competitive strategy Flashcards
What varies among buyers in an industry according to their use of a product, value attached to product attributes, and other impacts on their value chain?
Relative Value Proposition (RVP) of a substitute
What can cause the threat of substitution to vary dramatically among buyers?
Differences in buyer resources, orientation, etc.
What is a key example of substitution threat varying by buyer segment?
Adoption of personal computers by small businesses
What factors cause changes in the threat of substitution?
Changes in relative price, relative value, buyer perception of value, switching cost, and propensity to substitute
What can lead to changes in relative price of a substitute and the product?
Changes in relative costs or profit margins
What are common reasons for changes in relative profit margins of a substitute and a product?
Industry’s response to fight the substitute, entry barriers, market penetration strategies, rivalry, and threat of backward integration
What are important sources of change in buyer value?
Technological change, development of infrastructure, and institutional factors
What is the significance of the S-shaped substitution curve?
It represents the typical path of substitution, including informing and testing phase, takeoff, and reaching an upper bound
What are potential competitive advantages of shared brand name in business units?
Lower advertising costs and reinforcing product images/reputations
What are risks of pursuing interrelationships involving value activities that are small or have little effect on differentiation?
Overemphasis on insignificant interrelationships leading to ineffective strategy
What are the steps in formulating horizontal strategy?
Identifying tangible interrelationships, examining value chains, identifying specific characteristics for sharing
What can be the result of illusory interrelatedness between business units?
Failure of shared activities or altered strategies due to lack of actual compatibility
How can the threat of a substitute change over time?
Through predictable sources like changes in relative price, value, buyer perception, switching cost, and propensity to substitute
What happens when a business unit lowers its margins to fight a substitute?
It can lead to reduced profitability and possibly industry exit if not sustainable
What role does technological change play in the threat of substitution?
It can significantly alter the relative value of the substitute and the original product
What is a typical characteristic of a substitute in its early market stages?
Higher prices and initial adoption by high-income buyers
How do larger companies differ from smaller ones in adopting substitutes like personal computers?
Larger companies have more complex needs and greater resources for automation
What is the impact of shared marketing departments on competitive advantage?
Lower marketing overhead and enhanced bargaining power with channels
What is the challenge in transferring know-how among business units?
Natural reluctance and differing incentives among units
Why is understanding the economic factors behind an S-shaped substitution curve important?
It helps forecast the rate and pattern of substitution
What are the dangers of business units forming alliances outside the firm for interrelationships?
Sharing benefits with partners, strengthening future competitors, and technology diffusion
What can inhibit the transfer of know-how within a firm?
Lack of systematic mechanisms and differing unit incentives
Why might business units ignore potential or existing competitors?
Due to a narrow perspective limited to their own strategies
What is the impact of pursuing interrelationships with insignificant competitive significance?
Wasted resources and efforts on unproductive strategies
What should be the basis of production interrelationships among business units?
Similarities in specific production equipment or process steps
What can cause a business unit to go outside for alliances rather than working internally?
Underestimating benefits of internal projects and overvaluing control over external relationships
What is the role of business units in a firm’s horizontal strategy?
Identifying and advocating strategies based on interrelationships
What can lead to illusory interrelatedness?
Superficial similarities not based on actual shared activities or competitive significance
What is the significance of identifying specific characteristics for value activity sharing?
Ensures meaningful and effective interrelationships
How do buyer perceptions of value affect the threat of substitution?
Influences the adoption and acceptance of substitutes
What role does buyer propensity to substitute play in industry dynamics?
Affects the rate and extent of substitution within an industry
What is the significance of switching costs in the context of competitive advantage?
It affects buyer’s likelihood of switching to substitutes
In the context of radial truck tires, why is their value higher to long-haul fleet operators?
Due to their higher mileage and retreading ability
Why might disposable diapers have higher value to families with two working spouses?
Because of the convenience they offer
How does buyer group segmentation affect the threat of substitution?
Different segments have different substitutes based on specific needs and preferences
In the racetrack case, how do buyer segments affect the threat of substitution?
Entertainment-focused and gambling-focused buyers have different substitutes
Why is personal computer penetration higher in larger small businesses?
