SMDM Chapter 1 Review

Returns in excess of what an investor expects to earn from other investments with a similar amount of risk

An investor's uncertainty about the economic gains or losses that will result from a particular investment.

Often measured in terms of accounting figures, such as return on assets, return on equity, or return on sales. Alternately, returns can be measured on the basis of stock market returns, such as monthly returns.

Full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns

1. Strategic Inputs: External Env., Internal Organization, Vision/Mission
2. Strategic Actions: Strategy Formulation and Strategy Implementation
3. Strategic Outcomes: Strategic Competitiveness Above-Average Returns (feedback)

1. The Global Economy
2. Rapid Technology Changes

Is one in which goods, services, people, skills, and ideas move freely across geographic borders.
-Globalization is the increasing economic interdependence among countries and their orgs as reflected in the flow of goods and services, financial capital, and knowledge across country borders.
-Globalization leads to higher performance standards in many competitive dimensions
-EU is the world's largest single market
-Emerging competitive forces = BRIC

3 Categories:
1) Technology Diffusion and Disruptive Technologies
2) The Information Age
3) Increasing Knowledge Intensity

Technologies that destroy the value of an existing technology and create new markets

-Can create new industry or can harm industry incumbents
-Examples: iPods, PDAs, WiFi, and the browser
-When disruptive techs create a new industry, competitors follow

A term often used to capture the realities of the competitive landscape. Under conditions of the hypercompetition, assumptions of market stability are replaced by notions of inherent instability and change.
Hypercompetition results from the dynamics of strategic maneuvering among global and innovative combatants.
-Firms aggressively challenge their competitors in the hopes of improving their competitive position and ultimately their performance.

Explains the external environment's dominant influence on a firm's strategic actions. The model specifies that the industry in which a company chooses to compete has a stronger influence on performance than do the choices managers make inside their orgs.
-I/O Model challenges firms to locate the most attractive industry in which to compete

1. External environment imposes pressures and constraints that determine the strategies resulting in above-avereage returns (AAR)
2. Most firms competing within an industry or a certain segment of that industry are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources
3. Resources for implementing strategies are highly mobile across firms
4. Organizational decision makers are assumed to be rational and committed to acting in the firm's best interests, as shown by their profit-maximizing behaviors

Suggests that an industry's profitability is a function of interactions among 5 forces:
1) Suppliers, 2) Buyers, 3) Competitive Rivalry, 4) Substitutes, 5) Potential Entrants
-Determines industry's profit potential and the strategy necessary to establish a defensible competitive position

Basic Premise: A firm's unique and internal resources and capabilities, in combination is the basis for firm strategy and AAR

Underlying Assumptions:
1. Differences in firms' performances across time are due primarily to their unique resources and capabilities rather than to the industry's structural characteristics
2. Firms acquire different resources and develop unique capabilities based on how they combine and use resources; uniqueness should define firms' strategic actions
3. Resources are both tangible and intangible