Test 2 Questions, Bus 189 (Chapter 23 & 24), Bus189 Ch7 FINAL, CH 6: Corporate Strategy, Ch.5 Review Questions and Vocab, Test 2 BUS 401 Ch.4

Firms pursuing a differentiation strategy primarily seek to:

create higher customer perceived value than the value that competitors create.

Front-end capabilities and resources

customer-facing

Taurus Inc. usually produces 5,000 handcrafted products in a day. Recently, the demand for handcrafted products drastically increased as one of its products became a popular item for home décor. Due to this increase, the company had to up its production level to 10,000 products per day. This, however, decreased the price of individual products. This scenario best illustrates _____.

economies of scale

different product features in three ways

1. The product does a "better job" of meeting a customer need on existing product features. 2. The product does "more jobs" for the customer than other products. 3. The product does a "unique job" that nothing else does.

what are the three ways in which product features can be offered for the purpose of differentiation? Provide a brief explanation of each one.

1. does a better job on existing features i.e vacuum cleaner with higher power suction than other competitors. 2. does more jobs than other products i.e iPhone serves as a phone, camera, music player all in one. 3. does a unique job that nothing else does i.e build-a-bear-offers unique job of allowing customization for of building a stuffed animal.

describe the sources of cost advantage

1. economies of scale: greater unit volume allows firms to have lower costs by spreading fixed costs across more units. 2. learning and experience curves 3. proprietary knowledge: knowledge in the production of their product 4. lower input costs: may have this from bargaining power, low cost locations 5. different business model: eliminates steps in the value chain or uses different activity set may offer lower costs

list the 6 S's for expanding the resources and capabilities: for how to create value for shareholders of a diversified firm

1. employ slack (unused resource capabilities) 2. create synergy 3. shared knowledge 4. use similar models of success 5. spread capital 6. provide stepping stone to a new business sectors

Adjacent Market

A market or industry closely related to markets or industries a firm currently competes in

Growth share matrix

A model used to relegate different investments into simplified categories and provide a management rule. Each unit contributes to the corporate value creation as either 1) and engine of revenue growth or 2) generate cash flows for the firm to reinvest or distribute to shareholders

A car has to go through several different levels of manufacturing processes before it can be painted. The painting process cannot be initiated until a car is externally assembled and then inspected. This type of interdependence can be best termed as _____. A. extensive interdependence B. modular interdependence C. reciprocal interdependence D. sequential interdependence

D

Adia, the chief executive officer (CEO) of Touch Works Corp., believes that outsourcing would be a disadvantage to her company. She states that she would not be able to control the finances and assets of her company if work gets outsourced. Which of the following statements strengthens Adia's belief? A. Outsourcing would maximize the capital investment that Touch Works Corp. would require to grow. B. Outsourcing would prevent Touch Works Corp. from contracting out activities to industry specialists. C. Touch Works Corp. would be forced to focus on a wide range of activities. D. Touch Works Corp. would lose the ability to innovate and create competitive advantage.

D

Having more flexibility, or being less vertically integrated, is more valuable when: A. a firm can create its own raw materials. B. technology used is outdated. C. the cost to perform an activity remains the same. D. new technologies are innovated.

D

In the context of the primary reasons for vertical integration in companies, what do capabilities refer to? A. Whether a company has the finances to handle and overcome organizational criticism B. Whether a company knows when it should establish and exercise strict rules and regulations C. Whether a company can economize on scarce inputs in order to reduce transaction costs D. Whether a company has the right resources to perform an activity better than other firms

D

Lupus LLC is a company that sells personalized gift items. It reduces the cost of employing professional artists, designers, photographers, salespeople, and retailers by letting its members and other people submit their ideas for designs, quotes, and phrases on its e-commerce website. Which of the following types of crowdsourcing does Lupus LLC use? A. Crowdvoting B. Crowdinnovation C. Crowdtasking D. Crowdcreating

D

North Road LLC, an apparel company, found that its fashion supplies and accessories section was not generating much profit. Thus, the company contracted this section of its business to another company that designs and manufactures these products in a better way. The management of North Road realized that the employees of North Road could use the time to focus on other aspects that bring profit to the company. This scenario best illustrates _____. A. market penetration B. vertical integration C. horizontal diversification D. outsourcing

D

Creating SYNERGY

Occurs when different elements of a system interact in a way that creates more value together than the elements create separately

Which of the five major sources of cost advantage contributed to the Tata Nano being the world's least expensive car?

Proprietary knowledge; they knew how to engineer the cheapest car

Give an example of a company that has a cost advantage because it uses a different business model or shorter value chain than its competitors.

Ryanair elimates steps in its value chain to have a cost advantage; they dont offer in-flight meals, pillows, blankets, or even air-sick bags. OR Amazon using a different business model than competitors and started selling books online.

What data would you need to calculate a scale curve or experience curve?

