Lecture 5 Flashcards
What are types of internal analyses
Resources (VRIO)
Core competencies
Value chain
Types of external analyses
Macro environment
Industry and competitive environment
Strategic groups
SWOT Analysis
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
Matching strategies
How do I use my strengths to take advantage of these opportunities?
Change strategies
How do I overcome my weaknesses that prevent me from taking advantage of these opportunities
Neutralising strategies
How do I use my strengths to reduce the likelihood and impact of these threats?
Defense strategies
How do I address the weaknesses that will make these threats a reality?
What is the difference between strength (SWOT) and a competitive advantage/competitive capability
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.
Company’s business situation
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.
What should the cornerstones of strategy be
A company’s strength and capabilities
How do I chose which market opportunities to pursue
One should focus on the opportunities best suited to the firms strengths and capabilities
Implications for improving company strategy
- 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)
What are the requirements for imitation of a competitive advantage
Identification
Ressource aquasition
Diagnosis
Incentives for immitation
What is the purpose of isolating mechanisms
They help sustaining your competitive advantage
What are the 4 isolating mechanisms?
- 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
Casual ambiguity
It’s unclear why something works well
Preemption
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.
What are the types of competitive advantage
- Cost leadership
- Niche
- Differentiation
What are the ways to increase profit
- Decrease costs
- Increase price
Cost advantage strategy objective
The objective is to realise a margin premium that reflects the size of the cost advantage
Risks of cost advantage strategy
- catch-up of competitors
- Cost-price dynamics (hypercompetition)
- Technical changes
- Changes in consumer behaviour
Possible elements of cost optimisation strategy
- Cost control
- Product/service standardisation
- Economies of scale and scope
- Learning effects
- Outsourcing/vertical integration
- Using bargaining power
Economies of scale and scope
• 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.
Cost leadership and the experience curve
• 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.
Drivers of cost advantage
- Economies of Scale: Lowering costs by increasing production volume.
- Capacity Utilization: Maximizing fixed assets to spread costs.
- Economies of Learning: Gaining efficiencies over time through experience.
- Production Techniques: Innovation and process improvement.
- Input Costs: Leveraging location advantages, bargaining power, and non-union labor
Value chain analysis for cost reduction
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.
Differentiation strategy
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.
Delivering value trough differentiation
- Lower Customer Costs: Add features that save customers money (e.g., energy efficiency).
- Tangible Features: Improve satisfaction with quality design and warranty.
- Intangible Features: Add prestige or exclusivity.
- Signaling Value: Justify high price through premium branding and packaging.
Focus (Niche) Strategy
• 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.
Best cost provider strategy
• 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.
„Stuck in the middle“
• 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.
Diseconomies
When a business grows too large, and costs per unit start increasing instead of decreasing
Margin premium
Extra profit, higher earnings
Economies of scope
Average cost of products lowered by joint production with other products
Indivisibilities
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
