Malik Arnold
BUSI 690-D06
Rothaermel Exercise 1
Professor Wilson
Chapter 1
How is a strategy different from a business model? How is it similar?
Business model is a reflection of the firm’s realized strategy. A company’s business
model focuses on whether the revenues and costs flowing as a result of the business
strategy demonstrate business viability; whereas, the company’s business model is geared
more towards whether the revenue-cost-profit economics of its strategy demonstrate the
viability of the business enterprise as a whole. The field of strategy has evolved during
this new era; firms have learned to analyze their competitive environment by better
understanding their threats to sustaining an upper hand over them (Rothaermel, 2013).
Strategy relates broadly to its competitive initiatives and business approaches. Different
approaches including industrial organization and the game theory have helped
practitioners understand the way competition works and functions in the business
environment.
Why do you think Dell is keen on offering this service? What other firms use this
crowdsourcing technique? Where else might this type of business model show up in
the future?
Crowdsourcing is advantageous to many businesses in all areas of commerce because it
allows for work to be done by the consumer thus lowering the bottom line. It also ensures
before production that people like the design and thus will most likely buy it. One
company that did this was Frito-Lay with their Doritos “Crash The Super Bowl”
campaign where they allow the public to submit home made videos with a chance to win
super bowl tickets and cash prizes.
1.3 As noted in the chapter, research found that firm effects are more important
than industry effects. What does this mean? Can you think of situations where this
might not be true?
Even though firm effects are dominant, industry effects explain a significant portion of
the variance in firm-level performance. The firm effect is smaller than in previous
studies. The firm effect varies across the performance measures: firm effects are higher
for returns on assets than for profit margins (Rothaermel, 2013). The industry segment
effect is more independent of the dependent variable. The industry segment effect is in
line with previous studies on the strategic group effect.
Chapter 2
2.1 What characteristics does an effective mission statement have?
An effective mission statement should address only a company’s present business scope
and purpose. It should describe the “who we are, what we do, and why we are here”
(Rothaermel, 2013). The prime function of a mission statement is internal. It is meant to
define the key measure or measures of the organization's success. Its prime audience is
the leadership team and stockholders.
Chapter 3
3.1 Why is it important for an organization to study and understand its external
environment?
It is important for managers to understand the external business environment because it
can affect their firm and how it should be run. No business is insulated from the outside
environment because things like political decisions can have a huge impact on a firm by
changing tax laws or regulatory regimes. Managers must be aware of things like new
competitors entering their market. Managers must be aware of these sorts of changes in
order to stay competitive in the business environment. If managers are not aware of these
aspects of the environment that are external to their own firm, they may well be caught
unaware and unready for changes that affect their firms.
3.2 How do the five competitive forces in Porter’s model affect the profitability of
the overall industry? For example, in what way might weak forces increase industry
profits, and in what way do strong forces reduce industry profits?
The most profitable markets that contain high yield returns attract the most competition
towards their sector. The abnormal profit rate will trend towards zero unless the entry of
new firms can be blocked by the established entities (Rothaermel, 2013). The ways in
which Porter’s Five Competitive Forces affect profitability are as follows:
•
The existence of new products entering the market shrinks the customer
base for the current products by offering alternatives. This could
ultimately lead to consumers discovering a lack of need for the market
altogether. For example, introduction to E-cigarettes has led some tobacco
companies to face a decrease in sales due to the alternative health factor e-
cigs have on the smoker.
•
If the customer has a lack of need for a product or alternatives, then the
need dries up and thus the market is reduced (Customer Bargaining
Power).
•
Suppliers can affect an entire industry and its profits by controlling the
flow of product, increasing prices, reducing quality and more. If there are
no alternatives for sourcing an item, suppliers have a huge amount of
leverage (Supplier Bargaining Power).
•
An increase in the intensity of a product’s competition can also be a
determining factor that affects probability. For most industries, the
intensity of competitive rivalry is the major determinant of the
competitiveness of the industry. The more competition there is, the less
share of market that everyone has, which means less profits.
Chapter 4
4.1 Why is it important to study the internal resources, capabilities, and activities of
firms? What insights can be gained?
