Exam 1: Chapter 5- Business Level Strategy Flashcards
In developing a business level strategy, a manager must answer three fundamental questions:
1) Who do we serve? (a broad or narrow market segment)
2) What do we provide (a small or large range of products/services)?
3) How do we provide it (our unique production approaches or delivery processes)?
Porter’s 5-Forces Model
Framework to assess an industry’s long-run profit potential
List the 5 Forces in Porter’s Model
1) Threat of New Entrants
2) Bargaining Power of Suppliers
3) Threat of Substitutes
4) Bargaining Power of Customers
5) Rivalry among Existing Competitors
The Threat of New Entrants results in
more of the same products being supplied to the same customer base, ultimately decreasing profits for all players
Barriers to Entry
obstacles a firm may face while trying to enter a market or an industry
Supply Side Economies of Scale
When a firm manufactures products in high volumes. Large volumes results in a lower production cost, lower costs can deter other firms from entering the market
Demand Side Benefits of Scale
in situations where the buyers’ willingness to pay for a product increases as the number of other buyers for the industry’s product increases. buyers feel a sense of safety buying from a reputable source
Customers switching Costs
arises when the consumer has to make changes to their product or operating procedure when using a new supply source
Capital Requirements
large amounts of capital (money) are required by any new entrant just to begin operating
Unequal access to distribution channels
many industries have overcrowded distribution channels, the barriers are significant in the form of obtaining distribution channels for its product
Restrictive Government Policy
Gov’t can limit or even foreclose entry to industries via controls such as license requirement,s patents protection, foreign investment barriers, and limits on access to local raw material markets
Bargaining Power of Suppliers
when the supplier limits production, the supplier does not consider the industry as one of its major customers
First-mover advantage
a competitive advantage that occurs when a firm is first to offer desirable products or services that secure customer loyalty
Characteristics of a Powerful Supplier Group
- supplier industry more concentrated than industry it sells to
- participants in industry face switching costs in changing suppliers
- no substitutes exist for what supplier provides
- supplier group can threaten to integrate forward into the buyer industry
- supplier group does not depend heavily on the industry
Characteristics of a Powerful Customer Group
- group is concentrated or purchases in large volumes relative to the supplier
- industry’s products are undifferentiated
- buyers face few switching costs in changing vendors
- buyers could potentially integrate backward to produce the industry’s product
Bargaining Power
the pressure that a supplier or buyer can exert on a company
Porter’s Five Forces Model generally…
works to increase or decrease profit potential
Resource Based View of the Firm
a theory that a firm can develop a competitive advantage through the collection and harvesting of resources
Tangible Resources
tend to be most plan and equipment or what it uses to manufacture products,
also can be: real estate, inventory, raw materials, and computing systems
Intangible Resources
include a firm’s internal processes or systems, bran names, technology, culture, and intellectual property
Human Resources
include employees of all levels, from lower level employees to the CEO
just as important as its tangible and intangible resources
SWOT Analysis
a tool that allows managers to take a snapshot of their firm’s internal strengths and weaknesses as well as the opportunities and threats that are evident the external environment
4 Components to SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
Strategic Flexibility
the capability to identify and react to changes in the external environment and to mobilize internal resources to deal with those changes
Value
the amount consumers are willing to pay for a product or service, and it comes from offering a lower price than that of competitors or providing a unique product whose benefits outweigh a higher potential cost to consumers
Cost Leadership
a strategy that aims to provide a product or service at as low a price as possible to a broad audience
Economies of Scale
cost savings achieved when the volume of a product produced by a firm enables it to reduce per unit costs
Differentiation
a strategy in which a firm seeks to be unique in its industry along a dimension or a group of dimensions that are valued by consumers
Focus
a strategy in which a company “focuses” its sales efforts on a specific geographical region, a specific group of purchasers, or a specific product type
Two types of focus strategies
- Low cost focus strategy
- Differentiation focused approach
Stuck in the Middle
a firm that engages in numerous strategies but fails to master any one
Value chain analysis
a systematic way of examining all of the activities a firm performs and determining how they interact to form a source of competitive advantage
Primary activites
the activities involved in the physical creation of the product and its sale and transfer to the buyer
Support activities
activities that provide the support necessary for the primary activities to occur
Cost leadership strategy
involves tight control systems and cost minimization
Value Chain Analysis 3 Aspects
1) how the firm uses its resources and capabilities to develop core competencies
2) compare the firm’s value chain with competitors’ value chains to better understand the competitive forces in the market and determine how to improve the firm’s value-creating activities
3) view the firm’s value chain in the context of a larger value system that includes the value chains of suppliers and distribution channels