Due to more complex paperwork needs and greater resources for automation
What impact do competitors’ strategic moves have on the substitution process?
They can significantly influence the direction and pace of substitution
What are the potential benefits of shared sales force or service networks?
Lower sales costs, better quality salespersons, and improved service responsiveness
What are the risks of shared sales force or service networks?
Incompatibility in buyer purchasing behaviors and product attention disparities
How can market interrelationships contribute to competitive advantage?
Through lower costs in advertising, promotion, and sales, and enhanced differentiation
What are the potential drawbacks of market interrelationships?
Inconsistent product images, buyer reluctance, and dilution of reputation
Why is understanding the economics of substitution crucial for firms?
To develop effective offensive or defensive substitution strategies
What can cause changes in buyer propensity to switch?
Evolving buyer attitudes, resources, and competitive conditions
Why is the relative pace of technological change important in substitution?
It determines which product improves value faster for the buyer
What factors can squeeze a substitute’s profit margins?
Increased rivalry, standardization, and buyer backward integration threat
How can the development of infrastructure affect the value of a substitute?
By enhancing the substitute’s effectiveness or ease of use
Why might a business unit prefer external alliances over internal collaborations?
For greater control and undervaluation of internal interrelationship benefits
What challenges arise in achieving internal interrelationships in a firm?
Organizational issues and underestimation of internal project benefits
What factors influence the likelihood of technological leakage in alliances?
Nature of the alliance and strength of intellectual property protections
Why might business units independently fail to recognize key competitors?
Due to a limited understanding of industry dynamics and competitor interrelationships
What is the risk of investing in shared components when buyer needs differ?
Suboptimal investment decisions and resource allocation
How can transfer pricing fail to solve interrelationship challenges?
When business units do not buy or sell from each other but still need to coordinate
What might trigger a competitive response affecting multiple business units?
Actions by one business unit without considering inter-business unit dynamics
What is the importance of identifying all tangible interrelationships in a firm?
To systematically explore potential competitive advantages through shared activities
How can firms mistakenly overemphasize interrelationships?
By focusing on superficial or insignificant similarities
What should be the starting point in formulating horizontal strategy?
Systematic identification of actual and potential tangible interrelationships
What are the consequences of not having an explicit horizontal strategy?
Lack of systematic identification and extension of interrelationships
Why might a business unit overlook the benefits of internal interrelationships?
Due to a narrow focus on independent strategy and underestimation of internal synergies
What tactic did Kodak use to tie the sales of machines and paper more closely?
Advertising the benefits of finishing pictures on Kodak paper
What should firms do to maintain the ability to cross-subsidize effectively?
Strengthen the connection between the base good and profitable goods
Why is it important for a firm to modify cross subsidization as the industry evolves?
To adapt to changing conditions and maintain competitiveness
What strategy might a firm use if the profitable good is proprietary?
Encourage entry into the base good to boost sales of the profitable good
What is a key sign that cross subsidization is unintended?
Failure to understand true costs leading to inadvertent cross subsidies
Why is understanding competitor behavior crucial in scenario planning?
It influences a firm’s strategic options and likely success
What was a significant change in the U.S. chain saw industry in the early 1970s?
Growing sales of small chain saws to homeowners and casual users
What factors drove the initial spurt in demand for chain saws by casual users?
The energy crisis and the do-it-yourself movement
What impact does increased casual user demand have on competitors in the chain saw industry?
Benefits firms with existing casual user models and mass distribution channels
Why is competitor analysis important in analyzing industry scenarios?
Competitors’ responses to structural changes can influence a firm’s strategy
What are the evolutionary forces driving industry structural change?
Long-run changes in growth, buyer segments, learning, uncertainty reduction, knowledge diffusion, experience accumulation, scale changes, cost changes, innovations, adjacent industry changes, government policy changes, entries and exits
What influences the future state of uncertain structural elements in an industry?
Causal factors such as economic conditions, technological trends, and policy shifts
What is the difference between independent and dependent uncertainties in scenario planning?
Independent uncertainties are true sources of uncertainty; dependent uncertainties are resolved once assumptions about independent uncertainties are made
What approach can limit the proliferation of scenarios in scenario planning?
