - Increases competitive pressure on rivals. - Acts as a road map to long-term success. What is Strategy? Definition: A coherent action plan for achieving objectives and superior performance. Key Components: - Where are we now?: Current situation and competitive position. - Where do we want to go?: Vision for the future. - How do we get there?: Crafting an action plan. The “6 Hows” of Strategy - How to attract and please customers. - How to position the firm in the marketplace. - How to compete against rivals. - How to achieve the firm’s performance targets. - How to capitalize on growth opportunities. - How to respond to changing economic and market conditions. Mnemonic for the 6 Hows: "AC-PART" ( A ) Attract customers. ( C ) Compete against rivals. ( P ) Position in the market. ( A ) Achieve performance targets. ( R ) Respond to market changes. ( T ) Target growth opportunities. Strategic Approaches Building Competitive Advantage: - Low-cost provider (e.g., Walmart). - Differentiation (e.g., Apple). - Best-cost provider (value + low price). - Focus on niche markets. Sustainable Competitive Advantage: - Develop expertise that rivals cannot replicate. - Constantly innovate to stay ahead. Firm Strategy and Business Models Relationship: - Strategy = Action Plan. - Business Model = How the firm makes money by providing value (e.g., Gillette's razor-and-blade model). Key Elements: - Value Proposition: Meeting customer needs effectively or efficiently. - Profit Formula: Ensuring revenues cover costs and deliver attractive profits. Tests for a Winning Strategy - must pass all 3 elements - Fit Test:Does the strategy align with external environment, resources, and capabilities? - Competitive Advantage Test: Can it deliver a sustainable advantage? - Performance Test: Will it yield strong profitability and market position? Examples of Successful Strategies Apple: - Strong brand identity. - Aggressive R&D investments. - Premium pricing strategy. Nvidia: - Leadership in GPU technology. - Expansion into AI and data centers. Walmart: - Efficient supply chain and store diffusion strategy. Tips for Strategic Success Think Long-Term: Focus on sustainability over short-term wins. Innovate Continuously: Regularly introduce new products or services. Understand the Environment: Adapt to market conditions and customer needs. Active Recall Questions - What are the key reasons firms need a strategy? Finance. Competition. Sustainability - List and explain the “6 Hows” of strategy. AC-PART - How do strategy and business models differ? - What are the three tests for a winning strategy? F. C. P - How can a firm gain a sustainable competitive advantage? L.I. E Enhanced Notes with Diagrams and Summaries Key Framework: "The Value-Price-Cost Model" Diagram Overview: 1. Value (V): What customers perceive as valuable. 2. Price (P): What customers are willing to pay. 3. Cost (C): Expenses incurred to deliver value. 4. Profit Margin (P - C): Difference between Price and Cost. Key Insight: A sustainable business model maximizes Value (V) while minimizing Cost (C). Strategic Framework: SWOT Analysis Diagram: - Strengths (Internal): What we do well (e.g., brand, resources). - Weaknesses (Internal): Areas needing improvement (e.g., lack of R&D). - Opportunities (External): Growth areas (e.g., emerging markets). - Threats (External): Risks (e.g., new competitors). Application: Use SWOT for strategic positioning. Competitive Advantage Pyramid Diagram Elements: - Base Layer: Core Competencies (e.g., technology, innovation). - Middle Layer: Value Propositions (e.g., cost or differentiation focus). - Top Layer: Sustainable Competitive Advantage (e.g., patents, brand loyalty). Summary: Competitive advantages are built on strong core competencies and tailored value propositions. The Strategy Diamond (Hambrick & Fredrickson) Diagram Components: 1. Arenas: Where will we compete? (e.g., product categories, markets). 2. Vehicles: How will we get there? (e.g., acquisitions, alliances). 3. Differentiators: What makes us unique? (e.g., superior quality, low cost). 4. Staging: Speed of execution (e.g., immediate vs. gradual). 