Week 2 Flashcards
Perspectives on strategic management:
Business level strategy - is determined at individual business level and competitiveness is driven by excellent resource or industry positioning.
Corporate-level strategy - is determined by the balance and mix of individual businesses, it focuses on the product, partners, and geographic scope.
Industrial organization economics:
Market power - is the degree to which firms can influence market prices
Barriers to entry and mobility - the obstacles which prevent firms from entering industries
Price discrimination - practice of charging different prices to different customers
Innovation - helps to improve market outcomes and drive competition
Mergers and acquisitions - have a strong impact on market power, competition and customer well-being
Government regulations - exist to address market failures and promote fair competition
Antitrust laws - plays a role in promoting competition and protects customers
Network effects - are based on the idea “a product/service becomes more valuable as more people use it”
Information asymmetry - is based on the idea “one party in a transaction has more info that the other”
Market concentration:
Measures the extent to which market shares are concentrated between a small number of firms (relates to industrial organization economics). High concentration means small firms have a large share.
Influences - bargaining power, economies of scale, regulation, regulatory capture, and lulling innovation.
Cost leadership generic strategy:
Most suitable for companies that operate in industries that are close to perfect competition. The main goal is to create value-chain to achieve a low-cost structure.
Benefits:
1) Economies of scale
2) Learning curve effects
3) no-frills companies (minimalistic approach of doing business, limiting it to the core activities and if customers want more they have to pay extra).
Core word is volume.
Differentiation (generic strategy):
Most suitable for “conspicuous consumption” (purchasing goods/services for the specific purpose of displaying one’s wealth). The main goal is to design a value chain offering a product for which customers are willing to pay a higher price compared to a generic product based on their perceived value of the product.
The key word is customer loyalty.
Focus (generic strategy):
if a strategy targets a particular niche segment it is called a focus strategy. More specific needs sometimes are not easy to cover by generic brands.
The core word is managerial discipline.
what is a first-mover advantage and how to become a first-mover?
Ability of an innovative, assertive company to achieve a sustainable competitive advantage by establishing a new business model or breaking ground on an entirely new product.
Sources/reasons:
1) Technological dominance - companies that first enter a new market have more time to develop technological knowledge and capabilities than later entrants.
2) Pre-empting asset positions - is done by early entrants buying up critical assets before competitors notice their value:
Pre-empting assets and locations - companies can invest in production capacity, equipment or real estate
Pre-empting market space - companies can invest in a socio-cognitive market space or an economic product-market space.
3) Buyer switching costs - is based on building an early customer base that will later find it difficult to switch.
- Transaction-specific investments (printers and cartridges)
- Search costs
- contractual switching costs( tele companies with subscription contracts)
What are platforms:
Platforms are companies enabling value-enhancing interactions between independent users connecting supply and demand.
Platforms offer an open participative structure to enable these interactions and set rules that govern these interactions (the rules are often asymmetrical). Because of strong network effects, monopolies or duopolies can emerge.
Common realities in the platform economy:
Envelopment - hotels in trivago, restaurants in the fork.
Governance - 15% transfer to booking.com
Disruption - “no assets” business models
Boundary blurring - there is convergence between google, apple, amazon, and meta
Standards - android, blockchains
Appropriation strategies - using freemium models, or in-app purchases.
Disruptive power of platforms:
Platforms have a high disruptive power because they are infinitely scalable - their marginal cost of adding new transactions or users is almost non-existent. They use data-based tools to gain feedback, and uncover new sources of value creation, and they invert businesses in a way that consumers themselves are responsible for marketing, producing, and financing.
Five forces analysis:
Serves as a tool for analysing the attractiveness of an industry.
Criticised for ignoring non-market factors and for promoting zero-sm view on competition.
High concentration - good for company, bad for customers
Low concentration - bad for company (competition), good for customers.
1) Threat of substitute products or services:
Substitute - same customer needs, with different core technology (can also be called disruptive innovation).
Platform economy influences the threat. It has potential to “invert firms” (shifting the production from within to beyond internal capacity of the firm). They also tend to capitalise on unused capacity in the economy and exploit multi-sided network effects.
2) The threat of new entrants:
new entrant - is a company which produces product which aims to serve the same needs, using a similar technology.
Industries with high entry barriers have low risks (protective patterns, need for government concessions, or high minimum efficient sales).
In societies where people value unique products, it’s easier for new companies to start up because they can attract customers with specialized offerings.
3) Rivalry among existing companies:
An industry incumbent is a company that already operates in the same industry and usually has similar core competencies and technologies.
High amounts of incumbents with low differentiation leads to high competitiveness, especially with high exit barriers.
4) Bargaining power of buyers:
Buyer - a firm, government, private consumer who is interested in acquiring the firms core product.
With many buyers that can be switched there is low bargaining power.
Buyers can - form buyer cooperatives, or form vertical integration by seeking control over supply chain.
5) Bargaining power of suppliers:
A supplier is a firm which provides the firm with the inputs needed for sustaining its core production.
With many suppliers a firm can switch, lowering bargaining power (increased if the the suppliers are commodities or unimportant)
Six path analysis:
Model tries to help managers and entrepreneurs to avoid “head-to-head” competition, instead it suggests six paths by which new market space is created.
Red ocean - current market space which is dominated by strong incumbents.
Blue ocean - uncontested market space where competition does not exist yet.
Six Path states that companies do not have to choose between two extreme generic strategies but rather reduce costs and improve value at the same time.
Six paths:
Industry - Focuses on rivals within industry/ looks across alternative industries.
Strategic group - focuses on competitive position within strategic group/ looks across strategic groups within industry
Buyer group - focuses on better serving the buyer group / redefines the industry buyer group
Scope of product - focuses on maximizing the value of product within bounds of its industry / looks across to complementary product.
Functional-emotional orientation - focuses on improving the price performance within functional-emotional orientation of its industry / rethinks the orientation of its industry.
Time - focuses on adapting to external trends as they occur / shape trends.
