BUSMHR 4490 - exam 2 (6-9)
disadvantages of firm
- Administrative costs - Low-powered incentives - Principal-agent problem
shakeout - market size
large
maturity - market size
largest
decline - market size
small to moderate
value drivers - customer service
EX: Zappos - free shipping to customers and returns - encouraged to build a relationship with each customer
On which of the following tenets is the crossing-the-chasm framework, suggested by Geoffrey Moore, based?
Each stage of the industry life cycle is dominated by a different customer group.
maturity stage
a product's sales growth slows or levels off
Platforms can be defined along three dimensions:
- a platform is a business that enables value-creating interactions between exter al producers and consumers - platforms overaching pupose is to consummute matches among users and facilitate the exchnage of goods, services, or social currency therby enabling value creation for all participants - platforms provides an infrastructure for these interactions and sets governance conditions for them
indsutry value chain step 5
- after-sales services and support
industry value chain step 2
- componenets - intermediate goods
3 dimensions that determine the boundaries of the firm
- degree of vertical integration - type of diverisification - geographic scope
learning effects differ from economies of scale
- differences in timing - differences in complexity
ikea value innovation - lower cost
- eliminate ( sales people, expensive small outlet and malls) - reduce ( reduced staff because people build it and transfer it themselves)
cost leadership - threat of entry risk
- erosion of margin - replacement
differentiation - threat of entry risk
- erosion of margin - replacement
industry value chain step 3
- final assembly - manufacturing
cost leadership - rivalry among existing competitors risk
- focus of competition shifts to non-price attributes - lowering costs to drive value creation below acceptable threshold
differentiation - rivalry among existing competitors risk
- focus of competition shifts to price - increasing differentiation of product features that do not create value but raise cost - increasing differentiation to raise cost above acceptable threshold
Moving from the traditional pipeline business to a platform business model implies three important shifts in strategy focus:
- from resource control to resource orchestration - from internal optimization to external interaction - from customer value to ecosystem value
success of business level strategies depends on context and relies on two factors
- how wll the strategy leverages the firms internal strengths while mitigating its weaknessess - how well it helps the firm exploit external opportunities while avoiding external threats
joint venture - cons
- long negotiations and significant investments - long term solutions - JV managers have double reporting lines
industry value chain step 4
- marketing - sales
who do firms see so many mergers?
- principal-agent problem - desire to overcome competitive advantage - superior acquisition and integration capability
ikea value innovation - increased perceived customer benefits
- raise (tons of home furnishing item, customers can see and touch all of their products) - create (a new way to shop fully furnished showrooms, caferteria)
Value Innovation - Increase Perceived Consumer Benefits
- raise. which of the factors should be raised well above the industry's standard? - create. which factors should be created that the industry has never offered?
equity - pros
- stronger tie - trust and commitment can emmerge - window into new tech
joint venture - procs
- strongest tie - trust and commitment likely to emerge - may be required by institutional setting
To have a good business-level strategy, they must answer what questions?
- who are the customer segments we will serve? - what customers needs, wishes, and desires will we satisfy? - why do we want to satisfy them? - how will we satisfy them?
advantages of markets
-High powered incentives -Flexibility
advantages of firm
-command and control (fiat/hierarchical lines of authority) -coordination -transaction specific investments -community of knowledge
equity - cons
-less flexible -slower -can entail significant investments
Benefits of Vertical Integration
-lowering costs -improving quality -facilitating scheduling and planning -facilitating investments in specialized assets -securing critical supplies and distribution channels
disadvantages of markets
-search costs -opportunism (hold up) -incomplete contracting (specifying and measuring performance, information asymmetries) -enforcement of contracts
3 types of specialized assets
-site specificity -physical asset specificity -human asset specificity
economies of scale allows firms to
-spread fixed costs over a larger output -employ specialized systems and equipment -take advantage of certain physical properties
Why do firms enter strategic alliances?
-strengthen competitive position -enter new markets -hedge against uncertainty -access critical complementary assets -learn new capabilities
Why do firms acquire other firms?
-to access new markets and distribution channels -to access new capabilities or competencies -to preempt rivals
non-equity - cons
-weak tie -lack of trust and commitment
shakeout stage
Firms begin to compete more directly Weaker firms forced out The industry consolidates Only the strongest competitors survive. Biggest competitive weapon: low price
Which of the following describes an airline that is most likely stuck in the middle?
Eastern Airlines offers high-quality beverages and meals, plush airport lounges, only a few connections via hubs domestically, poor customer service, and low prices.
Value Innovation - Lower Costs
1. Eliminate: Which of the factors that the industry takes for granted should be eliminated? 2. Reduce: Which of the factors should be reduced well below the industry's standard?
4 types of business diversification
1. Single business 2. Dominant business 3. Related diversification 4. Unrelated diversification: the conglomerate
3 dimensions of corporate strategy
1. Vertical Integration 2. Diversification 3. Geographic Scope
why do firms need to grow?
