4750 Exam 2

What does overall cost leadership require?

Aggressive construction of efficient scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control

Maturity stage

Aggregate industry demand slows, market becomes saturated, direct competition becomes predominant, marginal competitors exit

What are the four major entrepreneurial resources?

Financial, human capital, social capital, and government resources

How does the Focus strategy work?

Firm selects a segment and tailors its strategy to serve them to gain competitive advantage

Achieving Competitive Advantage in Global Markets by:

Reducing costs and adapting to local markets

Synergy

Related businesses sharing resources like manufacturing facilities, patents, copyrights, and skills

Dispersed approach to corporate entrepreneurship

Dedication to the principle and practices of entrepreneurship is spread throughout the organization

Broad differentiation strategy has:

A broad target market and a superior perceived value by customer

Overall cost leadership has:

A broad target market and low cost position

Differentiation requires:

A level of cost parity relative to competitors

Differentiation focus strategy has:

A narrow target market and a superior perceived value by customer

Cost focus strategy has:

A narrow target market and low cost position

Corporate level strategy

A plan that indicates in which industries and national markets an organization intends to compete

Entrepreneurship

An act of innovation that involves endowing existing resources with new wealth-producing capacity

Vertical Integration

An expansion of the firm by integrating preceding or successive production processes

What motivates a company for international expansion?

An increase in size of potential market, to enhance a product's growth potential, and to optimize physical location

Later-stage financing

Angel investors, venture capital (equity financing) and commercial banks

What are the four qualities of viable opportunities?

Attractive, achievable, durable, and value creating

The five Demensions of entrepreneurial orientation:

Autonomy, innovativeness, proactiveness, competitive aggressiveness, risk taking

Corporate restructuring

Buy another company, restructure its assets to allow it to operate more profitably and then resell it

How does economies of scale lower costs?1

By spreading fixed costs or specializing

Global strategy

Can reduce costs by taking full advantage of economies of scale

Phillip Morris bought Miller Brewing and used its marketing expertise to improve Miller's market share. This justification for diversification is best described as:

Capitalizing on core competencies

Asset restructuring

Change in scale of unproductive assets

Mangement restructuring

Changes in top management team

Capital restructuring

Changing debt equity mix

Who has the largest population?

China

Transnational strategy risks

Choice of a seemingly optimal location cannot guarantee that the quality and cost will be optimal

Blue ocean vs. Red ocean strategy

Companies that are willing to venture into market spaces where there is little or no competition (blue ocean) will outperform those who limit growth to incremental improvements in competitively crowded industries (red oceans)

Where: Corporate strategy

Comprises the decisions and goal-directed actions in the quest for competitive advantage in several industries simutaniously

Two variants of focus strategy

Cost focus and differentiation focus

Which generic strategy is usually associated with the discount retailers such as Wal-Mart?

Cost leadership

Multidomestic strategy

Cost of reduction pressure is low, high pressure for adapting to local markets

Two payoffs for sharing activities:

Cost savings and Revenue enhancements

Economies of scope

Cost savings from leveraging core competencies or sharing related activities

Multidomestic strategy risks

Cost structure increase

Cost focus

Creates a cost advantage in target market segment

Differentiation strategy

Creates products that are unique and valued with non-price attributes that customers will pay a premium

Pioneering new entry

Creating new ways to solve old problems Meeting customer's needs in a unique new way

Corporate parenting

Creating value within business units through support and experience/ expertise of the corporate office

Internal development strategies

Develop everything from scratch: time consuming and uncertain

International strategy risks and challenges

Different activities in the value chain have different optimal locations, the lack of local responsiveness may result in alienation

Differentiation focus

Differentiate in the target market segment

Merger and acquisition strategies

Directly acquire other firm's assets: expensive and quick

Portfolio management

Each circle represents one of the firm's business units, the size represents relative size of business unit in terms of revenue

What are the five sources of cost advantage?

Economies of scale, learning and experience, input costs, efficient internal operations, and policy choice

What two ways do firms create value through diversification?

Economies of scope and market power

Product innovation:

Efforts to create products of technology to develop new products for end users, early stages of industry life cycle

New venture creation

Entrepreneurship in the context of a team of entrepreneurs launching a new business

Which generic strategy concentrates an organization's effort on a narrowly defined market to achieve either a cost leadership or differentiation strategy?

Focus Strategy

diamond of national advantage

Four conditions are important for gaining and maintaining competitive superiority: Factor conditions. Demand conditions. Related and supporting industries. Firm strategy, structure, and rivalry.

new venture groups

Goal is to identify, evaluate, and cultivate venture opportunities Typically function as semi-autonomous units with little formal structure

What may restrict market power?

Government regulations

Why might some companies have lower input costs?

Greater bargaining power over suppliers or labor, superior cooperation with suppliers, or sourcing from low-cost locations

What questions should a firm answer when defining the strategic envelope?

How much will it cost How likely is it to actually become viable How much value will it add What will be learned if this doesn't pan out

How: Business strategy

How to compete in a single product market

What is the most important asset of an entrepreneurial firm?

Human capital

Process innovation

Improving of some aspect of a process, later stages of industry life cycle

Risks of vertical integration

Increase in costs Reduction in quality Reduction in flexibility Increase in the potential for legal repercussions

Differentiation

Increases the perceived value and uniqueness of the firm's product

Who has the second largest population?

India

Decline stage

Industry sales and profits fall, price competition increases, industry consolidation occurs

What are the key dimensions of entrepreneurship?

Innovativeness, proactiveness, and risk propensity

Imitative new entry

Introducing the same basic product or service in another segment of the market

What are the four stages of the industry life cycle?

