Final Exam Flashcards
What are the factors of Strategic Value Position?
Price, Product, Manufacturing, Distribution, Marketing, HR, Mission
What are the Porters’ 5 Forces?
- Threat of New Entrants
- Rivalry among Existing Competitors
- Bargaining Power of Buyers
- Bargaining Power of Suppliers
- Threat of Substitutes
What are some important factors for Porters’ 5 Forces?
- Concentration
- Differentiation
- Cost of switching to another related competitor
- Economies of scale
- Likelihood of being integrated
When is bargaining power of suppliers high?
- It is more concentrated than the industry it sells to
- Suppliers offer products that are differentiated
- Industry participants face switching costs in changing suppliers
- There is no substitute for what the supplier group provides
- The supplier group does not depend heavily on the industry for its revenues
- The supplier group can credibly threaten to integrate forward into the industry
When is bargaining power of buyers high?
- Large volume buyers (somewhat concentrated)
- The industry’s products are standardized or undifferentiated
- Buyers face few switching costs
- Buyers can credibly threaten to integrate backward
When is threat of new entrants low?
1. Barriers to entry is high • Supply-side economies of scale • Demand-side benefits of scale • Customer switching costs • Capital requirements • Incumbency advantages independent of size • Unequalaccesstodistributionchannels • Restrictive government policy • Network effect 2. Expected retaliation is high • Incumbents have previously responded vigorously to new entrants • Incumbents possess substantial resources to fight back • Incumbents seem likely to cut prices • Industry growth is slow
When is intensity of rivalry high?
– Competitors are numerous
– Competitors are roughly equal in size and power
– Rivals are highly committed to the business and have aspirations for leadership
– Degree of differentiation of product is low
– Industry growth is low
– Exit barrier is high
What is a differentiation strategy?
- An integrated set of action taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them.
- Product innovation is critical to the successful use of differentiation strategy. But also many ways to be differentiated, brand, technology, service, network, etc.; profit from product features, brand loyalty, etc.; buyers lack comparable alternatives, substitutes
- Low price does not mean not differentiated; high price can only signal differentiation, does not guarantee differentiated well
- There are multiple forms (directions) of differentiation, depending on the targeted market and customers
What are some value drivers of the differentiation strategy?
- Product features
- Customer service
- Brand
- Network effect
- Complements
What is a low-cost leadership strategy?
- An integrated set of actions taken to produce goods or services with features that are acceptable at the lowest cost
- Sell standard goods or services (but with competitive levels of differentiation) to the industry’s most typical customers
- Requires heavy upfront investment in manufacturing and scale
- Concentrate on finding ways to lower their costs relative to competitors while maintaining competitive levels of differentiation
- Process innovation can allow the firm to operate more efficiently, is also critical to the successful use of cost leadership strategy; the less efficient ones will lose out
- Low price ≠ Low cost
- There is only one form of low cost i.e. low cost
What are some cost drivers of the low-cost leadership strategy?
- Cost of input factors
- Economies of scale
- Learning-curve effects
- Experience-curve effects
What are some of Porters’ Generic Strategies?
- Cost-leadership strategy (broad and low-cost)
- Differentiation strategy (broad and product unique)
- Focus strategy (low-cost) (narrow and low-cost)
- Focus strategy (differentiation) (narrow and product unique)
What is a focus strategy?
• An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment
• Firms use a focus strategy when they utilize their core competencies to serve the needs of a particular industry segment or niche
• Specific market segment:
(1) A particular buyer group
(2) A different segment of a product line (3) A different geographic market
What are the risks of a cost-leadership strategy?
- A fine line between misfit and attempt to differentiate on top of low cost
- Imitation by a resource backed entrant
- Geographical migration to the lowest cost point, a race
- Technology changes nullify learning and past investment in scale
- Low-cost image, hard to reverse
What are the risks of a differentiation strategy?
- Differentiation becomes commoditized and a standard of quality across rivals
- Overshoot differentiated appeal that does not increase willingness to pay: quality, feature, brand, etc.
- Buyers become sophisticated and their need for differentiators falls
- Loses out on network or platform competition
What is external consistency?
Does the strategy tap the opportunities and neutralize the threats posed by the outside world in a unique manner?
What is internal consistency?
Do the parts of the strategy fit together to form a whole that is greater than the sum of the parts?
What is dynamic consistency?
Is the strategy robust to the continuously changing external and competitive environment?
What is included in a value chain analysis?
- Firm infrastructure
- Human resource management
- Technology development
- Procurement
- Design
- Sourcing & manufacturing
- Distribution
- Marketing & Sales
- Operations
What is a core competency?
- Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals; the activities the company performs especially well compared to competitors
- Core competencies distinguish a company competitively and reflect its personality through which the firm adds unique value to the goods or services it sells to customers
- Core competencies emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities.
What does the VRIO framework consist of?
- Valuable capabilities
- Rare capabilities
- Costly-to-imitate capabilities
- Organized to capture value of resources
* If all is achieved, the company has sustained competitive advantage
What are the stages in an industry life cycle?
- Introduction
- Growth
- Shakeout
- Mature
- Decline
How do you know if a company is in the introduction phase of the life cycle?
- Market grows slow
- Product innovation
- Non-price competition, so price is high
- Compete on product features
- Differentiation drives profitability
- Few competitors
- May have first mover disadvantage cos risky
How do you know if a company is in the growth phase of the life cycle?
- Market grow is high
- Price starts to fall
- Product innovation decreasing; Process innovation increasing
- Compete on Quality
- Differentiation still drives profitability
- Many competitors, try to become the leader of the market
How do you know if a company is in the shakeout phase of the life cycle?