Reducing the number of scenario variables and assumptions about each one
Why is it important to ensure scenario variables are truly uncertain and independent?
To focus on factors that truly contribute to uncertainty and avoid redundant analysis
What can be the outcome of using very unlikely values for a scenario variable?
Damaged credibility of scenarios and obscured strategic issues
What should assumptions about a scenario variable reflect?
The range of feasible values the variable could take and its impact on industry structure
Why is internal consistency important in scenario construction?
To ensure the scenario is a logical and plausible representation of future industry structure
How can scenarios help in strategic thinking?
By bounding the range of strategic options and stimulating consideration of different industry structures
What are the benefits of analyzing polar scenarios first?
They help bound the range of strategic options and stimulate strategic thinking
Why might scenarios reflecting managers’ assumptions be useful?
To expose differences in assumptions and test overall consistency of thinking
What is a practical limit in scenario planning?
The number of scenarios that can be meaningfully analyzed without obscuring strategic issues
How should the range of assumptions about each scenario variable be determined?
Based on causal factors, impact on structure, managers’ beliefs, and practicality
Why should scenarios not meant to be forecasts include unlikely outcomes?
To expose important differences in possible industry structures
What is the role of causal factors in scenario planning?
They determine the future state of uncertain structural elements
Why might a scenario be eliminated during consistency checking?
If combinations of assumptions about scenario variables are not mutually consistent
What should a scenario represent in the context of strategic planning?
An internally consistent view of what future industry structure could be
How do competitor strategies influence the analysis of industry scenarios?
They affect the speed and direction of structural changes in the scenario
Why is strategic mapping useful in analyzing scenarios?
It integrates predictions of likely competitor responses and facilitates analysis of interactions
What might the proliferation of scenarios beyond three or four lead to?
Analysis becoming so onerous that strategic issues are obscured
How can scenario planning stretch managers’ thinking about the future?
By illustrating the logical outcomes of a range of forecasts
What should well-chosen scenarios do in strategy formulation?
Illuminate the range of futures germane to strategy formulation
Why is attaching probabilities to scenarios often necessary?
To reflect the likelihood of different scenarios occurring
Why is it important for firms to strengthen the connection between base goods and profitable goods?
To defend the firm’s ability to cross-subsidize
What is one tactic to increase the connection between base goods and profitable goods?
Designs that increase competitors’ difficulty in achieving a compatible interface
What strategy did Kodak use to connect sales of machines and paper?
Advertising the desirability of using Kodak paper for finishing pictures
Why must firms be prepared to modify cross subsidization as the industry evolves?
To adapt to changing conditions and maintain competitiveness
What might encourage a firm to devise more complex pricing schemes over time?
To lower the price of profitable goods for buyers most susceptible to defection
Why is it beneficial to encourage entry into the base good to boost sales of a proprietary profitable good?
To increase the market for the profitable good through tactics like licensing
What is the risk of unintended cross subsidization?
It can lead to cherry-picking by competitors and attract new entrants
What causes unpredictability in predicting competitor behavior in a scenario?
Lack of understanding of the structural environment in which competitors operate
What was a significant trend in the U.S. chain saw industry in the early 1970s?
Growth in sales of small chain saws to homeowners and casual users
What factors can lead to both predetermined and unpredictable industry changes?
Technological trends, government policy shifts, social changes, and economic conditions
What are some underlying evolutionary processes that drive industry structural change?
Long-run changes in growth, buyer segments, buyer learning, reduction of uncertainty, diffusion of knowledge, experience accumulation, scale changes, cost changes, product and process innovation
What is the importance of identifying major discontinuities in scenario construction?
To determine significant impacts on industry structure, such as revolutionary technological changes
How can firms limit the proliferation of scenarios in scenario planning?
By reducing the number of scenario variables and assumptions made about each one
What distinguishes independent uncertainties from dependent uncertainties in scenario planning?
Independent uncertainties are true sources of uncertainty, while dependent uncertainties are resolved by assumptions about independent uncertainties
Why is it important to ensure that scenario variables are truly uncertain and independent?
To accurately focus on factors contributing to uncertainty and avoid redundant analysis
How should the range of assumptions about each scenario variable be chosen?
