CH2: Industry-Based Approach

 Define industry competition.

Industry competition refers to the rivalry between companies within the same industry
that offer similar products or services to the same market. In a competitive industry,
businesses strive to outperform one another by offering better quality products, better
customer service, and more competitive pricing. This can lead to various strategies such
as cost-cutting, product differentiation, and aggressive marketing tactics, all aimed at
gaining a larger market share. The intensity of competition in an industry can be
affected by factors such as the number of competitors, the level of innovation in the
industry, the barriers to entry, and the bargaining power of suppliers and buyers.

 Analyze an industry using the five forces framework.

The Five Forces Framework is a business analysis tool to evaluate the competitive forces shaping an
industry. It helps to identify the attractiveness and profitability of an industry by considering five key
forces:

a. Threat of new entrants

b. Bargaining power of suppliers
c. Bargaining power of buyers
d. Threat of substitute products or services
e. Rivalry among existing competitors

Let's analyze the airline industry using the Five Forces Framework:

f. Threat of new entrants: The airline industry has high barriers to entry due to
significant capital requirements to purchase and maintain aircraft, complex
regulatory requirements, and the need for substantial marketing and advertising
expenses. As a result, the threat of new entrants is relatively low.
g. Bargaining power of suppliers: Aircraft manufacturers and fuel suppliers hold
significant bargaining power in the airline industry. There are few dominant aircraft
manufacturers, and the cost of aircraft and related components is relatively high.
Similarly, the price of fuel is volatile, and airlines have little control over it.
Therefore, the bargaining power of suppliers is high.
h. Bargaining power of buyers: Buyers in the airline industry, such as passengers and
travel agents, have relatively low bargaining power. They are price-sensitive and
have a wide range of options to choose from, but switching costs are relatively high.
Therefore, the bargaining power of buyers is moderate.
i. Threat of substitute products or services : There are few substitutes for air travel,
making the threat of substitution low. However, other modes of transportation such
as trains and buses can be used as alternatives for shorter distances.
j. Rivalry among existing competitors: The airline industry is highly competitive, with
many established airlines competing for market share. Competition is primarily
based on price, routes, and customer service. The high fixed costs of the airline
 industry mean that airlines must maintain high load factors to remain profitable.
Therefore, rivalry among existing competitors is high.

 Articulate the three generic strategies.

The three generic strategies, as identified by Michael Porter, are cost leadership,
differentiation, and focus strategy:
a. Cost Leadership Strategy: The cost leadership strategy aims to become the lowest-
cost producer in the industry. Companies that pursue this strategy seek to produce
goods or services at the lowest cost possible while maintaining acceptable levels of
quality. This strategy often involves economies of scale, tight cost controls, and
efficient production processes. By offering lower prices, companies can attract price-
sensitive customers and gain a competitive advantage in the market.

b. Differentiation Strategy: The differentiation strategy aims to create a unique and

desirable product or service that is perceived as different from the competition.
Companies that pursue this strategy invest in research and development, product
design, and marketing to create a differentiated product. This strategy often allows
companies to charge premium prices and attract customers who value unique
features or attributes.

c. Focus Strategy: The focus strategy aims to concentrate on a narrow segment of the
market and tailor products or services to meet the specific needs of that segment.
Companies that pursue this strategy often have a deep understanding of the needs
and preferences of their target customers. This strategy often involves selecting a
particular customer group, geographic market, or product line and dedicating all
resources to serving that niche effectively. By focusing on a narrow segment,
companies can often achieve a competitive advantage and earn higher profits.

 Understand the six leading debates concerning the industry-based view.

The industry-based view is a perspective in strategic management that focuses on the external
environment of a firm and emphasizes the importance of the industry and its characteristics in shaping
firm strategy and performance. There are six leading debates concerning the industry-based view:

a. The impact of industry structure on firm performance : This debate centers on the
question of whether the structure of the industry, including factors such as the
number and size of competitors and barriers to entry, has a direct impact on firm
performance. Some scholars argue that a favorable industry structure is necessary
for firm success, while others suggest that strategic actions and decisions can
overcome industry structure.
b. The role of firm resources and capabilities in industry performance : This debate
focuses on the relative importance of firm-specific resources and capabilities
compared to industry factors in determining firm performance. Some scholars argue
that industry factors are more important, while others suggest that a firm's unique
resources and capabilities are the key determinants of success.
 c. The relationship between industry dynamism and firm strategy : This debate centers
on the relationship between industry dynamism, or the rate and direction of change
in the industry, and firm strategy. Some scholars argue that firms in dynamic
industries must be flexible and adaptable in their strategy, while others suggest that
stability and consistency are key to success.
d. The role of innovation in industry evolution: This debate focuses on the role of
innovation in industry evolution and its impact on firm strategy and performance.
Some scholars argue that innovation is a key driver of industry evolution and that
firms must continually innovate to remain competitive, while others suggest that
imitation and incremental improvements can also lead to success.
e. The impact of globalization on industry dynamics : This debate centers on the impact
of globalization, or the increasing interconnectedness of markets and economies, on
industry dynamics. Some scholars argue that globalization has led to increased
competition and volatility in many industries, while others suggest that it has
created new opportunities for firms to expand into new markets and access new
resources.
f. The relationship between institutional factors and industry evolution : This debate
focuses on the role of institutional factors, such as government regulation and
cultural norms, in shaping industry evolution. Some scholars argue that institutional
factors can have a significant impact on industry structure and dynamics, while
others suggest that they are less important than industry-specific factors.