- Market growth is slowing down
- Price is moderate
- Cut-throat competition on price
- Increasing process innovation rapidly, Improve manufacturing efficiency to lower cost
- Differentiation or integration strategy drives profitability
- Fewer competitions because weak players exit
How do you know if a company is in the mature phase of the life cycle?
- No real market growth
- Price is low
- Compete on price
- Process innovation at maximum
- Cost leadership drives profitability
- Only a few players with the largest scale remains
- Fiercely intense competition cos compete on price
How do you know if a company is in the decline phase of the life cycle?
- Negative market growth
- No real innovation
- Price (Low or high)
- Few competitors, if any
- Exit, Harvest, Consolidate, or Maintain
What are the types of innovation?
- Architectural Innovation (new market & existing tech)
- Radical Innovation (new market & new tech)
- Incremental Innovation (existing market & existing tech)
- Disruptive Innovation (existing market & new tech)
What are the types of disruptive technology?
- Low-end disruption
2. New-market disruption
What is low-end disruption?
- Low-end disruptions attack the least-profitable and most over-served customers along attributes that the market currently values
- Emerging low-end segments in an industry that has already been over-serving consumers on the market
- A dominant design is established, a stable environment to do engage in modular replacement (to an inferior but still good enough for some consumer segment)
- Availability of technological components on the market after a cumulative time and collective effort of innovation by all players in the industry
What is new-market disruption?
- New-market disruptions create a new demand
- Targets non-consumption: customers who historically lacked the money or skill to buy and use the traditional attributes of the product
- A dominant design is established, need to create a new type of demand in order to compete, or event better, not compete with the dominant design holder
- Availability of technological components on the market after a cumulative time and collective effort of innovation by all players in the industry
What are some strategies for internal exploitation?
- First Mover Strategy
- Follower/Imitator Strategy
- Side Entrance Strategy (find the niche market and innovate for that niche)
- Derivative Strategy (add new improvements to old products)
What are some strategies for external exploitation?
- Licensing (let someone else use the technology in return for royalty fee)
- Spin-off (e.g. IPO, MBO)
What is a red ocean strategy?
- Compete in existing market space
- Beat the competition
- Exploiting existing demand
- Make the value-cost-trade-off
- Align the whole system of a firm’s activities with its strategic choice of differentiation or low-cost
What is a blue ocean strategy?
- Create uncontested market space
- Make the competition irrelevant
- Create and capture new demand
- Break the value-cost-trade-off
- Align the whole system of a firm’s activities in pursuit of differentiation and low cost
What is ERRC?
- Eliminate
- Raise
- Reduce
- Create
What are the types of horizontal diversification?
- Single business firm (e.g. Coca-Cola, Google, Facebook)
- Dominant-business firm (Harley-Davidson, Nestle, UPS)
- Related business firm - related-constrained (ExxonMobile, J&J, Nike)
- Related business firm - related-linked (Amazon, Disney, GE)
- Unrelated business firm (Berkshire Hathaway, Yamaha, Tata)
What’s the BCG Growth-Share Matrix?
- Question Mark (high growth, low market share)
- Star (high growth, high market share)
- Dog (low growth, low market share)
- Cash Cow (low growth, high market share)
How do you analyze a firm’s diversification strategy?
Assess multiple business units under one corporate:
• Analyze what resources/capabilities are being shared across different business units
• Identify if the shared resources and capabilities are the core competencies of each business unit
• Better-off test: Analyze how well do each business unit
achieve economy of scale (if any) and economy of scope (if any); are capabilities/core competencies well shared across all business units; is the sharing increase WTP or reduce costs in all business units?
• Ownership-test: Analyze whether ownership of each business unit is needed, or other alternatives are better forms for the corporate to engage in the business unit.
• and (organization-test)
What’s CAGE Framework?
- Cultural differences
- Administrative differences
- Geographic differences
- Economic differences
What’s the Integration-Responsiveness Framework?
- Global standardization strategy (high integration, low responsiveness)
- International strategy (low integration, low responsiveness)
- Transnational strategy (high integration, high responsiveness)
- Multi-domestic (low integration, high responsiveness)
What are the benefits and risks of an international strategy?
Benefits: - Leveraging core competencies - Economies of scale - Low-cost implementation through: • Exporting or licensing • Franchising • Licensing
Risks:
- No or limited local responsiveness
- Highly affected by exchange-rate fluctuations
- IP embedded in product or service could be expropriated
What are the benefits and risks of a multidomestic strategy?
Benefits:
- Highest possible local responsiveness
- Increased differentiation
- Reduced exchange-rate exposure
Risks:
- Duplication of key business functions in multiple countries leads to high cost of implementation
- Little or no economies of scale
- Little or no learning across different countries
- Higher risk of IP expropriation
What are the benefits and risks of a global standardization strategy?
Benefits:
- Location economies: global division of labor based on wherever best-of-class capabilities reside at lowest cost
- Economies of scale and standardization
Risks:
- No local responsiveness
- Little or no product differentiation
- Some exchange-rate exposure
- Race to the bottom as wages increase
- Some risk of IP expropriation
What are the benefits and risks of a transnational strategy?
Benefits:
- Attempts to combine benefits of localization and standardization strategies simultaneously by creating a global matrix structure
- Economies of scale, location experience, and learning
Risks:
- Global matrix structure is costly and difficult to implement, leading to high failure rate
- Some exchange-rate exposure
- Higher risk of IP expropriation
What consists of the PESTEL Framework?
- Political
- Economical
- Sociocultural
- Technological
- Ecological
- Legal
What is sustaining innovation?
Performance improvement in attributes most valued by the industry’s most demanding customers
What are the different sources of synergies?
- Linkage influence
- Stand-alone influence
- Corporate development