1. increase profits 2. lower costs 3. increase market power 4. reduce risk 5. motivate management
Advantages of the Platform Business Model
1. platforms scale more efficiently than pipelines by eliminating gatekeepers 2. platforms unlock new sources of value creation and supply 3. platforms benefit from community feedback
3 benefits of horizontal integration
1. reduction in competitive intensity 2. lower costs 3. increased differentiation
When a firm manufactures 2,000-3,000 units of a product, it incurs an average cost of $10 per unit. When it manufactures 3,000-4,000 units of the same product, the average cost per unit reduces to $7. However, manufacturing beyond 4,000 units will raise the average cost per unit to $9. Which of the following is the firm's minimum efficient scale?
3,000 - 4,000 units
single business
95% or more of revenue comes from a single business
Market-and-technology framework
A conceptual model to categorize innovations along the market (existing/new) and technology (existing/new) dimensions.
Which of the following best illustrates forward vertical integration?
A firm that manufactures and sells car engines to major automobile companies launches its own line of cars.
alliance management capability
A firm's ability to effectively manage three alliance-related tasks concurrently: (1) partner selection and alliance formation, (2) alliance design and governance, and (3) post-formation alliance management.
Susan owns a firm that is considered fully integrated. Which of the following statements below would best describe a firm that is fully integrated?
All of Susan's business activities are conducted within the boundaries of the firm.
radical innovation
An innovation that draws on novel methods or materials, is derived either from an entirely different knowledge base or from a recombination of the existing knowledge bases with a new stream of knowledge.
reverse innovation
An innovation that was developed for emerging economies before being introduced in developed economies. Sometimes also called frugal innovation.
American Snacks Inc., a conglomerate, has a strategic alliance with Très Bien Limité, a French snack-maker. However, Très Bien managers are concerned that the different business units of American Snacks will set up partnerships with direct competitors of Très Bien in France. What can owners and managers at American Snacks do to respond to Très Bien's concern?
Arrange for the alliance to be managed at the corporate level.
Which of the following summarizes the benefit of the strategic alliance between HP and DreamWorks?
Both HP and DreamWorks were able to enter a new market that they would not have been able to pursue alone.
blue ocean strategy
Business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs.
strategic trade off
Choices between a cost or value position. Such choices are necessary because higher value creation tends to generate higher cost.
build-borrow-or-buy framework
Conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual arrangement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy).
CooCoo Cola has successfully achieved a competitive advantage in the soft drink industry as a differentiator. Which of the following scenarios would undermine CooCoo's position?
CooCoo's customers start to consider soda a commodity
related diversification strategy
Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity.
unrelated diversification strategy
Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business and there are few, if any, linkages among its businesses.
Which of the following is not an advantage when it comes to "first-mover advantages"? - First movers may hold important intellectual property such as critical patents. - First movers may be able to lock-in key suppliers. - First movers must educate potential customers about the product. - First movers may benefit from network effects
First movers must educate potential customers about the product.
________ enables firms to increase their organizational boundaries because the number of competitors decreases. This is demonstrated through the ________ model.
Horizontal integration; structure-conduct-performance
Which of the following most accurately describes a difference between incremental innovation and radical innovation?
Incremental innovation builds on an established knowledge base; radical innovation uses an entirely different knowledge base.
How did the strategic alliance between HP and DreamWorks Animation SKG affect HP?
It enabled HP to compete head on with Cisco's videoconferencing solution.
Which of the following scenarios would be characteristic of an entrepreneur? - John implemented a new and more efficient way to produce pottery. - Hugo scaled back the production of pottery because it wasn't cost effective. - Juliana used a proven marketing method to advertise her pottery. - Karen imitated a new, more efficient method of producing pottery.
John implemented a new and more efficient way to produce pottery.
Because strategic alliances rarely work as well as managers expect they will, why do companies continue to go through with them?
Many owners, managers, and business analysts believe they are essential to survive in an industry.
How did Marriott use economies of scope to achieve greater economic value than its competitors?
Marriott lowered its cost structure by sharing its production assets over several types of hotels, which increased the diversity of its hotel line and thus its differentiated appeal.
cost driver - economies of scale
Occurs when increased output decreases cost per unit. Economies of Scale spread fixed costs.
Which of the following below is not considered an advantage of utilizing a platform business model?
Platforms push firms to constantly engage in radical innovation in order to produce goods and services for the market.
early majority
Pragmatists are mainly concerned with whether adopting a new technological innovation serves a practical purpose or not.
growth - core competency
R&D, some manufacturing, marketing
introduction - core competency
R&D, some marketing
Which of the following businesses is most susceptible to negative network effects?
Rite Pics is a social media platform where users upload photos to the site and are matched with other users who have taken similar photos.
Which of the following is an advantage of equity alliances when compared to nonequity alliances?
They produce stronger ties between partners.
Salesforce is one of the leading providers of platform as a service (PaaS) tools and services. They developed a new competency in delivering software development that allows its customers to better customize their future needs. Viewing this through the lens of the Core Competence-Market Matrix, which of the following four options below does Salesforce best exemplify?
Salesforce built new core competencies to create and compete in markets of the future.
Which of the following best illustrates a merger between the two companies Scotfind Inc. and Inity Inc.?
