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BPS- Final Exam > Chapter 4-8 > Flashcards

Chapter 4-8 Flashcards

1
Q

How is the relationship between a firm and customers determined?

A
  • Reach – access and communication to customer
  • Richness – deep and detailed two-way communication
  • Affiliation – facilitating useful relationships with customers
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2
Q

What factors can be used to segment customers?

A
  • Consumer market
  • Business Market
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3
Q

Which customer needs does a firm satisfy

A
  • Have close and frequent interactions with customers
  • Decide whether to focus on cost or differentiation
  • Have way to anticipate changes in customer needs
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4
Q

What core competencies does a firm need to satisfy ?

A
  • Improve capabilities to meet existing customers needs
  • Find ways to meet needs of potential new customers
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5
Q

What is the purpose of business level strategy?

A

To create a difference between firm and competitor’s position

  • Perform activities differently
  • Amazon vs. Borders or Barnes and Noble
  • Southwest Air
  • Perform different activities
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6
Q

What are the five basic strategies?

A
  • Cost leadership

Differentiation
Focused cost leadership
Focused differentiation
Integrated cost leadership/differentiation

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7
Q

What is cost leadership?

A
  • Need to produce acceptable product
  • Go after broad segment
  • Continuously look for ways to lower cost
    • Economies of scale
    • Use value chain analysis
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8
Q

What is differentiation strategy?

A
  • Target customers with products or services different from a competitors
  • Innovation is critical
  • Customers value differentiated features more than cost
  • Need to constantly upgrade features
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9
Q

How can firms differentiate?

A
  • Product
  • Reliability
  • Convenience
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10
Q

What is a focused strategy?

A
  • Firm focuses on a particular competitive segment
    • Particular group
    • Different segment of a product line (professional vs. consumer)
    • Different geographical market
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11
Q

What is integrated cost leadership/differentiation strategy?

A
  • Firms try to be both low cost and highly differentiated
  • Needs to be good at more activities (example Target says “expect more, pay less”)
  • But very difficult to be good at everything and you can end up “stuck in the middle”
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12
Q

What are the risks of integrated cost leadership/differentiation strategies?

A
  • Difficult to do both at same time
  • Unable to figure out primary activities and how to support them
  • Fail at either and become stuck in the middle
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13
Q

A business’s superior profitability arises from?

A
  • Being in an attractive industry
  • Establishing a competitive advantage over rivals
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13
Q

What are the key factors needed for success?

A
  • Firms resources and capabilities determine whether it can find a way to perform better than its rivals and sustain that advantage
  • Competition provides incentive to develop a competitive advantage but also erodes it
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14
Q

Provide examples of competitve advange

A
  • Wal-Mart – discount retailing
  • Toyota – mass produced vehicles
  • SAP – enterprise resource planning software
  • Apple – tablets, smartphones, digital music
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15
Q

Competitive advantage allows a firm to earn if it chooses to do so at a persistent higher rate of profits..

A
  • A firm may not choose to take that profit but rather invest it in market share
  • Firms have the flexibility on they will use the extra profits
  • Balance between financial goals including strategic and future goals
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16
Q

Competition tends to eliminate differences in profitability (trend towards perfect competition)

A
  • Competitive advantage disrupts this by changing the competitive dynamic.
  • Changes in the external world are addressed by the different resources and capabilities of different firms
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17
Q

The magnitude of the competitive shift depends on both the magnitude of the change and the difference in the competing firms capabilities, why?

A
  • Where an industry is turbulent and undergoes frequent changes (i.e. mobile telephones) there is a greater dispersion of profitability as more differences between the firms
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18
Q

How quickly a firm responds to external changes (including strategic attacks) is a key factor in whether it will benefit from that change (“time based competition”)?

A
  • Firms should try to anticipate changes
  • Acquire the pertinent information
  • Act quickly
  • Compare products with long life cycles with one with short life cycle and the different capabilities each need to develop to be successful
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19
Q

What are the two types of markets?

