Module 1 Section B

Question 1

Scope

Answer 1

range of activities that a firm performs internally, breadth of its products and service offerings, extent of its geographic market presence, and mix of businesses

Question 2

Product-Market Growth Matrix

Exhibit 1-28 pg. 1-63

Answer 2

1. Market penetration - pursue larger market share in existing market with existing product
2. Product development - focus on growing within existing market by introducting new products
3. Market development - org sells its existing products in a new market e.g. new geographical market (overseas)
4. Diversification - org extends scope to start performing new activities e.g. new products in new markets

Question 3

Diversification

Answer 3

• expansion of scope of product line to exploit new markets
• key objective is to spread org’s risk over several product lines in case there should be a downturn in any one product’s market
• often pursued when original markets are saturated / declining / evolving macro-environment conditions (e.g. changes in consumer habits) are eroding market size & profitability
• Risks - may be difficult for leaders to assess unfamiliar industry, others depend on how closely purchaser intends to integrate acquisition into existing org

Question 4

Related Diversification Strategies

Answer 4

• focuses on industries with value chain activities similar to org’s own (strategic fit) that take place at various pints of chain e.g. R&D, production, distribution, customer service
• should be submitted to 3 tests:
  1) industry attractiveness
  2) cost of entry
  3) better-off test

*

Question 5

Strategic Fit

Answer 5

Exists when:
* there is potential for sharing expertise / assets that will have synergistic effects e.g. baby food manufacturer has effective market reearch that can be transferred to children’s apparel market research
* assets can be shared to lower costs e.g. plant can produce both lawnmowers and snowblowers
* brand identity can be transferred to support consumer reconigiton *

Question 6

Unrelated Diversification Strategies

Answer 6

• involve orgs with diff. value chan activities and/or diff. types of resources
• does not offer opportunity for synergy

Question 7

Industry Attractiveness

Answer 7

Assessed based on multiple factors
1. market size and growth trend
2. intensity of competition
3. emergency opportunities & threats
4. cross-industry strategic fit
5. resource requirements
6. macro-environmental effects
7. industry profitability

High IA + strong business unit competitive position = little competitive pressure, good profit margins, growing market size

High IA + weak business unit competition position = weak competitor / old tech / poor management in strong industry

Low AI + strong business unit competitive position = revenue down in segment, strong brand, acceptable profits

Low AI + weak business unit competitive position = profits down industry wide, weak brand, arrogant management

Question 8

Global Expansion

Answer 8

• can provide access to new customers
• can lower costs and improve competitive position
• can be a response to negative conditions in home country

Question 9

Profit Sanctuary

Answer 9

• created when an org. expands into a foreign market and enjoys a strong/protected competitive position, which then support competitive activities in the org’s domestic and foreign markets
• org can afford to compete more aggresively against its domestic rivals because of profits from outside domestic market

Question 10

International Strategies - Global/Multinational

Answer 10

• designed to out-compete rivals by focusing on opportunities to achieve cross-business and cross-country coordination thereby enabling economies of scope and an improved competitive position with regard to reducing costs, cross-country subsidization, etc.;
• standardized policies and processes

* challenges
1. need for leaders who have global perspectives and cultural sensitivity
2. management is complex
3. product may be moving around more leading to increased costs for transportation / cross border tariffs
4. trades abilities to adapt to local markets

Question 11

International Strategies - Transnational

Answer 11

• aims at achieving some degree of both standardization and local responsiveness
• think global, act local
• intregated capabilities
• localized policies and processes**

Question 12

International Strategy - Multidomestic/Multicountry

Answer 12

• each country market is self-contained
• customers have unique product expectations addressed by local production capabilities
• think local, act local
• org is highly decentralized
• responsive to local conditions and needs

Question 13

Horizontially Intregated Firm

Answer 13

produces or sells similar products in various geographical locations

Question 14

Vertically Intregrated Firm

Answer 14

• functions that were previously performed by suppliers are now done interally
• grows in terms of what it makes or what activities it performs

