gm105-chapter 6-scott

The most important cost drivers that managers can manipulate to keep their costs low

- Cost of input factors. - Economies of scale. - Learning-curve effects. - Experience-curve effects.

The most salient value drivers that managers have at their disposal

- Product features - Customer service - Complements

business-level strategy

- Who—which customer segments will we serve? - What customer needs, wishes, and desires will we satisfy? - Why do we want to satisfy them? - How will we satisfy our customers' needs?

Customer Services

- build a relationship of trust with each individual customer

Value Innovation—Lower Costs

1. Eliminate. Which of the factors that the industry takes for granted should be eliminated? 2. Reduce. Which of the factors should be reduced well below the industry's standard?

Value Innovation—Increase Perceived Consumer Benefits

3. Raise. Which of the factors should be raised well above the industry's standard? 4. Create. Which factors should be created that the industry has never offered?

Process innovation

A new method or technology to produce an existing product—may initiate a new and steeper curve.

Blue ocean strategy

Business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs.

strategic trade-offs

Choices between a cost or value position. Such choices are necessary because higher value creation tends to generate higher cost.

Learning Curve

Every time production was doubled, the per-unit cost dropped by a predictable and constant rate (approximately 20 percent) Technology remained constant, while only cumulative output increased The steeper the curve, the more learning has taken place.

differentiation strategy

Generic business strategy that seeks to create higher value for customers than the value that competitors create.

cost-leadership strategy

Generic business strategy that seeks to create the same or similar value for customers at a lower cost

Strategy canvas

Graphical depiction of a company's relative performance vis-à-vis its competitors across the industry's key success factors.

Value curve

Horizontal connection of the points of each value on the strategy canvas that helps strategists diagnose and determine courses of action.

Learning effects differ from economies of scale: Differences in complexity.

In some production processes , effects from economies of scale can be quite significant, while learning effects are minimal In some professions (brain surgery or the practice of estate law), learning effects can be substantial, while economies of scale are minimal

Learning effects differ from economies of scale: Differences in timing.

Learning effects occur over time as output accumulates, while economies of scale are captured at one point in time when output increases there are no diseconomies to learning

Cost of Input Factors

One of the most basic advantages a firm can have over its rivals

Product Features

One of the obvious but most important levers that managers can adjust, thereby increasing the perceived value of the product or service offering - Adding unique product attributes - Strong R&D capabilities

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.

focused costleadership 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

business-level strategy

The goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.

Value innovation

The simultaneous pursuit of differentiation and low cost in a way that creates a leap in value for both the firm and the consumers; considered a cornerstone of blue ocean strategy.

scope of competition

The size—narrow or broad—of the market in which a firm chooses to compete.

Complements

add value to a product or service when they are consumed in tandem. an important task for managers in their quest to enhance the value of their offerings

Economic of Scale

allow firms to: - Spread their fixed costs over a larger output. - Employ specialized systems and equipment. - Take advantage of certain physical properties.

Experience Curve

change the underlying technology while holding cumulative output constant.

Taking Advantage of Certain Physical Properties

cubesquare rule: The volume of a body such as a pipe or a tank increases disproportionately more than its surface

Employing Specialized Systems and Equipment

enterprise resource planning (ERP) software or manufacturing robots.

Spreading Fixed Costs over a Larger Output

gains in market share are often critical to drive down per-unit cost more pronounced in many high-tech industries because most of the cost occurs before a single product or service is sold

the learning-curve effect

is driven by increasing cumulative output within the existing technology over time.

the learning-curve effect

the only difference between two points on the same learning curve is the size of the cumulative output.