Chapter 8: Business strategy

Question 1

Which are Porters three generic strategies?

Answer 1

Cost, differentiation and focus.

Question 2

What are the interactive strateigies?

Answer 2

Interdependence strategy
Game theory

Question 3

What are the vital parts of the business model?

Answer 3

Value creation, configuration and capture.

Question 4

What are the two fundamental means of achieving competitive advantage?

Answer 4

Cost or differentiation.

Question 5

What third dimension does Porter add to cost and differentiation?

Answer 5

Scope in term of market segment. A broad or narrow scope? Which leads to the two sub notions cost focus and differentiation focus.

Question 6

What is a cost-leadership strategy?

Answer 6

Becoming the lowest-cost organization within your industry.

Question 7

What are the two important requirements for cost-based strategies?

Answer 7

1. You need to be the lowest cost
2. It cannot be in total disregard of quality

Question 8

What are the key cost drivers for a cost-leadership strategy?

Answer 8

1. Input costs
   Labour in low-cost countries or low-cost raw materials.
2. Economies of scale
   Increasing scale reduces the average cost per unit.
3. Experience
   Experience curve: thanks to efficiency and knowing how to do things, it can lower costs.
4. Product/process design
   Efficiency can be designed in. Like Zara or Soft Goat cashmere.

Question 9

What are the two options for how cost-leaders can set prices?

Answer 9

Parity: same price as average and thus gaining more profit thanks to low cost.

Proximity: setting prices under average thanks to a slightly lower quality.

Question 10

What is a differentiation strategy?

Answer 10

Uniqueness that is valued by customers in that way that companies can charge a price premium. Example Miele.

It varies between markets but can differ within markets too.

Differentiation allows higher prices, but it comes at a cost: to create valuable differentiation you usually need to spend more on R&D, branding or staff quality. Costs are higher than average. But it should not be so high that customers don’t see the value and won’t be willing to pay.

Question 11

What are the three key drivers for a differentiation strategy?

Answer 11

1. Better and unique product and service attributes
   Ex Dyson
2. Better customer relationships
   After-sales service. Being able to call them. Ex Zalando with free returns.
3. Complements
   Apple ecosystem with all of its complements; App Store, iPad, iPhone

Question 12

What is a focus strategy?

Answer 12

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 of others. The focuser achieves competitive advantage by dedicating itself to serving its target segments better than others that are trying to cover a broad segment.

Question 13

What is the types of focus strategy?

Answer 13

Cost focus: ex Ryan Air targeting price-conscious travelers

Differentiation focus ex Dörr & Portbolaget, Ecover cleaning.

Question 14

What does successful differentiation strategy depend on?

Answer 14

At least one of three key factors:

1. Distinct segment needs
2. Distinct segment value chains.
3. Distinct market segment

Question 15

What is a hybrid strategy?

Answer 15

Hybrid strategies combine cost and differentiation.

IKEA uses scale advantages to combine relatively low prices with differentiated Scandinavian design.

Specific circumstances in which the generic strategies can be combined:

• when creating two separate strategic business units (SBUs), each pursuing different generic strategies and with different cost structures.

Question 16

What is a Blue Ocean strategy?

Answer 16

By Kim & Mauborgne.

Aims to help imagine entirely new strategies and identify areas with little competition.

The cost, focus and hybrid strategy can make managers get too locked into historic and current market boundaries and strategies and fail to imagine entirely new strategies in an industry.

Using this type of strategy canvas helps mangers think creatively about the relative positioning of competitors in an industry to find uncontested market spaces by differentiating and/or reducing costs.

Question 17

What is the strategy canvas tool?

Answer 17

Compares competitors according to their performance on critical success factors, and based on this determine potential strategies for the future.

Question 18

What is interactive strategies?

Answer 18

Business strategy choices interact with those of competitors (if everyone else in a red ocean with high rivalry wants to be differentiated then a low cost might be more suitable for you, vice versa).

Question 19

Speaking of interactive strategies, how do you respond to others business strategies that might be a threat to you?

Answer 19

Three key decisions:

1. Threat assessment
2. Differentiation response (differentiate more?)
3. Cost response (lower our prices to match?)

Question 20

What is game theory?

Answer 20

Game theory can be used to helpanalyzeinterdependent strategies. For example, businesses might use game theory models to anticipate competitors’ moves and then build their own strategy based on that.

Question 21

What is business model?

Answer 21

Business models describe business transactions and interrelationships between various parties and is best explained in terms of three interrelated components:

Value creation, configuration and capture.

Question 22

What are three business model patterns?

Answer 22

1. Razor and blade
2. Freemium
3. Peer-to-Peer

Question 23

What is a multi-sided platform?

Answer 23

a business model where a company connects different groups of people who need each other. The platform brings them together to make exchanges, like buying, selling, or sharing information.

Example:
Amazon: It connects sellers (people or companies that want to sell products) with buyers (people who want to buy things). Amazon doesn’t just sell its own stuff; it helps others sell too, creating value for both sides.
Key Idea:
The more people who use the platform (both sellers and buyers), the more valuable it becomes for everyone. This is called a “network effect.”

Question 24

What is the difference between P2P and Multi-sided platforms?

Answer 24

Multi-sided platforms are like a marketplace with different groups, while P2P is more like a community where people share or trade directly with each other.

Question 25

What does Blue Oceans represent?

Answer 25

Untapped market space.

Creation of additional demand.

Opportunities for highly profitable growth.

Question 26

What is the critique of game theory?

Answer 26

Weak in predicting future behavior.

Question 27

What is a platform business?

Answer 27

It enables interaction between producers and consumers and matches them.

Question 28

What is a pipeline business?

Answer 28

Linear transformation through the whole value chain.

Question 29

What is a platform ecosystem? (multi-sided platforms)

Answer 29

Platform ecosystem is where a central company (the “platform”) creates a network that connects different groups, such as users, third-party providers, and partners, who can interact and create value together. This ecosystem relies on network effects, meaning that as more users and partners join, the platform becomes more valuable for everyone.

Apple’s iOS ecosystem is a strong example: Apple provides the core iOS operating system and App Store, allowing users, developers, and other third-party providers to connect.

Question 30

What is the difference between a business ecosystem and a platform ecosystem?

Answer 30

A business ecosystem is a broad, adaptive network of interconnected players across an industry, while a platform ecosystem is a more focused system of interactions that revolves around a core platform, generating value through network effects and collaboration directly on that platform.