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Exam One - Flashcards

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Class:BUS 496* - Strategic Management and Policy
Subject:Business Administration
University:University of Nevada - Las Vegas
Term:Fall 2010
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Strategy its the theory about how to gain competitive advantages
Good Strategy a strategy that actually generates such advantages
Strategic Management Process is a sequential set of analyses and choices that can increase the likelihood that a firm will choose a good strategy. 1. Mission 2. Objective 3. External Analysis/Internal Analysis 4. Strategic Choice 5. Strategy Implementation 6. Competitive Advantage
Mission is its long-term purpose. Defines both what a firm aspires to be in the long run and what it wants to avoid in the meantime. Written down in the form of a mission statement
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Objectives Specific measurable targets a firm can use to evaluate the extent to which it is realizing it mission.
External Analysis a firm identifies the critical threats and opportunities in its competitive environment. It also examines how competition in this environment is likely to evolve and what implications that evolution has for the threats an opportunities a firm is facing.
Internal Analysis helps a firm identify its organizational strengths and weaknesses
Business-level Strategies are actions firms take to gain competitive advantages in a single market or industry.
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Corporate-level strategies are actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously
Strategic Implementation occurs when a firm adopts organizational policies and practices that are consistent with its strategy
Competitive Advantage when a firm is able to create more economic value than rival firms
Economic Value the difference between the perceived benefits gained by a customer that purchases a firm's products or services and the full economic cost of these products or services.
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Temporary Competitive Advantage competitive advantage that lasts for a very short period of time
Sustained Competitive Advantage can last much longer than a temporary competitive advantage
Competitive Parity firms that create the same economic value as their rivals
Competitive Disadvantage firms that generate less economic value than their rivals
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Accounting Performance a measure of its competitive advantage calculated by using information from a firm's published profit and loss and balance sheet statements
Profitability Ratios ratios with some measure of profit in the numerator and some measure of firm size or assets in the denominator
Liquidity Ratios ratios that focus on the ability of a firm to meet its short-term financial obligations
Leverage Ratios ratios that focus on the level of a firm's financial flexibility, including its ability to obtain more debt
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Activity Ratios ratios that focus on the level of activity in a firm's business
Above Average Accounting Performance a firm earns this when its performance is greater than the industry average
Average Accounting Performance a firm earns this when its performance is equal to the industry average. These firms generally enjoy only competitive parity
Below Average Accounting Performance a firm earns this when its performance is less than the industry average. These firms generally experience competitive disadvantages.
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Cost of Capital is the rate of return that a firm promises to pay its suppliers of capital to induce them to invest in the firm.
Economic Measures of Competitive Advantage compare a firm's level of return to its cost of capital instead of the the average level of return in the industry.
Debt capital from banks and bondholders
Equity capital from individuals and institutions that purchase a firm's stock
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Cost of Debt is equal to the interest that firm must pay its debt holders (adjusted for taxes) in order to induce those debt holders to lend money to a firm.
Cost of Equity is equal to the rate of return a firm must promise its equity holders in order to induce these individuals and institutions to invest in a firm
Weighted Average Cost of Capital (WACC) is simply the percentage of a firm's total capital that is debt times the cost of debt plus the percentage of a firm's total capital that is equity times the cost of equity
Above Normal Economic Performance a firm that earns above its cost of capital is likely to be able to attract additional capital
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Normal Economic Performance a firm that earns its cost of capital
Below Normal Economic Performance implies that a firm's debt and equity holders will be looking for alternative ways to invest their money, someplace where they can earn at least what they expect to earn, that is, normal economic performance
Emergent Strategies are theories of how to gain competitive advantage in an industry that emerge over time or that have been radically reshaped once they are initially implemented
Definition
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 Strategyits the theory about how to gain competitive advantages
 Good Strategya strategy that actually generates such advantages
 Strategic Management Processis a sequential set of analyses and choices that can increase the likelihood that a firm will choose a good strategy.
1. Mission
2. Objective
3. External Analysis/Internal Analysis
4. Strategic Choice
5. Strategy Implementation
6. Competitive Advantage
 Missionis its long-term purpose. Defines both what a firm aspires to be in the long run and what it wants to avoid in the meantime. Written down in the form of a mission statement
 ObjectivesSpecific measurable targets a firm can use to evaluate the extent to which it is realizing it mission.
 External Analysisa firm identifies the critical threats and opportunities in its competitive environment. It also examines how competition in this environment is likely to evolve and what implications that evolution has for the threats an opportunities a firm is facing.
 Internal Analysishelps a firm identify its organizational strengths and weaknesses
 Business-level Strategiesare actions firms take to gain competitive advantages in a single market or industry.
 Corporate-level strategiesare actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously
 Strategic Implementationoccurs when a firm adopts organizational policies and practices that are consistent with its strategy
 Competitive Advantagewhen a firm is able to create more economic value than rival firms
 Economic Valuethe difference between the perceived benefits gained by a customer that purchases a firm's products or services and the full economic cost of these products or services.
 Temporary Competitive Advantagecompetitive advantage that lasts for a very short period of time
 Sustained Competitive Advantagecan last much longer than a temporary competitive advantage
 Competitive Parityfirms that create the same economic value as their rivals
 Competitive Disadvantagefirms that generate less economic value than their rivals
 Accounting Performancea measure of its competitive advantage calculated by using information from a firm's published profit and loss and balance sheet statements
 Profitability Ratiosratios with some measure of profit in the numerator and some measure of firm size or assets in the denominator
 Liquidity Ratiosratios that focus on the ability of a firm to meet its short-term financial obligations
 Leverage Ratiosratios that focus on the level of a firm's financial flexibility, including its ability to obtain more debt
 Activity Ratiosratios that focus on the level of activity in a firm's business
 Above Average Accounting Performancea firm earns this when its performance is greater than the industry average
 Average Accounting Performancea firm earns this when its performance is equal to the industry average. These firms generally enjoy only competitive parity
 Below Average Accounting Performancea firm earns this when its performance is less than the industry average. These firms generally experience competitive disadvantages.
 Cost of Capitalis the rate of return that a firm promises to pay its suppliers of capital to induce them to invest in the firm.
 Economic Measures of Competitive Advantagecompare a firm's level of return to its cost of capital instead of the the average level of return in the industry.
 Debtcapital from banks and bondholders
 Equitycapital from individuals and institutions that purchase a firm's stock
 Cost of Debtis equal to the interest that firm must pay its debt holders (adjusted for taxes) in order to induce those debt holders to lend money to a firm.
 Cost of Equityis equal to the rate of return a firm must promise its equity holders in order to induce these individuals and institutions to invest in a firm
 Weighted Average Cost of Capital (WACC)is simply the percentage of a firm's total capital that is debt times the cost of debt plus the percentage of a firm's total capital that is equity times the cost of equity
 Above Normal Economic Performancea firm that earns above its cost of capital is likely to be able to attract additional capital
 Normal Economic Performancea firm that earns its cost of capital
 Below Normal Economic Performanceimplies that a firm's debt and equity holders will be looking for alternative ways to invest their money, someplace where they can earn at least what they expect to earn, that is, normal economic performance
 Emergent Strategiesare theories of how to gain competitive advantage in an industry that emerge over time or that have been radically reshaped once they are initially implemented
  Definition
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