Strategy

Question 1

Porter’s 5 Forces

Answer 1

1) threat of new entrants 2) bargaining power of suppliers 3) bargaining power of buyers 4) threat of substitute products 5) intensity of rivalry

Question 2

6th force

Answer 2

Opportunity of complements

Question 3

Operational effectiveness

Answer 3

Creating, producing, selling, and delivering a product faster, or with fewer inputs and defects than rivals.

Question 4

Productivity Frontier

Answer 4

The maximum value a company can deliver at a given cost, given the best available technology, skills, and management techniques.

Question 5

1st strategic principle

Answer 5

Strategy is the creation of a unique and valuable position, involving a different set of activities.

Question 6

2nd strategic principle

Answer 6

Strategy requires you to make trade-offs in competing–to choose what NOT to do.

Question 7

3rd strategic princple

Answer 7

Strategy involves creating “fit” among a company’s activities.

Question 8

Firm’s scope

Answer 8

3 dimensions: customer or offering, geographic location, and vertical integration.

Question 9

Competitive advantage (2 parts)

Answer 9

1) customer value proposition (why customers should buy product or service. 2) Unique activities allowing the firm alone to deliver the customer value proposition.

Question 10

Strategy Answers 2 fundamental Questions

Answer 10

1) Where should we compete? 2) How should we compete?

Question 11

Purpose of strategy

Answer 11

Create a competitive advantage that generates superior, sustainable financial returns.

Question 12

Strategy definition

Answer 12

The integrated set of choices that positions the business in its industry so as to generate superior financial returns over the long run.

Question 13

2 requirements for competitive advantage

Answer 13

1) understanding of business landscape (industry analysis) 2) choice of position on the landscape

Question 14

Value proposition

Answer 14

Differentiation or low cost.

Question 15

Target market

Answer 15

Defined by scope, which can be broad (mass market) or narrow (niche).

Question 16

Two fundamental considerations in business model

Answer 16

Value proposition and target market.

Question 17

Strategy is the creation of a unique and valuable position, involving a different set of activities.

Answer 17

1st strategic principle

Question 18

Strategy requires you to make trade-offs in competing–to choose what NOT to do.

Answer 18

2nd strategic principle

Question 19

Most important determinant of profitability

Answer 19

Threat of new entrants.

Question 20

Goal of business model

Answer 20

Maximize the wedge between their supplier opportunity cost and their customers’ willingness to pay.

Question 21

Holdup

Answer 21

When the bargaining power of a firm’s buyers, suppliers, or complements increases, allowing them to capture more value.

Question 22

7 barriers to entry

Answer 22

Supply-side Economies of scale; demand side benefits of scale; customer switching costs; capital requirements; incumbency advantages independent of size; unequal access to distribution channels; restrictive government policy

Question 23

Added value

Answer 23

The value that would disappear if the firm ceased to exist. Size of the pie when the player is in the game minus the size of the pie when the player is out of the game.

Question 24

Asset Specificity

Answer 24

The extent to which the assets required to produce a good or service can be redeployed for some other purpose.

Question 25

Corporate Strategy

Answer 25

The framework a firm uses to decide the scope of businesses it should operate in, as well as whether and how to structure the relationships between these businesses, in order to achieve superior returns.

Question 26

Dual competitive advantage

Answer 26

A strategy based on providing a superior product for which there is a higher willingness to pay while achieving a lower cost than the competition.

Question 27

Economies of Scope

Answer 27

The decline in the cost of production due to the sharing of resources across products and services.

Question 28

Positive synergy

Answer 28

When a transaction is moved out of the spot market, the wedge between willingness to pay and supplier opportunity costs increases.

Question 29

Value capture

Answer 29

The difference between the price a firm receives from its customers and the price it pays to its suppliers for inputs.

Question 30

Portfolio Management

Answer 30

Corporation acquires sound, attractive companies with competent managers who agree to stay on. Provides capital and professional management.

