MGT 100 Exam 2
what do we use porter's "bargaining power of buyers" force for?
Are there many options for buyers? If cost-leadership: is there a cheaper option than your product? If product leadership: is there a better/more advanced version of your product?
how do you calculate total value created?
(WTP-OC)
what are the VRIO resources at Fuji?
-Value : R and D→ medical imaging -Rare : Consumer oriented website and ability to adapt -Inimitable : corporate culture→ continually nurture new businesses -Organization : corporate structure
what held kodak back from changing with the industry?
-a culture of complacency -executives "suffered from a mentality of perfect product, rather than the high-tech mindset of make it, launch it, fix it." -product adaptation to drugs failed -failed to read emerging markets correctly -did not have superior intellectual property
how can firms appropriate returns from new technology?
-be willing to spend a lot of money on development and wait until your technology is mature enough to slow down innovation and then see profits -must use a product leadership strategy to ensure the most advanced technology is being used and created.
what are the main strategies an incumbent could employ to manage competition?
-begin a price war -they can fight for the division of value
what are the main takeaways from NutraSweet's strategies to protect their market?
-brand your ingredient -cost reduction strategy -exclusive multi-year contracting -have a long-term view of the game -remember time is money -see all players-allocentrism
where on the technology curve is NutraSweet? how do you know?
-by the late 80's, Nutrasweet is at the top of the S curve -their patents expired at the top but it was fine bc they had the huge deal w coke/pepsi and brand name loyalty, so it is hard for someone to come in and overtake them at that point
main takeaways from nutrasweet
-cannot pursue 2 strategies at once -how to operate when a large competitor is entering the market
describe apple during the sculley era (1985-1993)
-computers -15 different types (PL) -most profitable -PC market increase; microsoft -IBM (CL) -licensing -market share went down -profit margin went down
what are the main strategic considerations for firms with new technology?
-consider complimentary assets: are they freely available or tightly held? -consider appropriability regime: is it strong or weak?
what is progressive change?
-core activities changing -companies implement incremental testing and adapt to feedback -due to progress within the existing business framework
what is creative change?
-core assets threatened -example: war games- still making them, but all are different
what are the main takeaways from the southwest case?
-customer service -quick turnaround time -flight map -short-haul flights
VRIO resources for fujifilm/kodak
-differentiation Collagen research -FTD (formulating, targeting, delivery) -highly functioning materials -digital imagery -cosmetics and medical (nanotech)
main takeaways from fujifilm
-differentiation to survive -kodak failed to differentiate -main competitor of fujifilm is kodak -strong manufacturing skills, retain presence, dominant positions in offsite photofinishing, and razor/blade business model -developed a presence in digital camera world
what are the main takeaways from Rt. 128/ Silicon Valley reading?
-economic agglomeration -cannot move along s curve alone
what is radical change?
-everything is up in the air -assets and activities change -ex: landline to cellphone-- change in assets (cell towers, tech, personnel) and change in assets (who owns services, educate buyers, marketing)
describe firms in silicon valley
-flexible to change -network-based -communication flow -collaboration -no loyalty -worker mobility -open labor markets -dense social networks -established firms helped start-ups
main takeaways from e-ink
-have to focus on one main product in the beginning -focusing on more than one is too costly and time-consuming -once they focused on one product, they became profitable and successful. -had to balance the short term with the long run in terms of production -their market opportunities: protect IP and publishing/large displays
what are the cons for E-Ink to license/contract its technology?
-however, may be difficult to convince the supplier of the complementary assets to make large specialized -investments -partner may imitate the technology
how did Route 128 develop to be a major hub for firms?
-in 1955 Business Week dubbed it the "Magic Semicircle" -rapid technological development from 1960s to 1980s -close proximity to many universities MIT, Harvard, others -major companies DEC, Apollo -did not become that magical (though Boston is still a solid #2)
how can firms increase their profit?
-increasing WTP or lowering costs -adding value which would increase WTP
what is the difference between creation and division of value? how does it relate to the value-based strategy game?
-incumbents may not create value but they can fight for division of it
why don't most innovative firms appropriate returns from their new technology?
-it has to go through so many trials and changes while it is on the market, so they are paying development costs while trying to sell their product -their profits won't outweigh the high costs of development fast enough
why do firms co-locate?
-it is often beneficial to be in close proximity to other firms delivering similar goods and services -might be closer to a supplier -knowledge spillovers, in particular informal exchanges of ideas are more likely when firms are in close geographic proximity -when firms locate i a cluster, a pool of workers emerges, making it easier to hire new workers when labor demand increases
how did Silicon Valley develop to be a major hub for firms?
-leading high-tech hub globally -where the integrated circuit, microprocessor, and other key technologies were developed -kleiner Perkins among the earliest VC firms in the region (1972) -VC funds flowed after $1.3B IPO for Apple Computers in 1980 -firms in SV receive more than ⅓ of all VC investments in the U.S
describe apple during the spindler/amerlio era (1993-1997)
-license 3rd parties -cut costs -international expansion -decrease in workforce -decrease R&D by ½ -branding image decrease -NEX -90 days close to bankruptcy
main takeaways from apple case
-licensing = profit cannabilism sometimes -marketing = important -customer loyalty = important
what factors have made apple successful?