Scale curve covers the cost of producing a unit vs. volume of production in period of time like a quarter, but an experience curve covers the cost of producing a unit vs. cumulative volume of production over time

What is a scale curve, and how it is different from an experience curve?

Scale curve: shows economies of scale, minimum efficient scale (optimum quantity Q1), and diseconomies of scale Scale curve covers the cost of producing a unit vs. volume of production in period of time like a quarter, but an experience curve covers the cost of producing a unit vs. cumulative volume of production over time

Relationship between Profitability and Corporate Diversification

There is an inverted curvilnear (upside-down U-shaped) relationship between corporate diversification and profit. Firms that compete in a few related industries outperform firms focused on a single industry. Moderate diversification pays off but very high levels of diversification lead to lower levels of performance.

Integration

The degree to which firms the two companies share facilities, operating procedures, compensation systems, organizational structure, or even cultural norms

Dominant Business (Levels of diversification)

A firm that earns more than 70% of the revenue from its main line of business and the remainder from other lines across different value chains

Related-linked diversification (Levels of diversification)

A firm that operates in related markets, but fewer linkages exist between the new and existing markets than the elements create separately

Poor Management (Destroy value through diversification)

When managers do no direct their limited time, mental resources, and energy to the correct investments to best diversify a firm

prestige brands

When products are differentiated by being associated with positive qualities in the minds of customers.

brand image

When products are differentiated through marketing, via advertisements, promotions, and other marketing activities.

Business Unit Strategy

approach of creating competitive advantage within a single industry market or line of business

Corporate Strategy

approach to create value and competitive advantage through participating in several different industries

When a firm makes choices between a cost or value/differentiation position to achieve competitive advantage, it is primarily involved in _____.

strategic trade-offs

Back-end capabilities and resources

technical and operational

Pet-related spending in the U.S is estimated to be at least 69$ billion annually. Young's is a family owned business that is comprised of three operating companies: Pets R Us; Mealz; and Mobile vets. Pet R Us is a chain of retail stores that cater to the needs of pet owners. Mealz buys the remnants from fish and cattle processing and uses these inputs to create food and home gardening fertilizer. Mobile Vets is a network of small animal veterinarians who make house calls; Mobile Vets receives a referral fee from each client served by a member veterinarian. Pets R Us faces intense competition from Pet Smat, Petco, Chewy.com as well as new entrants. Mealz can't acquire enough raw materials to meet the demand for its finished goods. Despite the ability to provide regular referrals, Mobile Vets is facing resistance from veterinarians. In the context of the BCG growth share matrix, in which quadrant would Pets R Us, Mealz and Mobile vets fall and why?

the BCG metrics categorizes companies based on their market growth and market share. Pets R Us: seems to be in the "Question mark" quadrant. Question markets are categorized by high growth rate and low market share. Pets R Us is a chain and has likely been growing its locations and therefore has higher growth rate. However, its competing against a lot of competitors in what looks to be a saturated industry meaning it has a low market share. --high growth and low share make it question mark Mealz: looks to be a "Star" with high market share and high growth rate. Passage says they have hard time acquiring raw materials for their demand. This means that their demand is high, presumably because they have a large market share--therefore main sellers of the product. The fact that they can't match raw materials for their demand could meet they are growing quickly and thus have a high growth rate. suggest they are a star Mobile Vets: Cash cow. Cash cows have high market share but low growth rates. They are regularly providing referrals suggesting a high market share, but they are facing resistance to their business which implies that growth is stymied. low growth but high share makes them cash cow.

In order for a firm to formulate an effective business-level strategy (cost-leadership or differentiation), it is important to remember that competitive advantage is determined by:

the characteristics of both the industry and the firm

Identify at least two ways that companies can achieve a cost advantage through lower-cost inputs.

(1) exercising strong bargaining power over suppliers, (2) cooperating especially well with suppliers, (3) getting inputs from low-cost locations, and (4) arranging better access to inputs than other companies have.

Blend (4 General Integration Strategies)

- moderate degree of integration. The target firm retains its own identity, brand, and much of its culture and operating autonomy -Advantage of shared knowledge while preserving the strengths of each company

When is which method of diversification preferred?

-Greenfield when the firm can readily exploit its existing resources and capabilities, is not pressed for speed, and can enter at a new line of business at a small or moderate scale - Acquisition when the firm must expand their resources and capabilities to compete efficiently, enter a market quickly, or operate at a large scale

Bolt (4 General Integration Strategies)

-Implies two separate entities joined at a single point through a very strong link. Deliberately being separate has the advantage of being able to monitor performance more accurately by each unit. - The link between the two companies is often the transfer of cash from the acquirer to the acquired.