5. Economic Logic: How will we profit? (e.g., pricing strategies). Application: Align these elements to ensure strategic coherence. Strategic Execution Framework Visual Summary: - Vision & Goals: Define what success looks like. - Resources & Capabilities: Identify tools and strengths. - Action Plan: Create specific, measurable steps. - Feedback Loop: Regularly review and adjust. Key Takeaway: Execution is as important as strategy crafting. Key Models Summarized Porter’s Generic Strategies: - Cost Leadership (e.g., Walmart). - Differentiation (e.g., Apple). - Focus (niche markets). - Blue Ocean Strategy: Create untapped market space (e.g., Cirque du Soleil combining circus and theater). - Resource-Based View (RBV): Leverage unique resources and capabilities for a sustained advantage. The Road Ahead Strategy is about asking the right questions What must managers do, and do well, to make a firm a winner in the marketplace? Strategy requires getting the right answers: Good strategic thinking and good management of the strategy-making, strategy-executing process. First-rate capabilities and skills in crafting and executing strategy are essential to managing successfully. Active Recall Questions (Visual Aid Ready) - What does the Value-Price-Cost model highlight about profitability? - How does the Strategy Diamond ensure cohesive planning? - Compare Porter’s Generic Strategies and Blue Ocean Strategy. How are they applied? Tips for Diagrams and Visual Learning - Mind Mapping: Create a visual map linking concepts like Value Creation to Cost Leadership. - Flowcharts: Use to show strategic processes (e.g., SWOT → Strategy Crafting → Execution). - Infographics: Highlight case studies, such as Walmart's low-cost strategy or Apple's differentiation.  CHAPTER 2 The Five Key Tasks of Strategic Management 1. Developing a Strategic Vision, Mission, and Core Values: - Vision: Long-term direction and future focus. Example: Amazon: "To be Earth’s most customer-centric company." - Mission Statement: Purpose of the business. Example: Safeguard all customers, staff, and assets through continuous training. - Core Values: Behavioral norms and principles guiding the firm (e.g., integrity, customer obsession). 2. Setting Objectives: - Converts vision and mission into specific, measurable, and time-bound goals. - Balanced Scorecard: Tracks financial (lagging indicators) and strategic (leading indicators) performance. Emphasizes balanced growth. 3. Crafting a Strategy: - Involves collaboration across management levels: - Corporate Strategy: Overall direction (e.g., Tesla’s move into battery production). - Business Strategy: Competitive positioning (e.g., Tesla’s lower-cost electric cars). - Functional Strategy: Department-level focus (e.g., Tesla’s finance team raising capital). 4. Executing the Strategy: - Requires: Adequate resources. Strategy-supportive work culture. Incentives aligned with performance. 5. Monitoring, Evaluating, and Adjusting: - Continuously revises strategy based on performance, new opportunities, and environmental shifts. Importance of Strategic Vision 1. Communicates Direction: - Reduces the risk of misaligned decisions. - Inspires and motivates stakeholders.  2. Guides Objectives: - Acts as a beacon for aligning departmental strategies. 3. Fosters Commitment: - Helps crystallize senior management’s views. Core Values in Strategy - Traits to Demonstrate: Integrity, innovation, customer trust. - Effective Communication: Distinctive and actionable values linked to measurable outcomes. Balanced Scorecard Key Elements: 1. Financial Performance: Profit margins, ROI. 2. Strategic Performance: Market share, innovation. Significance: Aligns goals across the organization to drive both short-term results and long-term success. Balanced Scorecard Framework Collaborative Strategy-Making 1. Top Management (CEO): Sets overall direction. 2. Senior Executives: Craft major strategy components. 3. Managers: Adapt strategy at operational levels. Example: Tesla’s strategies span corporate (battery production), business (electric cars), and functional (financing growth). Strategy Execution Process 1. Allocate resources to critical activities. 2. Strengthen competencies and capabilities. 3. Build a strategy-supportive culture. 4. Tie rewards to objectives. 5. Install effective information systems. Key Actions: - Motivate employees. - Monitor performance targets. Evaluating and Adjusting Strategies Evaluation: Passes the three tests: fit, competitive advantage, performance. Adjustments: Adapt vision, mission, and strategy execution based on external and internal feedback. Active Recall Questions - What are the five key tasks of strategic management? - How does the balanced scorecard measure performance? - Differentiate between corporate, business, and functional strategies. - What are the steps involved in executing a strategy? - How do firms evaluate and adjust their strategies?  CHAPTER 3 Key Concepts 1. Thinking Strategically About the External Environment: - Understand macro and industry-specific forces. - Assess competitive pressures and the firm’s position. 