438 Exam 2 Flashcards
What are the two biggest factors in distinguishing competitive strategy?
Company’s Market target is broad or narrow
Competitive advantage linked to lower costs or differentiation
Five Generic Competitive Strategies
Low-cost provider strategy
Broad differentiation strategy
Best-Cost provider
Focused (Market Niche) strategy based on low cost
Focused (Market Niche) strategey based on differentiaton
Successful low-cost leards are:
Exceptionally good at finding ways to drive costs out of their business
A low-cost Leader’s basis for competitive advantage is
lower overall costs than competitors
Two options for low-cost advantage
Use the lower-cost edge to underprice competitors
Content with market share, keep price
Two avenues for achieving a cost advantage
Do a better job performing value chain activities more cost effectively
Revamp firms overall value chain to eliminate or bypass cost-producing activities
How companies can revamp their value chain
Selling direct to consumers, cut out costs for distributors/retailers
Use Technologies/information systems that cut out value chain activities
Streamline operations by cutting low value-added work activities
Reduce shipping costs by locating supplier warehouses near facilities
Success in achieving a low-cost edge over rivals comes from
Out-managing rivals in finding ways to perform value chain activities faster, more accurately and more cost effictiantly
Reducing price does not lead to higher total profits unless
the incremental gain in total revenues exceeds the incremental increase in total costs
How do companies achieve a differentiating-based competitive advantage
Product or service whose attributes differ significantly from your rivals
Set of capabilities for delivering customer value that rivals do not have
lower buyer’s cost, raise product performance
Differentiation works best when
Many ways to differentiate and buys perceive the differences as having value
Buyers needs and uses are diverse
Few rival firms are following a similar differentiated approach
Technogical change is fast-paced
Best-cost provider stategies
Aim at giving customers value for the money by satisfying buyers expectations
Target market is value-conscious buyer
Best cost provider strategies work best when
Markets where product differentiation is normal and value-conscious buyers purchase midrange products
Risk of best-cost provider strategy?
Being squeezed between firms using low-cost and differentiation strategies
Focused Low-cost strategy
Serves buyers in the target market niche at a lower cost and price than rivals
Lowers cost by limiting customer base
Difference between low-cost and focused low-cost strategies is
The size of the buyer group the company is trying to appeal
Focused differentiation strategy
Securing a competitive advantage with a product designed to appeal to the unique preferences and needs of a narrowly defined group of buyers
Focused differentiation strategy: success depends on?
the existence of a buyer segment looking for special product attributes and firm’s ability to stand apart from rivals.
Four distinct facets of corporate strategy
Picking new industries to enter and how to enter
Boost combined performance
Leverage cross-business value chain relationships
Establishing investment priorities
Companies should diversify when?
Can expand to industries that complement its present business
Can leverage existing competencies
Can lead to decreased cost
Powerful brand name that can be transferred to the new products
In regards to diversification, how is success measured?
By adding long-term economic value
Attractiveness Test
Competitive conditions in industry will produce a profit
Cost of entry test
Costs less to enter industry than potential profits
Better-off Test
New business improves performance of existing businesses
Unrelated diversification
Contain no useful cross-business relationships, done through acquisitions
Related Diversification
Posses valuable cross-business value chain similarities
Perform better under corporate umbrella than alone
Strategic Fit: One or more activities of the value are similar
Combination of unrelated and related diversification
Dominant-Business enterprises
Narrowly diversified
Broadly diversified
Unrelated businesses
Evaluating Strategy of diversified company
Evaluate industry attractiveness and business-unit competitive strength
Check for cross business-unit competitive strength and cross-business strategic fits
Rank business units on performance and priority for resources
Craft new strategic moves
Five Strategies for strategic moves
Stick with present lineup Broaden the diversification base Retrench to narrow base Restructure Pursue multinational diversification
Stick with present lineup
When present businesses have growth potential
Broaden the diversification base to:
Acquire more businesses and build new positions
Retrench to narrow base when
Diversification strategy is too large
Focus resources on industry areas that are stronger performers
Restructure to
Sell off competitively weak businesses
Use cash from divestitures to make acquisitions in promising industries
Adjust internal strategies by altering organizational structure