Build (4 General Integration Strategies)

-also called merger -An acquisition with the goal of creating a new firm from the components of the two pre-acquisition firms -May be the hardest strategy -represents what companies do when they build one new firm from the components of the two

Bury (4 General Integration Strategies)

-also called takeover -an acquisition where the acquiring firm absorbs the target firm. The target firm ceases to exsist -The target's brand, culture, and identity all disappear

2 Characteristics of adjacent markets

1) Allow firm to exploit some of its resources and capabilities to create value 2) Allow firm to acquire related resources and capabilities to prepare for next step

4 General Integration Strategies

1) BURY the target through complete integration 2) BUILD a brand new entity with the combined entities through tight integration 3) BLEND in the target to the corporation using the best practices from each 4) BOLT on the target to the existing company only where it makes sense

Value creating acquisitions will either...

1) Exploit the firm's current stock of resources or 2) enhance the firm's resources and capabilities -Best acquisitions create value for both the acquiring and acquired firm

6 Ways to Destroy value through diversification

1) Hubris 2) Sunk cost fallacy 3) Imitation 4) Poor Governance and incentives 5) Poor Management 6) Lack of resources

4 Steps in the Process of Acquisition

1) Identifying potential targets 2) Selecting which one to purchase 3) Doing the deal 4) Integrating the acquisition after the deal closes

Before acquiring, managers should ask 2 questions:

1) Why will the existing business be more valuable because we have entered an adjacent market 2) Why will the new business activity be more valuable inside our corporation than operating alone?

What are the five sources of cost advantage?

1) economies of scale or scope 2) learning and experience 3) proprietary knowledge 4) input costs 5) different business model

Dominant logic (SIMILAR business model)

A conceptualization of a business or set of rules for competition that applies to seemingly unrelated product markets or industries

Acquisitions fail because...

1) poor strategic fit 2) incomplete due diligence 3) high acquisition price 4) firm fails to properly integrate firm into its portfolio

Marketers typically segment markets in one of three ways:

1. Based on various attributes or the price of products 2. Based on attributes of the individuals or companies who are customers, including demographics or psychographics 3. Based on attributes of the customer's circumstance, or what is called the job-to-be-done view, an alternative way of segmenting customers that has emerged recently

Companies have four main options for creating product differentiation:

1. Different features. The product does a better job on features available in other products, does more "jobs" than other products, or does a "unique job" not done by any other product. 2. Quality or reliability. The product does the same job as other products, but does it for longer. 3. Convenience. The product is easily available when the customer needs or wants it. 4. Brand image. The product gives customers a certain feeling or idea.

What are the four major categories or sources of product differentiation?

1. Different product/service features 2. Superior quality or reliability 3. Convenience 4. Brand image

Explain four ways that economies of scale produce cost advantages.

4 ways: the ability to spread fixed costs of production, the ability to spread nonproduction costs, specialization of equipment, and specialization of people.

Single Business (Levels of diversification)

A firm earning more than 95% of the revenues from a single line of business

Related-constrained diversification (Levels of diversification)

A firm earns less than 70 percent of its revenue from the main line of business and its other lines of business share product, technological, and distribution linkages with the main business

Dominant vertical business (Levels of diversification)

A firm that earns more than 70% of its revenue from main mine of business and the rest from businesses located along the value chain

A production house called Script Creations Inc. initiated a strategy for making its next movie. It invited a mass of people to create short documentaries on a social theme. As per the terms and conditions, Script Creations would select top three short stories to create an overall complete movie. This initiation by Script Creations Inc. is an example of _____. A. crowdsourcing B. insourcing C. offshoring D. benchmarking

A

Coral Corp. is a company that initially used to manufacture handbags. It has now set up a store in which it sells its own products rather than supplying them to different stores. This initiation by Coral Corp. best illustrates _____. A. forward integration B. backward integration C. horizontal diversification D. market penetration

A

Green Solutions Corp. is a washing machine manufacturing company. When it initially started out, it had held contracts with a supplier who provided the company with finished washing machine parts. However, Green Solutions later started manufacturing the parts by itself and assembling its products within the company without having to seek supplier intervention. This scenario best exemplifies _____. A. vertical integration B. market penetration C. task specialization D. horizontal diversification

A

In the context of the primary reasons for vertical integration in companies, which of the following statements is true of coordination? A. The greater the interdependence between activities, the more a company should vertically integrate. B. Activities that require high levels of coordination are known to be modular in nature. C. The greater the interdependence between activities, the more a company should rely on outsourcing. D. Activities that require low levels of coordination are known to be reciprocal in nature.

A

Nate, the managing director of Juniper Inc., believes that instead of making auto parts on its own, it should rather outsource these tasks to other companies so that the company can focus only on the critical aspects of the final product. His colleague, Salma, believes that the company would have more competitive advantage if it made its own auto parts. Which of the following statements strengthens Nate's belief? A. Outsourcing will minimize the capital investment Juniper Inc. requires to grow. B. Outsourcing will lessen the pressure of crowdsourcing so that lesser and more stable options are sought. C. Outsourcing will help minimize Juniper Inc.'s need to innovate its assets or activities. D. Outsourcing will minimize suppliers' bargaining power as Juniper Inc. chooses its suppliers.