A
  • Trading – involve trade and speculation
  • Production – changing inputs into outputs (products)
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20
Q

How are trading markets efficient?

A
  • Perfect competition
  • All information is available
  • Examples are financial and commodity markets
  • Differences in profits from level of risk taken or randomness (Luck)
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21
Q

For competitive advantage to exist an imperfection must occur, why?

A
  • Imperfect availability of information (insider trading, arbitrage)
  • Transaction cost differences
  • Systemic behavioral trends
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22
Q

How does strategic innovation can create competitive advantage?

A
  • By creating value from:
    • Newl products and experiences or modes
    • Redesigning processes and novel organizaitional designs
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23
Q

Innovation strategies usually involve?

A

New industries (Xerox, wireless phones) or new customer segments (home computers/Apple, movies for home viewing).

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24
Q

New sources of competitive advantage come from changes in industries value chain

A

Example: Canon created a competitive advantage by offering smaller wet toner copiers while Xerox focused on larger, dry toner copiers

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25
Q

Competition erodes competitive advantage by competitors copying or by innovating

A
  • Firms create barriers (“isolating mechanisms”) slow this erosion
  • Rivals imitate competitive advantage
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26
Q

How can firms that possess a competitive advantage protect it at each step?

A
  • Identification – obscure superior performance
  • Incentive – deter imitation by punishing rival or preempting rival by moving in niches to remove opportunity
  • Diagnosis – create causal ambiguity
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27
Q

Base competitive advantage on resources that are immobile or difficult to replicate

A
  • Resource may not be available at a reasonable cost (Fuji water)
  • Creation can take a lot of time (installing lean manufacturing)
  • Be the first mover and gain that advantage (though first mover advantage can be overcome)
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28
Q

What are the steps in competitive analysis?

A
  • Nature and extent of rivalry
  • Whether competitor will take strategic action or respond strategically
  • Likelihood of attack or response.
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29
Q

How to assess the nature and extent of rivalry?

A
  • Market commonality – in how many markets do firms compete
  • Resource similarity – do they use similar resources
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30
Q

How to assess whether competitor will take strategic action or respond strategically?

A
  • Awareness
  • Motivation
  • Ability
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31
Q

How to assess the likelihood of attack or response?

A
  • When firm is First movers
  • Lots of a firms customers are targetted
  • Firm is smaller
  • Firm has developed a unique way to compete
  • Quality is an issue
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32
Q

Whether a firm responds to a strategic attack depends upon?

A
  • Type of competitive advantage
  • Actor’s reputation
  • How dependent on the market the firm is
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33
Q

What is competitive dynamics?

A

Actions and responses of all the competitors in a market

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34
Q

What are slow-cycle markets?

A
  • Imitation is difficult
  • Competitive advantage can be sustained for a very long period
  • Resources and capabilities need to be protected
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35
Q

What are fast-cycle markets?

A
  • Imitation rapid and inexpensive
  • Hard to manage
  • Pace of competition frenzied
  • Competitive advantage not sustainable
  • Focus on developing new innovative products
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36
Q

What are standard –cycle markets?

A
  • Competitive advantage partially shielded from imitation
  • Competitive advantage somewhat sustainable
  • Attacks designed to go after large market share
  • Competition for market share is intense
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37
Q

What is corporate strategy?

A

Involves the scope of the firm in terms of the industries and markets in which it competes (“the where”)

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38
Q

What are the different methods for corporate strategy?

A
  • Vertical scope
  • Geographical scope
  • Product scope
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39
Q

Why are corporate strategies used in firms?

A

To diversify from one product in a single market to multiple product markets

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40
Q

How firms who diversify gain a competitive advantage?

A
  • By selecting and managing a group of different businesses competing in different product markets
  • Use of corporate strategy to grow their revenue and profits
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41
Q

Corporate strategies is also concerned with?

A
  • How corporate headquarters should manage those businesses
  • Help the firm earn above average returns
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42
Q

What are the different levels of corporate diversification?

A
  • Low level of diversification
  • Moderate and high level of diversification
  • Unrelated diversification strategy
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43
Q

Corporations chose to diversify to create value through?

