chapter 13 Flashcards
what is a firms strategy
Actions managers take to attain the firm’s goals.
to maximize the value of a firm, managers must what do what
increase the profability of the enterprise and its rate of profit growth over time
what is profitability
A ratio or rate of return concept.
what is profit growth
The percentage increase in net profits over time.
higher profitability and higher rate of profit growth..
will increase the value of an enterprise and thus the returns garnered by its owners, the shareholders.
how to increase the profitability of the firm
by pursuing strategies that lower costs or by pursuing strtagues that add value to the firms products, which enables the firm to raise prices and or maintain an existing customer base
how do managers increase the rate at which the firms profits grow
by pursuing strategies to sell more products in existing markets pr by pursuing strategies to enter new markets
what helps boost profitability and rate of profit growth
making a decision to expand International
what is the amount of value a firm creates
generally measured by the difference between its cost of production and the quality that consumers perceive in its products
why is the price that gets charged tend to be slightly less than the value placed on the product by many customers
- consumer surplus
- cant segment the market to a degree that the firm can charge each customer a price that reflects a specific customers assesment of the value of a product which is aka customers reservation price
what is the firms value creation
Performing activities that increase the value of goods or services to consumers.
what is a low cost statregy
a strategy that focuses primarily on lowering production costs
what is a differentiation strategy
a strategy that instead focuses primarily on increasing the attractiveness of a product
what did Michael porter argue
that low cost and differentiation are two basic statregies for creating value and attaining a compeotove advantage in an industry
what does Michael porter say about superior profitability
goes to those firms that can create superior valuee and the way they create this is to drive down the cost structure of the business and to differentiate the product
in order for a firm to maximize profitability, what should a firm do
1) pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice
2) configure its internal operations so that they support that position
3) make sure that the firm has the right org structure in place to execute its strategy
what are operations
The various value creation activities a firm undertakes.
how can firms change the basis of competition
by pursuing innovate strategies that offer more value to its customer set, at a lower cost than its rivals can attain
the operations of a firm can be though of as what
a value chain composed of a series of distinct value creation activities
what are primary activities
have to do with the design, creation and delivery of the product
what are the four sections that primary activities are divided into
research and development, marketing and sales and customer service and production
what is research and development
concerned with the design of products and production processes
many service companies can undertake r and d
create value
what is production
creation of a good or service
for physical= manufacturing
for services= usually when a service is delivered to the customer
create value if you perform its activities efficiently so there are lower costs
how do marketing and sales functions of a firm help create value
through brand positioning and advertising
creating a favourable impression means increasing prices
discovering consumer needs and communicating them back to the r and d function of the company which can ten design products that better match those needs
what is the role of the enterprises service activity
ti provide after sale service and support
helps create a perception of superior value in the minds of consumers by solving customer problems and sporting customers after they have purchased the product
what do the support activities of the value chain do
allow the primary activities to happen
in terms of getting a compete advantage, can be more important than primary activities
how do info systems help create value in creation activities
can alter the efficiency and effectiveness with which a firm manages its other value creation activities
what does the logistic function do (support activities )
controls the transmission of physics material through the value chain, fro, procurement through production and Into distribution
more efficient = reduce costs= creating more value
what is the human resource function (support activities )
company has the right mix of skilled people to perform its value creation ctibties effeincly
people are adequaloty trained, motivated and compensated
can boost the competitive position of the firm by hiring skilled managers
what is company infratsrytuce (support activities )
includes the org structure, control systems and culture of the firm
top management is also. a part of this because they have influence over the aspects stated above
strong leadership from top management can shape the infrastructure of a firm and the value creation activities
firms that operate internationally can
- expand the size of the market for their domestic prodicts by selling those products in a global market place
2, realize location economies by dispersing value creations to those worldwide locations where they can be performed most efficiently and effectively - realize greater cost economies
- earn a greater return on investment
how can a company increase its growth rate
by taking goods and services developed at home and selling them internationally
also about the core competencies that underline the selling of these goods
what is core competence
Firm skills that competitors cannot easily match or imitate.
create a compeotove advantage as they can lower the costs of value creation and create value
what are location economies
Cost advantages from performing a value creation activity at the optimal location for that activity.
locating a value creation activity in the optimal location for that activity can have which two effects
can lower the costs of value creation and help the firm achieve a low cost position or/ and it can enable a firm to differentiate its product offering from those compeotoors
lowering c and increasing v
what is a global web
When different stages of value chain are dispersed to those locations around the globe where value added is maximized or where costs of value creation are minimized.
can better differentiate its product offering (rating v) and lower its costs
however if countries start becoming more nationalistic and raising trade barriers may be an issue
what complicates location economies
trassporation costs and trade barriers
have to asesss the poloicitcal and economic risks (could have a totalitarian gvt, or bad economic policies )
what is the experience curve
systematic production cost reductions that occur over the life of a product.
