MGT Test 2 Ch.6

ambidextrous organization

an organization able to balance and harness different activities in trade off situations

protection against decrease in sales prices, because well-differentiated products or services are not perfect imitations, risks: erosion of margins

differentiation/power of buyers

protection against increase in input prices, which can be passed on to customers, risks: erosion of margins

differentiation/power of suppliers

there are no diseconomies to

learning

learning by doing can drive down costs, as individuals and teams engage repeatedly in an activity they learn form their cumulative experience, this is known as what aspect of cost driver

learning curve driver

experience curve attempts to capture both

learning effects and process improvements

business-level strategy

the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market *determines a firms strategic position

mass customization

the manufacture of a large variety of customized products or services at a relatively low unit cost

the steeper the learning curve, as you move down the learning curve

the more learning that takes place, costs decrease as output increases

scope of competition

the size-narrow or broad-of the market in which a firm chooses to compete

cube square rule

the volume of a body such as a pipe or a tank increases disproportionately more than its surface

differentiation strategy and cost-leadership strategy are both generic strategies bc:

they can be used by any organization in the quest for competitive advantage, independent of industry context

stuck in the middle

they succeed at neither a differentiation nor a cost leadership strategy

who

which customer segments will we serve

to formulate an appropriate business-level strategy, managers must answer what questions

who, what, why, how

how

will we satisfy our customers needs

minimum efficient scale (MES)

output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest cost position that is achievable through economies of scale

broad competitive scope and differentiation strategic position is

differentiation section

narrow competitive scope, and a cost strategic position is

focused cost leadership section

narrow competitive scope, and differentiation strategic position is

focused differentiation section

process innovation

a new method or technology to produce an existing product, may initiate a new and steeper learning curve

integration strategy

business-level strategy that successfully combines differentiation and cost-leadership activities, tradeoffs between low cost and differentiation

strategic trade-offs

choices between cost or value position, such choices are necessary because higher value tends to require higher costs

broad competitive scope, and cost strategic position is

cost leadership section

protection against decrease in sales prices, which can be absorbed, risks: erosion of margins

cost leadership/power of buyers

protection against increase in input prices, which can be absorbed, risks: erosion of margins

cost leadership/power of suppliers

protection against price wars because lowest-cost firm will win, risks: focus of competition shifts to non-price attributes and lowering costs to drive value creation below acceptable threshold

cost leadership/rivalry among existing competitors

protection against entry due to economies of scale, risks: erosion of margins and replacement

cost leadership/threat of entry

cost drivers that managers can manipulate to keep their costs low are

cost of input factors, economies of scale, learning-curve effects, experience-curve effects

protection against substitute products through further lowering of prices, risks: replacement, especially when faced with innovation

cost of leadership/threat of substitutes

what

customer needs, wishes, and desires will we satisify

economies of scale

decreases in cost per unit as output increases, allows a firm to spread their fixed costs over a larger output, employ specialized systems and equipment, and take advantage of certain physical properties

protection against competitors if product or service has enough differential appeal to command premium price, risks: focus of competition shifts to price, increasing differentiation of product features that do not create value but raise costs, increasing differentiation to raise costs above acceptable threshold

differentiation/rivalry among existing competitors

protection against entry due to intangible resources such as a reputation for innovation, quality, or customer service, risks: erosion of margins, replacement

differentiation/threat of entry

protection against substitute products due to differential appeal, risks: replacement, especially when faced with innovation

differentiation/threat of substitutes

cost leader

focuses its attention and resources on reducing the cost to manufacture a product or deliver service in order to offer lower prices to its customers, optimizes all of its value chain activities to achieve a low cost position

differentiation strategy

generic business strategy that seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping the firms cost structure at the same or similar levels

cost-leadership strategy

generic business strategy that seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers

diseconomies of scale

increases in cost per unit when output increases (case where bigger is not always better)

competitive advantage is determined jointly by

industry and firm effects *industry and firm effects are interdependent

focused cost leadership and differentiation strategys are the same as generic except for they have a

narrower scope

learning effects occur over time as output is accumulated, while economies of scale are captured at

one point in time when output is increased

a business strategy is more likely to lead to a competitive advantage if it allows firms to either perform similar activities differently, or

perform different activities than their rivals that result in creating more value or offering similar products or services at lower cost

adding features to a product such as high performance capabilities to a bmw such as M3 allows a firm to charge a

premium price

value drivers:

product features, customer service, complements **these different value drivers contribute to competitive advantage only if their increase in value creation exceeds the increase in costs

value and cost drivers that allow for managers to increase perceived value and lower cost simultaneously

quality, economies of scope, customization, innovation, structure, culture and routines

the goal of a cost leadership strategy is to

reduce the firms cost below that of its competitors while offering adequate value

productivity frontier

relationship that captures the result of performing best practices at any given itme; the function is concave (bulging outward) to capture the trade-off between value creation and production cost

focused cost-leadership strategy

same as the cost-leadership strategy except with a narrow focus on a niche market

focused differentiation strategy

same as the differentiation strategy except with a narrow focus on a niche market

economies of scope

savings that come from producing two or more outputs at less cost than producing each output individually, despite using the same resources and technology