Scotfind Inc. and Inity Inc. join together to form a single new company called ScotfindInity Inc.
introduction stage
Stage of the product life cycle when a brand-new product enters the market.
Which of the conditions prevail when an industry is at the end of its life cycle? - The level of process innovation reaches its maximum as firms attempt to lower cost. - The strategic objectives of businesses will involve gaining market acceptance. - The market reaches its maximum size at this stage. - The industry structure is perfectly competitive with a large number of buyers and sellers.
The level of process innovation reaches its maximum as firms attempt to lower cost.
Can't Believe It's Not Hair Inc. (CBNH) dominates the ladies' wig market and wants to expand into men's toupees. How can CBNH 's managers determine whether the company should develop a toupee division internally, ally with a toupee maker, or acquire a toupee-making firm?
The managers need to determine whether the skills needed to create wigs and toupees are similar and whether CBNH creates better hairpieces than its competitors do
Entrepreneurship
The process by which people undertake economic risk to innovate—to create new products, processes, and sometimes new organizations.
A software firm is interested in acquiring an app development company that is small but highly profitable. The app developer also has a widely admired management structure and much lower attrition rates than are common in the industry. Which of these problems should the software firm anticipate?
The software firm may overpay for the app developer, poorly serving the software firm's shareholders
A microchip company wants a computer company to produce more powerful tablets and therefore use more of its chips. That same computer company wants the microchip maker to create chips with faster processing power. What approach could these companies take so that both can serve stockholders well?
The two companies should enter a strategic alliance to bring about a win-win situation for them and to limit their rivals' power.
specialized assets
Unique assets with high opportunity cost: They have significantly more value in their intended use than in their next best use.
Which of the following statements accurately brings out the difference between technology enthusiasts and early adopters?
Unlike technology enthusiasts, early adopters' demand is fueled more by intuition and vision rather than technology concerns.
geographic scope question
Where should the company compete geographically in terms of regional, national, or international markets?
While the domestic airline industry is in the maturity stage of the industry life cycle, the internet-enabled appliance industry is in its growth stage. Which of the following can be inferred from the given data?
While the domestic airline industry is mostly free from excess capacity, the internet-enabled appliance industry will have new entrants.
While cell phones with holographic keyboards are currently in the introduction stage of the industry life cycle, tablet computers are in the growth stage. In the context of this scenario, which of the following statements is true?
While the industry for cell phones with holographic keyboards will focus more on product innovation, the tablet industry will focus more on process innovation.
laggards
Will adopt a new product only if absolutely necessary, generally don't want new technology, and are generally not a customer segment worth pursuing.
a blue ocean strategy allows a firm to offer
a differentiated product/service at a low cost
differentiation parity
a firm creates the same value as another
innovation ecosystem
a firm's embeddedness in a complex network of suppliers, buyers, and complementors, which requires interdependent strategic decision making
patent
a form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea
licensing
a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property
managerial hubris
a form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary
core competence-market matrix
a framework to guide corporate diversification strategy by analyzing possible combinations of existing/new core competencies and existing/new markets
related constrained diversification strategy
a kind of related diversification strategy in which executives pursue only businesses where they can apply the resources and core competencies already available in the primary business
related linked diversification strategy
a kind of related diversification strategy in which executives pursue various businesses opportunities that share only a limited number of linkages
franchising
a long-term contract in which a franchisor grants a franchisee the right to use the franchisor's trademark and business processes to offer goods and services that carry the franchisor's brand name
credible commitment
a long-term strategic decision that is both difficult and costly to reverse
architectual innovation
a new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets
joint venture
a standalone organization created and jointly owned by two or more parent companies
Tyrell Corporation, a manufacturer of smartphones, has entered into a 15-year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its phones. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Tyrell Corporation and the software company best referred to as in this scenario?
a strategic alliance
transaction cost economics
a theoretical framework in strategic management to explain and predict the boundaries of the firm, which is central to formulating a corporate strategy that is more likely to lead to competitive advantage
taper integration
a way of orchestrating value activities in which a firm is backwardly integrated but also relies on outside market firms for some of its supplies, and/or is forwardly integrated but also relies on outside market firms for some of its distribution
Which of the following examples uses a focused differentiation strategy? a. a cosmetic brand that offers superior skin lotion for sensitive skin priced at 100 dollars per bottle b. a coffee shop that offers mediocre lattes for $5 for a small latte c. a pro tennis shop that sells low quality racquet priced at 150 per racquet d. a hotel chain that offers high-quality furnishings and services with room rates od under 75 dollars per night
a. a cosmetic brand that offers superior skin lotion for sensitive skin priced at 100 dollars per bottle
introduction - strategic objective
achieving market acceptance
When large, incumbent firms buy start-up companies, the transaction is generally described as a(n)
acquisition.
what is the goal of differentiation strategy?
