Chapter 8 Flashcards
What is a strategic business unit (SBU)
A strategic business unit supplies goods or services for a destinct domain of activities
What is competetive strategy?
Competetive strategy is concerned with how a company, business unit or organisation achieves competetive advantage in its domain of activities
What is competetive advantage?
Competetive advantage is about how a company, business unit or organisation creates value for its users both greater than the cost of supplying them and superior to that of rivals
Name the two important features of competetive advantage?
- To be competetive - customers must see sufficient value that they are prepared to pay more than the cost of supply
- To have an advantage - Must create greater value than the competitiors
Name two ways a company can achieve competetive advantage?
- Have lower cost than its competitors
- Have products/services that are differentiated from competitors products/Services –> higher valued by customer –> charge higher proces
What is a cost leadership strategy? And what are the four key cost drivers that can help deliver a cost leadership?
Becoming systematically lowest-cost organisation in a domain of activity. Example–> Ryanair
- Input costs (labour and materials) –> Locating there input cost in cpuntries with low labour costs
- Economics of scale –> Increasing scale often lowers the average costs (Especially important if there are high fixed costs –> pharmaceutical manufacturer –> high R6D cost)
- Experience curve - The cumulative experience gained by an organisation with each unit of output leads to a reduction in output costs. (Ex. Many electronics components drop in costs as volume doubles)
- Product/Process design - Efficency can be “designed in” at the outset.
What options does a costleader have? (2 Ps)
Parity (equivalence) - Parity allows the cost leader to charge the same price as competitors –> thus, translating its cost advantage into extra profits
Proximity - Small price cuts to compensate for the reduced quality –> thus earning more profit than the average competitor
What is a differentiation strategy? Name three differentiation drivers to consider?
Differentiation strategy involves uniqueness along some dimension that is sufficently valued by customers to allow a price premium (Ex. Miele)
Product and Service attributes - Better and unique features than comparable products (color, design, features, speed, taste)
Customer relationships - Relying on the relationship between the company and the customers. How the product is percived by the customer –> value can increse through customer service and responsiveness
Complements - Linkages to other products and services –> higher precived value by customers when pairing products. (Apple –> app store)
What is focus strategy?
A Focus strategy targets a narrow segment or domain of activity and tailors its products or services to the needs of that specific segment to the exclusion to others.
Comes from two underlaying sources of competetive advantage
1 - Costs
2 - Differentiation
Achives competetive advantage by serving its target segment better than others trying to cover a wide range of customers
Cost focusers –> identify where broad cost based strategies fail because of the added costs of trying to satisfy a wide range of needs
Differentiation focusers - Look for a specific need that broader differentiators do not serve so well
What does sucessful focus strategies focus on?
One of the three things
- Distinct segment needs
- Distinct segment value chains
- Viable segment economics
What is hybrid strategy?
Hybrid strategies combine different generic strategies –> possible under certain conditions (American southwest airlines –> Low-cost but also signals differentiation –> frequent departures and friendly service)
Companies can combine strategies over different SBUs –> however it is important to avoid negative spilliver effects)
What is blue ocean strategy?
Blue oceans = New market spaces where competition is minimised
Red oceans = Already well defined industries –> intense rivalry
What is the strategy canvas tool? And what does it highlight?
The strategy canvas tool compares competitors according to their performance on critical sucess factors (CSFs) in order to establish potential strategies for the future
Highlights the following features:
Critical success factors: Factors perticulary valued by customers or provides a significat advantage in terms of cost. (Important source of competetive advantage)
Value curves - GRaphic depiction of how customers perceive competitors relative performance across CSFs
Value innovation - The creation of new market space by excelling on established critical success factors on which competitors are performing badly
What is interactive strategies?
Business strategies interact with other competitiors –> Cost leadership is sensible when everybody chasing differentiation strategy –> Game theory
Explain interdependence between rivals
Competitors strategies are interdependent and interact through moves and countermoves.
Cost leadership and differentation should not be seen as static but as dynamic trajectories dependent on competitors strategies.
There are three key decisions
Threat assessment - Is the threat substansial or not?
Differentiation response
Cost response
Read more on page 243 -244
Describe game theory
Game theory encourages an organisation to consider competitors likely moves and the implications of these moves for its own organisation
- Game theorists consider how a competitors response to a strategic move might change the assumptions behind that move (Ex. Challenging an competitor in one area might lead to a counter attack in another)
- Game theorists are sensitive to the strategic signals their move might convey to competitors
Game theory is extra relevant where competitors are interdependent (outcome of choices made by one competitor is dependent on the choiches made by other competitors)
There are two important guiding principles that arises from interdependence
- Get in the mind of competitors - Take a view that the competitors are likely to do
- Think forward and reason backwards - Choose their competetive moves on the basis of understanding the likely respons of competitors
What is a business model
A business model describes the value proposition for customers and other participants, an arrangement of activities that produces this value, and associated revenue and cost structures
Competitiors often have the same business model but the strategies and basis for competetive advantages may differ
What is value creation?
A proposition that adresses a specific customer segments needs and problems
“What is offered to what customer?”
What is Value configuration?
The resources and activities that produce this value
“How is the value proposition structured?”
What is Value capture?
Explains revenue streams and cost structures
“Why does the model generate margin?”