As a company produces more units of a product, it tends to learn and improve its processes, leading to efficiency gains and cost reductions.
what are the two things that affect the experience curve
learning effects and economies of scale
what are learning effects
Cost savings from learning by doing.
you become more productive over time as you learn how to do the task
have to repeat the task
learning effects are more significant when you repeat a complex task many times
what are economies of scale
Cost advantages associated with large-scale production.
when your price per unit decreases because you produce so much
spreads fixed costs over a large volume
serve a global market
more bargaining power with suppliers
what happens when a firm moves down the experience curve
a firm reduces its cost of creating about and increase its profitability
how should a firm move down the experience curve
increase the volume produced by a single plant as rapidly as possible
serve a global market from a single location
firm may need to price and market aggressively so demand expands
leveraging the skills created within subsidiaries and applying them to other operations within a firms global network may
create value
how does leveraging subsidiary skills create challenges for managers
- managers must have the humility to recognize that valuable skills ghat lead to competencies can arise anywhere within the firms global network
- must establish an incentive system that encourages local employees to acquire new skills and this may be difficult
- managers must gave a process for identifying when valuable new skills have been created
- managers must act as facilitators–> helping transfer valuable skills within the firm
profitability and profit growth summary
- firms that expand globally can increase profit and growth where they enter new markets that lack similar skills, lowering costs through locatiob economies, exploitubg the experience curve, transferring valuable skills between subsidiaries
- by doing two at once, could be getter
- may lower prices to get greater economies of scale –> may increase profit because prices are lower
firms that compete in the global marketplace face twi types of competitive pressure that affects their ability to realize location economies
- pressures of cost reductions
- pressures to be locally repsnisve
what are pressures of cost reductions
- requires a firm ti try and minimize its unit costs
- lower the costs of value creation
- may be hard when the cost is what separates the product (universe needs)
- may be hard when your competitors are in low cost locations
what are pressure to be locally responsive
- requires a firm to differente its product from country to country and acomdate the needs and wants of each specific country, raises the firms cost structure
why have some argued that local customization is on the decline
- there are many standardized products that are becoming world widely accepted
- more homogeneity in the global marketplace
- young customers are becoming more homogeneous in their needs and wants
- however this argument doesn’t really hold
pressures for local responsiveness arise from what
- differences in infrastructure or traditional practices among countries so you need to customize prodicts
- also different traditional practices that need to be accommodated
- may have to be responsive to differences in distribution channels
- economic and political demands imposed by host country gvt –> regulations
- rise of regionalism
when there are pressures for local resposinsivness, what are the consequences
firms may not realize the full benefits from economies of scale, learning effects and location economies
- may not be able to leverage skills
what are the four main strategic postures
global standardization statrtegy, a localization strategy, a transnational statrtegy and an international statrtegy
what is a global standardization strategy
A firm focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies
- dont customize so they can get economies of scale and learning effects
- in many industrial goods industries where there are universal needs
- evene though its seen as lower cost, may also raise costs –< but as long as the cost reductions outweigh the additional costs, its fine
- need strong org culture
what is a localization strategy
Increasing profitability by customizing the firm’s goods and services so that they provide a good match to tastes and preferences in different national markets.
- increasing value in the local market
- firms still have to be efficient and try to get economies of scale
- cost pressures are low
what is a trasnantioanl strategy
- cost pressures are high and local responsiveness is high
Attempt to simultaneously achieve low costs through location economies, economies of scale, and learning effects while also differentiating product offerings across geographic markets to account for local differences and fostering multidirectional flows of skills between different subsidiaries in the firm’s global network of operations. - even though attractive, not easy
what do Christopher Bartlett and usmnatra Ghoshal argue
- when its so competitive, firms have ti respond to pressures of cost reductions and local respnsivnes
- have to get location economies and experience effect, transfer core compeoitnecies
- make sure trasnantinal enterprises also focus on leveraging subsidiary skills
what is the international strategy
Trying to create value by transferring core competencies to foreign markets where indigenous competitors lack those competencies.
- minimal customize
- centralize prodict development but will etsbakish manufacturing and marketing functions where they do business
what is the con with the inetrantionak statrgey
- over time competitors will emerge and if mangagers dont take the proactive steps to reduce their firms cost structure, it will be rapidly outflanked by efficient global competitors
- may not be viable in the long term and that firms may need to shift toward a global standardization or trasnantioanl srategt
macro environment
- increase in trade barriers
- war, climate change, disease could affect the investment and statregic choices of international business