add unique features to increase perceived value of G/S in consumer's mind so they pay higher prices
value drivers- complements
add value to a product or service when they are consumer together
value drivers - product features
adding unique product attributes allow firms to turn commodity products into differentiated product at a premium price
shakeout - type and level of innovation
after emergence of standard; product innovation decreasing rapidly; process innovation increasing rapidly
transaction cost
all internal and external costs associated with an economic exchange, whether within a firm or in markets
Revolve Group is a mobile platform that matches independent fashion designers with consumers who want a personalized wardrobe. Which of the following initiatives would best allow Revolve Group to fine-tune its offerings to better meet the needs of its consumers?
allowing users to provide feedback to producers on the style and fit of clothing
Platform Business
an enterprise that creates value by matching external producers and consumers in a way that creates value for all participants, and that depends on the infrastructure or platform that the enterprise manages
diversification
an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes
disruptive innovation
an innovation that leverages new technologies to attack existing markets from the bottom up
incremental innovation
an innovation that squarely builds on an established knowledge base and steadily improves an existing product or service
real-options perspective
approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time
site specificity
assets required to be co-located, such as the equipment necessary for mining bauxite and aluminum smelting
physical asset specificity
assets whose physical and engineering properties are designed to satisfy a particular customer
learning curve assumption
assumed the underlying tech remained constant, while cumulative output increase
Tough Guy's Inc. is a chain of gyms. It offers a fitness package that allows its members to use the gym facilities for 12 months by paying only for 10 months. Included in the package are two health check-ups and a gym kit. These add-ons by themselves are not very valuable, but as a package they can enhance the perceived value of the service offerings. In this case, Tough Guy's primary value driver is
availability of complements
Golddex Autos currently sources components such as airbags, upholstery, and brake pads from various suppliers in the industry value chain. In order to lower costs and reduce the risk of interruptions in the supply of components, Golddex should pursue
backward integration
Billy is the CEO of Billy's Kicks, a soccer ball retailer. He decides to purchase the synthetic rubber manufacturing firm so he can create his own soccer balls and sell them, nationally, in his retail stores. In order to do this, Billy will need to engage in ________, which is a corporate level strategy.
backward vertical integration
dominant business
between 70% and 95% of revenue comes from a single business
joint venture - type of knowledge exchanges
both tacit and explicit knowledge exchanged
Jennifer is the CEO of JustFixIt Inc., a firm that merges technology with commercial hardware. She has been struggling with the decision to allocate her resources for the development of a new system or go to the market and search for an already established system. The Board of Directors for JustFixIt Inc. suggested that enter a contractual agreement with a partner. This scenario best illustrates the concept of
build-borrrow-orbuy framework
Which quadrant in the core competence-market matrix is the hardest to pursue?
building new core competencies to create and compete in markets of the future
How did the recent horizontal integration in the U.S. airline industry provide benefits to the surviving carriers?
by lowering competitive intensity in the industry overall
How has Apple been able to sustain its competitive advantage in the smartphone industry?
by regularly introducing incremental improvements in its products
Forward vertical integration
changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain
Backward vertical integration
changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain
In order for a firm to formulate an effective business-level strategy, it is important to remember that competitive advantage is determined by
characteristics of both the industry and the firm
Which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy?
chief executive officer
real options
choices that afford managers the right but not the obligation to make further investments
Which of the following is an example of social entrepreneurship? The committee approved the new formula for an all-purpose cleaner because it - cleaned as well as other cleaners and used organic ingredients - cleaned as well as other cleaners and could be produced more efficiently - cleaned better than other cleaners and did not cost more to produce - cleaned better than other cleaners and used easy to obtain ingredients
cleaned as well as other cleaners and used organic ingredients
first-mover advantage
competitive benefits that accrue to the successful innovator
How does availability of complements act as a value driver?
complements add value to a product when they are consumed in tandem with it
crossing the chasm framework
conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group
non-equity - goverance mechanism
contract
co-opetition
cooperation by competitors to achieve a strategic objective
geographic diversification strategy
corporate strategy in which a firm is active in several different countries
product diversification strategy
corporate strategy in which a firm is active in several different product markets
product market diversification strategy
corporate strategy in which a firm is active in several different product markets and several different countries
Two Generic Business Level Strategies
cost leadership and differentiation
decline - type of buyers
cost leadership, differentiation, or blue ocean strategy
cost drivers
cost of input factors, economies of scale, learning-curve effects, experience-curve effects
Which of the following is an example of an external transaction cost?
cost of searching for a contract manufacturer
maturity - business level strategy
cost-leadership or blue ocean strategy
external transaction cost
costs of searching for a firm or an individual with whom to contract, and then negotiating, monitoring, and enforcing the contract
internal transaction cost
costs pertaining to organizing an economic exchange within a hierarchy; also called administrative costs
joint venture - goverance mechanism
creation of new entity by two or more parent firms
All of the following are generic business-level strategies except a. broad cost-leadership b. focused cost-leadership c. broad differentiation d. focused marketing strategy
d. focused marketing strategy
The demand for flip phones has drastically reduced, and there are only a few consumer electronics companies selling them at extremely low prices. Also, the current buyers of flip phones are mainly categorized under laggards. Which of the following stages of the industry life cycle is the flip phone industry in currently?