A

Sport Soles Inc., a sports footwear manufacturing company, makes athletic shoes with rubber soles. In order to maximize its value and profit, Sport Soles sets up its operations right next to rubber tree fields. This way, the company gets easy access to its main raw material. In the context of vertical integration, this scenario illustrates that Sport Soles Inc. is exercising _____. A. control B. coordination C. extensive focus D. modular interdependence

A

The process where a firm contracts out a business process or activity to an external supplier is known as _____. A. outsourcing B. vertical integration C. horizontal diversification D. market penetration

A

White Flower Corp. and DLG Inc. are competitors in the crockery industry. Claude, the head of operations at White Flower, says that the company is able to undertake its in-house business processes and activities much better than DLG. This, Claude says, helps White Flower produce better quality products that DLG. In the context of vertical integration, Claude's statements refer to the concept of _____. A. coordination B. networking C. priorities D. control

A

SIMILAR business model

A business model is a method to enable the creation and exchange of value between companies and their customers

product differentiation

A strategy whereby companies attempt to gain competitive advantage by offering value that is not available in other products or services or that other products don't do as well.

Meathead Movers, a moving company based in Slo forms Princess Packers, a packaging service. This is an example of: A. Vertical integration B. Forward Integration C. Differentiation D. Horizontal integration

A. Vertical integration

Chipotle offers consumers choices of meats or tofu; rice, beans and veggies; queso, salsa and sour cream; as well as lettuce, guacamole, and cheese. Customers direct the server what to put onto a tortilla or into a bowl according to his or her personal preferences. This is an example of: A. Mass customization B. mass standardization C. Product differentiation D. product standardization

A.mass customization

Apex Electronics LLC requires many teams to work together intensively and in tandem with each other in order to effectively produce its products. A high level of coordination between the working teams is essential for the company to maintain the high quality of its products. This type of interdependence can be best termed as _____. A. sequential interdependence B. reciprocal interdependence C. limited interdependence D. modular interdependence

B

BHG Corp. is a glass manufacturing company that specializes in float glasses. The company manufactures float glass through various stages of melting and refining, coating, and annealing. It is then inspected and cut according to customer requirements. This manufacturing process performed by BHG Corp. is termed as _____. A. virtuous circle B. value chain C. task specialization D. supply chain

B

Browns Inc., a well-established suitcase brand, started manufacturing its own suitcases. It added new features in its suitcases such as water-resistance and extra storage space. The initiation by Browns Inc. to manufacture its own suitcases best illustrates _____. A. Linked diversification B. Backward integration C. Forward integration D. Assisted development

B

Cygnus Bank is a banking and financial services company. It offered a large sum of money and a chance to receive employment to the programmers who could create a software that would help enhance employee productivity. Which of the following types of crowdsourcing did Cygnus Bank use? A. Crowdvoting B. Crowdinnovation C. Crowdtasking D. Crowdcreating

B

Hydrus Corp. contracted most of its business processes to various other companies. This helped the company generate immediate profits, but Hydrus was losing competitive advantage over its rivals in the long run due to its lack of innovation. Which of the following is a danger of outsourcing that Hydrus Corp. experienced? A. Lack of control B. Loss of capabilities C. Lack of focus D. Loss of technology

B

In this context of the three Cs of vertical integration, which of the following scenarios accurately depicts capabilities? A. BagMore Inc., a handbag company, decides to engage in backward integration and manufacture all of its products and accessories in the company house. B. GoSpeed Corp., an automobile manufacturing company, evaluates itself by asking if it can perform the vertically integrated activity better than its rivals. C. StyleRight LLC, an apparel company, manufactures eco-friendly, organic, and sustainable clothes. D. HDC Inc., an electronics company, decides to effectively regulate its new technologies.

B

The country of Lydania has a complex network of pipelines that transports natural gas for millions of people. These pipelines are specifically designed for the transportation of natural gas and have limited uses outside the natural gas industry because of inherent industry regulations. These pipelines exemplify a(n) _____. A. sunk cost B. transaction-specific asset C. intangible asset D. greenfield entry

B

Vertical integration can be best defined as: A. breaking a large process into smaller tasks that require specialized knowledge. B. bringing business processes or activities previously conducted by outside companies in-house. C. a graphic representation of the relationship between cost per unit of a product and its scale of production. D. the sequence of all activities that are performed by a firm to turn raw materials into a finished product.