5. Draw strategic implications for action.

Drawing strategic implications for action is an important step in strategic management, as it helps firms
to translate strategic insights into concrete actions that can be taken to achieve their goals. Here are
some general strategic implications for action that can be applied across various industries and contexts:

 Focus on customer needs and preferences: To succeed in any industry, firms must
understand the needs and preferences of their customers and tailor their products or
services to meet those needs. This may involve investing in market research, customer
feedback mechanisms, and product design and development processes that are customer
focused.
 Leverage firm-specific resources and capabilities : Firms that have unique resources and
capabilities can use these to their advantage in developing a competitive advantage. This
may involve investing in human capital, technology, or proprietary processes that are
difficult for competitors to imitate.
 Monitor industry trends and anticipate change : To stay ahead of the competition, firms
must stay abreast of industry trends and anticipate changes that may have an impact on
their business. This may involve investing in market research and analysis, scenario planning
exercises, and strategic foresight initiatives.
 Build strategic partnerships and alliances: Firms can leverage strategic partnerships and
alliances to access new resources, expand their market reach, and achieve economies of
scale. This may involve developing relationships with suppliers, customers, or other firms in
the industry.
  Invest in innovation and R&D: Firms that invest in innovation and R&D can develop new
products or services that differentiate them from their competitors and provide a
competitive advantage. This may involve dedicating resources to a dedicated R&D
department, partnering with universities or research institutions, or creating an innovation
culture within the organization.
 Focus on cost management and efficiency : To achieve a cost leadership strategy, firms must
focus on cost management and efficiency in their operations. This may involve streamlining
processes, reducing waste, and leveraging economies of scale to achieve cost savings.
 Emphasize corporate social responsibility and sustainability : Firms that emphasize corporate
social responsibility and sustainability can differentiate themselves from their competitors
and appeal to customers who value ethical and environmentally conscious business
practices. This may involve implementing sustainable business practices, reducing carbon
emissions, and investing in social and environmental initiatives.

CH3: Resource-Based Approach Leveraging Resources and Capabilities

1. Explain what firm resources and capabilities are.

In strategic management, the terms "firm resources" and "capabilities" refer to the assets, skills, and
knowledge that a firm possesses and can leverage to achieve its strategic goals. These resources and
capabilities are the building blocks of a firm's competitive advantage and help to differentiate the
firm from its competitors.

 Firm resources can be tangible (financial, physical, technological) or intangible assets

(human capital, innovation, reputation) that a firm owns or controls. Tangible resources are
physical assets that can be seen and touched, such as buildings, equipment, and inventory,
while intangible resources are assets that are not physical, such as brand reputation,
patents, and organizational culture.
 Capabilities, on the other hand, refer to a firm's ability to perform specific activities or tasks,
often based on a combination of resources. Capabilities are often developed through
experience and practice, and they can be difficult for competitors to replicate. Some
examples of capabilities might include superior product design, effective supply chain
management, or strong customer service.

Firm resources and capabilities are the building blocks of a firm's competitive advantage, and they
can be leveraged to achieve strategic goals and differentiate the firm from its competitors. By
understanding their unique resources and capabilities, firms can develop effective strategies that
capitalize on their strengths and overcome their weaknesses.

2. Undertake a basic SWOT analysis along the value chain.

By conducting a SWOT analysis along the value chain, firms can identify specific areas of the
business where they have competitive advantages or face challenges and use this information to
develop effective strategies.
- Inbound logistics
Strengths: Strong relationships with suppliers, efficient procurement processes, access to
high-quality inputs.
Weaknesses: Dependence on a small number of suppliers, vulnerability to supply chain
disruptions, high procurement costs.
Opportunities: Developing new relationships with suppliers, exploring alternative sourcing
options, implementing technology to improve supply chain visibility and efficiency.
Threats: Fluctuating input prices, changes in regulations or tariffs affecting imports, competitive
pressures on suppliers.

