Lecture 5

Question 1

What are types of internal analyses

Answer 1

Resources (VRIO)
Core competencies
Value chain

Question 2

Types of external analyses

Answer 2

Macro environment
Industry and competitive environment
Strategic groups

Question 3

SWOT Analysis

Answer 3

A framework that allows managers to synthesise insights obtained from an internal analysis of a company’s strengths and weaknesses with those from an external analysis of external opportunities and threats

Question 4

Matching strategies

Answer 4

How do I use my strengths to take advantage of these opportunities?

Question 5

Change strategies

Answer 5

How do I overcome my weaknesses that prevent me from taking advantage of these opportunities

Question 6

Neutralising strategies

Answer 6

How do I use my strengths to reduce the likelihood and impact of these threats?

Question 7

Defense strategies

Answer 7

How do I address the weaknesses that will make these threats a reality?

Question 8

What is the difference between strength (SWOT) and a competitive advantage/competitive capability

Answer 8

Strengths (like a top coach or high quality gear) won’t necessarily differentiate an athlete as they are imitable, although beneficial. However, his ability to curve the ball after hours and hours of practise will.

Question 9

Company’s business situation

Answer 9

Definition: The combination of internal capabilities and external conditions impacting a company’s performance and strategy.

•	Internal Factors: Resources, core capabilities, vision, and objectives.
•	External Factors: Macro-environment (PESTEL), industry competition (Porter’s Five Forces).

Purpose: Evaluates strengths, weaknesses, opportunities, and threats (SWOT) to identify strategic actions and improve market position.

Question 10

What should the cornerstones of strategy be

Answer 10

A company’s strength and capabilities

Question 11

How do I chose which market opportunities to pursue

Answer 11

One should focus on the opportunities best suited to the firms strengths and capabilities

Question 12

Implications for improving company strategy

Answer 12

• Use company strengths and capabilities as cornerstones for strategy
• Pursue those market opportunities best suited to a company’s strengths and capabilities
• Correct weaknesses deficiencies which impair pursuit of important market opportunities or heighten vulnerability to external threats(Change strategy)
• Use company’s strength to lessen the impact of important external threats (Neutralising strategy)

Question 13

What are the requirements for imitation of a competitive advantage

Answer 13

Identification
Ressource aquasition
Diagnosis
Incentives for immitation

Question 14

What is the purpose of isolating mechanisms

Answer 14

They help sustaining your competitive advantage

Question 15

What are the 4 isolating mechanisms?

Answer 15

• Obscure superior performance
• Base competitive advantage on resources that are immobile and costly to replicate
• Rely on multiple sources of competitive advantage to create casual ambiguity
• Detterance: signal aggressive intentions to competitors
  Preemption: exploit all available investment opportunities

Question 16

Casual ambiguity

Answer 16

It’s unclear why something works well

Question 17

Preemption

Answer 17

efinition: Actions taken by a company to prevent competitors from gaining market access or resources.

•	Examples:
•	Securing key locations or resources
•	Launching products first
•	Signing exclusive contracts
•	Building early customer loyalty

Purpose: To establish a strong position that makes it difficult or costly for competitors to enter or compete.

Question 18

What are the types of competitive advantage

Answer 18

• Cost leadership
• Niche
• Differentiation

Question 19

What are the ways to increase profit

Answer 19

• Decrease costs
• Increase price

Question 20

Cost advantage strategy objective

Answer 20

The objective is to realise a margin premium that reflects the size of the cost advantage

Question 21

Risks of cost advantage strategy

Answer 21

• catch-up of competitors
• Cost-price dynamics (hypercompetition)
• Technical changes
• Changes in consumer behaviour

Question 22

Possible elements of cost optimisation strategy

Answer 22

• Cost control
• Product/service standardisation
• Economies of scale and scope
• Learning effects
• Outsourcing/vertical integration
• Using bargaining power

Question 23

Economies of scale and scope

Answer 23

• Economies of Scale: Cost savings from producing more of a single product. As production volume increases, average cost per unit decreases (e.g., bulk purchasing, streamlined production).
• Economies of Scope: Cost advantages from producing a variety of products or services together. Uses shared resources across products, lowering costs (e.g., shared facilities, cross-selling).

Goal: Reduce average costs to improve efficiency and competitiveness.

Question 24

Cost leadership and the experience curve

Answer 24

• Experience Curve: Shows how unit costs decrease as cumulative production increases.
• Example: An 80% experience curve implies unit costs fall to 80% of the previous level after production doubles.
• Learning Effect: Greater in labor-intensive tasks; doubling output can reduce unit costs by 20-30%.
• Cost Leadership through Early Entry: Firms that enter a market first can achieve cost advantages by gaining higher market share and benefiting from accelerated learning.

Question 25

Drivers of cost advantage

Answer 25

1. Economies of Scale: Lowering costs by increasing production volume.
2. Capacity Utilization: Maximizing fixed assets to spread costs.
3. Economies of Learning: Gaining efficiencies over time through experience.
4. Production Techniques: Innovation and process improvement.
5. Input Costs: Leveraging location advantages, bargaining power, and non-union labor

Question 26

Value chain analysis for cost reduction

Answer 26

Steps:
1. Identify activities.
2. Allocate costs to each activity.
3. Identify cost drivers.
4. Examine linkages between activities.
5. Identify cost-saving opportunities.
• Goal: To pinpoint and optimize high-cost areas in the production process.

Question 27

Differentiation strategy

Answer 27

Objective: Achieve a price premium that exceeds the cost of differentiating.

•	Elements:
•	Strong brand reputation
•	Superior product quality
•	Design and marketing skills
•	Enhanced customer service
•	Risks: Overspending, inadequate price premiums, and imitation by competitors.

Question 28

Delivering value trough differentiation

Answer 28

1. Lower Customer Costs: Add features that save customers money (e.g., energy efficiency).
   
   2. Tangible Features: Improve satisfaction with quality design and warranty.
   3. Intangible Features: Add prestige or exclusivity.
   4. Signaling Value: Justify high price through premium branding and packaging.

Question 29

Focus (Niche) Strategy

Answer 29

• Definition: Targeting a narrow, specialized market segment.
• Types:
• Focused Low-Cost: Offering lower costs to a niche.
• Focused Differentiation: Catering to unique preferences within a niche.
• Risks: Niche becoming attractive to competitors or losing customer appeal.

Question 30

Best cost provider strategy

Answer 30

• Definition: Offering products with the best combination of quality and price.
• Ideal Conditions:
Differentiation is common in the market.
Value-conscious customers are prevalent.
•. Risk: Being “stuck in the middle,” failing to fully achieve either cost leadership or differentiation.

Question 31

„Stuck in the middle“

Answer 31

• Definition: Failing to achieve either cost leadership or differentiation, leading to a weak market position.
• Porter’s View: Companies should focus on one primary strategy (cost leadership or differentiation) to avoid this risk.
• Example: Toyota’s Lexus - Competes with luxury brands on quality but at a lower price.

Question 32

Diseconomies

Answer 32

When a business grows too large, and costs per unit start increasing instead of decreasing

Question 33

Margin premium

Answer 33

Extra profit, higher earnings

Question 34

Economies of scope

Answer 34

Average cost of products lowered by joint production with other products

Question 35

Indivisibilities

Answer 35

Resources or inputs that cannot be scaled down for smaller production levels
Ex. A factory or machine that’s too big for a small production run