B

Which of the following best illustrates a vertically integrated company with control? A. Runners Corp., a shoe manufacturing company, which has a say in how much of its assets are divided among the company's shareholders B. Blueberry Inc., a confectionery company, which has a stronghold over an important resource of the company that helps in differentiating its final product C. Trendsetters LLC, an apparel manufacturing company, which has a stronghold over the number of employees that the company can afford to recruit, train, and retain D. Coders Corp., a software development company, which successfully deflects any possibilities of hostile takeovers

B

Which of the following companies is most likely to experience the benefits of outsourcing? A. Pulsar Corp., a shoe manufacturer, which has invested huge an amount of capital in order to afford its suppliers B. Black Inc., a consumer electronics company, which has been importing its supplies from other companies and focuses only on the critical aspects of its work C. Carbon LLC, an automobile manufacturer, which has the capability to produce more of its raw materials in house D. Beta Corp., a computer manufacturer, which has been trying hard to adapt new technologies in order to gain competitive edge in the industry

B

Which of the following scenarios best illustrates the concept of vertical integration? A. NZB Corp., a company that sells all its assets to another company B. Hues Inc., a company that owns its supply chain for its raw materials and processes C. Scorpio LLC, a company that buys raw materials from a supplier company D. Blue Corp., a company that makes raw materials and supplies them to a different company

B

Crimson Corp. designs its products based on demographics of its customers. Jaded Inc. designs its products based on product attributes. Which of the following is likely to be true in this case? A. Crimson is likely to consider reliability of products as the primary factor for customer segmentation B. Crimson is unlikely to consider customizability of products as the primary factor for customer segmentation C. Jaded is likely to consider income level of customers as the primary factor for customer segmentation D. Jaded is unlikely to consider quality products as the primary factor for customer segmentation

B.

in 2000, Bell Atlantic bought GTE for $64.7 billion. these two companies landline telephone services were dominant in separate geographic markets. The combined firm was titled, Verizon Communications, and the combined wireless services reached 90% of the U.S population. this is an example of which type of integration strategy? A. Bury B. Build C. Blend D. Bolt On

B. Build

Liberations Inc, is a company that manufactures reusable beverage containers. It competes with Brita, Contigo, Nalgene, among other brands. Liberations makes extensive use of advertising to compete in the market. The features of its product are similar to existing products in the market. It uses other promotional tools such as discounts, coupons and rebates to increase its customer base. In this scenario, which of the following elements does liberation rely on to differentiate its products. A. Brand Image B. Convenience C. Product reliability D. Quality

Brand Image

3. Which of the following scenarios illustrates the concept of outsourcing? A. TechOn Inc., a company that buys raw materials from a supplier company B. BNX Corp., a company that procures raw materials and supplies them to a different company C. Virgo Corp., a company that contracts out a business activity to another company D. Red Inc., a company that sells all its assets to another company

C

A supplier that is contracted to create and provide a customized input to a local firm is called a(n) _____. A. acquirer B. coordinator C. subcontractor D. advocate

C

Activities closer to the beginning of the industry value chain are referred to as _____. A. middle activities B. forward activities C. upstream activities D. downstream activities

C

DHC Inc. is a television manufacturing company. The components of the televisions are manufactured separately by different companies around the globe. Later, these components are tested and then assembled to get the finished products in house by DHC Inc. In the context of the degree of coordination, this scenario best illustrates _____. A. sequential interdependence B. reciprocal interdependence C. modular interdependence D. extensive interdependence

C

Pulse Corp., a vertically integrated company, is finding it difficult to adapt to current technology that is capable of speeding up its manufacturing process. The company is used to performing work in a specific manner using the old technology. However, in order to maintain competitive advantage, it has to upgrade itself to the current technology. This scenario is an example of _____ that is one of the disadvantages of vertical integration. A. loss of frequency B. loss of focus C. loss of flexibility D. loss of facility

C

Saturn LLC., a computer manufacturer, uses outdated technology to build specialized graphic cards for its computers. The company finds it difficult to upgrade its graphic card building technology to a newer version. However, Sun Products Inc., one of its competitors, upgrades itself to the new version with lesser difficulty. In this scenario, Saturn LLC is facing a _____. A. loss of frequency B. loss of focus C. loss of flexibility D. loss of facility

C

The chief executive officer (CEO) of Ecos Inc., a well-established firm in the real estate industry states that the firm has the resources to outperform its competitors. In the context of reasons for vertical integration, the CEO is referring to the firm's _____. A. control B. priorities C. capabilities D. coordination

C

Which of the following examples correctly depicts a company that uses a transaction-specific asset? A. Indigo Inc., a company that manufactures faucets B. Eclipse Corp., a company that manufactures pens and sells them through distributors C. BLC Corp., a company that uses heavily customized software to manufacture airplane seats D. Vertigo LLC, a company that sources raw material from suppliers to manufacture dinnerware

C

What are two processes companies can use to search for differentiation opportunities?

Customer segmentation and mapping the consumption chain.

