Badm 449 Study Guide for Exam #1

BADM 449 Study Guide for Exam #1

Chapter 1

• What is competitive advantage? What is sustainable competitive advantage?

1. Competitive advantage is always relative, not absolute. A firm that achieves superior performance relative to other competitors in the same industry or the industry average has a competitive advantage.
2. A firm that is able to outperform its competitors or the industry average over a prolonged period of time has a sustainable competitive advantage.

• In determining differential economic performance, what are industry effects and what are firm effects? What approximate percentage of the variance does each effect explain?

Firm performance is determined primarily by two factors: industry and firm effects.

1) Industry effects are the underlying economic structure of the industry. They attribute firm performance to the industry in which the firm competes. About 20% of the profitability depends on the industry the firm is in.

2)Firm effects attribute firm performance to actions managers take. A firm’s strategy can explain up to 55% of its performance.

Other effects (business cycle effects, unexplained variance) explains about 25%.

• Define and discuss corporate-, business-, and functional-level strategy.

Corporate-level strategy concerns questions relating to where to compete in terms of industry, markets and geography.

Business-level strategy concerns questions of how to compete. Three generic business strategies are available: cost leadership, differentiation, or value innovation.

Functional-level strategy concerns the question of how to implement a chosen business strategy.

• Discuss “black swan events” and their importance for business.

1. Black swan events are highly improbable but high-impact events.

Example: fall of the Berlin Wall, 911 terrorist attack, Arab Spring.

1. It is unfavorable for business because it makes difficult to companies to predict such events. It is not desirable to be not able to predict something.
2. Trust between corporations and society have deteriorated because of black swans (Accounting scandals like Enron, WorldCom).
3. Managerial actions can affect the well-being of people around the globe. 

• Most black swan events result from executive actions (or inactions)

• Describe the stakeholder view of strategic management. Who are the external stakeholders? Who are the internal stakeholders?

Stakeholders are individuals and groups who can affect or are affected by the strategic outcomes achieved and who have enforceable claims on a firm’s performance.  External stakeholders include customers, suppliers, alliance partners, creditors, unions, governments, media. Internal stakeholders are employees, stockholders, board members.

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