Based on causal factors, impact on structure, managers’ beliefs, and practicality
What is the role of causal factors in determining the future state of uncertain structural elements?
They influence the outcome of uncertain structural elements in an industry
Why is internal consistency important in scenario planning?
To ensure that scenarios are logical and plausible representations of future industry structure
How can scenario planning help in strategic thinking?
By exposing the range of strategic options and stimulating consideration of different industry structures
Why is it beneficial to analyze polar scenarios first?
To bound the range of strategic options and stimulate strategic thinking
How can major discontinuities be factored into strategic choices?
By including them as special scenarios analyzed less extensively but considered in strategy selection
What is the purpose of scenarios in understanding industry and competitive conditions?
To illustrate logical outcomes of a range of forecasts, not to provide accurate predictions
Why should scenarios be chosen to communicate, educate, and stretch managers’ thinking?
To illuminate the range of futures relevant to strategy formulation
What should be considered when attaching probabilities to scenarios?
The likelihood of different scenarios occurring
Why is scenario planning critical in industries with unpredictable competitor behavior?
To anticipate how competitors’ strategies might influence industry structure
What impact does increased casual user demand have on firms in the chain saw industry?
Benefits firms with casual user models and mass distribution channels
What is the importance of strategic mapping in analyzing scenarios?
To integrate predictions of competitor responses and analyze interactions among competitors
What challenges arise in predicting competitor behavior under different scenarios?
Competitor behavior can be difficult to predict and may affect industry structure
How can scenarios expose differences in assumptions held by senior managers?
By combining assumptions into a scenario, revealing inconsistencies or implausibilities
Why might scenarios based on highly implausible assumptions damage their credibility?
Because they lead to industry structures that differ substantially from more likely outcomes
What are the consequences of a proliferation of scenarios beyond a practical limit?
Analysis becomes too onerous, obscuring strategic issues
What does cross-subsidization in a firm involve?
Using profits from one product to subsidize a more competitively priced product
How can a firm effectively use cross-subsidization as a strategic tool?
By carefully aligning the pricing and marketing of base and profitable goods
What risk does a firm face if it fails to accurately understand its cost structure in different segments?
Unintentionally engaging in cross-subsidization
Why is it crucial for a firm to avoid unintentional cross subsidization?
To prevent competitors from exploiting pricing vulnerabilities
What role does competitor behavior analysis play in scenario planning?
It helps in understanding how competitors might respond to changing industry structures
Why is understanding the chain saw industry’s history important for scenario construction?
To comprehend the basis of current trends and uncertainties
What triggered the initial increase in demand for chain saws by casual users in the 1970s?
The energy crisis and the rise of the do-it-yourself movement
How do changes in environmental factors impact industry structure?
They lead to both predictable and unpredictable changes in industry dynamics
What are examples of environmental factors that can impact an industry?
Technological trends, government policies, social changes, and economic conditions
Why is it important to consider discontinuities in scenario planning?
To account for major changes that could significantly impact industry structure
What is the significance of independent uncertainties in scenario planning?
They are the primary variables on which scenarios are based
How do dependent uncertainties differ from independent uncertainties?
Dependent uncertainties are determined after making assumptions about independent uncertainties
What is the role of causal factors in scenario construction?
To determine the future state of uncertain structural elements
How can the number of scenarios in scenario planning be managed effectively?
By focusing on the most significant uncertainties and limiting assumptions
What is the importance of internal consistency in scenario construction?
To ensure that scenarios are logical and plausible
Why is analyzing a range of scenarios beneficial for strategic planning?
It helps in understanding the different possible futures and their implications
How can scenario planning be used to test managers’ assumptions?
By building scenarios around commonly held beliefs and examining their plausibility
Why is it important to include unlikely but impactful scenarios in planning?
To consider the full range of possible outcomes and their strategic implications
How does the level of casual user demand affect the chain saw industry structure?
It influences market dynamics, including competition and product offerings
What might lead to a shift in the chain saw industry from dealer to non-dealer sales?
Changes in the preferences and buying behaviors of casual users
How can changes in the mix of dealer versus non-dealer sales impact the industry?
By altering the competitive landscape and distribution strategies
What is the significance of the shape of the casual user penetration curve?