decline stage
industry value chain
depiction of the transformation of raw materials into finished goods and services along distinct vertical stages, each of which typically represents a distinct industry in which a number of different firms are competing
Trader Joe's successfully used a blue ocean strategy by offering lower-cost food than Whole Foods for the same market of patrons. By doing this, Trader Joe's was able to
gain a market share and make up the loss in margin through increased sales.
growth - business level strategy
differentiation
introduction - business level strategy
differentiation
shakeout - business level strategy
differentiation, blue ocean strategy
A differentiator is least likely to be threatened by increases in input prices due to powerful suppliers when the
differentiator is able to create a significant difference between perceived value and current market prices
As a start-up company, Cambium Networks entered the low end of the highly competitive smartwatch industry with its low-cost smartwatches. Initially, the company was able to sell its inferior technology due to its low prices. Over the years, however, its rate of technology improvements increased above the industry standards. This helped the company to create a strong strategic position for its smartwatches in the high-end segment and claim a premium price. Which of the following types of innovation does this scenario best illustrate?
disruptive innovation
XYZ Inc. is a publicly traded company and a highly diversified firm. However, XYZ's most recent stock price is valued less than the sum of all its individual business units. We would conclude that XYZ is currently experiencing a
diversification discount
early adopters
eager to buy early into a new technology or product concept. Their demand is driven by recognizing and appreciating the possibilities the new technology can afford them in their professional and personal lives.
The customers entering the market in the growth stage are primarily
early adopters
growth - type of buyers
early adopters
Which of the following customer segments as described in the chasm framework make up the mass market?
early and late majority together
The group of customers referred to as the ________ lead the wave of increased demand as the industry moves from the introduction stage to the growth stage.
early majoirty
customers entering the market in the shakeout stage are called
early majority
shakeout - types of buyers
early majority
ComfySeat Furniture is a brand reputed for its wide variants of sofas that introduced a new range of mattresses and bed frames a few years ago. Since most of its products could be produced using the same resources and technology, the company's cost structure lowered, while its product portfolio widened. In this scenario, which of the following value and cost drivers is ComfySeat applying?
economies of scope
Finger Lickin' BBQ is a chain of casual restaurants that promises affordable barbecue using top-quality local ingredients. However, the company has struggled to achieve a competitive advantage because of its high overhead costs. Which of the following scenarios is most likely to result in a competitive advantage?
eliminating brick-and-mortar locations and offering delivery from a central kitchen
strategy canvas
graphical depiction of a company's relative performance vis-a-vis its competitors across the industry's key success factors
Which of the following best illustrates site specificity?
equipment necessary for mining bauxite and aluminum smelting
A candy company called Blackzim Inc. forms an agreement with another candy company called Streethex Inc. Through this agreement, Blackzim owns 30 percent of Streethex. However, Streethex does not own any part of Blackzim. This type of agreement is called a(n)
equity alliance.
equity - governace mechanism
equity investment
corporate venture capital
equity investments by established firms in entrepreneurial ventures; CVC falls under the broader rubric of equity alliances
differentiation - power of supplier risk
erosion of margin
differentiation - power of buyers risk
erosion of margins
cost leadership - power of suppliers risk
erosions of margin
cost leadership - power of buyers risk
erosions of margins
cost driver - cost of input factors
most basic advantage a firm can have over its rivals is access to lower-cost input factors such as raw material, capital, labor and IT services
at the decline stage, leaders have 4 options. what are they?
exit, harvest, maintain, consolidate
decline - strategic objective
exit, harvest, maintain, or consolidate
non-equity - type of knowledge exchanged
explicit
equity - types of knowledge exchanged
explicit; exchange of tacit knowledge possible
growth - cost
falling
decline - number of competitors
few if any
introduction - number of competitors
few, if any
shakeout - number of competitors
fewer
Google, the leader in online search and advertisement, engaged in a number of smaller acquisitions of tech ventures. It did this in order to
fill gaps in its competency lineup.
non-equity - pros
flexible, fast, easy to initiate and terminate
cost leader
focuses its attention and resources on reducing the cost to manufacture a product or deliver a service in order to offer lower prices to its customers
Which of the following is an ineffective practice in alliance management?
focusing on developing an alliance-management capability in isolation
Firms that use taper integration also use ________ when they rely on outside-market firms for some of their supplies.
forward horizontal integration
Hot Potatoes, a fast food restaurant, operates through a business model in which individuals can buy the rights to set up Hot Potatoes stores and sell the company's food in return for a lump sum fee at the beginning of the contract and a percentage of revenues every month. The owners of the stores have to offer a menu approved by the company's headquarters and also maintain consistent customer service as expected in its flagship store. Which of the following alternatives to integration does this best illustrate?
franchising
non-equity - frequency
most common
differentiation strategy
generic business strategy that seeks to create higher value for customers than the value that competitors create, while controlling cost
cost-leadership strategy
generic business strategy that seeks to create the same or similar value for customers at a lower cost
learning curve
go down (as it takes less and less time to produce the same output as we elarn how to be more efficient)
Bestie Toys faces stiff competition from FunGadgets Inc., a rival firm with which Bestie Toys has achieved differentiation parity. Both firms have invested in state-of-the art production facilities and have similar learning curves of 85 percent. Assuming neither firm can reduce the cost of its input factors, how can Bestie Toys achieve a competitive advantage as a cost-leader?
