What Is Strategy

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ROIC= NOPAT/FONDOS PROPIOS + DEUDA FINANCIERA

EBIT= earnings before interest and taxes

For industry analysis strategist must consider some factors or attributes of the industry and how they affect the forces:

- Industry growth rate, it tends to mute rivalry because an expanding pie offers opportunities for all competitors, but also can put suppliers in a powerful position and with a low entry barrier will draw in entrants can come substitutes and give power to customers

- Technology and innovation

- Government, the policies affect the forces. The government is consider neither good or bad for industry profitability

- Complementary products and services, the benefits of two products combined is greater. Ex: software and hardware

The boundaries of an industry consist of 2 primary dimensions, the scope of product (oil industry is the same for cars and heavy tucks) and the geographic scope

Both can be reveal by the diferences or similarities between the productsa forces.

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Creating competitive advantage

A firm has competitive advantage if has a wide wedge between the willingness to pay among buyers and the costs it incurs. Willingness to pay (maximum amount of $ that a customer is willing to part with in order to obtain the product service) and supplier opportunity cost (the smallest amount that a supplier will accept for the services and resources required to produce a good or service). And can drive the firm to earn superior profits to its industry.

The C.A comes from an integrated set of choices about activities.

- Total value of the sale= willingness to pay - Supplier opportunity cost

- Value for the firm= negotiated price - cost

- Value for the buyer= willingness to pay - price

- Value for the supplier= Cost for the firm - supplier opportunity cost

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To create competitive advantage there are 2 ways:

- Added value (being unique, valuable and indispensable. Is the maximal value that could be created by all participants in a transaction minus the maximal value that could be created without the firm)

- Fit on the value chain, all its activities acting in harmony. An analyze of activities includes:

- Catalog activities (the value chain) to break down the firm into activities (primary, directly generate a good or service; and thew Support activities)

- Use activities to analyze relative costs: cost drivers are the factors that make the cost of an act. to rise or fall. It is important to focus on differences in individual activities, not just total costs

- Analyze how each activity in the value chain generates customer willingness to pay. If the firm does not sell directly (intermediaries) the willingness to pay depends on multiple parties. To analyze: 1. Think about who the real buyer is (eg, dippers); 2. Think what the buyer(s) want (basis of price, brand image, absortion, comfty, units per package); 3. Assess how successful they and competitors are at fulfilling customers needs.4. Relate differences in success in meeting customer needs back to activities (eg, brand image need: selection of material, invest in R&D, marketing). Needs satisfied by all competitors or that have little effect on customer choice can be ignored during the analysis.

- Changes in the firm´s activities that will widen the wedge between costs and willigness to pay, 1. Distill the escence of what drives each competitor, 2. Consider competitors reactions,, 3. Draw out not only one´s own value chain but also the value chain of one´s customer and suppliers and the linkages between the chains. 4 adjusting the scope of its operations, by changing the range of customers it serves or products it offers within an industry

To achieve C.A:

- Differentiation strategy: Devising a way to raise willingness to pay with only slight increase in costs

- Low cost strategy: large cost savings with only slight decreases in customers willingness to pay

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Competitor analysis: anticipating competitive actions

Is the process by wich a firm investigates its current and/or potential rivals for thew pupose of predicting the likely nature and significance of competitive actions and using these predictions to shape current decision-making

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Framing the decision, game theory. Is the study of the competitive interactions, trying to predit a competitor reaction because ones move and taking into consideration that reaction to making the real choice. Tents to maximize their finantial profits.

A dominant strategy happends when an action is always optimnal regardless of the choice of the player.

When sequential games happend is better to look forward and reason backward

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Deviations from “optimal” desicion-making. Behavioral theory. It recognized that firms like individuals, often have non-financial motives and deviate from profit maximizing bahavior in systematic ways. Maybe because some firms dont have the necessary information, time, willigness or ability to conduct a detailed analysis, some common behavioral limitations result from: representitiveness bias (because previous experiences, or few observations on the situation); overconfidence; confirmation bias (seek information to confirm what they believe, rather than seeking out counter-arguments)

Filling in the pieces: The analysis framework.

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- Future goals, provide insight into how likely they are to change strategy

- Assumptions, will guide th way firms behaves and how it reacts to events.

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