It affects the industry’s growth trajectory and potential for overcapacity
How can the extent of private label versus branded sales impact chain saw manufacturers?
By influencing brand power and the bargaining strength of buyers
Why is it important for a firm to understand the range of assumptions in scenario planning?
To anticipate different industry structures and prepare accordingly
How can the consistency of assumptions in scenario planning be ensured?
By verifying that assumptions about different variables align logically
What is the significance of the mix of dealer versus non-dealer sales in the chain saw industry?
It determines the primary distribution channels and influences customer relationships
Why is it important to consider both internal and external causes in scenario variables?
To fully understand the drivers of industry change and their interdependencies
How can scenario planning help firms in industries with rapid technological change?
By preparing them for various potential future states and technological impacts
What can firms learn from analyzing the evolution of the chain saw industry?
Insights into how industries can transform and the factors driving these changes
How do assumptions about casual user demand affect strategic decisions in the chain saw industry?
They influence production, marketing, and distribution strategies
What signifies a leader stuck in the middle in an industry?
Lack of cost leadership or differentiation vis-à-vis other incumbents
What are signs that an industry leader has unhappy buyers?
Buyers feeling that the leader has overused its bargaining power or developed arrogance
Why might a leader who pioneered current industry technology be vulnerable?
Reluctance to embrace new technology and inflexibility due to investment in current technology
How can very high profitability of an industry leader be a sign of vulnerability?
It may provide an umbrella for challengers and indicate reluctance to reduce profits for retaliation
Why could a leader with a history of regulatory problems be vulnerable to attack?
Constraints from vigorous retaliation or belief in being restricted due to past regulatory issues
What risk does a weak performer in a parent company’s portfolio pose as an industry leader?
Lack of sufficient capital or discretion over profitability to effectively counter challengers
What strategic risk is associated with attacking an industry leader?
Potentially destroying industry structure or ending up in a protracted, expensive conflict
What can be a consequence of a challenger gaining market share but not a clear advantage over the leader?
Long period of instability in the industry and reduced competitive advantage
Why might attacking a ‘good’ industry leader not improve a challenger’s profitability?
Loss of the umbrella provided by the leader could worsen the challenger’s position
Why is it important to assess the structural attractiveness in an industry scenario analysis?
To understand the long-term profitability potential of the industry
What does ‘Casual User Saws Are a Fad’ imply in a chain saw industry scenario?
The surge in demand for casual user saws is temporary and not sustainable
What should a firm focus on if rivalry becomes vicious after a growth spurt?
Maintaining a low cost position to cope with intense competition
Why is brand awareness with professional users important in the chain saw industry?
It ensures continued loyalty and revenue from a key customer segment
What might be a strategic action to avoid excess capacity in the chain saw industry?
Careful demand forecasting and production planning
Why is maintaining traditional strengths important for a chain saw manufacturer?
To preserve competitive advantage in core market segments
How might aggressive investment behavior of competitors like McCulloch and Beaird-Poulan influence the industry?
It could intensify rivalry and reshape market dynamics
Why is hedging a strategy not optimal for any particular scenario?
It involves trade-offs and preparing for several different competitive circumstances
What does preserving flexibility entail in scenario planning?
Delaying resource commitments to choose a fitting strategy once uncertainties resolve
What is the price paid for preserving flexibility in strategic planning?
Potential loss of first-mover advantages and delayed commitment
How can a firm influence which industry scenario occurs?
By trying to affect the causal factors behind scenario variables
What are the risks associated with attacking an industry leader?
Undermining industry structure and triggering prolonged competitive wars
What determines the timing of resource commitment in scenario planning?
The trade-off between risk and first-mover advantages
Why is early information about the future state of scenario variables valuable?
It enables earlier strategic commitment with potential position gains
How should scenarios be integrated into the planning process of a business unit?
After basic industry, competitor, and value chain analysis
When should scenarios be constructed in the planning process?
When significant uncertainties are present in an industry
Why is the corporate role important in constructing industry scenarios?
To provide macroscenarios and environmental analysis inputs
What might be a sign that an industry leader is vulnerable to attack?