Question 15

Merger

Answer 15

• acquisition of assets and liabilities of one company by another
• new entity formed
• 5 objectives satisified by merger or acquisition
  1. creating cost efficiencies
  2. expanding geographical coverage
  3. extending product offerings
  4. gaining access to tech, resources, capabilities
  5. supporting org’s ability to adapt to evolution of its industry

Question 16

Vertical Intregation

Answer 16

-degree to which firm has decided to directly produce multiple value-adding stages from raw materials to sale of product to ultimate consume
-the more steps in sequence, the greater the vertical integration
-can provide more control over value chain and opportunities to lower costs

Challenges
* increases investment in industry and exposure to changes/negative trends
* if activity is not significant to org’s operations, output may not make its acquisition cost-efficient

Question 17

Backward Intregration

Answer 17

-process of buying or owning elements of production cycle and channel of distribution back toward raw material suppliers
-focuses on activities located closer to origin of value chain
-offers more control over cost, time, quality of supplies –> competitive advantage when there are a few suppliers and they exert power over their customers
-significant investment in activity that is not one of org’s core competencies

Question 18

Forward Integration

Answer 18

-process of buying or owning elements of production cycle
-channel of distribution forward toward the final customer
-can provide opportunity to gain more control over distribution and sale of their products/services

Question 19

Outsourcing

Answer 19

-process of having suppliers provide goods/services that were previously provided internally
-involves substitution / replacement of internal capacity and production by that of the supplier
-opposite of integration / adds activities to its value chain system
-makes sense when activities can be performed better, more cheaply, or more quickly by a supplier
-comes with risks & loss of control –> products/services may not meet time, quantity, quality specs., prices may increase, supplier may have access to proprietary info
-should not include core competencies (activities that distinguish org from its competitors)

Question 20

Subcontracting

Answer 20

-sending production work outside to another manufacturer

Question 21

Strategic Drivers

Answer 21

-factors that influence business unit and manufacturing strategies
-start to identify during information-gathering phase of strategic planning
-can be external factors e.g. potential markets not being served or underserved by competitors or intense levels of competition that will require close control of costs
-can be internal factors e.g. capacity, expertise, and resources that can be used more fully to create a competitive advantage

Question 22

Customer/Market Segments

Answer 22

-well-prepared market research will identify customer needs that can be tied to changes in specific attributes of existing products or might require new products
-helps determine if product loyalty is strong or weak
-provides background information on the gap between customer expectations and perceptions of a product

-2 approaches:
* inquiry - focus groups, telephone, online surveys
* observation - observation of customer product use in relevant conditions

Question 23

Segmentation

Answer 23

-can be used to improve services or products for existing customers and determine prospective customers
-often used in starting stages of product design –> market analysis and surveys of existing customers
-Questions: who? where? when? why? what? how many?
-primary reason to identify and understand segments is to increase org’s profits over long term
-2 types: market and customer segmentation

Question 24

Market Segmentation

Answer 24

-marketing strategy in which total market is disaggregated into submarkets or segments that share some measurable characteristics based on demographics, psychographics, lifestyle, geography, benefits, etc.
-broader form of customer segmentation
-typically used more at business strategy level

Question 25

Customer Segmentation

Answer 25

-practice of dividing a customer base into groups of individuals who are similar in specific ways relevant to marketing
-traditional segmentation focuses on identifying customer groups based on demographics and attributes such as attitude and psychological profiles
-refinement of market segmentation
-used more at functional strategu level such as for setting a market strategy

Question 26

Intermediate Customer

Answer 26

-not at end of supply chain
-example: raw material supplier may count several manufacturers as intermediate

Question 27

Ultimate Customer

Answer 27

-final recipients of products or services
-example: org. purchasing goods/services for employees or constituents

Question 28

Customer Value Proposition

Answer 28

-critical issue is to determine what segment values most as well as what segment does not value/will not pay for
-org uses positioning –> ensuring its image and core values, products/services, and its brands/marketing reinforce value proposition
-different segments can have different value propositions –> org could emphasize low prices to one customer segment and sustainability to another segment