A
  • Economies of scope
  • Market power
  • Financial economies
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44
Q

Why do managers choose to diversify?

A
  • Higher compensation
  • Reduce managerial risk
45
Q

What are financial economies?

A

Firms can efficiently allocate capital more than capital markets

46
Q

The central issues of corporate strategy involves how the firm addresses the where by assesing?

A
  • Economies of scale in resources and capabilities
  • Transaction costs
  • Cost of more corporate complexity
47
Q

How can firms organize?

A
  • An administrative mechanism regarding production and resource allocation
  • A market mechanism involving transactions with others
48
Q

When do firms exist?

A

When they are more efficient than organizing production through contracts between self-employed workers

49
Q

How can a firm choose to do some activities?

A
  • The firm itself (vertical integration)
  • The market (outsource)
50
Q

Which activities should it choose?

A
  • Much depends on the relative cost of doing the activity
  • Each has costs associated with it
  • There are other considerations
51
Q

What does a typical market costs include?

A
  • Search costs
  • Negotiating and preparing contracts
  • Monitoring to ensure compliance and quality
  • Enforcement costs
52
Q

How to choose between administrative and transaction costs?

A

If the administrative costs are less than transaction costs, the firm should do the activity within the firm

53
Q

Which is better: one firm or several independent firms acting in linked fashion?

A

In 19th century and most of 20th century, firms absorbed transactions that had previously taken place across markets

  • Firms became integrated, diverse and multinational
  • Firms were more efficient
54
Q

What happened toward the last decades of the 20th century?

A

A trend reversed with respect to product and vertical scope - geographical expansion continued

55
Q

Product and vertical scope reversal means that market transactions are considered more efficient (market costs lower)

A
  • Business environment turbulent
  • Cost more to remain flexible
  • Able to respond quickly if activity within firm
  • Information and communications technology less costly
  • technology is widely available to all companies
56
Q

What is vertical integration?

A

Firms ownership of vertically related activities

57
Q

What does vertical integration do?

A
  • Look at the firm’s value chain and see which it does itself
  • Which it obtains from other parties
  • The less activities are brought into the firm from outside, the higher its ratio of value added
  • Can be forward or backward
  • Can be full or partial
58
Q

What are the technical economies that come from vertical integration?

A

The cost savings that arise from the physical integration of plants

59
Q

Physical integration of plants

A
  • Near-by raw materials enter integrated plant and finished, ready-to-ship product exit
  • But savings may come from common location and not common ownership
60
Q

Why have the last 25 years outsourcing (market transactions) gained favor?

A
  • Enhances flexibility
  • Allows focus on what firm does best
  • Communications and IT facilitates coordination between firms
61
Q

During most of 20th century vertical integration within a firm looked on favorably, why?

A
  • Allowed superior coordination
  • Reduced risk
62
Q

Where is vertical scope most comon?

A
  • In product’s value chain that some activities are done through market contracts
  • Others that are done through vertical integration
63
Q

Vertical Scope

A
  • Most producers don’t mine or grow raw materials or distribute to consumers directly
  • Technical economies that may cause one firm to do an activity but not others
  • Market transactions may not be feasible
  • Market transaction may be difficult to structure or put one party at the mercy of the other
  • Future unknowable and risk shifted to other firm
64
Q

What is internalization?

A
  • Imposes administrative costs
  • Differences in optimal scale between different stages of production
  • Different size firms may reach different results
  • May not be able to develop capabilities to level of specialized firm which works with many companies
  • Capabilities that build on each other can be developed into a distinctive capability that provides competitive advantage by vertically integrated them
65
Q

What are some of the issues arising from managing different businesses?

A
  • Skills and systems needed may be different
  • Strategic dissimilarities push toward no integration and even divestiture
  • Whether employees can be given incentives
  • Integration may impact whether competitors may stop dealing with a part of the firm
66
Q

Using market transactions may assist where?

