bus 498 ch.6

Business-level strategy

details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product marke

cost drivers to keep costs low

Cost of input factors. ▪ Economies of scale. ▪ Learning-curve effects. ▪ Experience-curve effects.

economies of learning

allow movement down a given learning curve based on current production technology.

focused differentiation strategy

same as the differentiation strategy except with a narrow focus on a niche market.

A differentiation strategy

seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels, allowing the firm to charge higher prices to its customers

e economies of scale

Decreases in cost per unit as output increases.

Economies of scale denote decreases in cost per unit as output increases

Economies of scale denote decreases in cost per unit as output increases

strategy canvas

Graphical depiction of a company's relative performance vis-à-vis its competitors across the industry's key success factors.

Learning by doing allows a firm to lower its per-unit costs by moving down a given learning curve, while experience-curve effects based on process innovation allow a firm to leapfrog to a steeper learning curve, thereby driving down its per-unit costs.

Learning by doing allows a firm to lower its per-unit costs by moving down a given learning curve, while experience-curve effects based on process innovation allow a firm to leapfrog to a steeper learning curve, thereby driving down its per-unit costs.

economies of scope

Savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology.

Tesla's learning curve is critical in justifying such lofty stock market valuations, because as production volume increases, production cost per car falls, and the company becomes profitable

Tesla's learning curve is critical in justifying such lofty stock market valuations, because as production volume increases, production cost per car falls, and the company becomes profitable - Future expected growth, tesla

value innovation

The simultaneous pursuit of differentiation and low cost in a way that creates a leap in value for both the firm and the consumers; considered a cornerstone of blue ocean strategy. - value innovation makes competition irrelevant by providing a leap in value creation, thereby opening new and uncontested market spaces. -requires that a firm's strategic moves lower its costs and also increase the perceived value for buyer

A business strategy, therefore, is more likely to lead to a competitive advantage if it

allows firms to either perform similar activities differently or perform different activities than their rivals that result in creating more value or offering similar products or services at lower cost

two different generic (can be used by any organization) business strategies

differentiation and cost leadership. A

A cost-leadership strategy,

in contrast, seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers. -defined by obtaining the lowest-cost position in the industry while offering acceptable value -reaping economies of scale is critical -provides some protection against the five forces

diseconomies of scale—

increases in cost as output increases - As firms get too big, the complexity of managing and coordinating the production process raises the cost, negating any benefits to scale

strategic position

its strategic profile based on value creation and cost in a specific product market

cost parity

meaning g it has the same costs as competition. A company has achieved cost parity with another if it charges the same price for the same product or servic

experience curve

now change the underlying technology while holding cumulative output constant.32

Larger output allows firms to spread their fixed costs over more units

v=Larger output allows firms to spread their fixed costs over more units

Process innovation]

—a new method or technology to produce an existing product—may initiate a new and steeper curve. - g so, Firm C initiates an entirely new and steeper learning curve. Exhibit 6.7 shows this experience-curve effect based on a process innovation. Firm C jumps down to the 80 percent learning curve, reflecting the new and lower-cost production process. Although Firm B and Firm C produce the same cumulative output (each making 128 aircraft), the per-unit cost differs.

strategic trade-offs

—choices between a cost or value position.

salient perceived value drivers

▪ Product features (commodity products into differentiated) ▪ Customer service ▪ Complements - managers must remember that the different value drivers contribute to competitive advantage only if their increase in value creation

Blue Ocean Strategy

- Business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs. - if the firm can implement some type of value innovation that reconciles the inherent trade-off between value creation and underlying costs.

differentiation strategy

- By leveraging its differentiated appeal of superior customer service and quality, for example, Marriott offers a line of different hotels: its flagship Marriott full-service business hotel equipped to host large conferences; Residence Inn for extended stay; Marriott Courtyard for business travelers; and Marriott Fairfield Inn for inexpensive leisure and family travel. - these hotels are roughly comparable to competitors in price, they generally offer a higher perceived value

Learning effects

- Differences in timing. Learning effects occur over time as output accumulates, while economies of scale are captured at one point in time when output increase - Differences in complexity. In some production processes (e.g., the manufacture of steel rods), effects from economies of scale can be quite significant, while learning effects are minimal

- In an 80 percent learning curve, per-unit cost drops 20 percent every time output is doubled. - 80 percent learning curve Page 199indicates a 20 percent drop every time output is doubled - In a 90 percent learning curve, per-unit cost drops 10 percent every time output is doubled. - By moving further down a given learning curve than competitors, a firm can gain a competitive advantage

- In an 80 percent learning curve, per-unit cost drops 20 percent every time output is doubled. - 80 percent learning curve Page 199indicates a 20 percent drop every time output is doubled - In a 90 percent learning curve, per-unit cost drops 10 percent every time output is doubled. -By moving further down a given learning curve than competitors, a firm can gain a competitive advantage

learning curve

- learning curves go down, as it takes less and less time to produce the same output as we learn how to be more efficient—learning by doing drives down cost. -technology remained constant, while only cumulative output increased. - Every time production was doubled, the per-unit cost dropped by a predictable and constant rate

goal of a cost-leadership strategy

- to reduce the firm's cost below that of its competitors while offering adequate value - ost leader can achieve a competitive advantage as long as its economic value created (V − C) is greater than that of its competitors.

competitive advantage is determined

1. industry profit (assessed using the five forces framework) 2. firm effects

- A company that uses a differentiation strategy can achieve a competitive advantage as long as its economic value created (V − C) is greater than that of its competitors. - Rising costs reduce economic value created and erode profit margins

A company that uses a differentiation strategy can achieve a competitive advantage as long as its economic value created (V − C) is greater than that of its competitors.

blue ocean strategy

Business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs. -Trader joes -differentiation and low cost are complements, providing important positive spill-over effects.

value curve

Horizontal connection of the points of each value on the strategy canvas that helps strategic leaders diagnose and determine courses of action. is the basic component of the strategy canvas. It -A strong value curve has focus and divergence, and -A value curve that zigzags across the strategy canvas indicates a lack of effectiveness in its strategic profile.

Value Innovation—Lower Costs Value Innovation—Increase Perceived Consumer Benefits

IKEA, Eliminate. Which of the factors that the industry takes for granted should be eliminated? Salespeople, expensive but small retail outlets Reduce. Which of the factors should be reduced well below the industry's standard? do-it-yourself business model regarding furniture selection, delivery, and assembly, IKEA drastically reduced the need for staff in its mega-stores Raise Which of the factors should be raised well above the industry's standard? raised several competitive elements: offers tens of thousands of home furnishing items in each of its big-box stores (accessories such as place mats, laptop stands, food Create. Which factors should be created that the industry has never offered? IKEA created a new way for people to shop for furniture.

It is important to note that the learning-curve effect is driven by increasing cumulative output within the existing technology over time. That implies that the only difference between two points on the same learning curve is the size of the cumulative output.

It is important to note that the learning-curve effect is driven by increasing cumulative output within the existing technology over time. That implies that the only difference between two points on the same learning curve is the size of the cumulative output.

focused cost-leadership strategy

Same as the cost-leadership strategy except with a narrow focus on a niche market. -JetBlue attempts to combine a focused cost-leadership position with a focused differentiation position.

scope of competition

The size—narrow or broad—of the market in which a firm chooses to compete. - When considering different business strategies, managers also must define this -GM was one of the first to implement a multidivisional structure in order to separate the brands into strategic business units

To formulate an appropriate business-level strategy,

who, what, why, and how questions of competition: