Week 2 - The Internal Organization and Business-Level Strategy Flashcards
What is a competitive advantage?
A competitive advantage is when a firm implements a strategy that competitors cannot duplicate (brand loyalty, unqiue technology, etc), leading to above-average returns. (Core competenices are often the source of competitive advantage)
What 3 factors affect the sustainability of a competitive advantage?
The rate that core competences become outdated, availability of substitutes, and imitability of the core competence.
What is a global mindset?
A global mindset is the ability to think and act effectively across cultures and countries, including cultural awareness and adaptability.
How do firms create value?
Firms create value by innovatively bundling and leveraging their resources to form capabilities and core competencies.
What three conditions affect the analysis of the internal organization? (An international organization is an entity (company, non-profit) created by multiple countries to work together on common issues or goals.)**
The analysis of the internal organization involves examining the internal components and dynamics of a business to understand its strengths, weaknesses, resources, and capabilities
Uncertainty, complexity, and intra-organizational conflict. (Conflicts can arise between different departments, teams, or individuals due to differing goals, interests, or perspectives. )
What are tangible resources?
Tangible resources are assets that can be observed and quantified, such as financial, physical, and technological resources. (Land, building, vehicles, equipment, etc)
What are intangible resources?
Intangible resources are deeply rooted assets in a firm’s history, such as human resources, innovation resources, and reputational resources. (patent, trademark, brand, copyright)
Define core competencies.
Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals.
What are the four criteria of sustainable competitive advantage?
Valuable capabilities, rare capabilities, costly-to-imitate capabilities, and non-substitutable capabilities.
What is value chain analysis?
A means of evaluating each of the activities in a company’s value chain to understand where opportunities for improvement and potential competitive advantages lie.
What is outsourcing?
Outsourcing is the purchase of a value-creating or support function activity from an external supplier to mitigate risks and increase flexibility.
Why is analyzing the internal organization important for firms?
It helps identify strengths and weaknesses reflected by resources, capabilities, and core competencies, which are essential for achieving competitive advantage.
Why is it important for a firm to study and understand its internal organization? (repeat question)
Understanding the internal organization helps firms identify their strengths and weaknesses through resources, capabilities, and core competencies.
- This knowledge is crucial for achieving competitive advantage and aligning internal capabilities with external opportunities.
What is value? Why is it critical for the firm to create value? How does it do so?
Value is the worth of a product based on its performance and the features customers are willing to pay for.
Creating value is critical because it leads to customer satisfaction and competitive advantage. Firms create value by innovatively bundling and leveraging resources to form capabilities and core competencies.
What are the differences between tangible and intangible resources? Why is it important for decision makers to understand these differences? Are tangible resources more valuable for creating capabilities than are intangible resources, or is the reverse true? Why?
Tangible resources: are observable and quantifiable assets (e.g., financial, physical, technological).
Intangible resources are deeply rooted in a firm’s history and harder to imitate (e.g., human, innovation, reputational resources).
Understanding these differences helps decision-makers allocate resources effectively.
Intangible resources are often more valuable for creating capabilities because they can provide unique advantages that are difficult for competitors to replicate.
What are capabilities? How do firms create capabilities?
Capabilities are the skills and processes used to complete organizational tasks that create value for customers. Firms create capabilities by integrating and applying their resources effectively to meet specific tasks or objectives.
What four criteria must capabilities satisfy for them to become core competencies? Why is it important for firms to use these criteria to evaluate their capabilities’ value-creating potential?
- Valuable capabilities: allow firms to exploit opportunities or neutralize threats.
- Rare capabilities: Few competitors possess them.
- Costly-to-imitate capabilities: Difficult for competitors to develop.
- Non-substitutable capabilities: No strategic equivalents exist
Using these criteria is important for evaluating capabilities’ potential to create value and sustain competitive advantage over time.
How do firms identify internal strengths and weaknesses? Why is it important that managers have a clear understanding of their firm’s strengths and weaknesses?
Using value-chain analysis. It’s important for strategic decision-making, enabling firms to leverage strengths and address weaknesses effectively.
What are core rigidities? What does it mean to say that each core competence could become a core rigidity?
Core rigidities are outdated core competencies that can hinder a firm’s ability to adapt to changes in the environment. Saying that a core competence could become a core rigidity means that what was once a strength may become a limitation if the firm cannot evolve or respond to new market demands.
<b>What is business-level strategy?</b>
An integrated and coordinated set of commitments and actions a firm uses to gain a competitive advantage by exploiting core competencies in a specific product market.
<b>Why must every firm implement a business-level strategy?</b>
To gain a competitive advantage, although not all firms will use corporate-level, merger and acquisition, international, and cooperative strategies.
<b>Does a firm operating in a single-product market need a corporate-level strategy?</b>
No, it does not need a corporate-level strategy for product diversity or an international strategy for geographic diversity.
