Week 4 and 5

Question 1

Name 2 generic business level strategies

Answer 1

• Cost leadership
• Product differentiation

Question 2

How can a firm gain a cost advantage?

Answer 2

Size differences
Economies of scale
Experience differences
Policy choices

Question 3

How can firms decrease costs due to production volume

Answer 3

Firms can:
Use specialised manufacturing tools
Built larger plants
Increase employee

Question 4

Explain the costs increases due to production volume

Answer 4

Physical limits to efficient size
Managerial diseconomies
Worker de-motivation
Distance to market and suppliers (increasing transportation costs)

Question 5

How to gain cost advantage

Answer 5

• Learning curve
  -Differential low cost access to productive inputs (capital, raw materials)
  -Technological advantages independent of scale
• Policy choices

Question 6

How to implement cost leadership

Answer 6

> Organizational structure (U formed, few layers in reporting, Small corporate staff)

> Management control systems (tight cost control systems, cost leadership philosophy)

> Compensation policies
(Reward for cost reduction, incentives for employees to be involved)

Question 7

What is the goal of product differentiation?

Answer 7

Create the perception that the product or services of a firm are unusually valuable for customers

Question 8

How to achieve the goal of product differentiation

Answer 8

Focussing on:
the attributes of the products

relationships between a firm and its customers

linkages within a firm or between firms

Question 9

How to implement product differentiation>

Answer 9

Organizational structure
* Cross-divisional / cross-functional product development teams
* Complex matrix structures
* Isolated pockets of intense creative efforts: skunk works
* Management control systems
* Broad decision-making guidelines
* Managerial freedom within guidelines
* A policy of experimentation
* Compensation policies
* Rewards for risk-taking, not punishment for failures
* Rewards for creative flair
* Multidimensional performance management
Organizing to implement product differentiation

Question 10

Can firms implement product differentiation and cost leadership simultaneously?

Answer 10

NO:
* Organizational requirements are contradicting
* “Stuck in the middle”, or, firms that do both do neither well
* YES:
* Product differentiation  increased volumes of sales  economies of scale/learning
* Firms develop special skills in managing inherent contradictions between a low-costand product differentiation strategy