Exam 2 MGMT 434

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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


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