have a cumulative output that is greater than FunGadgets Inc.
growth - market growth
high
introduction - cost
high
The strategy canvas for movie theaters includes factors such as prices, comfort, customer service, concessions variety, and hours of operation. Which of the following value curves is most likely to represent a theater that successfully positions itself as a differentiator?
high price, high comfort, high customer service, high concessions variety, low hours of operation
Several drawbacks exist when it comes to horizontal integration. Which of the following below is not one of the drawbacks?
higher costs
experience curve assumption
hold cumulative output constant while changing the underlying technologies
value curve
horizontal connection of the points of each value on the strategy canvas that helps strategists diagnose and determine courses of action
4 I's
idea, invention, innovation, imitation
degree of vertical integration
in what stages of the industry value chain to participate
vertical integration question
in what stages of the industry value chaing should the company participate? the industry value chain describes the transformation of raw materials into finished goods and services along distinct vertical stages
Value drivers contribute to a firm's competitive advantage only if
increase in value creation the increase in costs
BellRing Brands is a manufacturer of educational toys for children. Six months ago, the company's research and development division came up with an idea for a unique touchscreen device that can be used to introduce children to a number of foreign languages. Three months ago, the company produced a working prototype, and last month the company successfully launched its new device on the commercial market. What should BellRing Brands's managers prepare for next?
increased competition for imitators
diseconomies of scale
increases in cost per unit when output increases
Risks of Vertical Integration
increasing costs, reducing quality, reducing flexibility, increasing the potential for legal repercussions
Fulcrum Feet is a manufacturer of athletic shoes. It has released an improved version of its premier running shoe in markets in which the company already operates. Which of the following types of innovations does this scenario best illustrate?
incremental innovation
________ is best described as a situation in which one party is more informed than another, because of the possession of private information.
information asymmetry
Which of the following drivers simultaneously increases value while lowering cost?
innovation
According to the five forces model, which of the following is viewed as a major risk to a business pursuing a cost-leadership strategy?
innovation that allows competitors to emerge with more economical replacements
Are industry effects and firm effects interdependent or do dependent upon each other?
interdependent
human asset specificity
investments made in human capital to acquire unique knowledge and skills
Which of the following best explains why a blue ocean strategy is difficult to implement?
it requires the reconciliation of fundamentally different strategic positions - differentiation and low cost
NuLiver Corp. has recently introduced a new production method that will make the production of their medical devices more cost-effective. Which of the following will most likely be the result of this innovation?
jumps to a steeper learning curve
When a firm combines experience-based learning and process innovation, the firm
jumps to a steeper learning curve
explicit knowledge
knowledge that can be codified; concerns knowing about a process or product
tacit knowledge
knowledge that cannot be codified; concerns knowing how to do a certain task and can be acquired only through active participation in that task
While the personal computer industry is flooded and growing with laptops and tablets, Javier recently bought a desktop, his first personal computer. He realized that a computer at home would be helpful for his children for their school projects, and he could use it to maintain the simple accounts of his plumbing business. Which of the following customer segments does Javier best represent?
laggards
customers entering the market in the declining stage are called
laggards
customers entering the market in the maturity stage are called late majority
late majority
maturity - types of buyers
late majority
Lauren is the CEO of TimeEx Inc. and is competing in an industry that is shifting due to disruptive innovation. Which of the following strategies should she consider to most appropriately respond to this disruptive innovation?
lauren should guard against the disruptive innovation by protecting the low end of the market
learning effects differ from economies of scale - differences in timing
learning effects occur over time as output accumuates, while economies of scale are captured at one point in time when output increases
joint venture - frequency
least common
equity - frequency
less common than non-equity alliances, but more common than joint ventures
Decisions relating to the range of products and services a firm will offer determine the firm's
level of diversification
maturity - cost
low
decline - cost
low to high
There are many reasons why firms need to grow. Which of the following reasons is strongly influenced by economies of scale?
lowering cost
maturity - strategic objective
maintaining strong strategic position
Warephase Airway's decision to acquire Konex Fuels Inc. proved to be ill-fated because the Warephase managers overestimated their abilities and skills. They believed that they had the skills to manage such diversified businesses and create additional shareholder value. However, the acquisition failed to create the anticipated synergies because the managers' capabilities were restricted to the airline industry. What does this scenario best illustrate?
managerial hubris
Why did Quaker Oats Company's acquisition of Snapple fail?
managerial hubris
shakeout - core competency
manufacturing, process engineering
maturity - core compentency
manufacturing, process engineering, marketing
decline - core compentency
manufacturing, process engineering, marketing, service
growth - number of comeptitors
many
winner takes all market
markets where the market leader captures almost all of the market share and is able to extract a significant amount of the value created
growth - market size
moderate
shakeout - cost
moderate
shakeout - market growth
moderate and slowing down
maturity - number of competitors
moderate, but large,
strategic outsourcing
moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain
Jonathan is the owner of a landscaping company that caters to a very wealthy clientele. His company has struggled to differentiate itself from the other high-end landscapers in the area, but because he has hired several expensive but highly qualified team members, Jonathan is unable to shift to a cost-leadership strategy. Which strategy is most likely to achieve a competitive advantage?
