Week 4 Business strategy and Game theory Flashcards
Business strategy defines how we are going to compete? What is the difference between generic and interactive competitive strategies?
Generic competitive strategies – Basic approaches to strategic planning that can be adopted in any firm, market or industry to improve its competitive performance. (Porters generic strategies - c/leader & differentiation over broad or narrow focus)
Interactive – interaction with competitors (explicit or tacit) to avoid counter productive competition
Define a strategic business unit (SBU).
(SBU) supplies goods or services for a distinct domain of activity.
Define with 2 criteria:
- Market based – same customers, channel, competitors
- Capabilities based – similar strategic capabilities
What are the three effects of SBUs within large organisations?
- Decentralise initiative to smaller units in org
- Allow larger ors vary business strategies to meet diverse markets
- Holds managers accountable
Define competitive strategy and competitive advantage.
Competitive strategy - how a strategic business unit achieves competitive advantage .
Competitive advantage - creating value, greater than costs of supplying (competitive) and superior to (advantage) rival SBUs.
Define Cost Leadership.
Providing a product at lowest cost. Drivers:
Inputs
Economies of scale
Experience
Process familiarity
Define differentiation strategy.
Uniqueness along some dimension sufficiently valued to allow a price premium.
Strategic customer needs
Key competitors - Boundaries for comparison must not be drawn too tightly so key competitors are ignored
Define a focus strategy
Targets a narrow segment of domain of activity, tailors its products or services to that segment.
Can be either cost or differentiation based.
Success factors:
Distinct segment needs
Distinct value chains
Viable segment economics - scale / competition etc
What does it mean to be stuck in the middle? Are there exceptions?
Stuck in middle - no 1 generic strategy is done exclusively or well.
Porters exceptions:
• Organisational separation – different SBU’s adopt different strategies
• Innovation – disrupts the basis of how the company chooses to compete
• Competitor failures – where competitors are stuck in the middle or failing to compete, pressure to say on strategy is reduced.
Strategy clock focuses on 4 zones against x axis of price and y axis of benefit. How is strategy close use to judge strategy?
Focus on price, recommends 4 zones that dictate strategy.
12-2 Differentiation zone
2-7 Failure, change strategy
7-9 No frills zone
9-12 Low price (hybrid) zone
What is strategic lock-in and how can it be achieved?
Strategic lock-in - users dependent on a supplier, face substantial switching costs.
2 ways to achieve:
- Control complimentary products
- Create a proprietary industry standard
What are the features of interactive price and quality strategies
Strategies interact with each other, should be chosen in the context of competitors else effort be wasted on competition.
- Threat assessment
- Response development
- Differentiate further or lower cost
Define hypercompetition
Markets with continual disequilibrium and change.
Planned sustainable competitive advantage may not be possible.
Define a cooperative strategy
Moves and counter move, can be dangerous to all competitors.
Advantage may lie away from competition, in collaboration, either explicit or tacit.
Define game theory and interdependence
Consider competitors’ likely moves and implications by interpreting competitor response and strategic signals.
Interdependence - when outcomes of choices are dependent on choices of others. (Get in their minds, think forward, reason backward).
What is the prisoners dillemma
Two players each have two options whose outcome depends on the choice made by the other.
Often formulated in terms of two prisoners separately deciding whether to confess to a crime
Illustrates why 2 rational parties may or may not choose to co-operate despite being in their best interests.