<b>What do diversified firms use in addition to a business-level strategy?</b>
<ul><li>Corporate-level strategies, with separate business-level strategies for each product market they compete in.</li></ul>
<b>Why are customers important for a successful business?</b>
Customers are the foundation for a successful business, and firms must create value to retain them.
<b>What considerations should a firm evaluate when selecting a business-level strategy?</b>
Who will be served, what needs will be satisfied, and how those needs will be satisfied.
<b>What is strategic competitiveness?</b>
It occurs when a firm successfully meets the needs of a specific customer group using its competitive advantages in specific product markets.
<b>How do firms strengthen relationships with customers?</b>
By delivering superior value, which increases customer satisfaction.
<b>What does “reach” refer to in customer relationships?</b>
The firm’s access and connection to customers, with the objective of extending reach and adding customers.
<b>What is “richness” in the context of customer interactions?</b>
The depth and detail of the two-way flow of information between the firm and customers.
<b>What does “affiliation” mean regarding customer relationships?</b>
It refers to facilitating useful interactions with customers and enhancing their satisfaction.
<b>What is market segmentation?</b>
<ul><li>The process of dividing customers into groups based on their needs, clustering those with similar needs into identifiable groups.</li></ul>
<b>Why is it important for firms to anticipate changes in customer needs?</b>
Failing to anticipate changes may lead to losing customers to competitors who provide more value.
<b>What are core competencies?</b>
The range of capabilities that companies draw from to produce products that satisfy customer needs.
<b>What is the primary purpose of a business-level strategy?</b>
To create differences between the firm’s position and those of its competitors.
<b>What is a business model?</b>
It describes what a firm does to create, deliver, and capture value for its stakeholders.
<b>What are examples of different types of business models?</b>
Franchise model (e.g., McDonald’s), subscription model (e.g., Netflix), freemium model (e.g., Dropbox), advertising model (e.g., Google), peer-to-peer model (e.g., Airbnb).
<b>What are the five types of business-level strategies?</b>
Cost leadership, differentiation, focused cost leadership, focused differentiation, integrated cost leadership/differentiation.
<b>What are the two types of competitive advantages a firm can seek?</b>
Cost competitive advantage and distinctiveness competitive advantage.
<b>What characterizes a cost leadership strategy?</b>
An integrated set of actions to produce acceptable products at the lowest cost relative to competitors.
<b>What are the risks associated with a cost leadership strategy?</b>
Processes may become obsolete, focus on cost reduction might neglect customer perceptions, and competitors may imitate the strategy.
<b>What is a differentiation strategy?</b>
An integrated set of actions to produce products that customers perceive as different in important ways.
<b>Why is continuous product innovation important in a differentiation strategy?</b>
It helps maintain differentiation without significantly increasing costs.
<b>How does customer loyalty affect rivalry with existing competitors in a differentiation strategy?</b>
<ul><li>Customers become less sensitive to price increases for products that are meaningfully differentiated.</li></ul>
<b>How does a firm using a differentiation strategy manage supplier costs?</b>
It can absorb higher costs due to premium pricing and may pass increased costs onto customers.
<b>What creates barriers for potential entrants in an industry?</b>
Customer loyalty and the uniqueness of differentiated products.
<b>What do potential entrants need to overcome when entering a market with strong customer loyalty?</b>
Significant investments of resources and patience to build customer loyalty.
<b>How do brand-name products protect firms from substitutes?</b>
Loyal customers make them less vulnerable to alternatives that are cheaper or better.
<b>What risks do firms without brand loyalty face?</b>
Losing customers to substitutes or innovations that better meet their needs.
<b>How does a differentiation strategy relate to brand loyalty?</b>
<ul><li>Successfully differentiated products build brand loyalty, reducing customer likelihood to switch to substitutes.</li></ul>
<b>What is the price differential risk in a cost leadership strategy?</b>
Customers may find the price difference too large, leading to vulnerability against better-value competitors.
<b>What is value perception risk in a differentiation strategy?</b>
A firm’s differentiation may lose value if competitors imitate features at lower prices.
<b>What is experience narrowing risk?</b>
Positive experiences with cheaper alternatives can diminish customers’ perception of the value of differentiated products.
<b>How can counterfeiting impact a brand?</b>
It can damage brand trust and lead to decreased differentiation and consumer distrust.
<b>What is identifiability risk?</b>
Failing to clearly differentiate products may lead to unmet customer expectations.
<b>What does the focus strategy involve?</b>
Producing products tailored to the needs of a specific customer segment.
<b>What types of market segments can firms target with a focus strategy?</b>
Specific buyer groups, segments of a product line, or different geographic markets.
<b>What is an example of a focused cost leadership strategy?</b>
IKEA offers stylish, affordable furniture for young buyers with unique designs and a pleasant shopping experience.
<b>What is a focused differentiation strategy?</b>
Offering unique products tailored to specific market segments, like Green Truck’s all-organic meals.
<b>What competitive risks do focused strategies face?</b>
Competitors may “out-focus” them, enter the market segment, or customer needs may converge with broader market needs.