narrow the scope of competition and focus on unique features such as the use of organic materials
decline - market growth
negative
product innovation
new or recombined knowledge embodied in new products
process innovation
new ways to produce existing products or deliver existing services
growth - mode of competition
non-price competition
introduction - mode of competition
non-price competition
maturity - market growth
none to moderate
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
Many financial service firms, IT firms, and health care companies are among the most active when it comes to________, which occurs when value chain activities are taken care of outside the home country of the firm.
offshore outsourcing
Technology Enthusiasts
often have an engineering mindset and pursue new technology proactively, frequently seeking out new products before they are officially introduced to the market.
mimimum efficient scale
output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale
non-equity alliance
partnership based on contracts between firms
equity alliance
partnership in which at least one partner takes partial ownership in the other
Rosa is a senior manager at Veridian Dynamics, a motorcycle manufacturer. Veridian Dynamicshas entered an equity alliance with Parker Industries, a moped manufacturer. "Don't worry, Rosa," her counterpart at Parker Industries tells her. "I'm going to send you all our guidelines and documentation for manufacturing catalytic converters, and then you'll be all set." What else should Rosa request from Parker Industries?
personnel exchanges to share tacit knowledge
VineRipe Tomato Inc. makes organic ketchup. To promote its products, this firm decided to make bottles in the shape of tomatoes. To accomplish this, VineRipe worked with its bottle manufacture to create a set of unique molds for its bottles. Which of the following specialized assets does this example demonstrate?
physical-asset specificity
Susan wants to create a networking site that would connect local artists to homeowners who are looking for unique and original art. She knows that network effects will play a big role in her success and doesn't want to build her business using a linear value chain. Susan would best be served by employing a(n)
platform buisness model
The main reason behind Alphabet's decision to acquire the Israeli start-up company Waze for $1 billion was probably to
preempt its competitors from buying Waze.
maturity - mode of competition
price
decline - mode of competition
price or non-price competition
Horizontal Integration
process of merging with competitors, leading to industry consolidation
decline - type and level of innovation
product and process innovation ceased
value drivers
product features, customer service, complements
introduction - types and level of innovation
product innovation at a max; process innovation at a min
maturity - type and level of innovation
product innovation at a min; process innocation at a max
growth - type and level of innovation
product innovation decreasing; process innocation increasing
differentiation - power of buyers benefit
protection againist in sales prices, because well-differentiated products/services are not perfect imitations
cost leadership - power of suppliers benefits
protection againist increase in input prices, which can be absorbed
differentiation - power of supplier benefits
protection againist increase in input prices, which can be passed on to customer
differentiation - rivalry among existing competitors benefit
protection against competitors if product/service has enough differential appeal to command premium price
cost leadership - power of buyers benefits
protection against decrease in sales prices, which can be absorbed
cost leadership - threat of entry benefits
protection against entry due to economies of scale
differentiation - threat of entry benefits
protection against entry due to intangible resources such as a reputation for innovation, quality, or customer service
cost leadership - rivalry among existing competitors benefits
protection against prices wars because lowest cost firm will win
differentiation - threat of substitutes benefit
protection against substitute products due to differential appeal
cost leaderships - threat of substitutes benefits
protection against substitute products through further lowering of prices
Feran is the founder of an innovative "impromptu catering" business that provides elegant, healthy party food and decorations on less than 24 hours' notice. The company has grown by over 150 percent in the past year. Feran credits some of the company's success to studying the strategies of prominent social entrepreneurs, such as Wikipedia's Jimmy Wales. What can Feran do to exemplify the social entrepreneurship model?
provide free weely catered meals for the homeless
Soylent Corporation is a major nutritional supplement chain. Its managers are motivated to grow the firm in order to increase their market power and change the industry structure in their favor. Which of the following strategies is most associated with their motive for growth?
purchasing competitors
Doncon Guitars is interested in pursuing backward integration to take greater ownership of the extraction of raw materials and production of components used in its signature line of guitars. Although this approach would lower the overall cost of producing a guitar, the costs associated with producing electronic pickups for sound amplification are far greater than those associated with sourcing pickups from a reliable supplier. Which of the following approaches is likely to produce superior results?
pursue taper integration
Blackzim Inc. entered the low-priced digital watch market several years ago. This firm's earnings have been unsteady but might be growing. According to the BCG growth matrix, Blackzim is a
question mark
industry value chain step 1
raw materials
The core competency of Newex Motors is its fuel-efficient engine found in its cars. These engines are developed and built in-house. The company realizes that the growing demand for "green" vehicles has created a new market opportunity. Thus, it uses its existing technology to develop an engine that improves the fuel efficiency of recreational motorhomes. In this scenario, Newex Motors is
redeploying and recombining existing core competencies to compete in future markets.
