Exam 2 MGMT 434
The balance scorecard framework enables managers to
- Communicate and link the strategic vision - Translate the strategic vision into operational goals - Implement feedback and organizational learning - Design and plan business processes
Threats to a firm pursuing a cost leadership strategy
- Competitors adopting similar business strategy - Replacement by innovative substitutes -
In the introductory stage of the life cycle, an innovator can achieve market acceptance by
Increasing the number of users
The lemons problem suggest that
Information asymmetric can cause superior goods can be replaced by inferior good
Stages of the industry life cycle
Introduction, Growth, Shakeout, Maturity, Decline
4 Steps of innovation
Invention, Innovation, Imitation, Idea
Balance Score Card
Is a framework to help managers achieve their strategic objectives more efficiently
The most important cost drivers are
Learning curve effect - economies of scale Experience curve effect- Cost of input factors
An experience curve attempts to capture both
Learning effects and process improvements
Difference b/w learning effects and economies of scale
Learning effects occur over time, whereas economies of scale are captured at one point in time when output is increased
Advantages of organizing economic activity outside of firm
Lower administrative cost
What can firms do to counter disruptive innovations
- Continue to innovate - Disrupt themselves - Protect the low end of the market
Which of the following statements are true concerning a firms business model?
- Indicates the way the firm works with buyers and suppliers - Explains how a firm plans to make money - Details a firms competitive tactics
Standards are determined through
- Market competition - Government entities
4 underlying strategic managements concepts that determine the scope of the firm
1. Core competencies 2. Transaction costs 3. Economies of scale 4. Economies of cope
Core Competency Matrix
1. Leverage existing core competencies to improve current market positions 2. Build new core competencies to protect and extend current 3. Re deploy existing core competencies to compete in new markets 4. Build new core competencies and compete in new markets
A tenet behind the triple bottom line is
A firm should achieve positive results along the economic, social, and ecological dimension to gain a sustainable strategy
Value Innovation
A firm that manages to avoid competition entirely by offering a product or service that creates an uncontested market space
Standard dimension for measuring competitive advantage
Accounting Profitability, Shareholder Value, Economic Value
Red Ocean
An environment in which one firm must lose market share in order for another to gain.
Diseconomies of scale
Appears when a firm becomes too large and complex to manage efficiently
Holistic Perspective of a business
Balance Score Card, Triple Bottom Line
Which is the following correctly describes the information used for comparing the performance of publicly traded companies
Balance Sheets and Income Statement, Using standardized financial metrics
The value curve is the
Basic component of the strategy canvas
Corporate planning tool in which corporation is viewed as a portfolio of business units
Boston Consulting Group - Growth Share Matrix
Incremental Innovation
Building on established knowledge
Sustainable strategy for a business
Can be pursued over time without harmful effects on people or the environment
If costs are equal when a firm has a higher value gap than its competitors, it can be inferred that the firm
Can charge a premium price
Cost associated with related diversification
Coordination cost, Influence cost
Question Mark
Low market share, High market growth
Dog
Low market share, Low market growth
During the growth stage of the industry life cycle, firms focus on process innovation to
Reduce per unit production cost Increase production volume
Risks of vertical integration
Reduced flexibility, Reduced quality, Increased cost
To engage in short term contracting a firm sends out a
Request for Proposals
Implementing blue ocean strategy
Requires making competition irrelevant and creating new market space otherwise known as value innovation
The money a shareholder spends on equity is knows as
Risk Capital
What stage does competition become more intense, forcing weaker firms out
Shakeout
Two alternatives to vertical integration
Strategic outsourcing, Taper integration
Which two customer segments make up the largest percentage of the market
The early majority, The late majority
How do shareholders view us
The financial metrics, Cash flow
The tendency of customers to enter the market in large numbers during the growth stage of the industry life cycle is known as
The herding effect
A firm pursuing a successful differentiation strategy
Will have a competitive advantage over a competitor that creates a product equal to cost but lower reservation price
Strong value curves are
focused and divergent
Efficient Market Hypothesis
the hypothesis that prices of securities fully reflect available information about securities
Balance score cards is a tool for strategy
Implementation
Process innovation leads to
Learning curve
Common metrics for evaluating performance
ROE, ROR, ROI
Unrelated diversifications leads to
Diversification Discount
Related Diversification leads to
Diversification Premium
Architectural Innovation
New products, using known components based on existing technologies brought to a new market
Disruptive Innovation
New technologies to to attack existing markets
Another name for producer surplus is
Profit
Reservation price
The maximum price we are willing to pay
Inventions are patentable only if
Useful, Non Obvious, Novel
The most significant challenge Jet Blue faced in implementing its business strategy was
Reconciling their trade offs b/w cutting costs and providing superior service
The stages of the value chain a firm chooses to participate in is called the
Boundaries of the firm
The introductory stage of the industry life cycle is
Capital intensive
Disruptive innovation is more likely to be successful if it
Captures the low end of the market first
Experience curve
Changing the underlying technology while holding output constant
Business models can either be
Combined, Evolutionized, Disruptive
One primary cost driver is
Combining experience based learning and process innovation to move onto a a steeper learning curve
Applying concepts from strategic management to the innovation process' is known as
Strategic Entrepreneurship
A firms strategic profile based on value creation and cost is called
Strategic Position
Blue Ocean
Successfully combines differentiation and cost leadership using value innovation to fill the gaps
A way of orchestrating value activities in which firms is backwardly or forwardly integrated and relies on outside market firms for supplier
Taper integration
Unrelated diversification and Single Business units