2. PESTEL Framework: - Political: Regulations, trade policies (e.g., tax regulation, import restrictions). - Economic: Inflation, wage growth. - Sociocultural: Changing consumer behavior. - Technological: Innovation, intellectual property. - Environmental: Pollution, sustainability pressures. - Legal: Compliance, new regulations. The Five Forces Framework (Porter) Competitive Rivalry: Intensity of competition among existing players. Threat of New Entrants: Barriers to entry like capital requirements and brand loyalty. Threat of Substitutes: Alternatives that can replace the product/service. Bargaining Power of Buyers: Buyers' influence on pricing and terms. Bargaining Power of Suppliers: Suppliers' control over pricing and supply. Steps to Analyze: 1. Identify parties and factors for each force. 2. Evaluate the strength (strong, moderate, weak). 3. Assess collective impact on profitability. Value Net Model (Sixth Force: Complementors) Focuses on co-opetition: Cooperation and competition with complementors. Example: Samsung and Google: - Complementing: Android OS enhances Samsung phones. - Competing: Both firms vie for dominance in mobile tech. Value Net Model Framework Driving Forces Analysis 1. Identify drivers of industry change: Emerging technologies, globalization, changing buyer demographics. 2. Assess impact: Will competition intensify or profitability increase? 3. Adapt strategy: Prepare for opportunities and threats. Strategic Group Mapping Definition: Identifies firms with similar strategies within an industry. Factors: Product line breadth, distribution channels, technological approaches. Limitations: Not all strategic group positions are equally attractive. Competitor Analysis (SOAR Framework) Strategy: Current market position and investments. Objectives: Financial and strategic performance goals. Assumptions: Beliefs about the market and their position. Resources: Strengths, weaknesses, and capabilities. Key Success Factors (KSFs) 1. Product attributes crucial for success. 2. Resources and capabilities required. 3. Common pitfalls leading to disadvantage. Industry Outlook for Profitability 1. Attractive Industry: - Opportunities for above-average profitability. - Firms invest aggressively to capture opportunities. 2. Unattractive Industry: - Weak competitors may exit or sell to rivals. - Strong competitors protect positions cautiously. Active Recall Questions What are the six components of the PESTEL framework? How do the Five Forces influence profitability? What is the Value Net Model, and how does it apply to co-opetition? How can strategic group mapping identify competitive positions? What are the three key questions for determining Key Success Factors?  CHAPTER 4 Key Focus Areas Evaluating Internal Environment: - Assess how well the current strategy is working. - Identify resources, capabilities, and competitive strengths/weaknesses. - Examine cost structures and customer value proposition. - Understand competitive positioning relative to rivals. Key Indicators of a Successful Strategy: - Achieving financial and strategic objectives. - Gaining market share and customer base. - Outperforming rivals in industry metrics. SWOT Analysis Strengths: Competitive advantages, distinctive and core competencies. Weaknesses: Deficiencies in resources or capabilities that hinder competitiveness. Opportunities: Growth areas, new markets, and industry trends. Threats: External challenges like new competitors, regulations, or market shifts. TOWS Matrix: SO Strategies: Use strengths to capitalize on opportunities. ST Strategies: Use strengths to mitigate threats. WO Strategies: Address weaknesses to exploit opportunities. WT Strategies: Minimize weaknesses and avoid threats. Resources, Capabilities, and Competence Resources: Tangible (e.g., assets, capital) and intangible (e.g., brand equity). Capabilities: Organizational skills to deploy resources effectively (e.g., superior marketing). Core Competencies: Unique strengths central to strategy and sustained advantage. Dynamic Capabilities: Adapt and renew resources to maintain competitiveness (e.g., BMW’s hybrid engine design). VRIN Test (For Evaluating Resources and Capabilities) Value: Does it offer competitive value? Rarity: Is it unique among competitors? Inimitability: Is it hard to replicate? Non-substitutability: Is it irreplaceable? Value Chain Analysis Primary Activities:Operations, marketing, distribution, sales, and service. Support Activities: HR management, R&D, and general management. Strategic Use: - Identify areas to improve cost efficiency or value delivery. - Example: Everlane emphasizes transparency in its supply chain for differentiation. Benchmarking 1. Types: - Industry Benchmarking: Compare within the same sector. - Best-in-Class Benchmarking: Learn from leaders across industries. 