BADM 495 FINAL (Downing)

Explain when demand is elastic and inelastic.

Elastic demand means that with a change in its price, quantity demanded will change, mostly in negative direction. Inelastic demand is when price change has no effect on the quantity demanded.

When is there strong pricing rivalry?

Fragmented market, with no exit barriers and weak brand loyalty

What is the difference between the general environment and the industry environment?

General environment describes the external forces and how this affects business and the industry (economy). Industry environment is all the internal factors that directly affect a business (5 forces).

What is the effectiveness of "loose coupling"?

Hierarchical systems will evolve much more rapidly. The advantage is that if there is poor performance in division 2 it does not lead to failure of the entire system.

How do we evaluate how well a business strategy is working?

using SWOT analysis, research the 5 forces of the firm, conduct financial analysis

Define "contingency theory."

The contingency theory is an approach to organization design that argues the need to match the characteristics of a structure with a number of contextual factors.

What are the costs of using the market instead of vertically integrate?

The cost of using the market industry instead of vertically integrating is the lack of specialized equipment resulting in higher transaction costs.

What are the key features of organizational structure?

The key features of an organizational structure are the division of tasks, the depth of the hierarchy and the extent of authority delegation.

Explain and provide an example of double marginalization.

The phenomenon in which different firms in the same industry that have their respective market powers but at different vertical levels in the supply chain. An example would be upstream and downstream.

Explain the three basic functions that structure performs?

The three basic functions are: division of labor, coordination and boundary definition. Division of labor permits specialization, standardization and departmentalization of tasks. Coordination enables members to coordinate their activities and boundary definition defines boundaries of the organization.

What are the benefits of using the market instead of vertically integrate?

firms can achieve economies of scale, market discipline promotes efficiency and innovation

Name and describe the three intangible barriers to imitation.

1. Casual Ambiguity A firm's ability to create more value than its competitors (obscure and only imperfectly understood) 2. Historical Circumstances Unique experiences in adapting to the business environment 3. Social Complexity The interpersonal relations of managers in a firm and the relationship between the firm's managers and those of its suppliers and customers

Name the five tests of the economic power of a resource or capability?

1. Consonance 2. Distinctive Superiority 3. Hard to imitate/substitute 4. Imperfectly mobile 5. Cost effective to acquire

Describe 4 ways a firm can obtain a good reputation.

1. Contribute to social and economic development in your community. 2. Network 3. Value employees 4. Uphold sustainable development principles

What four classes of issues must a firm address to formulate and implement strategy?

1. Firm boundaries 2. mrkt competitive advantage 3. positioning and marketing 4. internal organization

What are elements that comprise the firm's boundaries?

1. Products 2. customers 3.geography 4.stages in production pipeline

What are the steps in conducting a case analysis?

1. become familiar with the material 2. identify problems 3. conduct strategic analysis 4. propose alternative solutions and make recommendations.

What are the components of a company's task environment?

1. customers and markets 2. regulatory groups and technology.

What are the 5 key characteristics of a strategic decision?

1. important 2. not easily reversible 3. significant commitment of resources 4. involves alternatives 5. consequences, choice and some uncertainty involved.

What are the most common types of market imperfections?

1. small numbers 2. bounded rationality 3. impacted information 4. asset specificity 5. opportunism

Define the value creation proposition.

A business concept that identifies attributes that a consumer values and embedding those values into a product that costs less to produce than consumers are willing to pay.

The main purpose of this class is to discuss competitive advantage. What is sustainable competitive advantage.

A competitive advantage occurs when a firm implements a value-creating strategy that other firms are unable to replicate, or find it too expensive to duplicate. A firm has a competitive advantage when it achieves a consistently higher profitability than the typical firm in the market. The focus is on advantage relative to other firms in that business. For example, Apple has strong product rollouts, user friendly OS, and above average product design.

The main purpose of this class is to understand a competitive advantage. What is a competitive advantage?

A firm has a competitive advantage when it achieves a consistently higher rate of profitability than the "typical" firm in that served market. Competitive advantage is asking "how much economic value do I create compared to my competitors?" Low cost, differentiation

Is the industry or firm more important to the profitability of a firm? Describe the factors that affect firm performance?

