Week 5 Flashcards
(43 cards)
What are the different types of business strategy?
Generic strategies
-Cost, Differentiation, focus & hybrid
Interactive strategies (competiton) - Cooperation, hypercompetitive, game theory
What is an Stragetic Business Unit? (SUB)
Suppiers goods and services for a distinct domain of activity.
Features include: - Each SBU responsible for thier own strategy and profit performance. -Small businesses just have one SBU -called "divisions" or "profit centers" -SBU’s can be identified by: Market-based criteria Capabilities – based criteria
What are the three effects that SBU’s have on large organisations?
- Increased accountability
- allows them to vary their business strategies based on the market
- they decentralise initiative to smaller units.
what is a competitive strategy?
How an SBU achieves compatitive advanatge in its activity domain.
How can a company achieve low-cost leadership.
- Cost focused strategy.
- Economies of scale
- experience
- inputs costs
- product design
- Parity (competitive parity)
- proximity
What are some of the discussions about low cost leadership?
- having the second cost structre leads to competitive disadvantage.
- Cost above quality/
What are the pros and cons of Low cost leadership?
Effective when:
- standardised procuts
- homogenous prodcts
- buyers use the products in the same way
- low switching costs
- price competition is vigirious
cons
- price cut too large
- not sustaibable
- price is the only tool used.
How can you differentiate a product?
- Lower the buyers’ costs of using the product
- Raise the performance of the product
- Increase intangible benefits from a product
- Deliver value through the value chain
Pros and cons of differentiation.
Pros (Effecitve when)
- Buyers and user needs are diverse
- Few competitors following similar approach
- Dynamic environment
cons
- Differentiation does not benefit the buyer
- Over-differentiation
- Trying to charge too high a price for differences
what are the three factors that focus stratgies depend on?
- Distinct segment needs
- Distinct segment value chains
- Viable segment economies
Pros and cons of focus strategy?
Pros (Effective)
- Target market offers growth potential
- Few rivals
- An industry has many segments
- Competitors do not have the specialised needs for the market
Risks of focused strategy
- Low entry barriers
- Niche market may not be long lived
- Segment is very attractive
What does Porter say about the generic strategies?
- Choose one and stick to it.
- Danger to not choose on - stuck in the middle
- Pure generic strategies = controversial - all strategies can be combines.
- Organisational seperation - speperate SBU pursue seperate strategies
- Technological and managent innovation - improve both cost and quality
- Competitive failures - competitors also stuck in the middle = less competitive pressure to remove competitve disadvantage.
What is the strategy clock?
Focus on three zones of feasible strategies (cost, differentiation, hybrid)
focus and costs - incremental adjustments provide a more dynamic view on strategy
- gives more scope for hybrid strategies
The strategy clock
12 O’ clock - differentiation without premium - moderate prices - used to gain market share
1 O’ Clock - differentiation with premium - high precieved benefits at a price
9 O’Clock - Low price strategy (Low price and low precieved value) - Pariy with competitors.
7 O’Clock - Price sensitive market groups - low pice - low quality.
11 O’Clock - Hybrid - (low prices and differentiation strategies.- used to make aggresive bids for increased market space. - effective way of entering a market
- Non competitive strategies- low benefits and high price. - lead to failure unless firm is locked in.
What is a strategic lock in?
is where users become dependent on a supplier and are unable to use another supplier without substantial switching costs.
What is game theory?
- encourages managers to get in the mind of competitors and think forwards and reason backwards.
- “Prisioners Dilema”
- Cooperative rather than aggressive competition
Key principles:
- Detterence
- ensure repetition
- Signalling
What is scope?
Scope is how far the organisation should be diversified in terms of products and markets.
Increase scope through:
- Increase scope engaging in market spaces or new products.
- Verticle integration
- related or unrelated
- Outsourcing
Ansoff matrix - Diversification and value creation
Effeciency gaines from applying existing resouces and capabilities to new markets and products.
- benefit from Economies of scope, and synergies
- gain increased market power from diverse products.
what is Diversification ?
increasing the range of products or markets served by an organisation.
what is unrelated diversification?
expansion into new areas, unrelated to the existing operations of the firm - (aquisition)
what is related diversification?
involves expanding into products or services with relationships to the existing business. (Internal development)
what is market penetration?
increasing the share of the market with the current product range.
-market power over buyers and suppliers, experience curve benefits, economies of scale:
drawbacks:
- price war retaliation from competitors
- legal constrants (too much market power)
what is retrenchment?
withdrawal from marginal activities in order to concentrate on the most valuable segments and products within their existing business.
why are product development expensive?
- New strategic capabilities – involve mastering new processes or technologies that are unfamiliar to the organisation.
- Project management risk – projects are subject to risk of delays and increased costs due to project complexity and changing project specifications over time.
