Strategy Formulation Flashcards
What are the 3 factors of retaliation
Three factors determine the likelihood that a company will respond to a competitive move.
Awareness
Motivation
Capability
Define Multipoint Competition
Multipoint Competition: a situation where a company faces the same rival in more than one market
Ex. Consider Coca-Cola and Pepsi. These two companies compete against each other in several product markets (like soft drinks, bottled water, and sports drinks)
Define Diversification and explain Unrelated and Related
Diversification is when a company expands into new markets or industries to reduce risk and capitalize on new growth opportunities. It allows companies to spread risk across different business lines.
* Example: Amazon diversified from an online bookstore into cloud computing with AWS.
Related Diversification: occurs when a company moves into a new industry that has important similarities with the company’s existings industries
Unrelated Diversification: occurs when a company enteres an industry that lacks any importnat similarities with the company’s exisiting industries
What are the three diversification tests?
Name the 3 diversification tests
*How attractive is the industry that a company is considering entering?
*How much will it cost to enter the industry?
*Will the new unit and the company be better off?
Define Retrenchment and Restructuring
Retrenchment focuses on reducing costs and shrinking the company by cutting operations, while Restructuring involves more comprehensive changes, including selling off divisions or reorganization to improve efficiency. Both strategies aim to improve the company’s financial health.
* Example: Microsoft restructured by cutting its mobile phone division to focus on core areas like software and cloud services.
Explain the Power Hierarchy Structure Change
Power Hierarchy Structure Change
1. Functional Structure
* Description: Departments are organized by function, such as marketing, finance, operations, and human resources. Each department specializes in its respective area, and employees have clear roles.
* Best For: Small to medium-sized companies focused on a single product line or service. Works well for companies seeking efficiency, cost control, and economies of scale. Example: A manufacturing firm that benefits from streamlined operations and a focus on process improvements.
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Divisional Structure
* Description: Organized into semi-autonomous divisions based on products, services, or geographic locations. Each division functions independently with its own resources (e.g., R&D, marketing).
* Best For: Large companies with diverse product lines or operating in multiple regions. This structure allows divisions to be more responsive to market needs. Example: A multinational corporation like General Electric, which has divisions for healthcare, energy, aviation, and finance. -
Matrix Structure
* Description: Combines functional and divisional structures. Employees report to both a functional manager and a project or product manager, allowing collaboration across departments.
* Best For: Organizations handling complex projects requiring input from various departments, such as technology firms, consulting firms, or R&D-focused companies. This structure facilitates information sharing and resource flexibility. Example: Google, where teams often work on cross-functional projects. -
Flat (or Horizontal) Structure
* Description: Few or no levels of middle management, with a high level of employee autonomy and empowerment. This structure encourages open communication and decision-making closer to the point of action.
* Best For: Startups or small companies that value agility and rapid decision-making. Best suited for creative or tech-focused companies where innovation and flexibility are key. Example: A startup where employees work directly with founders to iterate quickly.
Explain Horizontal integration
Horizontal integration occurs when a company acquires or merges with a competitor in the same industry to increase market share. It often fails due to integration issues, cultural clashes, or regulatory challenges.
Example: The merger of AOL and Time Warner failed due to cultural conflicts and an inability to synergize their operations
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Acquisition Example:
o Facebook and Instagram: Facebook acquired Instagram for $1 billion to expand its social media reach and capitalize on Instagram’s growing user base in the photo-sharing space. -
Merger Example:
o Exxon and Mobil: The merger of these two oil giants helped create economies of scale, allowing them to dominate the oil industry with increased production capacity and reduced operational costs, although they faced regulatory scrutiny before finalizing the deal.
Define Vertical Integration
Vertical integration is when a company expands its control over different stages of its production or supply chain, either by owning suppliers (backward integration) or distributors (forward integration).
- For example, a car manufacturer like Tesla producing its own batteries (backward integration) and selling cars directly to consumers through its own stores (forward integration) is an example of vertical integration.
- It’s a business-level strategy because it allows the company to reduce costs, improve efficiency, and have more control over its production and distribution processes.
- Ex. Apple control its supply chain by designing its own hardware and software, manufacturing devices, and selling diretcly through its stores and online platforms
define IP Usage
IP Usage: Apple protects its overall brand with trademarks for its logos and product names, patents for its device designs and technologies, and copyrights for its software and user interfaces. This holistic IP strategy strengthens Apple’s corporate-level goal of maintaining its high-end brand identity and controlling its entire ecosystem.