2. Sources: - Reports, consultants, or field visits. 3. Implications: - Highlights gaps in performance and areas for improvement. Competitive Strength Assessment 1. Steps: - List key success factors (KSFs) and assign weights. - Rate the firm and rivals on each KSF and calculate weighted scores. - Higher scores indicate stronger competitive positioning. 2. Strategic Implications: - Use strengths offensively to exploit rival weaknesses. - Address vulnerabilities defensively to reduce risk. Prioritizing Strategic Issues 1. How To: - Adapt to foreign competitors. - Reduce costs or address buyer shifts. 2. Should We: - Expand into new markets or reposition in existing ones. - Acquire rivals to strengthen capabilities. Active Recall Questions What are the steps of SWOT analysis, and how does it translate into strategic actions? Define dynamic capabilities with examples. How does the VRIN test evaluate resources? What are the primary and support activities in value chain analysis? Explain the strategic implications of benchmarking.  CHAPTER 5 & 6 Key Concepts 1. Differentiating Strategies: - Is the market target broad or narrow? - Is the competitive advantage focused on low cost or product differentiation? 2. Types of Strategies: - Broad Low-Cost: Lower costs across a broad audience (e.g., Walmart). - Broad Differentiation: Unique products appealing to a wide market (e.g., Apple). - Focused Low-Cost: Targeting a niche with low prices. - Focused Differentiation: Catering to niche markets with unique offerings. - Best-Cost Provider: Combines upscale attributes with cost efficiency. Differentiation Strategy Cost-Cutting Methods Key Elements of Competitive Strategy 1. Cost Advantage: - Efficiency Methods: Economies of scale. Learning curve effects. Full-capacity operations. Lower cost inputs. - Value Chain Revamp: Eliminate cost-heavy activities. 2. Streamline operations (e.g., direct sales via websites). - Differentiation Advantage: Incorporate features buyers value highly. Use unique drivers like design, branding, and superior performance. Coordinate with suppliers and channel partners for value. 3. Focused Strategies: - Serve niche markets with specific needs. - Avoid direct competition with industry leaders. 4. Best-Cost Strategies: - Targets value-conscious buyers. - Works well when product differentiation is common. When best-cost provider works best? 1. There are a large number of value- conscious buyers who prefer midrange products. 2. Product differentiation is the market norm. 3. Economic conditions have caused more buyers to become value-conscious. 4. There is a competitive space near the middle of the market for a competitor. Enhancing Competitive Strategies 1. Offensive Moves: Target weak competitors. Focus on rivals’ vulnerabilities. Example: Blue Ocean Strategy (e.g., ride-sharing, online auctions). 2. Defensive Strategies: Block rivals’ access to key resources or customers. Signal willingness to retaliate. Maintain market share through discounts or improved services. 3. Strategic Timing: First-mover advantages (e.g., capturing loyal customers early). Late-mover benefits (e.g., learning from competitors’ mistakes). Strategic Measures 1. Mergers and Acquisitions: Expand geographic reach. Acquire new technologies or capabilities. Consolidate industries through horizontal integration. 2. Vertical Integration: Backward Integration: Control inputs (e.g., Tesla’s battery gigafactories). Forward Integration: Control distribution (e.g., Tesla’s direct-to-consumer sales). 3. Outsourcing: Focus on core strengths. Leverage external expertise. 4. Strategic Alliances: Combine resources for mutual benefits (e.g., Disney and Oriental Land Co.). Build trust and establish safeguards against opportunism. When to Use a Strategic Alliance 1. Gain market leadership or expand globally. 2. Access new skills, technologies, or geographic markets. 3. Share costs and risks for innovations. Active Recall Questions What are the five types of competitive strategies? How can a firm achieve a cost advantage? What are the benefits of backward and forward vertical integration? When does the best-cost provider strategy work best? How can firms use strategic alliances effectively?  CHAPTER 7: Competing in International Markets Why Companies Enter Foreign Markets 1. Access new customer bases. 2. Leverage core competencies globally. 3. Spread risk across diverse markets. 4. Reduce costs via economies of scale. 5. Acquire unique resources and capabilities. Challenges in International Strategy 1. Cross-country differences in home-country advantages (e.g., skilled labor). 2. Variability in buyer preferences and tastes. 3. Exchange rate fluctuations. 