A
  • Markets are uncertain
  • New products require multiple technologies (smartphones)
  • But may cause delay and inefficiency when speed and efficiency are needed as no contracts to negotiate
67
Q

Why market transactions may reduce risk for a vertically integrated business?

A

A problem at one stage may threaten profitability in all

68
Q

There are many vertical relationships that can be formed using market transactions

A
  • Commitments can be of varying strengths and formality
  • Relationship can be from very simple sales contract to long-term relationship where information is shared
69
Q

What are other factors to consider in choosing between vertical integration and a type of vertical relationship?

A
  • How important for the firm’s strategy and building resources and capabilities is it to keep activity within the firm
  • Allocation of risk as market transaction may place risk outside of the firm (part of the negotiated terms)
  • Incentive structures as a long-term relationship acts as a powerful incentive to perform well
70
Q

Why there is a recent trend is toward a hybrid relationship?

A
  • Flexibility and incentives from market transaction
  • Close collaboration found in vertical integration
    • Long-term relationship
    • Trust building
    • Strategic alliances
    • Equity investments
71
Q

Why are market transactions still common?

A
  • Internet pushes toward looser relationships
  • Outsourcing not only of components but also services
  • Virtual companies that outsource everything
72
Q

Why pursue vertical scope?

A
  • It depends on the firms competitive strategy and capabilities
  • The firm needs to evaluate its strategic needs,
  • Resources and capabilities at different points of the value chain,
  • Characteristics of the transaction
  • Relative attractiveness
73
Q

What are the key factors in diversification scope?

A
  • Firm’s resources and capabilities
  • Whether it can exploit these resources and capabilities to establish competitive advantage in another industry
  • Which industries are suitable for it to enter
74
Q

What are the decisions when considering diversification?

A
  • Attractiveness of industry
  • Can firm establish a competitive advantage

Whether operating multiple businesses will gain firm an advantage in each (that is, whether there is “synergy”)

75
Q

What is the emphasis from 1980 to today businesses ?

A
  • Refocusing on the core and divesting non-core businesses
  • Shareholder value
  • Volatile business climate requires more agility than possessed by large, diverse firms
  • New management thinking
76
Q

What is Porter’s Three Tests as to whether diversification creates shareholder value?

A
  • Industry must be structurally attractive
  • The cost of entry must not capitalize all the future profits
  • Either the new unit or the old must gain competitive advantage from linking the new unit to the corporation (key test)
77
Q

Why diversify? What are the competitive advantages from diversification?

A
  • Economies of scope
  • Better information sharing
  • Better use of employees
78
Q

Why diversify? What are the alternatives?

A
  • Licensing or use other market alternatives
  • Preferable to firm entering new business itself
  • Think of licensing activities of firms
79
Q

Why diversify? What does the data show?

A
  • Diversifications that exploit economies of scope in resources and capabilities can create shareholder value
  • Diversification that only seek growth or risk reduction, likely destroys value
  • Some diversification is valuable but only up to a certain level
80
Q

What is globalization?

A
  • Global markets are relatively unstable and unpredictable
  • International strategy means a firm is selling goods or services outside of its domestic market
81
Q

Two basic geographical scope questions?

A
  • Whether and where to enter into foreign markets?
  • How to enter into a foreign market?
82
Q

What does internationalization means?

A

More competition and lower profits

  • Barriers to entry have fallen
  • More competitors and less concentration
  • Global sourcing means increased bargaining power for buyers
83
Q

What are some of the reasons firms expand internationally?

A
  • Extend a product’s life cycle
  • To get easier access to raw materials
  • Global operations more efficient
  • Better use of developing technologies
  • Gain access to new customers
84
Q

What are the benefits of an International Strategy?

A
  • Increase market size (bigger pie)
  • Economies of scale and learning (especially economies of scale in manufacturing)
  • Location advantages (raw materials and lower labor costs
85
Q

Why is it difficult to operate in a foreign country?

A
  • Unfamiliar operating environment
  • Administrative and cultural differences
  • Challenge to coordinate over distances
86
Q

How does a national environment impacts a firm access to its resources and capabilities?

