man 4720 ch 5 and 6

economies of scale

decreases in cost per unit as output increases. 1)microsoft upfront r&d for windows 7- low marginal costs 2)specicalized systems- rep software and robots 3)physical properies- cube squared rile for big box stores

Strategic Trade-offs

situation that requires choosing between a cost or value position, because higher value tends to require higher costs.

adv of balance scorecards -4

-commm and link the strategic vision to responsible parties within the organ -translate the vision into measureable operational goals -design and plan business processes -implement feedback and organizational learnings in order to modify and adapt strategic goals

measure CA by

-how much economic value does the firm generate (economic value: V,P,C) -what is the firms accounting profitability -how much shareholder value does the firm create use the multidimensional perspectives- we apply not only the standard economic, accounting and financial metrics but also a wider set of performance metrics.

some limitations, on accounting data

1) All accounting data are historical data and thus backward looking (past performance is no guartee on future performance) 2) accounting data do not consider off balance sheet items 3) accounting data focus mainly on tangible assets, which are no longer the most important. (now its intangible- innovation and quality)

when understanding economic value creations you should measure compete adv but you must

1) determine the value of a good in the eye if consumers is not a simple task 2)the value of a good in the eyes of consumers changes based on income, preferences, time and other factors 3)To measure firm level compet advant we must estimate the economic value created for all products and services offered by thr firm

Balanced Scorecard

strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals.

risk capital

Capital Provided by shareholders in exchange for an equity share in a company; it cannot be recovered if the firm goers bankrupt.

opportunity costs

Captures the value of the best forgone alternative use of thr resources employed. -bistro owner OC 1) forgone wages she could be earning if she was employed somewhere else 2) the cost of capital she invested in her bistro, which could be invested in say the stock market or us treasury bonds

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 that of competitors. -internal -generic strategies bc they can be used by any organization, for profit, not profit , public priviate, usa not usa

Productivity Frontier

Relationship that captures the result of preforming best practices at any given time; the function is convex (bowed outward) to capture the trade-off between value creation and production cost.

Strategic Position

a firm's strategic profile based on value creation and cost. The goal is to create as large a gap as possible between the value the firm's product or service creates and the cost required to produce it (v-c)

ambidextrous organization

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

Conglomerate

an organization that combines two or more business units, often active in different industries, under one overarching corporation.

integration strategy

business-level strategy that successfully combines differentiation and cost leadership activities. -attempt but fail becuase they are stuck in the middle -very difficult -avon

Triple Bottom Line

combo of economic, social, and ecological concerns that can lead to a sustainable strategy. - related to the stakeholder theory which is a approach to understanding a firm as embeeded in a network of internal and external constituencies that each make contributions and expect consideration in return

cost drivers - cost leadership

cost of input factors- raw material, capital, labor, it services. South Africa-strong market for diamond bc it tightly controlls the supply of raw material - more you buy cheaper it costs economies of scale-spread fixed cost, boeing aircraft learning curve effects-learning by doing a drive down costs. As learning occurs you drive down the curve. experiencee curve effects-captures economic of scale and learning curve, and dynamic capabilities --quality, economies on scope (starbuck putting hot tea on menu) , innovation, structure culture and routines

vaLUE

denotes the dollar amount a consumer would attach to a good or service,-- how much are you willing to pay for it- -economics call it reservation price -difference between a buyers willingness to pay for a product or service and the firms cost to produce it- economic value created. EVC- 12-7 =5 value price is 12, actual cost is 7 and willing to pay cost is 10.

Focused Differentiation- 144

differentiation with a narrow focus on niche market ex: la fraicheur pursues it by offering exquisite luxury wine coolers priced at up to 100,000 euros a price

cost leader

focuses its attention and resources on reducing the cost at which it is able to offer a product or service- it optimizes all of its values chain activities to achieve a low cost position

differentiation strategy

generic business strategy that seeks to create higher value for customers that the value that competitors create, by delivering products or services with unique features while keeping the firm's cost structure at the same or similar levels. -two steps: identify what mark whats, and signal the market you have what they want external -

4 key questions for scorecards

how do customers view us? how do we create value? what core competencies do we need? how do shareholders view us?

diseconomies of scale

increases in cost per unit when output increases.

disadv of Balance scorecards

it is not for strategy formulation- it is up to the firms manager to formulate a strategy for compet adv. -limited guidance about which metric to use -failure to achieve comp adv has to do with the fail strategy not the framework

Focused cost-leadership -144

narrow focus, niche market ex:BIC pursues it offering disposable pens and cigarettes lighters at a very low price- often free giveaways

Minimum Efficient Scale

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

value drivers-145

product features- BMW come with many more performance features than Honda accord. This gives them differented products allowing a premium price. customer service-ZAPPOS (online retail) over free shipping for purchase and return; not an expense, a marketing budge to provide customer service to customers. customization- beyond differentiation features. EX: bmw you can customize your own car online, online tshirts and customize them yourself complements-help determine the profit potential in your industry. It adds value to your p/s- EX: at&t have internet/phone/tv services with dvd, live tv, demand- that turns into a complement that enhances value. --quality, economies on scope (starbuck putting hot tea on menu) , innovation, structure culture and routines

total return on shareholders

return on risk capital that includes stock price appreciation plus dividends received over a specific period of time.

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.

accounting profitability

second traditional way to measure compet adv

Business Level Strategy

the actions managers take in their quest for competitive advantage when competing in a single product market. who-which customer segment - will we serve what- customers need wish desire will we satisfy why-do we want to satisfy them how -will we satisfy our customer needs

consumer surplus

the difference between what you are willing to pay and what you have paid. You are hungry you value pizza as 12 dollars, you are will pay 10 dollars, so your CS is 2 dollars

efficent market hypotheses

the idea that alll available information about the firms past current state and expecvted future performance is embedded in the market price of the firms stock.

Mass customization

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

Scope of Comp.

the size (narrow or broad) of the market in which a firm chooses to compete. -ex rolex focuses on small market segments affluents cionsumers who want to present a certain image, timex offers watches for many different segments of the mass market

5 forces

threat of entry-protection against entry power of supplier-protection against increase in input price power of buyers- protection against decrease in sale prices threat of substitute- protection against substitute products rivalry against existing competitors- protection against price wars