Introduction, growth, maturity, and decline

Global strategy challenges and risks

Leads to higher transportation and tariff costs, activity is isolated, the firm becomes dependent on location

Economies of scope can be achieved by:

Leveraging core competencies and sharing activities

Firm strategy, structure, and rivalry

Local rules and incentives that encourage investment and productivity, lots of competition

Incremental innovation pace

May be six to two years and use a milestone approach

What are the means to achieve diversification?

Merger and acquisition, internal development, and joint ventures

3 Core Competencies criteria

Must enhance competitive advantage by creating superior customer value, different businesses must be similar, must be difficult to imitate

Focus strategy

Narrow product lines, buyer segments, or targeted geographic markets and attain advantages through differentiation or cost leadership

Entrepreneurship is also called the:

New Value Creation

Horizontal and hierarchy relationships are:

Not mutually exclusive

A firm following an overall cost leadership position must:

Obtain parity on the basis of differentiation relative of competitors

Adaptive new entry

Offer product or service that is "somewhat new and different"

Opportunity Analysis Framework involves a cycle of:

Opportunity, resources, and entrepreneurs

Transnational strategy

Optimization of tradeoffs associated with efficiency, local adaptation, and learning Firm's assets and capabilities are dispersed according to the most beneficial location for a specific activity

Discovery phase

Period when you first become aware of a new business concept

Parity on the basis of differentiation

Permits a cost leader to translate cost advantage into higher profits and allows firm to earn above-average profits

What are the three entry strategies?

Pioneering, imitative, and adaptive

Potential risks of international expansion

Political, currency, and management risks

Joint ventures strategies

Pool resources from other firms with a firm's own research: good for risk sharing, good choice of foreign expansion

Achieving synergy through market power:

Pooled negotiating power and vertical integration

International strategy

Pressure for both adaptation and low costs are low, all sources are centralized

What are the two opposing pressures in Global market

Pressure for cost reductions and Pressure for local responsiveness

Introduction Stage

Products are unfamiliar, market segments are not well defined, limited competition

Business incubators

Provide 5 functions: funding, physical space, business services, mentoring, and networking

Who has the greatest land mass?

Russia

Challenges of innovation

Seeds vs weeds, experience vs initiative, internal vs external staffing, building capabilities vs collaborating, incremental vs preemptive launch

Pooled negotiating power can be strengthened by:

Similar businesses working together, the affiliation of a business with a strong parent, and consolidating an industry

Demand conditions

Sophisticated and demanding local customers

New value can be created in:

Start-up ventures, major corporations, family-owned businesses, non-profit, established instituations

Growth stage

Strong increase in sales, attractive to potential competitors, build customer preferences

What are the sources of differentiation advantage?

Superior product features, better quality/reliability, convenience, and brand image

In order for a company to gain benefits from diversification they must have:

Synergies (More than one business doing the same thing)

Who has the largest capital market?

The US

Focus is based on:

The choice of a narrow competitive scope within an industry

Pooled negotiating power

The improvement in bargaining position relative to suppliers and customers

Those that do not identify with even a single type of advantage are:

The lowest performers who are "stuck in the middle"

Related supporting industries

The presence of clusters of suppliers, competitors, and skilled workforce instead of isolated firms

Product diversification

The process of firms expanding their operations by entering new businesses

Opportunity recognition

The process of identifying, selecting, and developing potential opportunities

Entrepreneurial orientation

The strategy-making practices that businesses use in identifying and launching corporate ventures

What is the goal of a combination strategy?

To provide unique value in an efficient manor

Radical innovation pace

Typically long term, 10 years, uses an experimentation approach

Three characteristics of entrepreneurial leadership

Vision, dedication, commitment

What four important questions do you need to ask yourself before choosing a mode of entry?

What are the critical resources and capabilities? Are there entry barriers? What is the speed? What is the comparative cost?

Offshoring

When a firm decides to shift and activity that they were previously performing in a domestic location to a foreign location

Outsourcing

When a firm decides to utilize other firms to perform value-creating activities that were previously performed in-house

The strategy formulation centers around key questions of:

Where and how to compete

Overall cost leadership strategy

a company achieves a low-cost position relative to a firm's peers and manages relationships throughout entire value chain

Related diversification

a growth strategy whereby the current target market and/or marketing mix shares something in common with the new opportunity

Restructuring can involve:

changes in assets, capital structure, or management

focused approaches to corporate entrepreneurship

corporate entrepreneurship in which the venturing entity is separated from the other ongoing operations of the firm

Incremental innovation

enhances existing practices or makes small improvements in products and processes

Economies of scale

factors that cause a producer's average cost per unit to fall as output rises

Radical innovation

fundamentally changes nature of competition in an industry; new product, service or technology developed by an organization that completely replaces existing product, service or technology in an industry

Opportunity evaluation phase

involves analyzing an opportunity to determine whether it is viable and strong enough to be developed into a full-fledged new venture.

A firm implements a corporate diversification strategy when:

it operates in multiple industries or markets simultaneously

What are the four sources of new knowledge?

latest technology, results of experiments, creative insights, competitive information

Unrelated diversification

operating several businesses under one ownership that are not related to one another

The Three generic strategies at business level:

overall cost leadership, differentiation, and focus

Early stage financial resources

personal savings, bank financing, public financing, venture capital(debt and equity)

Factor endowments

quality and cost of factors of production

Overall cost leadership

reduce manufacturing and other costs below those of all competitors

Benefits of vertical integration

securing critical supplies, lowering costs, improving quality, facilitating scheduling and planning, facilitating investments in specialized assets

Strategy formulation

the process of choosing among different strategies and altering them to best fit the organization's needs