Class 5 (Value Creation)

Question 1

define value

Answer 1

– the measure of a firm’s capability of selling what it makesfor more than the costs incurred to make it

Question 2

what are the 2 strategies for creating value?

Answer 2

– A cost leadership strategy
• make products for a lower cost than competitors
– A differentiation strategy
• make products for which consumers are willing to pay
a premium price

Question 3

define cost leadership strategy

Answer 3

An integrated set of actions taken to produce goods or services with features that
are acceptable to customers at the lowest cost, relative to that of competitors

Question 4

under the cost leadership strategy what are the product characteristics?

Answer 4

– Relatively standardized (commoditized) products
– Features broadly acceptable to many customers
– Lowest competitive price

Question 5

under the cost leadership strategy what are the cost saving actions required by this strategy?

Answer 5

– Building efficient scale facilities
– Tightly controlling production costs and overhead
– Minimizing costs of sales, R&D and service
– Building efficient manufacturing facilities
– Monitoring costs of activities provided by outsiders
– Simplifying production processes

Question 6

define differentiation strategy

Answer 6

• An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them
– Focus is on non-standardized products
– Appropriate when customers value differentiated features more than they value low cost

Question 7

what are focus strategies?

Answer 7

• An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment

Question 8

what are the types of focused strategies?

Answer 8

– Focused cost leadership strategy

– Focused differentiation strategy

Question 9

To implement a focus strategy, firms must be able to:

Answer 9

– complete various primary and support activities in a competitively superior manner, in order to develop and sustain a competitive advantage and earn above-average returns

Question 10

what are factors that drive focused strategies?

Answer 10

• Large firms may overlook small niches
• A firm may lack the resources needed to compete in the broader market
• A firm is able to serve a narrow market segment more
effectively than can its larger industry-wide competitors
• Focusing allows the firm to direct its resources to certain value chain activities to build competitive advantage

Question 11

A firm that successfully uses an integrated cost
leadership/differentiation strategy should be in a better
position to:

Answer 11

– adapt quickly to environmental changes
– learn new skills and technologies more quickly
– effectively leverage its core competencies while competing against its rivals

Question 12

Commitment to ___ ___ is necessary for
implementation of integrated cost leadership/ differentiation
strategy

Answer 12

strategic flexibility

Question 13

what are risks of an Integrated Cost Leadership/

Differentiation Strategy?

Answer 13

• Often involves compromises
– Becoming neither the lowest cost nor the most differentiated firm
• Becoming “stuck in the middle”
– Lacking the strong commitment and expertise that
accompanies firms following either a cost leadership or a differentiated strategy
• A very challenging position to sustain

Question 14

Industry structure involves the relationships among:

Answer 14

– Suppliers of inputs
– Buyers of outputs
– Substitute products
– Potential new entrants
– Rivalry among competing firms

Question 15

what are the 5 forces driving industry competition?

Answer 15

1. potential entrants
2. suppliers
3. buyers
4. competitors
5. substitutes

Question 16

industry structure changes because of:

Answer 16

– Competitor moves
– Government policies
– Shifting preferences
– Technological developments…

Question 17

firms face 2 conflicting pressures?

Answer 17

Global Integration vs. Local Responsiveness

Question 18

describe the pressures for global integration

Answer 18

– the process of combining differentiated parts into a standardized whole
– maximize efficiency

Question 19

describe the pressures for local responsiveness

Answer 19

– the process of disaggregating a standardized whole into differentiated parts
– optimize effectiveness

Question 20

what are the drivers of global integration?

Answer 20

– The globalization of markets
• Technology helps standardize consumer preferences
• Global products have become popular
– allows for standardization of product design
– The efficiency gains of standardization
• Location, scale, and learning effects
• WTO supports global standards

Question 21

what are the drivers of local responsiveness?

Answer 21

– Consumer divergence
• cultural predisposition
• historical legacy
• nationalism
– Host government policies
• fiscal, monetary, and business regulations

Question 22

what are the 4 types of strategies used by MNEs?

Answer 22

1. international
2. multidomestic
3. global
4. transnational

Question 23

describe the international MNE strategy

Answer 23

International strategy
– leverage a company’s core competencies into foreign
markets
– critical elements of the value chain are centralized at
headquarters
• The strategy can potentially work well when
– the firm has core competencies that foreign rivals lack
– there is low pressure for global integration
– there is low pressure for local responsiveness

Question 24

describe the multidomestic MNE strategy

Answer 24

• Multidomestic strategy
– emphasizes responsiveness to the unique circumstances
that prevail in a country’s market
– value added activities are adapted to local markets
• The strategy can potentially work well when
– there is high pressure for local responsiveness
– there is low pressure for global integration

Question 25

describe the global MNE strategy

Answer 25

• Global strategy
– make standardized products that are marketed with little
adaptation to local conditions
– exploit location economies and capture scale economies
• The strategy can potentially work well when
– the MNE is the cost leader
– there is low pressure for local responsiveness
– there is high pressure for global integration

Question 26

describe the transnational MNE strategy

Answer 26

Transnational strategy simultaneously leverages
core competencies worldwide, reduces costs by
exploiting location economics, and adapts to local
conditions
• The strategy can potentially work well when
– global learning and knowledge flows are emphasized
– there is high pressure for local responsiveness
– there is high pressure for global integration

Question 27

what are the 4 parts in Porter’s Theory of National Competitive Advantage?

Answer 27

1. factor conditions
2. demand conditions
3. related and supporting industries
4. firm strategy, structure, rivalry