Mid-term Review Questions
1. Define strategic competitiveness, strategy, competitive advantage, above-average returns, and the strategic management process.
Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy. Strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. Competitive advantage is when a firm implements a strategy that its competitors are unable to duplicate or find too costly to try to imitate. Above-average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk. Strategic management process is the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns. 2. Describe the 21st-century competitive landscape and explain how globalization and technological changes shape it.
* The fundamental nature of competition in many of the world’s industries is changing. There are rapid changes in industry boundaries and markets. * Conventional sources of competitive advantage such as economies of scale and huge advertising budgets are not as effective as they once were in terms of helping firms earn above average returns. * The conditions of competitive landscape result in a perilous business world, one where the investments that are required to compete on a global scale are enormous and the consequences of failure are severe. * Hypercompetition is a term often used to capture the realities of the competitive landscape, which is a condition of escalating competition. Its two main drivers are globalization and rapid change of technology. Globalization brings both opportunities and challenges to firms. Globalization is the increasing economic interdependence among countries and their organizations as reflected in the flow of goods and services, financial capital, and knowledge across country borders. Globalization increases the range of opportunities of firms competing in the current competitive landscape. It is important for firms to understand that globalization has led to higher levels of performance standards in many competitive dimensions, including those of quality, cost, productivity, product introduction time, and operational efficiency. There are also risks such as liability of foreignness—the risks of participating outside of a firm’s domestic country in the global economy and the amount of time required for firms to learn how to compete in markets that are new to them. Technology-related trends and conditions can be placed into three categories: technology diffusion and disruptive technology, information age, and increasing knowledge intensity. Under these conditions, firms should fast respond to changes, increase the ability to effectively and efficiently access and use information, treat knowledge as a critical organizational resource for creating an intangible competitive advantage, and increase its strategic flexibility and organizational capacity to learn. 3. Use the industrial organization (I/O) model to explain how firms can earn above-average returns.
The core assumption of the I/O model is that the firm’s external environment has more of an influence on the choice of strategies than do the firm’s internal resources, capabilities, and core competencies., the I/O model is used to understand the effects an industry’s characteristics can have on a firm when deciding what strategy or strategies to use to compete against rivals. The logic supporting the I/O model suggests that above average returns are earned when the firm locates an attractive industry or part of an industry and successfully implements the strategy dictated by that industry’s characteristics. 1. Study the external environment, especially the industry environment 2. Locate an industry with high potential for above average...
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