A
  • National raw materials
  • Culture
  • Transportation and communication infrastucture
  • Government policies
  • Exchange rates
  • Market conditions in nation
87
Q

How can firms enter the international market?

A
  • Transactions (shipping from outside, outsourcing)
  • Direct investment
88
Q

How can a firm enter into a foreign country?

A
  • Export
  • Licensing
  • Strategic Alliances
  • Acquisitions
  • New wholly owned subsidiary
89
Q

While global firms have certain advantages, national differences in customer preferences still matter, what are they?

A
  • Common platforms may be most efficient way
  • Culture differences need to be taken into account
  • It is a major challenge for a firm to reconcile global integration and strategy with national differentiation
  • Organizational structure of multi-national corporation is important (but beyond scope of course)
90
Q

Why firms use M&A?

A

To create shareholder value but:

  • M&A is challenging
  • Benefit often goes to target company shareholders
  • Premium is often too high
91
Q

What is a Merger?

A

When two firms integrate their operations on relatively coequal basis

  • Acquisition – one firm buys another
  • Takeover – an unfriendly acquisition
92
Q

What are the reasons for acquisitions?

A
  • Increased market power
  • Overcoming entry barriers
  • Cost of new product development and speed to market
  • Increased diversification
  • Reshaping of firms
  • Learning and Development of new capabilities
93
Q

What is the percentage of successful acquisitions?

A
  • Only 20% of acquisitions are considered successful
  • 60% disappointing
  • 20% outright failure
94
Q

What are the reasons M&A are problematic?

A
  • Integration difficulties
  • Inadequate evaluation of target
  • Large debt
  • Inability to achieve synergy
  • Too much diversification
  • Managers spend too much time on acquisitions
  • Too large
95
Q

When are acquisitions sucessfull?

A
  • There are complimentary assets
  • Acquisition is friendly
  • Effective due diligence
  • Firm has financial ability to what is needed
  • Low debt position
  • Firms emphasis innovation and R&D
  • Managers are flexible and adaptable
96
Q

Competitive advantage arises from a firm..

A

Being able to meeti the key factors needed for sucess.

97
Q

What determines wheter a firm can perform better than its rivals?

A

Firms resources and capabilities.

98
Q

Production markets tend to be highly differentiated as the activities are complex…

A
  • Firms possess unique combinations of resources and capabilities
  • Firms can position themselves differntly from leader to gain their own CA rather than just imitate
99
Q

What is disruptive technology?

A

An innovation that makes it so much simpler and more affordable to won and use a product. Examples:

  • Xerox disrupted by Canon
  • Apple’s iPhone gaming
100
Q

How do rival firms imitate comptititve advantage?

A
  • Identifying that a CA exists
  • Having an incentive to do so
  • Diagnosing what features gave rise to the CA
  • Obtaining or replicating the needed resources and capabilities
101
Q

What is vertical scope?

A

The range of vertically linked activities done within the firm.

102
Q

What is geographical socpe?

A

Locations in which the firm competes

103
Q

What is product scope?

A

Wheter the firm competes in a single industry or multiple industries.

104
Q

What is a low level of diversification

A

When there is a dominant business

105
Q

What is moderate and high level diversification?

A
  • Dominant business less important
  • Resources and activities are shared
106
Q

What is unrelated diversification strategy?

A

Conglomerates:

  • No relationship between business
  • Managed by holding company structure
107
Q

What is the Boston Consulting Matrix

A

Compares market growth rate to market share

  • Stars (Focus and prioritize)
  • Cash Cows ( Provide cash)
  • Question Marks (Need to move strategically)
  • Dogs (Turn-around or liquidate)
108
Q

What are economies of scope?

A

Cost economies from increasing the output of multiple products (synergy)

109
Q

Examples of economies of scope

A
  • Tangible resources can be combined to eliminate duplication or combined into a shared service group
  • Intangible resources like brands can be exploited
  • Organizational capabilities can be utilized over a wider product line and increased revenue base

BPS- Final Exam (1 decks)

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