Competitive Strategies: explain the Differentiation Strategy
Differentiation Strategy
This approach involves offering unique products or services that stand out from competitors.
Pros:
* Brand Loyalty: Differentiated products often attract loyal customers who are willing to pay premium prices.
* Reduced Price Sensitivity: Unique features can make customers less sensitive to price changes.
* Higher Profit Margins: Premium products or services typically have higher profit margins.
Cons:
* Higher Costs: Creating unique products usually requires more investment in R&D, marketing, and production.
* Risk of Imitation: Competitors may imitate unique features, diluting the brand’s uniqueness.
* Changing Customer Preferences: Trends and customer preferences can shift, making differentiation risky.
Ex.
Apple Inc. is a classic example. With its innovative designs, high-quality products, and emphasis on a unique user experience, Apple has cultivated a loyal customer base willing to pay premium prices.
Competitive Strategies: explain the Cost Leadership
Cost Leadership Strategy
This strategy focuses on being the lowest-cost producer in the industry, usually achieved through efficient production, economies of scale, or lean operations.
Pros:
* Price Advantage: Being a cost leader allows companies to set lower prices than competitors, appealing to price-sensitive customers.
* Market Share Growth: Lower prices can attract a larger customer base, leading to increased market share.
* Resilience in Economic Downturns: During recessions, cost leaders can maintain profitability by undercutting competitors.
Cons:
* Thin Margins: Lower prices can mean thinner profit margins, making companies more vulnerable to cost increases.
* Quality Perception: Some customers might perceive low-cost products as lower quality.
* Dependence on Volume: Companies need high sales volume to compensate for low margins, which may not be sustainable if demand drops.
Example:
Walmart is a well-known example of cost leadership. Its low-price strategy, driven by efficient logistics and vast purchasing power, helps Walmart offer competitive pricing across thousands of products
Competitive Strategies: explain the Focus Strategy
Focus Strategy
This strategy involves targeting a specific market niche, catering to the specific needs of that segment, either through cost focus or differentiation.
Pros:
* Targeted Marketing: Focused strategies allow for highly targeted marketing efforts, which can resonate well with the chosen segment.
* Reduced Competition: By targeting a smaller market, companies may face less competition compared to broader markets.
* Stronger Brand Connection: Focused strategies allow for a deeper connection with a specific audience, leading to loyal customers.
Cons:
* Limited Growth Potential: The narrow target limits expansion possibilities.
* Vulnerability to Market Shifts: If preferences change in the chosen niche, the company’s entire strategy may become obsolete.
* Dependent on Segment Size: Smaller market sizes limit revenue potential, which can constrain growth.
Example:
Rolls-Royce Motor Cars exemplifies the focus strategy by targeting high-net-worth individuals. Their niche products are highly customized luxury cars that appeal to a specific, wealthy audience, allowing them to focus on quality and exclusivity.
What are the 5 Segments of the General Environment
- Population Size
- Age Structure
- Geographic Distribution
- Ethnic Mix
- Income Distribution
What is the differnece bwteen I/O Model of Superior Returns
and Resource-Based Model of Superior Returns
The Industrial Organization Model suggests that above-average returns for any firm are largely determined by characteristics outside the firm.
The I/O model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm.
The Resource-Based Model suggests that above-average returns for any firm are largely determined by characteristics inside the firm. The Resource-Based view focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate.
Cooperate Level: Joint Venture, Strategic Alliances, Co-location, and Co-opetition
Joint venture: is a business arrangement where two or more parties agree to combine resources for a specific project or business activity, sharing profits, losses, and control.
Example: Sony Ericsson (Sony + Ericsson)
Combined their strengths—Sony’s expertise in consumer electronics and Ericsson’s telecommunications background—to create a new line of mobile phones.
Strategic Alliances: are cooperative arrangements between two or more organizations that do not involve creating new entities
- Starbucks and Chapters partnership. Starbucks operates cafes within Chapters bookstores, allowing customers to enjoy coffee while they read, without the two companies forming a new entity.
Co-location: in which goods and services offered under different brands are located very close to each other
- ex. near the exit on the highway, you can find fastfood places and hotels
Co-opetition: refers to the blending of competition and cooperation between two companies
Ex. Samsung sells screens to Apple, but is still a competitor of Apple
