Midterm Review

Question 1

Five Forces

Answer 1

• New entrants
• Rivalry
• Supplier Power
• Buyer Power
• Substitute Products

Question 2

Determinants of New Entry Threat (6)

Answer 2

• capital requirements
• switching costs (differentiation)
• access to distribution channels
• gov’t regulation
• Economies of scale
• advantages independent of size (relationships, brand, experience)

Question 3

Determinants of Rivalry (6)

Answer 3

• number of firms
• undifferentiated product (low switching costs)
• high exit barriers
• price competition (if perishable, if low marginal cost)
• slowing industry growth
• rivals are highly committed

Question 4

Determinants of Supplier Threat (4)

Answer 4

• threat of forward integration
• more concentrated than the industry they supply
• no substitute for their product
• switching costs (differentiation)

Question 5

Determinants of Customer Threat (4)

Answer 5

• threat of backward integration
• size of purchase
• # of customers (fragmentation)
• switching costs (differentiation)

Question 6

Drawbacks of Five Forces Analysis (3)

Answer 6

• industry profitability does not equal firm profitability
• static view, not dynamic
• zero-sum, not positive sum

Question 7

Two forces driving industry life cycle

Answer 7

1. Demand growth

2. Knowledge diffusion

Question 8

Four stages of Industry Life Cycle

Answer 8

1. Introduction
2. Growth
3. Maturity
4. Decline

Question 9

Elements of Introduction phase (ILC) (5)

Answer 9

• product innovation
• high price, low volume and quality
• non-price based competition (features, tech)
• higher risk
• competing for attention, exposure

Question 10

Elements of Growth phase (ILC) (6)

Answer 10

• dominant design emerges
• building brand, marketing
• access to distribution channels
• large scale manufacturing, economies of scale
• product innovation down, process innovation up
• increase in standardization

Question 11

Elements of Maturity phase (ILC) (3)

Answer 11

• cost efficiency (econ. of scale, low import cost, low overhead)
• replacement demand
• differentiation through branding and complimentary serves

Question 12

Elements of Decline phase (ILC) (3)

Answer 12

• change in customer tastes
• tech obsolescence/substitution
• foreign competition

Question 13

Adjusting to capacity decline (3)

Answer 13

1. barriers to exit (fixed cost, specialized equipment, managerial commitment)
2. predictability of decline
3. strategies of surviving firms

Question 14

Organizational Inertia (5)

Answer 14

1. social and political structures
2. organizational capabilities, competency traps
3. complements between strategy, structure, and systems
4. limited search and blinker perception
5. conformity

Question 15

Two increasing returns to adoption

Answer 15

Learning curve and network effects

Question 16

What kind of markets are created by network effects?

Answer 16

winner-take-all

Question 17

Elements of disruptive technologies (4)

Answer 17

• offer different value proposition
• underperforms established products at first
• typically cheaper and easier to use
• creates new market by turning non-customers into customers

Question 18

Principals of disruptive innovation industries (5)

Answer 18

1. small markets don’t solve growth needs of large companies
2. no metrics, hard to forecast
3. depend on customers and investors for support
4. technology supply may be greater than demand, overshooting the market
5. organizational capabilities define its disabilities

Question 19

VRIS stands for:

Answer 19

Value, Rare, Imitability, Substitutes

Question 20

Principals of resource imitability (3*)

Answer 20

1. physical uniqueness
2. path dependency (asset mass deficiencies and time compression diseconomies
3. causal ambiguity

Question 21

VRIS: no value =

Answer 21

competitive disadvantage

Question 22

VRIS: only value =

Answer 22

competitive parity

Question 23

VRIS: value & rarity =

Answer 23

temporary competitive advantage

Question 24

VRIS: value & rarity & non-imitability =

Answer 24

temporary competitive advantage

Question 25

VRIS: value & rarity & non-imitability & non-substitutable =

Answer 25

sustained competitive advantage

Question 26

Cost Leadership: Economies of scale: (4)

Answer 26

• specialized machines
• specialized employees
• overhead costs
• PPE costs

Question 27

Diseconomies of Scale (4)

Answer 27

• managerial complexity
• worker motivation
• physical limitations
• distance to markets and suppliers

Question 28

Cost Leadership: Learning Curve:

Answer 28

• no diseconomies of learning

- leanring curve is cumulative, not marginal

Question 29

Elements of Cost Leadership (7)

Answer 29

• economies of scale
• leaning curve
• product design
• low-cost inputs
• production techniques
• low overhead
• capacity utilization

Question 30

BCG criticisms of cost leadership (4)

Answer 30

1. competitive parity bc decrease in price is offset by increase in advertising costs
2. ignores differentiation
3. doesnt show causation, only correlation
4. omitted variable

Question 31

Economies of scale are less likely in:

Answer 31

mature markets

Question 32

Leaning curve less likely in:

Answer 32

mature markets

Question 33

Product Differentiation: Attributes of product (4)

Answer 33

• product features (easiest to imitate)
• complexity (easy)
• timing (hard)
• location (hard)

Question 34

Product Differentiation: Relationship of firms and customers (3)

Answer 34

• customization (easy)
• reputation (hard)
• marketing (easy)

Question 35

Product Differentiation: linkages with or between firms (5)

Answer 35

• service and support (hard)
• distribution channels (hard)
• product mix (medium)
• cobranding (easy-medium)
• collaboration within the firm (hard)