Pursue multinational diversification
More businesses and more markets
Contains more competitive advantage potential
Business Ethics
Application of ethical principles to business and personnel
Ethical Universalism
Concepts of right or wrong are universal
Ethical Relativism
Religion, culture create multiple sets of standards for what is right and wrong
Integrative Social Contracts Theory
Middle Ground between universalism and relativism
Universal Ethical principles supersede local norms
Ethical standards of company should be based on
Limited set of universal ethical principles that are widely recognized
Local cultures, shared traditions and values
Three types of Managers
Moral Manager
Immoral Manager
Amoral Manager
Moral Manager
Higher standards of ethical behavior
Govern Own actions and actions of employees
Immoral Manager
No regard for ethical standards
Single Minded pursuit of company’s interests
Amoral manager
Operate within legal standards, but may not be ethical
Social Responsibility as it applies to business
Action to promote workforce diversity
Efforts to employ an ethical strategy & ethical principles
Making charitable donations
Actions to promote or enhance the Enviornment
Actions to create a workplace that enhances employee quality of life
Social responsibility strategy
Socially responsible endeavors a company elects to pursue
Custom-tailored strategy
How they do business and how they fulfill duties to stakeholders and society
Linking social performance targets to compensation
Incorporate measures to compensate emplotees for social responsibility
Builds culture of social responsibility
80% agree
Business case for social responsibilty
Generate internal benefits
Reduces risk of damaged reputation
best interest of shareholders
Offensive strategies
Improve market position or business performance
Use resource strengths to attack rival’s wekanesses
Types of Offensive Strategies: Offer equal or better product at
lower cost
Types of Offensive Strategies: Leapfrog by
Being first adopter of technology or first to market
Types of Offensive Strategies: Focusing on Innovation to
draw sales away from less innovative rivals
Types of Offensive Strategies: Adopting or Improving
on ideas of rivals
Types of Offensive Strategies: Attacking market where
rival makes large profits
Types of Offensive Strategies: Attack
Competitive weakness of rivals
Types of Offensive Strategies: Go around
Competitors and capture unoccupied markets
Types of Offensive Strategies: Hit and run Or
Guerrilla Tactics
Types of Offensive Strategies: Launch preemptive strike to
discourage rivals
Offensive Strategies: Choosing which rivals to attack
Market leaders that are vulnerable
Runner-up firms with weaknesses where challenger is strong
Struggling enterprises that are on the verge of going under
Small firms with limited capabilities
Defensive Strategies
Purposes are to lower risk of being attacked, weaken impact of attack, have rivals attack other firms
Blocking Challengers
Likelihood of retaliation
Website for distribution of information only
Used when distribution networks are strong
Reduce channel conflict
Website as minor distribution channel
Used when profit from online sales is greater than retail sales
Encourages buyer’s to go on website
Enables build-to-order manufacturing
One of several distribution channels
Bricks and Clicks
Expands geographic reach
Primary distribution channel
Buying product online has strong appeal
Look at delivering value to buyers
Outsourcing strategy
Farming out certain value chain activities to outside vendors
Vertical integration strategies
Extends competitive and operating scope within the same basic industry
Vertical Integration: Forward
Better access to end users
Better brand awareness
Direct sales and internet retailing may lower distribution costs
Costs advantage over rivals
Result in lower selling prices to end users
Vertical Integration: Backwards
Generates costs savings
Enhance companies technological capabilities
Vertical integration strategies: Disadvantages
Increase investment in industry= increase risk
Rely on own activities
Slower to meet preferences
Stuck with integration due to investment
Collaborative partnerships where two or more companies join forces to
Achieve mutually beneficial strategic outcomes
Strategic because:
Facilitate business objectives, build capabilities cover weaknesses, assist entry into markets, block threats
Advantages of Strategic Alliance and Partnerships
Facilitates mutual learning, cooperation and adaptation to change
Alliance in value chain activities= competitive advantage
Ingrease global presence and build foundation in future industry
Many strategic alliances and partnerships are short-lived or fail due to
Mutual learning ends, diverging objectives, can’t work together, better options, increased rivalry.
Merger
Pooling of equals with a newly created company
Acquisition
One company purchases and absorbs another company
First mover strategies
Helps build firm’s image with buyers
Early commitments can produce cost advantages
First-Time consumers face high cost of switching products
Constitutes a preemptive strike making imitation hard
First time customers remain loyal to pioneering firms