Question 29

Voice of Customer

Answer 29

-way to gather direct input from customers regarding needs and experiences (or behavior/how customer uses org’s products/services)
OBJECTIVES:
1. understand/define customer segment needs and views on quality
2. determine interest in new products and service features
3. understand customers’ speed, dependability, cost objectives
4. measure satisfaction
5. determine better ways to bundle or brand offerings
6. analyze customer loyalty and retention issues

Question 30

Customer Lifetime Value Analysis

Answer 30

-one way to determine which customer segments contribute most to profts
-process calculates both expense of acquiring/serving customer and revenue customer is likely to provide over time (starts out negative then becomes positive as customer is retained and continues to make purchases)
-Pareto principle: ~80% of profits tend to come from just 20% of customer base

Question 31

Local Design Principles Related to Customer Requirements

Answer 31

-Local design changes are often what is needed to create capacity for fulfilling customer requirements
-market requirements directly influence manufacturing environment design, which in turn impacts design of manufacturing planning and control (MPC) system
1. meet customer lead time expectations
2. meet product design and quality requirements
3. meet product variety and flexibility requirements
4. meet quantity and capacity requirements

Exhibit 1-34. Page 1-82
Exhibit 1-35. Page 1-83

Question 32

Performance Objectives

Answer 32

-measurements that enable firm to monitor whether or not firm’s strategy is being accomplished
-measurement should be aligned to strategy
-may differ based on hierarchical level of firm and should be aligned with corresponding strategy of that level

Question 33

Intregated Measurement Model

Answer 33

-tool that can help ensure that strategic goals are carried down into the strategies and tactics of the org
-example of a KPI tree, or series of KPIs that are linked and become more specific at lower levels but can be aggregated to provider summary info at higher levels
-Organizational –> divisonal –> functional (e.g. operations) –> individual

page 1-84

Question 34

Functional Strategy Level

Answer 34

Org’s usually cannot be order qualifiers in all 5 areas and usually focus on 1-2

1. Speed
2. Dependability (resilience)
3. Flexibility (agility)
4. Quality
5. Cost

Exhibit 1-37, page 1-86

Question 35

SMART Objectives

Answer 35

-goals are useful only if they can translate strategy into actual results
* 1. S - specific
* M- measurable
* A - attainable
* R - relevant
* T - time-bound

-what-if analysis: process of evaluating alternatre strategies by answering the consequences of changes to forecasts, manufacturing plans, inventory levels, etc.
-way to ensure strategy/objective are SMART and determine if it will be profitable

Question 36

Speed

Answer 36

-refers to time that elapses between beginning and end of a sales transaction
-important will vary among industries
example: some orgs require speed or response to customer orders and others must be able to get products/services in front of customers more quickly
time-based competition (TBC): business strategy based on speed of delivery; characteristics include:
1. dealing only with lead times that are important to customer;
2. lead-time reduction must involve decreases in both mean and variance (from the mean);
3. lead-time reduction must be achieve through system/process analysis

Question 37

Dependability

Answer 37

-keeping promises to customer regarding delivery time and/or volume

Question 38

Flexibility

Answer 38

2 dimensions:
1. Volume/Mix - refers to operation’s ability to provide a range of diff. types of products/services, introduce new products, redesign existing products; diff. levels of output; diff. delivery dates

**2. Agility ** - how quickly and efficiently an org can response to changes, such as:
1. changing production lines from one product to another
2. responding to customer’s needs for earlier delivery date
3. increasing throughput to meet increased demand

**product-mix flexibility: **ability to change over quickly to other products produced in facility, as required by demand shifts in mix

Question 39

Quality

Answer 39

-described in 2 ways:
1. by specification of attributes of product/service
2. compliance of product/service with its specifications (e.g. perceived as delivered with expected attributes) e.g. high-grade, more expensive jacket with a zipper than breaks after a few wearings has poor quality

Question 40

Cost

Answer 40

-can refer to:
1. goal of lowering unit cost, with goal of increasing profit or increasing competitive edge by lowering price
2. return on capital investment
3. operation’s ability to maintain working capital to fund operations