Tend to have lower performance
The higher your market share,
The higher your perceived value
Network effects
The positive effect that one user of a product has on the value of a product to another user
Minimum efficient scale
The range of output needed to minimize the cost per unit as much as possible
Economic Value Created
The sum of consumer surplus and producer surplus
In the annual filing with the SEC, public companies must report
The total return shareholders, Benchmarks
The horizontal connection of the points of each value on the strategy canvas is known as
The value curve
Disadvantages of the balance score card
- Only used for implementing strategy - Fails to provide insight on how metrics can be put back on track - Provides only limited guidance about which metrics to choose
First mover dis advantages can include
- The need to find distribution channels - The need to continuously perfect the product - The need to educate consumers
Characteristics of the early majority
- They weigh the benefits and cost carefully - They have a strong sense of practicality - They rely on reviews
A zig zag value curve indicates
A lack of effectiveness
Learning curve
As cumulative output increases, the learning curve decreases
The Balance Score Card question "How do we create value?" challenged managers to develop strategies that ensue
Competitiveness, Innovation Organizational Learning
When blue ocean strategy is successfully formulated and implemented, investment in differentiation and low costs are
Compliment
Shareholder value and economic value is
Correlated
Important cost drivers that managers can manipulate
Cost of input, Economies of scale
Broad Strategy
Cost vs Differentiation
Strategic Trade Off
Cost vs Value
What two variables answer "How should we compete"
Cost, Value
Narrow Strategy
Focused cost leadership vs Focused differentiation
Long term contracts include
Franchising & Licensing
Types of general diversification
Geographic, Product - Market, Product
Strategy canvas
Graphically depicts a companies relative performance across its industry
Establishing a solid strategic position that is hard to imitate is the key objective of a company during the
Growth Stage
Firms that create more economic value
Have competitive advantage
Star
High market share, High market growth
Cow
High market share, Low market growth
Advantages of organizing economic activity at the market level include
High powered incentives, Increased flexibility
Firms consolidate through mergers and acquisitions to
Increase their market power
Examples of strategic alliances
Joint ventures, Long term contracts, Equity alliances
Related Linked Diversification
Limited number of linkages with the primary business activity
Value Innovations focus' on
Lowering cost, Increased perceived consumer benefits
Innovation can
Make existing products obsolete
The cube square rule
Make it harder for smaller stored to compete with large retailers
Share holder value creation
Market Cap, Share Price, Return to Stakeholders
Most firms consider laggards to be
Not worth the effort of pursuing
How do customers view us
This is how customers set their reservation price
A firm in a winner takes all market will try to extend its profit collecting
Through incremental innovation
A platform exists
To help make matches among users and facilitate the exchange of goods
What is the purpose of the core competencies market matrix
To provide guidance regarding how to diversify in order to grow the company
A theoretical framework that helps explain and predict the boundaries of the firm
Transaction cost economic
What core competencies do we need
What makes us different
Differentiation Parity
When two firms create the same amount of value.
Business Models
Why, What, Who, How?
To get the benefits of vertical integration without the accompanying risk, companies can
Choose strategic outsourcing or Use taper integration
Managers implement the blue print of their business model through
Culture, Processes, Structures
Two important factors of strategic positioning
Customer Service, Product features
Dominant Business
Derives between 70%-95% of revenue from a single business
Related Constrained Diversification
Derives less than 70% of its revenue from a single business activity while obtaining other lines of revenue from business' RELATED to the primary business activity
Related Diversification
Derives less than 70% of its revenue from a single business unit while obtaining other lines or revenue from business' LINKED to the primary business activity.
Business Model
Describes how to turn strategy into action
Customers who desire a product because it stokes their imagination
Early Adopter
How to compete on a business level is defined by
Economic Value Created
Value Innovation factors
Eliminate the unnecessary Reduce some factors below industry standards Raise a factor above industry standards Create something unique
How do we create value
Ensures future competitiveness, innovation and organizational learning
Taking economic risk in order to innovate
Entrepreneurship
Alternatives on the make or buy continuum
Equity alliances, Joint Ventures
To measure firm level competitive advantage a company must
Estimate the economic value created for all products and services offered by the firm
The four strategic options that managers have in the decline stage
Exit, Harvest, Maintain, Consolidate
Firms change the underlying technology while holding the cumulative output constant
Experience Curve
Radical Innovation
Novel methods, entirely different knowledge base. New Markets and New Method
A company that resists change and sticks to formalized business processes and structures is likely experiencing
Organizational Inertia
Business Level Strategy
Outlines the steps a managers will take to achieve competitive advantage in a single product market
Which of the following are off balance sheet items
Pension Obligation, Operating Leases
Social entrepreneurs use the
People, Planet, Profit model
Value creation and cost tend to be
Positively correlated
Economic contribution
Price a customer is willing to pay for a good is more than the cost the firm incurs to produce it
Strategic Positioning
Product features, Customer Service, Complements
Triple Bottom Line
Profits, People, Planet - Sustainable Strategy
The benefit of a cost leadership strategy regarding the threat of entry in an industry is
Protected due to economies of scale
A firm that successfully leverages network effects can
Push its industry into the growth stage
Important core competencies for competitive advantage during the growth stage
R&D, Manufacturing, Capabilities, Marketing capabilities
The most integrated alternative to vertical integration is
The parent subsidiary relationship
According to the crossing the chasm framework, the transition b/w different parts of the industry life cycle is difficult because
There is a big gulf separating the early adopters from the segment that makes the mass market