A firm is more important because there is large variation in profitability among businesses within an industry, but not much variation among industries. Firms are responsible for 32% of profits. Industry is responsible for 18% of profits. Factors that affect firm performance are year effect, corporate parent effect, industry effect, firm effect and unexplained variation.

Organizational capabilities

A firm's capacity for undertaking a particular activity

What is a strategic group analysis and how is it used?

A group of firms in an industry following the same or similar strategy; use a competition matrix to find the strategic group analysis

Describe the relationship between a principal and an agent.

An individual called a principal hires another individual, called an agent, to do some work on his/her behalf. There is an implied contract between them: a payment by the principal, specific actions taken by the agent and principal observes specific output.

Describe the relationship between a principle and an agent.

An individual called a principal hires another individual, called an agent, to do some work on his/her behalf. There is an implied contract between them: a payment by the principal, specific actions taken by the agent and principal observes specific output.

Explain the 2006 case strategy of Apple to compete in the light laptop market.

Apple competes on a premium price differentiation strategy(iPods). They have a differentiated product, unlike the other products on the market, that people are willing to pay a premium price for. They make the product at a very low cost and sell for a high price, allowing them to have large margins.

Describe the benefits and costs that are associated with entry barriers.

Benefits: Reduce threats of entry from new firms and profits are protected from new firms. Cost: It is costly due to restrictions of entering a profitable market

What are some indicators that buyers have strong bargaining power?

Buyers industry is more concentrated than the industry it buys from, buyers negotiate a separate price with sellers on each individual case, no "take it or leave it" transactions

Name and define the five tests of the economic power of a resource capability?

Consonance, distinctive superiority, hard to imitate/substitute, imperfectly mobile, cost effective to acquire

What is corporate governance?

Corporate governance represents the relationship among stakeholders that is used to determine and control the strategic direction and performance of organizations.

Explain what a VRIO analysis is and the appropriate use in a firm's analysis.

Determine a company's resources and its competitive advantages. Once you know your company's resources you can better understand your competitive advantages or weaknesses.

What is the significance of EBITDA when analyzing how an organization competes in its industry?

EBITA is an accurate way to compare performance between companies because it doesn't take into account finance decisions or accounting decisions.

What are the economies of scale and economies of scope? When are they a tool for competitive advantage?

Economies of scale are reduced costs per unit that arise from increased total output of a product. Economies of scope exist when it is more efficient to produce a bundle of goods together than it is to produce them separately. Firms pursuing these economies seek to reduce costs by spreading tangible and intangible assets over a wider range of business activities.

Explain the Intel strategy towards the Japanese in the DRAM market.

Intel came into the market behind Japan and their technology was always behind. Instead of chasing them, Intel allowed Japan to have the market share of the DRAMS and they focused on R&D. They used Judo strategy. They created the EPROM, which was technology that was so advanced it was extremely valuable to engineers.

What are isolating mechanisms? Describe the two broad types.

Isolating mechanisms are factors that impede competitive rivalry, entry, imitation or innovation within an industry to keep them from eroding a firm's profitability. The two broad types are: impediments to imitation and early-mover advantages.

Why do we analyze industry economics?

It is important to know how the firm makes money using theoretical principal, proven to work and learn how to apply to industries

Define Judo Strategy and provide an example.

Judo strategy is a plan for managing a company by using its speed and agility to mitigate the effect fo its competitors as well as to anticipate and take advantage of changes in the market through new product offerings. Intel did not have a large market share with the DRAMS an the Japanese didn't see them as a threat. While Japanese were focusing on DRAMS, Intel began doing R&D and created the ultraviolet memory card(EPROMs). This was a huge advancement in memory and the next big technology upgrade.

What are the advantages of being an early-mover into a given market or industry?

Learning curve benefits, network externalities, reputation and buyer uncertainty, buyer switching costs

Define marginal revenue and marginal cost. Explain the significant of the following three scenarios: MR=MC, MR>MC, MR<MC.

Profits are maximized when MR=MC. If MR>MC the firm can increase profits by increasing output. If MR<MC the firm can increase profits by decreasing output.