- Operations
Strengths: Efficient production processes, strong manufacturing capabilities, effective quality
control measures.
Weaknesses: Aging equipment, limited production capacity, reliance on outdated technology.
Opportunities: Investing in new technology and equipment, increasing production capacity,
improving process efficiencies.
Threats: Competitive pressures on price and quality, changing customer preferences, disruptions
to production due to equipment failure or labor strikes.

- Outbound logistics
Strengths: Efficient distribution channels, strong relationships with customers, effective order
fulfillment processes.
Weaknesses: Limited distribution capabilities, high transportation costs, insufficient inventory
management.
Opportunities: Expanding distribution channels, optimizing transportation routes, implementing
inventory management software.
Threats: Competitive pressures on pricing and delivery speed, changing customer preferences,
disruptions to distribution channels due to weather or natural disasters.

- Marketing and sales

Strengths: Strong brand reputation, effective marketing campaigns, diverse product offerings.
Weaknesses: Limited market share, low customer retention rates, ineffective pricing strategies.
Opportunities: Increasing market share through targeted marketing and advertising, developing
customer loyalty programs, implementing dynamic pricing strategies.
Threats: Increasing competition from established and emerging competitors, changing
consumer preferences and trends, economic downturns affecting consumer spending.

- Service
Strengths: Strong customer service capabilities, effective after-sales support, efficient warranty
management processes.
Weaknesses: Limited service offerings, insufficient customer feedback mechanisms, high service
costs.
Opportunities: Expanding service offerings, implementing customer feedback mechanisms,
improving service efficiency.
Threats: Increasing customer expectations for service quality and speed, competitive pressures
on pricing, negative word-of-mouth or online reviews.
3. Decide whether to keep an activity in house or outsource it.
- Core competencies: Does the activity fall within the firm's core competencies and
strategic focus? If it does, it may be more advantageous to keep it in-house to maintain
control over quality and innovation. However, if the activity is not essential to the firm's
core business, outsourcing it may be a viable option.
- Cost: Can the activity be performed more cost-effectively by an outside provider?
Outsourcing may be a cost-effective option if the firm can leverage the provider's
economies of scale, expertise, and technology to achieve cost savings.
- Quality control: Can the firm ensure consistent quality and reliability if the activity is
outsourced? Maintaining control over quality and reliability may be more challenging if
the activity is outsourced, but the firm can work with the provider to establish clear
quality standards and metrics.
- Risk management: Does outsourcing the activity pose any significant risks to the firm's
operations or reputation? The firm should consider potential risks such as security
breaches, intellectual property theft, or supply chain disruptions, and develop
contingency plans to mitigate them.
- Capacity utilization: Does the activity require specialized skills or equipment that are not
fully utilized in-house? Outsourcing may be an attractive option if the firm can free up
resources and capacity by outsourcing non-core activities.
- Cultural fit: Does the outsourcing provider's culture and values align with the firm's? It is
important to work with a provider who shares the firm's values and can effectively
collaborate with the firm's internal teams.
4. The VRIO framework on resources and capabilities.
- Value: Resources and capabilities that are valuable can help a firm achieve a competitive
advantage. To determine if a resource or capability is valuable, firms must ask
themselves whether it enables them to exploit an opportunity or offset a threat in the
market.
- Rarity: Rare resources and capabilities are those that are not widely available in the
market. If a resource or capability is rare, it can provide a competitive advantage to the
firm that possesses it.
- Imitability: Imitability refers to the degree to which competitors can replicate a firm's
resources and capabilities. Resources and capabilities that are difficult to imitate can
help a firm achieve a sustained competitive advantage.
- Organization: Finally, an organization refers to the degree to which a firm's resources
and capabilities are aligned with its strategy, structure, and culture. If a firm's resources
and capabilities are well organized, they can be leveraged to achieve a competitive
advantage.
5. The resource- based view debates:
- The resource-based view (RBV) is a theory in strategic management that suggests that a
firm's resources and capabilities are the primary drivers of its sustained competitive
advantage. Here are four leading debates concerning the RBV:
- Resource-based view vs. Industry-based view : One debate in the RBV literature centers
on whether a firm's internal resources and capabilities are more important than
external factors such as industry structure and competitive forces. While proponents of
 the RBV argue that a firm's resources and capabilities are its key sources of competitive
advantage, critics argue that industry structure and market forces can constrain a firm's
strategic options.
- Resource heterogeneity vs. Resource immobility : Another debate concerns the degree
to which resources and capabilities are heterogeneous (i.e., unique to the firm) and
immobile (i.e., difficult to transfer to other firms). While the RBV suggests that firms can
achieve sustained competitive advantage by leveraging their unique resources and
capabilities, critics argue that these resources and capabilities may not be as rare or
difficult to imitate as proponents of the RBV suggest.
- Tangible vs. Intangible resources: A third debate concerns the relative importance of
tangible (e.g., physical assets, financial resources) vs. intangible (e.g., organizational
culture, knowledge, brand reputation) resources and capabilities. While proponents of
the RBV argue that intangible resources and capabilities are key drivers of competitive
advantage, critics argue that tangible resources such as capital and infrastructure are
equally important.