Signs of being stuck in the middle, unhappy buyers, or pioneering outdated technology
Why should scenarios be constructed by business unit managers?
To ensure relevance and applicability to the business unit’s strategy
What is the importance of good data about causal factors in scenario planning?
To refine the set of scenarios investigated and understand demand better
Why should the chosen strategy be widely communicated within an organization?
To ensure commitment and effective implementation
What indicates a leader might yield share in less profitable parts of the product line?
History of focusing only on highly profitable segments
How can a leader’s very high profitability signal opportunities for challengers?
It may suggest the leader is vulnerable to price undercutting or market share encroachment
Why might a leader with a history of regulatory problems be hesitant to retaliate against challengers?
Fear of further regulatory scrutiny or restrictions
What does being ‘stuck in the middle’ mean for an industry leader?
Lacking a clear competitive advantage either through cost leadership or differentiation
How does a leader’s attitude of arrogance towards buyers create opportunities for challengers?
It can lead to buyer dissatisfaction and openness to alternative suppliers
Why is a leader’s reluctance to adopt new technology a vulnerability?
It can make them slow to respond to market changes and technological advancements
What strategic risk comes with attacking an industry leader and failing to gain a clear advantage?
It can lead to a prolonged and costly conflict with the leader
What is the consequence of a challenger attacking a ‘good’ leader in the industry?
Potentially worsening the challenger’s own position by losing the benefits provided by the leader
In the chain saw industry scenario, what does a temporary surge in casual user saws indicate?
A short-lived opportunity that requires careful strategy to capitalize on without overcommitting
What is the strategic implication of a vicious rivalry following a growth spurt in an industry?
Need for strategies focused on efficiency and cost management to survive the intense competition
Why is maintaining dealer loyalty important for a chain saw manufacturer in a changing market?
To retain a reliable distribution channel and customer base
What strategic options are available for a firm in dealing with uncertain industry scenarios?
Betting on a scenario, hedging, preserving flexibility, and attempting to influence the outcome
What is the trade-off involved in a hedging strategy?
Sacrificing optimal performance in any single scenario for reduced risk across multiple scenarios
Why might a firm choose to preserve flexibility in its strategy?
To delay commitment until more information is available about which scenario will materialize
What are the disadvantages of preserving flexibility in strategic planning?
Potential loss of early mover advantages and delayed market entry
How can a firm attempt to influence the outcome of an industry scenario?
By impacting the causal factors behind key scenario variables
What are the risks of attacking a well-established industry leader?
Potential industry destabilization and a costly, drawn-out battle for market share
What factors influence the timing of resource commitment in strategic planning?
The balance between the risks of early commitment and the benefits of early mover advantages
Why is early prediction of scenario outcomes strategically valuable?
It allows for earlier commitment to a strategy, potentially securing competitive advantages
How should industry scenarios be used in a business unit’s planning process?
As a tool for understanding the implications of uncertainty and guiding strategic decisions
When is it most crucial for a business unit to construct industry scenarios?
When the industry is facing significant uncertainties that could impact strategy
What role can a corporate planning group play in developing industry scenarios?
Providing macro-level insights and environmental analysis to inform scenario construction
What signs might indicate that an industry leader is vulnerable to competitive attack?
Signs of complacency, outdated technology, or regulatory constraints
What is the importance of business unit managers being involved in scenario construction?
To ensure that the scenarios are directly relevant and actionable for the business unit
Why is accurate data about causal factors crucial in effective scenario planning?
To narrow down assumptions and better predict potential industry changes
What organizational challenge arises from using scenarios in strategic planning?
Balancing the recognition of uncertainty with the need for commitment to a chosen strategy
What should be the focus of investments in information gathering for scenario planning?
Concentrating on scenario variables critical to industry structural change
How do first-mover advantages influence the choice between betting and flexibility in scenarios?
Significant first-mover advantages might make flexibility less attractive due to lost opportunities
How does the initial competitive position of a firm influence its scenario planning approach?
It affects the potential effectiveness of strategies tailored to different scenarios
What factors should be considered when evaluating the risk of different strategic approaches to scenarios?
Timing of commitment, inconsistency among strategies for alternate scenarios, and relative probability of scenarios