Which of the following scenarios supports the view that a company should engage in outsourcing? A. Zenith Corp., a publishing house, which needed a high capital investment to grow because it contracted most of its peripheral activities to other companies B. FRC Inc., an apparel company, which fears the loss of a strong hold over its prime activities if it does not perform them in house C. AutoLuxe LLC, an automobile company, which has the flexibility to contract processes to another company at a fast rate D. Innovator Inc., a software company, which foresees that its employees will have less work and more time under their disposal for leisure activities if it lets other suppliers help perform its activities

C

Nirvana publishing House invested on high-end printing equipment. After a year of production, the company had to double the amount of production of its newspaper and weekly magazine because of high customer demand. however, the company did not have to invest in another similar equipment to meet demands. This is an example of a A. fixed cost of demand B. fixed cost of scale C. Fixed cost of production D. Fixed cost of supply

C.

Reset & Sleep is a mattress manufacturing firm. By manufacturing related products such as bed covers, comforters and quilts and pillows, it has gained significant competitive advantage as it has managed to create profits in all these markets as well. Rest & Sleep creates a challenge for the other companies in the market by providing unique value through its customer services and warranties. Which of the following terms best describes what Rest & sleep inc is practicing? A. market penetration B. business unit strategy C. corporate strategy D. unrelated diversification

C. Corporate strategy

Lack of resources (Destroy value through diversification)

Companies need the ability to understand and respond to the unique strategic needs of each market, customer group, or line of business

Unrelated diversified firm or Conglomerate (Levels of diversification)

Competes in product categories and markets with few, if any, links between them

SHARED knowledge

Core Competencies- Collective knowledge that can be distributed throughout the organization to create value. Shared Knowledge helps you understand why some very unrelated product markets can represent valuable adjacent markets. -Represent a set of resources and capabilities at the center of the diversified corporation that are distributed to individual businesses to adopt for their particular markets

law of experience

Costs per unit decrease with increases in the cumulative volume of production.

Teal Motors Inc., an automobile company, outsources the manufacturing of most of the automobile parts to several other companies that specialize in making parts such as ignition boxes, coil wires, and grills. Teal Motors makes sure to get these parts manufactured at a much lesser rate than it would if it manufactures its own parts. In this scenario, Teal Motors Inc. is effectively avoiding a _____. A. loss of identity B. loss of frequency C. loss of facility D. loss of focus

D

The sequence of all activities that are performed by a firm to turn raw materials into a finished product that is sold to a buyer best describes the term _____. A. product line B. task specialization C. virtuous circle D. value chain

D

Which of the following is a primary characteristic of a transaction-specific asset? A. It has the ability to generate value only when used for several purposes together. B. It is an intangible asset whose value is very hard to evaluate. C. It is an asset that can be transported or transferred with ease. D. It can generate maximum value only when used for a particular purpose.

D

Which of the following statements is a characteristic of subcontractors? A. They are responsible for bringing in key functions to regulate a company. B. They have to assign and coordinate various projects of a company. C. They have 10 percent share in the profits accrued by a company. D. They create made-to-order contributions for a company.

D

Yellow Express LLC is a company in the computer hardware industry that solely manufactures microchips. Yellow Express LLC is _____. A. diagonally integrated B. vertically integrated C. horizontally diversified D. vertically specialized

D

Template Corp. a mobile phone manufacturer, attains competitive advantage over its rivals by providing unique features in the phones they manufacture, such as a 3000 maH battery, facial recognition software, and customized applications. Which of the following is Template trying to attain through these additional product features? A. service customization B. Mass customization C. Product Depreciation D. Product Differentiation

D.

Meathead movers, a moving company in slo builds a warehouse and charges customers to store possessions in the warehouse. This is an example of: A. Vertical integration B. Forward integration C. Differentiation D. Horizontal integration

D. Horizontal integration

having more flexibility, or being less vertically integrated, is more valuable when: A. a firm can create its own raw materials B. technology used is outdated C. the cost to perform an activity remains the same D. new technologies are innovated

D. new tech. are innovated

Greenfield Entry (Methods of Diversification)

Entry into an adjacent market by a firm that opens its own operation -Makes sense when companies have front and back end resources and capabilities they can immediately exploit to create value or can afford to enter new arenas slowly and at small to moderate investment

Hubris (Destroy value through diversification)

Excessive pride, arrogance or overconfidence -Hubris destroys value through diversification when managers diversify or make acquisitions based on their own experience or "gut" rather than solid data or facts

Define a differentiation strategy.

Gaining competitive advantage by offering value that is not available in other products or services or that other products and services don't offer at the same level.

Shauna, the CEO of Libra Inc. Decided that the best way to diversify this food processing company would be to set up its own small-scale beverage producing unit in a new area where its new products would have high demands. The decision by Shauns best reflects a a. acquisition b. merger c. Greenfield Entry d. Brownfield entry

Greenfield entry

customer segmentation

Grouping customers based on similar needs.

customer segments

Groups of people who share similar needs and thus are likely to desire the same features in a product

Describe as many stages of the consumption chain as you can.