Question 31

Restructuring

Answer 31

Seek out sick, undeveloped, or threatened organizations, then change unit management team, strategy, or infuse co with new technology.

Question 32

Transferring Skills

Answer 32

Create synergy by transferring skills between business units that have similar activities in the value chain.

Question 33

3 similarities for transferring skills

Answer 33

1) activities involved are similar enough that sharing expertise is meaningful 2) The transfer of skills involves activities important to competitive advantage 3) the skills transferred represent a significant source of competitive advantage for the receiving unit and are proprietary enough to be beyond the capabilities of competitors

Question 34

Sharing activities

Answer 34

Share a part of the value chain to create a competitive advantage by lowering cost or raising differentiation

Question 35

2 questions of corporate strategy

Answer 35

What businesses the corporation should be in and how the corporate office should manage the array of business units.

Question 36

3 tests for diversification to create shareholder value

Answer 36

Attractiveness test, cost-of-entry test, better-off test

Question 37

Attractive Industry

Answer 37

An attractive industry with a high average return on investment will be difficult to enter because entry barriers are high, suppliers and buyers have only modest bargaining power, substitute products or services are few, and the rivalry among competitors is stable.

Question 38

Attractiveness Test

Answer 38

Diversification cannot create shareholder value unless new industries have favorable structures that support returns exceeding the cost of capital

Question 39

Cost-of-entry test

Answer 39

Diversification cannot build shareholder value if the cost of entry into a new business eats up its expected returns.

Question 40

Better-off test

Answer 40

A corporation must bring some significant competitive advantage to the new unit, or the new unit must offer potential for significant advantage to the corporation, and should not be a one-off benefit.

Question 41

Value (equation)

Answer 41

Difference between customer’s willingness to pay and supplier’s opportunity cost. (Value = WTP - SOC)

Question 42

2 ways to create competitive advantage

Answer 42

Raise WTP without increase in SOC or lower SOC without lowering WTP.

Question 43

Aggregation

Answer 43

Organizations trying to build economies of scale with regional or global operations (proxy is R&D)

Question 44

Arbitrage

Answer 44

Organizations looking to exploit market differences by, for instance, locating elements of their supply chain in different places (proxy is labor)

Question 45

CAGE Distance

Answer 45

Cultural, Administrative, Geographic, Economic. Amplifies or decreases the attractiveness of a potential location or product market for a given firm.

Question 46

Offshoring

Answer 46

Locating a segment of the value chain outside the organization’s home country. This approach creates value by combining firm capabilities with the comparative advantages of different countries.

Question 47

Outsourcing

Answer 47

Assigning a segment of the value chain to another organization. This approach creates value by combining the competitive advantages of different firms.

Question 48

Resources and capabilities

Answer 48

Include all of the financial, physical, human, and organizational assets used by a firm to develop, manufacture, and deliver products or services to its customers.

Question 49

Primary Activities

Answer 49

Inbound logistics, operations, outbound logistics, marketing and sales, post-sales service.

Question 50

4 questions about resources and capabilities

Answer 50

1) value 2) rareness 3) imitability 4) organization

Question 51

Question of value

Answer 51

Do a firm’s resources and capabilities add value by enabling it to exploit opportunities and/or neutralize threats?

Question 52

Question of Rareness

Answer 52

How many competing firms already possess these valuable resources and capabilities?

Question 53

Question of Imitability

Answer 53

Do firms without a resource or capability face a cost disadvantage in obtaining it compared to firms that already possess it? Caterpillar and unique historical circumstances.

Question 54

Question of Organization

Answer 54

Is a firm organized to exploit the full competitive potential of its resources and capabilities? Xerox PARC not bringing innovations to market.

Question 55

Value Chain Purpose

Answer 55

Intended to highlight the activities that the firm does differently from competitors, including what it does not do that competitors might.

Question 56

Secondary Activities

Answer 56

Procurement of inputs, development of technology and human resources, general firm infrastructure.