Define stakeholders and provide examples, then explain the role of management's interaction with them.

Stakeholders are any individual or groups who can affect, are affected by the strategic outcomes achieved and who have enforceable claims on a firm's performance. It is management's duty to maximize profits or benefits for stakeholders.

Why are strategic assets prone to higher transaction costs and vulnerable to market imperfections?

Strategic assets are transaction specific and they support specific relationships, activities and strategies and can not be redeployed without significant costs.

Explain how strategic decisions differ from that of operating decisions. Give examples of both.

Strategic decisions commit the firm to a long-term relationship with its competitive environment (market choice, product/service choice). Operating decisions are more day to day decisions (pricing, financing, budgeting).

Explain why 'structure follows strategy'.

Structure follows strategy is a business principle that states that the divisions, departments, teams, processes and technology of an organization are designed to achieve a firm's strategy.

What are some indicators that suppliers have strong bargaining power?

Supplier industry is more concentrated than the industry it sells to; suppliers can price discriminate among prospective customers

What is the sixth force of industry competition and describe its role within an industry?

Synergy. 1+1=3 when two companies come together they are able to create more than the sum of their parts.

Explain tacit knowledge.

Tacit knowledge is unwritten, unspoken and is (socially) complex. Tacit skills include riding a bike "learning by doing"

Explain how we balance technical efficiencies and transaction cost.

Technical efficiencies are the effectiveness with which a given set of inputs is used to produce an output. A firm is said to be technically efficient if a firm is producing the maximum output from the minimum quantity of inputs, such as labor, capital and technology. Transaction cost is the cost associated with exchange of goods or services incurred on top of the price of the product.

What are the three basic functions of an organizational structure?

The three basic functions are: division of labor, coordination and boundary definition. Division of labor permits specialization, standardization and departmentalization of tasks. Coordination enables members to coordinate their activities and boundary definition defines boundaries of the organization.

What are the three types of company resources? Describe and provide examples for each.

The three types of company resources are tangible, intangible and human resources. An example of a tangible resource would be a financial or physical resource. An example of an intangible resource would be technology or culture. An example of a human resource would be capacity for communication and collaboration.

Why is coordination and control essential when diversifying?

They are essential to obtain benefits of synergies and economies of scope as well as minimizing unnecessary costs.

Explain the strategy of Coke and Pepsi in the concentrate production market.

They focus on a differentiation strategy, they can't and won't compete on price because they both have huge economies of scale and it would kill the market. Both Coke and Pepsi produce concentrate, sell the concentrate to bottlers, who then add sugar, water and bottle the product which allows them to cut costs and vertically integrate

Distinctive competence

Things that an organization does particularly well compared to competitors

When does the threat of entry erode the profitability of a firm in an industry?

Threat of entry erodes profitability by putting a ceiling on industry prices, actual entry erodes price and shrinks market shares

Describe the difference between vertical and horizontal integration for a company.

Vertical integration for a firm consists of controlling all parts of the value chain, while horizontal integration is when a firm increases production at one stage of the value chain. Companies can vertically integrate by merging or acquiring with another company who supplies them with raw materials, or a company who buys finished goods. A firm can horizontally integrate by merging or acquiring a firm who provide a similar service.

What are the differences between vertical and horizontal integrations?

Vertical integration is how much a firm performs activities themselves rather than contracting the market (supply chain). Horizontal integration is the acquisition of a business operating at the same level

How do we create economic value within a firm?

We create economic value within a firm with: 1. revenue drivers 2. cost drivers 3. risk drivers.

Explain the "growth trap" phenomenon.

When a business grows until its environment cannot support or sustain it anymore.

What is contractual hold-up and how does a company guard against it?

When a small business (maybe entrepreneur) has a contract with its supplier, they call in to the supplier to put an order in for 50,000 items but the contractor says they have a bigger company that is asking for a 500,000 items and they will do their items before getting to the smaller company. The supplier technically is breaking his contract by taking his losses with the smaller company because he will profit more from the bigger company.

When are there strong barriers to entry?

When firms are vertically integrated; if a new company wants to join the industry, they may have to enter all stages of the value chain to become competitive