Business Strategies

Question 1

purpose of business strategies

Answer 1

gain (or maintain) competitive advantage through business units –> enables implementaton of corporate strategy

Question 2

what is the difference between SBA and SBU?

Answer 2

SBA = group of products (similar in content), has its own characteristics only
SBU = organisational unit, has its own management, business functions (at least some)

Question 3

define the term business strategy

Answer 3

= a set of commitments a SBU takes to gain (or maintain) strategic advantage

Question 4

what are the two possibilities of CA influence on compan’s performance?

Answer 4

1: sources of CA have direct influence
2: sources of CA are defined in a form (e.g. cost-based, differentiation etc.) and only then influences the performance

Question 5

from which perspective are the CA forms analysed?

Answer 5

the customers.

the firm can only observe behaviour and not engage -> prob the most objective

Question 6

state the classification of forms of competitive advantage

Answer 6

1. lower price (than competitiors)
2. differentiation (extra value over competitors)
   - — a. product or service (functionality, extra features, durability, realiability, accordance with standards, practicability of repairs, aesthethics, percieved quality)
   - — b. totality of supply (the whole package vs going to multiple stores)
   - —- c. speed (delivery)
   - —- d. flexibility (customisation)
   - —- e. positive image (past strategic advantages that don’t exist anymore)

Question 7

why is ‘lower price’ and not ‘lower costs’ in terms of forms of comp. adv.?

Answer 7

because it’s the customer’s perspective, not the company’s

Question 8

could a company sustainabily follow both forms of competitive advantage?

Answer 8

only in short term situations (e.g. tech breakthrough). porter says 90% of cases are unsuccessful (not flexible enough).

Question 9

state the two schools regarding the sources of competitive advantage. what do they disagree on?

Answer 9

where to start the analysis: inside or outside (analysis of env., finding a spot VS analysis of resources, finding a place on the market)

1. external (industrial-organisation based)
   - —- classical variety (Mason, Bain)
   - —- new variety (Porter)
2. internal
   - — resource-based (Penrose, Barney, Wernerfelt)
   - — capability-based (Evans, Lado, Boyd)
   - — knowledge-based (Demarest, Edvinsson)

Question 10

define the approach of the external school (sources of competitive advantage) and define the S-C-P model

Answer 10

outside-in

1. STRUCTURE: industry analysis (porters 5F) + general env. analysis (___) = company environment
2. CONDUCT: value chain analysis + analysis of cost drivers + analysis of differentiation drivers = corporate strategy
3. PERFORMANCE: competitive advantage and good company’s performance

Question 11

which part of the S-C-P model did the classical variety skip a lot?

Answer 11

conduct (how should we adapt the company to external factors so it will succeed?)

Question 12

state the classification of business strategies (6)

Answer 12

• generic BS
• BS based on portfolio matrix
• BS based on product life-cycle
• BS based on attitude towards cooperation
• BS based on attitude towards innovation
• BS based on attitude towards competitors

Question 13

why are generic BS called that?

Answer 13

because they are generally applicable (in all situations)

Question 14

what does broad or narrow competitive scope mean?

Answer 14

broad = SBU has many customer segments
narrow = SBU has one/few customer segments and intentionally serves only them

Question 15

define the generic strategy matrix

Answer 15

broad comp. scope + lower cost = cost leadership
broad comp. scope + differentiation = differentiation
narrow comp. scope + lower cost = focused cost leadership
narrow comp. scope + differentiation = focused differentation

Question 16

which competitive advantages (from which point in time) are used in the generic strategy matrix?

Answer 16

from right now - your current competitive advantage determines your future business strategy

Question 17

define the term cost leadership strategy

Answer 17

= a set of actions that ensure the lowest price possible for the final product

Question 18

what are the general requirements of the cost leadership strategy? (4)

Answer 18

1. higher efficiency than competitors
2. cost reduction wherever possible
3. standardisation
4. broad mass market (economies of scale)

Question 19

what are the risks of the cost leadership strategy? (4)

Answer 19

1. less customer loyalty
2. obsolete processes due to competitors’ inventions
3. easily imitated
4. focused cost leadership gets even lower costs+prices in particular segments

Question 20

define the term differentiation strategy

Answer 20

= a set of actions that ensure that the final product is percieved (by customers) as fundamentally different than others (at a reasonable cost!)

Question 21

what are the general requirements of the differentiation strategy? (4)

Answer 21

1. unique and superior value of products
2. lower customer sensitivity to price
3. relative non-standardisation
4. broad mass market (economies of scale)

Question 22

what are the risks of the differentiation strategy? (4)

Answer 22

1. price difference (with cost leader) could become too high
2. adaptation could lower or diminish perception of differentiation
3. possible imitation
4. focused differentiation gets even higher results

Question 23

define the term focus strategy

Answer 23

= a set of actions that ensure the product serves a very particular segment (e.g. geographical, DIY vs professional, generations)

Question 24

what factors drive focus strategies? (4)

Answer 24

1. overlooked small niche (by bigger companies)
2. lack of resources to compete bigger
3. higher efficiency with serving a smaller market
4. more focus on one particular activity increases the chances of it being a competitive advantage

Question 25

what are the competitive risks of focus strategies? (4)

Answer 25

1. new focusers further segment the segment
2. target segment becomes unattractive (structure erodes / demand disappears)
3. broadly targeted competitors overwhelm the segment
4. may be ‘outfocused’ by competitors

Question 26

what is an example of a focused cost leadership strategy?

Answer 26

ikea, which is focused on lower prices for young families

Question 27

what are the requirements for a company to implement an integrated cost/differentiation strategy?

Answer 27

• flexibility (information system, manufacturing system, total quality management system)
• quick learning of skills and techs
• effective in leveraging internal factors

Question 28

what is the risk of having an integrated cost/differentiation strategy?

Answer 28

• impossible compromises
• becoming stuck in the middle (for about 95% of companies) = becoming neither the lowest cost nor the highest differentiated company

Question 29

define the four strategies based on the portfolio mix

Answer 29

1. investment strategy (for stars)
2. selective investment strategy (for question marks)
3. milking strategy (for cash cows)
4. divestment strategy (for dogs)

Question 30

define the strategies based on attitude towards cooperation

Answer 30

completely the same as corporate strategies, but here they are concerning the business(es), not the whole company

Question 31

define the 2 strategies based on attitude towards innovation and state 3/2 motives for them

Answer 31

1. being a pioneer (= first mover)
   - reputation (industry leader)
   - high profits (at the beginning only)
   - setting standards for others
2. being an imitator (= late mover)
   - keeping r&d costs down
   - keeping risk down

Question 32

state 2 groups of strategies (5/6 strategies for each) based on attitude towards competitors

Answer 32

1. offensive strategies (attackers = market challengers)
   - frontal attack
   - flank attack
   - bypass attack
   - encirclement
   - guerrilla attack
2. defensive strategies (market leaders)
   - static defense
   - flank defense
   - preventive defense
   - counterattack as defense
   - mobile defense
   - strategic retreat