introduction - market size
small
differentiation - threat of substitutes risk
replacement, especially when faced with innovation
cost leaderships - threat of substitutes risk
replacement, especialy when faced with innovation
focused cost leadership strategy
same as the cost-leadership strategy except with a narrow focus on a niche market
focused differentiation strategy
same as the differentiation strategy except with a narrow focus on a niche market
Codehow Inc. is a large firm involved in the highly competitive market of high-tech medical equipment. In this market, smaller firms that focus on research are constantly making new technological developments. Which of the following approaches would best serve the needs of Codehow?
serial acquisitions
shakeout - mode of competition
shifting from non-price to price competition
In terms of the build-borrow-or-buy framework, a firm's internal resources are considered to be relevant when they are
similar to those that need to be developed and superior to those of competitors in the targeted area.
Since Coca-Cola focuses on selling only soft drinks, a low degree of product diversification, we would conclude that they compete in a(n) ________ market versus their main competitor PepsiCo, that sells a wide variety of products.
single product
principal-agent problem
situation in which an agent performing activities on behalf of a principal pursues his or her own interests
information asymmetry
situation in which one party is more informed than another because of the possession of private information
diversification discount
situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units
diversification premium
situation in which the stock price of related-diversification firms is valued at greater than the sum of their individual business units
learning races
situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which the firms learn may vary
introduction - market growth
slow
learning effects differ from economies of scale - differences in complexity
some production processes (manufacture of steel rods), effects from economies of scale can be quite significant, while learning effects are minimal. some professions (brain surgery or the practice of estate law), learning effects can be substantial, while economies of scale are minimal
decline stage
stage of the product life cycle when sales decline and the product eventually exits the market
growth - strategic objective
staking out a strong strategic position; generating "deep pockets"
When a firm uses the tools and concepts learned from strategic management in order to achieve competitive advantage by pursuing innovation, it is said to be engaging in
strategic entrepreneurship
relational view of competitive advantage
strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries
shakeout - strategic objective
surviving by drawing on deep pockets
Mark owns Drones 'R' Us, Inc. and is looking for an alternative to vertical integration. He decides to manufacture some of his own parts while keeping a few key suppliers in his industry value chain as well. This is known as
taper integration
Rundofase International, a large conglomerate, procures a few component parts from external suppliers and also manufactures some of the key raw materials in its own subsidiaries. Aside from this, the company does not solely depend on outside distributors to reach its customers. In fact, it has its own retail stores to distribute its products. In this scenario, which of the following alternatives to vertical integration is Rundofase International applying?
taper integration
introduction - type of buyers
tech enthusiasts
customer segment in the introuductory stage of the industry cycle is called what
technology enthusiasts
entrepreneurs
the agents that introduce change into the competitive system
innovation
the commercialization of any new product or process, or the modification and recombination of existing ones
Corporate Strategy
the decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industries and markets simultaneously
industry life cycle
the five different stages - introduction, growth, shakeout, maturity, and decline - that occur in the evolution of an industry over time
business level strategy
the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market
A blue ocean strategy differs from a low-cost strategy in that
the intent of a blue ocean strategy is not to be the absolute lowest-cost provider because a blue ocean must also increase perceived value.
merger
the joining of two independent companies to form a combined entity
platform ecosystem
the market environment in which all players participate relative to the platform
acquisition
the purchase of one company by another, can be friendly or unfriendly
strategic entrepreneurship
the pursuit of innovation using tools and concepts from strategic management
social entrepreneurship
the pursuit of social goals while creating a profitable business
growth stage
the second stage of the product life cycle when sales typically grow at an increasing rate, many competitors enter the market, large companies may start to acquire small pioneering firms, and profits are healthy
value innovation
the simultaneous pursuit of differentiation and low cost
scope of competition
the size - narrow or broad - of the market in which a firm chooses to compete
What is an invention?
the transformation of an idea into a new product or process
invention
the transformation of an idea into a new product or process, or the modification and recombination of existing ones
One of the reasons that big box retailers like Home Depot are able to achieve economies of scale is that
they are able to advantage of physical properties and maximize their scale efficiencies by stocking more merchandise and handling inventory more efficiently
late majority
they are less confident about their ability to master new technology. Will wait until standards have emerged and become firmly entrenched so as to ensure reduction in uncertainty. Tend to buy from well-established firms with strong brand image.
trade secret
valuable proprietary information that is not in the public domain and where the firm makes every effort to maintain its secrecy
Product features, customer service, and complements are all examples of important
value drivers
for blue ocean strategy to succeed, must resolve trade-offs between two strategic positions. how is this done?
value innovation
Decisions relating to "what stages of the industry value chain to participate in" determine a firm's
vertical integration
strategic alliances
voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services
diversification question
what range of products and services should the company offer?
The type of diversification
what range of products and services to offer
vertical market failure
when the markets along the industry value chain are too risky, and alternatives too costly in time or money
When does a merger between companies typically occur?
when two firms of comparable size join to form a combined entity
geographic scope
where to compete