CH9: Diversifying, Acquiring, and Restructuring

1. Define product diversification and geographic diversification.

- Product diversification refers to the strategy of expanding a company's product line or
developing new products to serve different markets or customer segments. The goal of
product diversification is to increase the company's revenue and market share by
offering a wider range of products that appeal to a broader customer base. Product
diversification can take the form of related diversification, where the company enters
new markets that are related to its existing products, or unrelated diversification, where
the company enters new markets that are unrelated to its existing products.

- Geographic diversification, on the other hand, refers to the strategy of expanding a

company's operations into new geographic regions or countries. The goal of geographic
diversification is to increase the company's revenue and market share by accessing new
customers and markets that may have different needs and preferences. Geographic
diversification can help a company reduce its dependence on a single market or country
and spread its risk across multiple markets.

2. Articulate a comprehensive model of diversification.

- Motivations for Diversification: The first step in the diversification process is to identify
the motivations behind it. These can include reducing risk by spreading it across
different businesses, increasing revenue and profitability by entering new markets, or
gaining synergies by sharing resources and capabilities across different businesses.

- Types of Diversification: Diversification can take different forms, such as related or

unrelated diversification. Related diversification involves entering into businesses that
are related to the firm's existing businesses. Unrelated diversification, on the other
hand, involves entering into businesses that are not related to the firm's existing
businesses.
 - Evaluation of Alternatives: Once the motivations and types of diversification have been
identified, firms must evaluate the different alternatives. This involves analyzing the
attractiveness of different industries, the potential synergies and risks of entering those
industries, and the firm's existing capabilities and resources.

- Acquisition or Internal Development: After evaluating the different alternatives, firms

must decide whether to pursue diversification through acquisition or internal
development. Acquisition involves buying an existing business, while internal
development involves developing a new business from scratch. Each option has its own
advantages and disadvantages, and the choice will depend on the firm's specific
situation.

- Integration and Management: After the decision has been made to pursue
diversification, firms must integrate the new business into their existing operations and
manage the new business effectively. This involves developing new processes and
systems, managing the cultural differences between the new and existing businesses,
and ensuring that the new business is aligned with the firm's overall strategic goals.

- Monitoring and Evaluation: Finally, firms must continuously monitor and evaluate the
performance of the new business. This involves setting performance targets, tracking
progress towards those targets, and adjusting as needed. Firms must also be prepared
to exit the new business if it is not performing as expected.

3. Some of the common motives for acquisitions include:

- Synergy: Acquisitions can create synergy by combining the resources and capabilities of
the two companies. This can result in increased efficiencies and cost savings.
- Diversification: Acquisitions can help companies diversify their business portfolio by
entering into new markets or industries.
- Market Power: Acquisitions can help companies increase their market power by
consolidating their position in the market.
- Technology: Acquisitions can help companies acquire new technologies and capabilities
that can be leveraged across their existing businesses.
- Talent: Acquisitions can help companies acquire talented employees who can contribute
to the growth and success of the company.

Performance of Acquisitions:
- Acquisitions can be a risky strategy and their performance can vary widely depending on
various factors. Some of the common factors that can impact the performance of
acquisitions include:
- Integration: The integration of the acquired company with the existing business is a
critical factor in determining the success of the acquisition. Poor integration can lead to
cultural clashes, communication breakdowns, and other operational issues.
- Valuation: Overpaying for the acquired company can result in a negative impact on the
acquiring company's financial performance. It is important to ensure that the acquisition
is priced correctly to achieve the desired financial results.
- Strategic Fit: The strategic fit between the acquired company and the acquiring
company is crucial in determining the success of the acquisition. The acquired company
should complement the acquiring company's existing businesses and be aligned with its
strategic objectives.
- Market Conditions: The economic and market conditions at the time of the acquisition
can impact its performance. If the market conditions change significantly, the acquired
company may not perform as expected.
- Regulatory Environment: Regulatory changes can impact the performance of the
acquisition. For example, changes in antitrust regulations can impact the acquiring
company's ability to consolidate its position in the market.