How do consumers become aware of a need for your product/service? How do consumers find your offering? How do consumers make their final selections (priority of attributes)? How do consumers order and purchase your product? How is your product/service delivered? How is your product/service paid for? How is your product stored/moved around? What do consumers need help with when they use the product? What if customers aren't satisfied and need to return or exchange? How is your product repaired, serviced, disposed of?

mapping the consumption chain

Identifying all the steps through which customers pass, from the time they first become aware of your product to the time when they finally have to dispose of it or discontinue using it

Why do companies have difficulty increasing their profitability by simply buying market share (e.g., lowering prices to increase market share)?

In most cases the CAUSE of both market share and profitability is some common underlying factor, such as a lower-cost method of production or an innovative product that allows a firm to simultaneously grow market share and profitability. In Air Asia's case, its low-cost position is what allows it to grow market share and profitability simultaneously.

Which of the following is true of product differentiation?

It is a matter of customer thought and perception.

Imitation (Destroy value through diversification)

Managers feel pressure to diversify their corporation when a competitor diversifies first. The competitor has done due diligence and selected an attractive target for acquisition. Caught off guard, a firm might quickly look for a similar acquisition target without ensuring the target is really attractive

Poor governance or incentive (Destroy value through diversification)

Managers receive compensation based on companies performance. Sometimes when a company diversifies their compensation turns into salary-based that divorces their pay from performance. Managers then have weak incentives to exploit and expand resources and stronger incentives to focus energy in other places

The Six S's

Mechanisms to exploit and expand resources: 1) employing SLACK 2) creating SYNERGY 3) leveraging SHARED knowledge 4) utilizing SIMILAR models for success 5) SPREADING human and financial capitol to its best use 6) providing a STEPPING STONE -each can be front facing or back facing

Vertical Integration

Movement into adjacent markets by a firm along its own value chain. Movement in the direction of raw materials in backward integration. Movement in the direction of sales service, or warranty operations is forward integration

SPREADING capitol

Spreading capitol exploits the management team's ability to invest for value and each new investment enhances the team's collective learning. -Depends on the detailed performance information for each unit as well as an intuitive sense about the value of future investments

Sunk Cost Fallacy (Destroy value through diversification)

The belief of managers that investment in a failed acquisition must continue because significant amounts have already been invested

What is the consumption chain?

The consumption chain includes the stages through which customers pass through from the time they first become aware of your products to the time when they have to dispose of it or discontinue using it.

Which of the following statements is true of research and development (R&D)?

The higher a firm's R&D costs, the more the need for the company to expand globally allowing costs to be spread across more customers.

Horizontal Diversification

The movement into adjacent or unrelated, market that is not along a firm's own value chain. The adjacent market may mean selling the firm's existing products to new new customers groups, bringing new products and services to existing customers, or selling new products and services to new customers. 3 methods of diversification: 1) Greenfield or organic entry 2) Alliance 3) Acquisition

Internal capitol market (SPREADING capitol)

The movement of funds, talents, or knowledge from unit to unit directed by the leaders of the firm -Rather than leaving resources within a business unit for its own growth, these strategic investments work to increase the corporate value by investing in business units with greater potential growth in the future

What is customer segmentation? Describe three different ways that customer segmentation can be done.

The process of grouping customers based upon similar needs. This can be done by demographics/customer attributes, products attributes, and "job to be done".

Integration team

The process of integration starts with them as soon as the deal is announced. It is a group of individuals from different functional areas of an acquiring firm that coordinate and manage the integration of the target company after the acquisition has closed -Makes several important decisions such as which company culture will dominate the new entity -Speed is important because people are more likely to change if they see the new entity is creating value for its stakeholders, including themselves -Some other processes to ensure value are: clear 1-day set of priorities and tasks to realize immediate value from the deal, establishing a clear set of measures or key performance indicators (KPIs) to monitor progress, and a clear path for implementing new systems

Due Diligence

The process whereby managers closely examine the target firm to understand its core processes, strengths and weaknesses

Acquisition (Methods of Diversification)

The purchase of another small company, or its assets -Makes sense when the firm needs to quickly expand its resources and capabilities to compete or when delay proves costly -Also makes sense when industry favors competitors with large scale or is characterized by a steep learning or experience curve -Acquirers must pay a premium to acquire a target; the premium represents a bet by the acquirer on its ability to create value through acquisition

Why are differentiation and cost-leadership strategies referred to as generic business strategies?

They can be used by any organization regardless of industry context.

What is this tool illustrated above: x axis: time spent y-axis: proficiency what is its purpose? how is it used?

This is a learning curve. purpose: its purpose is to show the relationship between how much time is spent doing something and how proficient one get at that activity. how is it used: used to measure how workers/managers are able to do their jobs more proficiently after doing that job type for an extended period of time. Its directly linked to employee specialization and can be used by executives to see if managers/workers are specializing in their job.

What is a "net promoter score" and how is it calculated? Why is the net promoter score a useful indicator of how successful a company is at differentiating its product?