<b>What is the integrated cost leadership/differentiation strategy?</b>
Engaging in primary value-chain activities to achieve low costs with some product differentiation.
<b>How does Target exemplify the integrated strategy?</b>
By offering trendy merchandise at low prices with an enjoyable shopping experience.
<b>What is a Flexible Manufacturing System (FMS)?</b>
<ul><li>A system that integrates resources to create differentiated products at low costs with minimal manual intervention.</li></ul>
<b>How do information networks support firms?</b>
<ul><li>They connect companies with suppliers and customers, enhancing flexibility and meeting expectations for quality and delivery.</li></ul>
<b>What is Total Quality Management (TQM)?</b>
<ul><li>Implementing tools and techniques to provide the best quality products and services, increasing customer satisfaction and reducing costs.</li></ul>
<b>What are the competitive risks of the integrated cost leadership/differentiation strategy?</b>
<ul><li>Struggling to balance low production costs with necessary differentiation can lead to being "stuck in the middle."</li></ul>
<b>What happens to firms that are “stuck in the middle”?</b>
They typically earn average returns and struggle to compete effectively in the market.
<b>How does a business-level strategy relate to core competencies?</b>
<ul><li>It is a coordinated set of actions that exploits core competencies to gain a competitive advantage in specific product markets.</li></ul>
<b>What factors must firms consider when developing a business-level strategy?</b>
Who they will serve, what needs they will satisfy, and how they will satisfy those needs.
<div><span><strong>What is the relationship between a firm’s customers and its business-level strategy in terms of who, what, and how? Why is this relationship important?</strong></span></div>
<ul><li><strong>Who:</strong> Refers to the customer groups the firm intends to serve.</li><li><strong>What:</strong> Relates to the needs of those customers that the firm seeks to satisfy.</li><li><strong>How:</strong> Involves the core competencies the firm will use to meet customer needs.</li><li>This relationship is important because understanding these factors allows firms to tailor their strategies effectively and identify unique customer needs, creating opportunities for competitive advantage.</li></ul>
<div><span><strong>What is a business model and how do business models differ from business-level strategies?</strong></span></div>
<li>A business model describes what a firm does to create, deliver, and capture value for stakeholders.</li>
<li>Business-level strategies outline the path a firm follows to gain a competitive advantage.</li>
<li>While business models focus on value creation processes, business-level strategies emphasize how to compete successfully against rivals.</li>
<span><b>What are the differences among the cost leadership, differentiation, focused cost leadership, focused differentiation, and integrated cost leadership/differentiation business-level strategies?</b></span>
<ul><li><strong>Cost Leadership:</strong> Offers no-frills, standardized products for typical customers at the lowest cost.</li><li><strong>Differentiation:</strong> Provides unique products with valued features, allowing firms to charge premium prices.</li><li><strong>Focused Cost Leadership:</strong> Targets a narrow market segment with low-cost products.</li><li><strong>Focused Differentiation:</strong> Targets a narrow market segment with unique, tailored products.</li><li><strong>Integrated Cost Leadership/Differentiation:</strong> Combines low-cost production with some differentiated features, aiming for flexibility in operations.</li></ul>
<div><span><strong>How can firms use each of the business-level strategies to position themselves favorably relative to the five forces of competition?</strong></span></div>
<li><strong>Cost Leadership:</strong> By maintaining lower costs, firms can withstand price competition and attract price-sensitive customers.</li>
<li><strong>Differentiation:</strong> Unique features can create brand loyalty, reducing the threat of substitutes and buyer power.</li>
<li><strong>Focused Strategies:</strong> Serve niche markets effectively, reducing competition and improving customer loyalty within specific segments.</li>
<li><strong>Integrated Strategy:</strong> Balances low costs with differentiation, appealing to a broader customer base while mitigating threats from competitors.</li>
<span><b>What are the specific risks associated with using each business-level strategy?</b></span>
<li><strong>Cost Leadership Risks:</strong><ul><li>Loss of competitive advantage to newer technologies.</li><li>Failure to detect changes in customer needs.</li><li>Competitors imitating cost advantages.</li></ul></li>
<li><strong>Differentiation Risks:</strong><ul><li>Customers may no longer see premium prices as justified.</li><li>Inability to create sufficient value.</li><li>Competitors offering similar features at lower costs.</li><li>Counterfeiting threats.</li></ul></li>
<li><strong>Focused Cost Leadership Risks:</strong><ul><li>Competitors may "out-focus" by serving a more narrowly defined segment.</li><li>Industry-wide competitors may enter the niche market.</li><li>Customer needs may converge with broader market needs.</li></ul></li>
<li><strong>Focused Differentiation Risks:</strong><ul><li>Similar risks as focused cost leadership due to increased competition.</li></ul></li>
<li><strong>Integrated Strategy Risks:</strong><ul><li>Difficulty balancing low costs with differentiation.</li><li>Risk of becoming "stuck in the middle," failing to satisfy either cost or differentiation.</li></ul></li>
