Chapter 8

Question 1

What is appropriation of value?

Answer 1

The process by which total value created in a transaction is allocated to the different entities that contributed to its creation

Question 2

What are the two ways to create value?

Answer 2

1. Do something valuable to increase customer willingness to pay
2. Reduce supplier opportunity cost by allowing them to obtain resources at a lower price

Question 3

What are the two types of activities in the value chain model?

Answer 3

Primary activities, Support activities

Question 4

In the value chain model, what are primary activities?

Answer 4

1. Firm actions directly related to value creation. Define the firm’s unique transformation process
2. Typically performed by all firms engaged in a similar line of business
3. Enables transformation of input resources into final products and creation of value

Question 5

What are the categories of primary activities in the value chain model?

Answer 5

1. Inbound logistics
2. Production
3. Outbound Logistics
4. Marketing and Sales
5. Services

Question 6

What is inbound logistics in the value chain model?

Answer 6

Receiving, storing, and allocating inputs required for the product
Handling, storage, inventory control, transportation scheduling

Question 7

What is production in the value chain model?

Answer 7

Machine operation, packaging, assembly, equipment maintenance, verification, printing, facility operations

Question 8

What is outbound logistics in the value chain model?

Answer 8

Collection, storage, and physical distribution of products to customers
Ex: Storage of finished product, operation of delivery vehicles, order processing, scheduling

Question 9

What is marketing and sales in the value chain model?

Answer 9

Providing the means by which customers can purchase the product and are encouraged to do so
Ex: Advertising, promotion, sales force, channel selection, distributor relationships, and price

Question 10

What is services in the value chain model?

Answer 10

Provision of services to increase or maintain value of the product
Ex: Installation, repair, training, supply of spare parts, product adaptation

Question 11

In the value chain model, what are support activities?

Answer 11

1. Firm actions that are not directly related to the transformation process but are necessary to enable it
2. Typically performed by a range of firms offering diverse products and services
3. Do not define the unique transformation process

Question 12

What are the categories of support activities in the value chain model?

Answer 12

1. Infrastructure
2. Human Resources
3. Technology Development
4. Procurement

Question 13

What is infrastructure in the value chain model?

Answer 13

Activities that support the entire chain, not just specific activities
Ex: General management, accounting, legal, external relations, quality management

Question 14

What is human resources in the value chain model?

Answer 14

Recruitment, training, personal development, and compensation for all categories of staff

Question 15

What is technology development in the value chain model?

Answer 15

Developing technology to be used in value-creating activities
Know-how, procedures, technology integrated into processing

Question 16

What is procurement in the value chain model?

Answer 16

Relating to the purchasing function of the means of production used in value chain, not the means of production themselves
Ex: Raw materials, supplies, other consumables, machinery, equipment, and buildings

Question 17

What are the five forces in Porters model?

Answer 17

1. Threat of New Entrants
2. Threat of Substitutes
3. Bargaining Power of Buyers
4. Bargaining Power of Suppliers
5. Rivalry Among Existing Competitors

Question 18

What is the threat of new entrants?

Answer 18

Represents the extent to which the industry is open to entry by new competitors

Question 19

What are the drivers of the threat of new entrants?

Answer 19

1. Entry barriers: If high there is low threat
2. Response ability: If high there is low threat
3. Industry growth rate: If high there is high threat

Question 20

What is the threat of substitutes?

Answer 20

The extent to which the firm’s products are subject to potential substitution by products that fill the same needs

Question 21

What is the driver of the threat of substitutes?

Answer 21

Substitutability: If products are substitutable there is a high threat

Question 22

What is the bargaining power of buyers?

Answer 22

Represents the extent to which customers have the ability to put downward pressure on pricing

Question 23

What are the drivers of the bargaining power of buyers?

Answer 23

1. Percentage of Turnover: If high there is strong buyer power
2. Number of potential clients: If high there is strong buyer power

Question 24

What is the bargaining power of suppliers?

Answer 24

The extent to which firms who sell production inputs have the ability to maintain high prices

Question 25

What are the drivers of the bargaining power of suppliers?

Answer 25

1. Substitutability of suppliers: If there are many substitutes, supplier power is low
2. Transfer costs: If transfer costs are high, supplier power is high
3. Percentage of the purchase budget: If high then supplier power is high

Question 26

What is rivalry among existing competitors?

Answer 26

The extent to which fierce battling and aggressive competition occur in the industry

Question 27

What are the drivers of rivalry among existing competitors?

Answer 27

1. Industry growth rate: If low, there is strong competition
2. Degree of concentration: If high there is strong competition
3. Possibility of differentiation: If weak there is strong competition
4. Barriers at the exit: If high there is strong competition