This metric is used to assess how well differentiated a product or service is. It is based on how willing a customer is to recommend your company (or product) to a friend or colleague on a scale of 1-10. A rating of 1-6 is classified as detractors, 7-8 as passives, and 9-10 as promoters. The "net promoter score" is calculated by the percentage of customers who answer 9 or 10 minus the percentage who answer 6 or below

what is the tool illustrated below? what is its purpose? How is it used? x axis: cumulative volume of production y axis: direct costs per unit

This tool is the experience curve. purpose: to show the relationship between cumulative units produced and the direct costs for each unit. As more and more units are produced, each unit lowers in cost due to lower per unit labor hours and other direct costs stemming from workers becoming more efficient at producing each additional unit. used: as a way to measure the amount of cost savings a firm is receiving due to learning/experience of both employees and managers in pursuit of a cost advantage strategy.

When pursing a differentiation strategy, one source of differentiation is to add superior product features in order to create a level of value creation that competitors cannot easily imitate.

True

Employing SLACK

Unused resource capacity (examples include economies of scope and management skill)

mass customization

When a company mass-produces the various modules of the product and then allows the customer to select which modules will be combined together.

When Diversification adds value

When is allows the combined businesses to deliver greater value and utility to the new or existing customers than the firm could without being diversified. Or when combined businesses reduce the firms overall cost of producing goods or services

Stepping Stone to a new industry

While other S's all exploit the company's current resources and capabilities, the stepping stone mechanism explicitly works to enhance capabilities -Successfully shifting a firm's position through diversification usually entails migration, creating a path so companies can avoid having to take long leaps from their core and be able to take small leaps over time to acquire ne resources and capabilities

consider the equation: price - cost = margin. what is the effect of a cost advantage on the equation? What is the effect of a differentiation advantage on this equation?

a cost advantage would focus on doing things to reduce the cost to produce a good. In this equation cost would decrease, allowing margin to increase. A differentiated advantage would mean the firm is producing goods so that they can charge a prelim price for them. In this equation, the price would increase by more, allowing for a larger margin. Both strategies will increase margin in the end.

There are several cost drivers (or sources of cost advantage) that can be managed in order to establish a cost advantage/leadership. One of the basic cost drivers is:

access to lower-cost input factors including raw materials and labor.

describe how pursuing a cost advantage strategy impacts a firms value chain?

cost advantages stem from economies of scale, learning/experience effects, lower costs due to proprietary knowledge, lower input costs and different business model. One source of cost advantage strategy is a different business model. This business model may be comprised of eliminating steps in the value chain or using a different activity set to lower overall costs. economies of scale --greater unit volume allows firms to lower costs by spreading fixed costs across more units Companies that want to use the low-cost strategy must figure out how to optimize costs in each element of the value chain. A retailer, for instance, can use supply chain management and logistics to negotiate the best product prices and run the most efficient inbound and outbound transportation processes. It would also use a modest advertising budget to promote low costs and affordable value to its customers to attract buyers. one pitfall however with cost advantage strategy is that there is too much focus on one or a few value chain activities.

Diversification Value creation happens when...

exploit and expand resources and capabilities -diversification adds value when expansion in to an adjacent market either exploits the firm's core and valuable resources and capabilities or diversification enhances and grows the resource base

t/f the profit potential of a differentiated product is more important than customers' perception of the value of the features of the product

false

Stars (Growth share matrix)

have high share and high growth and smart managers invest heavily in these units. Typically represent the future of the company

Cash Cows (Growth share matrix)

have high share but low growth and can generate large cash flows that can be used to fund growth business. -Companies tend to want to minimize investments in cash cows because they want to be able to milk the cow

Dogs (Growth share matrix)

low share and low growth and add little to the company's overall portfolio

All of the following are sources typically used to achieve cost-leadership EXCEPT:

offering products that have superior value

Question marks (Growth share matrix)

require significant investment and effective strategic management if they are to become stars. If not managed correctly, they become a dog

what is the tool illustrated below? what is its purpose and how is it used? x axis: volume of production y axis: cost per unit of production

this is the economies of scale curve. purpose: to visually represent the relationship between the amount of units produced (volume of production) and the cost per unit. The greater the volume, the cheaper it is to produce each additional unit, up until a point known as the minimum efficient scale at which the volume allows for the least per unit cost (optimal). Beyond that point, a diseconomies of scale is created, in which costs per unit increase due to complexities. used: as a measure of how efficiently and at what cost each unit is produced. Can help a firm decide whether increasing volume of production would result in cheaper units and could be used to find the optimal point for volume of production.

when considering an acquisition, what is the critical question senior management must answer before proceeding with the acquisition?

whether the acquisition will provide value to the parent company, mainly in the form of one of the 6s (slack, synergy, shared knowledge, utilizing similar models for success, spreading capital, stepping stone for a new business sector)