4. Location-based value chain efficiencies. 5. Government regulations and economic policies. The Diamond Framework (Porter) Evaluates home country advantage: 1. Factor Conditions: Input availability (e.g., labor, capital). 2. Demand Conditions: Domestic market size and buyer sophistication. 3. Related Industries: Proximity to suppliers and complementary sectors. 4. Firm Strategy and Rivalry: Competitive environment and management styles. Strategies for Entering International Markets 1. Exporting: Low risk, cost-effective, but limited local market adaptation. 2. Licensing: Share technology for royalties but risk intellectual property loss. 3. Franchising: Scalable and leverages local operators but requires brand control. 4. Subsidiaries: High control through acquisition or greenfield investment. 5. Alliances/Joint Ventures: Shared resources but risk misalignment. International Strategy Approaches 1. Global: Standardized product offerings (e.g., Coca-Cola). Benefits: Economies of scale and unified branding. 2. Multidomestic: Customization to local markets (e.g., Nestlé). Benefits: Increased local responsiveness. 3. Transnational: Balance global efficiency with local adaptation (e.g., Unilever). Benefits: Flexible and synergistic. Steps in Crafting Diversification Strategy Step 1: Picking new industries to enter and deciding on the means of entry. Step 2: Pursuing opportunities to leverage cross-business value chain relationships, where there is strategic fit, into competitive advantage. Steap 3: Initiating actions to boost the combined performance of the corporation’s collection of businesses. Corporate Diversification Strategies Tests for Diversification: 1. Industry Attractiveness Test: ROI expectations. 2. Cost of Entry Test: Overcoming barriers to profitability. 3. Better-Off Test: Synergies between businesses. Types of Diversification: 1. Related (e.g., shared R&D). 2. Unrelated (e.g., standalone ventures). 3. Mixed. Corporate Social Responsibility and Triple Bottom Line Sustainability and environmental sustainability strategy Sustainability: Often concerns a firm’s relationship to the environment and its use of natural resource Sustainable business practices: Those capable of meeting the needs of the present without compromising the world’s ability to meet future needs. Environmental sustainability strategy: Consists of its deliberate actions to protect the environment, provide for the longevity of natural resources, maintain ecological support systems for future generations, and guard against ultimate endangerment of the planet CSR and Environmental Sustainability Five Pillars of CSR: 1. Ethical operations. 2. Employee well-being. 3. Workforce diversity. 4. Environmental protection. 5. Philanthropy and social impact. Sustainability Strategies: - Long-term resource conservation. - Ecological protection initiatives.  Chapter 8: Strategy Execution The 10 Basic Tasks of Strategy Execution 1. Allocate sufficient resources. 2. Structure the organization for execution. 3. Develop necessary resources and capabilities. 4. Hire and retain the right talent. 5. Install systems to track execution progress. 6. Adopt efficient processes for continuous improvement. 7. Foster a strategy-supportive culture. 8. Set policies that facilitate execution. 9. Reward and incentivize goal achievement. 10. Exercise strong leadership to guide execution. Building Organizational Capability 1. Staffing: Recruit top talent and nurture managers. Example: Deloitte’s talent programs. 2. Structuring: Align organizational design with strategy. Centralized vs. decentralized decision-making. 3. Developing Capabilities: Internal development (e.g., training). Acquisitions for external capabilities. Collaborative partnerships (e.g., joint R&D). Corporate Culture and Strategy Execution 1. Healthy Cultures: High-Performance: Encourages accountability and stretch goals. Adaptive: Welcomes innovation and change. 2. Unhealthy Cultures: Require leadership to realign behaviors and norms. Use symbolic and substantive actions (e.g., leading by example). Leadership in Strategy Execution 1. Role of CEOs: Democratic and transformational leadership (e.g., Satya Nadella). Prioritize stakeholder engagement and clear communication. 2. Best Practices: Accountability: Monitor performance closely. Commitment: Drive change hands-on. Active Recall Questions What are the three international strategy approaches, and when should each be used? Explain Porter’s Diamond Framework and its components. What are the three tests of corporate diversification? How do centralized and decentralized decision-making affect strategy execution? Provide examples of how healthy corporate cultures aid execution.