It is important for a firm to study internal resources, capabilities and activities in order to
analyze where its core competency lies and where it is weak. This analysis ultimately can
tell where the company has strengths over rivals and where it does not. Resources are the
assets of an organization and are thus considered as the basic building blocks of any
organization. Resources can include tangible assets, human assets and intangible assets.
Capabilities refer to an organization’s ability to exploit its resources (Rothaermel, 2013).
A capability is based on functions and is always present in a particular function. A
capability might be a marketing, manufacturing or human resource capability. When an
organization constantly changes these capabilities to make them more adaptive to the
environment, they are termed dynamic capabilities (Rothaermel, 2013). On the contrary,
a core competency for a firm occurs when a collection of competencies crosses divisional
boundaries, is present within the organization and is something that the organization has
superiority in.
4.2 List the major dynamic capabilities that enabled IBM to make this change. Can
you think of other firms that have been successful at a major transition such as this?
Dynamic Capabilities: adapting to new technology, new assets, transformation of existing
assets, co-specialization and asset orchestration. Another company that has transitioned
like IBM was Insignia; which has now gone from producing only electronics to home
appliances and furniture.
4.3 Are these measures independent or interdependent? Explain. If (some of) the
measures are interdependent, what implications does that fact have for managers
wanting to create and sustain a competitive advantage?
The Four criteria used to evaluate core competency of particular resources: Valuable,
Rare, Costly to Imitate and Non-substitutable. These measures are interdependent
amongst each other and cause firms to fluctuate profitability. If a firm’s product has all
four criteria then the profit of the company is generally at a high level. However, when
any one of the four is missing the product becomes more likely to receive competition
and thus, profit decreases. If all four are missing then profit is not likely to occur for the
company or business.
Chapter 5
5.1 Create a balanced scorecard for the business school at your university. You
might start by looking at your school’s web page for a mission or vision statement.
•
How Do Customers View Us?
The customers of this company are the students who attend undergraduate,
graduate and vocational training in their programs. Due to the fact that Liberty is
a notable school in the United States, customers could also be any visiting
professions networking through the university for special collaborations or
events. Customers have rated this school high on their list of universities to
attend and it is now one of the nation’s largest private, non-profit universities in
the country.
•
How Do We Create Value?
Liberty creates value through developing Christ-centered men and women with
the knowledge and skills essential to be successful in the world today. Our
university offers a large selection of residential and online programs and services
that educate the students in fulfilling their purpose in the working world, as well
as a Christian and follower of Jesus Christ.
•
What Core Competencies Do We Need?
Liberty has vowed to ensure competency in scholarship, research and
professional communication in all graduate and undergraduate programs offered
in its curriculum. Centered on a Christian worldview, the university aids in the
maturing of one’s values, spiritual, intellectual and social behavior. Christian
competencies include social responsibility and active communication of the
Christian faith, as well as living your life according to God’s scripture.
•
How Do Shareholders View Us?
Since Liberty University is a non-profit organization, it does not distribute
surplus funds to owners and shareholders. Although the university may possess
unique shareholder agreements, it uses most of its funds to reinvest in
technological advancements and services within for the customers.
5.2 In the electronics retail industry, Circuit city filed for bankruptcy in the spring
of 2009, but Best Buy continues on. (See Chapter Case 4, page 85) Financial data
for Best Buy and circuit City are provided in the table on the next page. Using the
financial ratios presented in Table 1 in the “How to Conduct a Case analysis”
module (at the end of the book, p. 390):
•
Calculate some of the key profitability, activity, leverage, liquidity, and
market ratios for Best Buy and Circuit City.
Tax rate = 36.61
Gross margin = 22.85
Leverage = 3.52
Best buys shows a consistent trend in annual revenue and sales year to year.
•
Can you find signs of performance differentials between these two firms that
may have indicated problems at Circuit City in 2007?
Circuit city reported a decrease in revenue from $2.64 billon to $2.39 billion,
increased gross margin of 21.29% from 20.65% a year earlier, and an increase in
net loss from $63M a year before to 239M.
References
Rothaermel, F. T. (2013). Strategic management concepts and cases. New York,
NY: McGraw-Hill. ISBN: 9780073535166.