-marketing abilities -can pursue a product leadership strategy in an industry dominated by cost leadership strategies -brand dependability/loyalty (difficult to switch from apple)... everything is connected
what are the main disadvantages of economic agglomeration?
-natural resources will eventually deplete -might become difficult to be unique -fighting over certain skilled workers (limited number and everyone wants them) -price competition -rent is high -brain drain to clusters
what are the key features of markets with technology?
-new ideas and technologies are difficult to evaluate, price and contract on -ideas can be appropriated -technology trajectory follows an S-curve -in early development stages, firms are not sure about the market application of the technology -many innovative smalls firms lack the complementary resources to commercialize the innovation --manufacturing --marketing --supply chain --partnerships and relationships -established firms may be hesitant to invest in technology that could jeopardize their existing revenue
why did Silicon Valley survive while route 128 fizzled out?
-old vs. new leadership -existence of economic agglomeration -structure of firms leadership
what are the pros for E-Ink to license/contract its technology?
-optimal strategy when appropriability -regime is strong and complementary assets are available -competitively in the market -can bring credibility to the innovator
VRIO resources for nutrasweet
-patent -deals w coke/pepsi -economies of scale
describe apple during the steve jobs era (1997-2011)
-product leadership -focused product lines down to 4 -secretive production (people didn't know what they were working on... only their component) -streamline distribution -rebrand/marketing -increase in R&D spending
how do the two fundamental strategies relate to the value-based game?
-product leadership increases WTP of buyers -cost leadership tries to lower the input costs of production so the firm can appropriate more value
describe firms in route 128
-promoted secrecy -did not rely on other companies -vertically integrated -top-down communication -unadaptable traditional culture -self-reliant -long time to innovate
what type of industry change did Kodak and Fuji undergo with the shift from film to digital? Explain your answer using the analysis of core assets and activities.
-radical change -core assets jeopardized: cameras and film -core activities jeopardized: film development
what are the main advantages of economic agglomeration?
-share resources -share technology -create a common environment that is beneficial to their type of firm
VRIO resources for e-ink
-technology -supply chain w/ toppan -leadership team
When responding to an industry change, how does a firm determine whether the core assets and activities are threatened with obsolescence?
-the threat must make core assets and activities potentially irrelevant to profitability -it must be significant enough to jeopardize the survival of at least one industry leader and widespread enough to influence every company in the industry -once you know whether core activities and assets are threatened, you can identify which of the four trajectories applies to the industry you are studying
how can firms respond to industry changes?
-they first must determine industry trajectory Step 1) define your industry and identify the companies in your industry that share common buyers and suppliers Step 2) define your industry's core assets and activities Step 3) determine whether the core assets and activities are threatened with obsolescence
what was HSC's mistake? why were they not able to gain market share in the industry?
-they had no investment in branding -when they entered, they had no added value -since they added no value, it could expect to capture no value once it entered
is the airline industry attractive? use 5-forces framework to make your case
-threat of entrants is low: high fixed costs, SWA moved easier into a niche market -threat of rivalry is high: aggressive price competition, SWA takes advantage of price sensitivity in the market by keeping fares low -threat of substitutes is low: SWA and many airlines price competitively with driving, trains in US are pretty undesirable and are more expensive than flights in many cases -bargaining power of buyers is high: cost of switching is low, most airlines avoid this by providing rewards to promote customer loyalty -power of suppliers is high: unions and fuel companies are very powerful
what are the examples of industry changes that threaten the core activities of firms?
-threatening core activities: industry going from in-store sales to shipping -threatening core assets: movie producers having to constantly upgrade visual effects technology
why did NutraSweet start a price war?
-to deter competition -payoffs for nutrasweet were much higher than that for Holland Sweetener
what is southwest's competitive advantage? how do you know it is a sustainable competitive advantage rather than just a strength?
-turnaround time + volume of flights flown per a day allows them to charge lower rates and increse profits per a day. -southwest competitive advantage is its workplace culture which greatly increases productivity and revenues (turnaround time problem). They are also able to pay their workers below average wages while still being able to retain them -it is a sustainable competitive advantage because it is VRIO -cannot be made overnight
When responding to an industry change, how does a firm define their industry?
-use 5% rule: assess whether the commonality is sufficient to qualify the firms as direct competitors -5% price fluctuation: if 5% price fluctuation by one company causes customers or suppliers to switch to another company, the businesses qualify as direct competitors
what are the three main apple eras that demonstrate the importance of pursuing one of the fundamental strategies?
1) sculley era 2) spindlier/amerlio era 3) Steve Jobs era
Why is it advisable for firms to pursue one of the two fundamental strategies?
Because the strategies are usually contradictory and there are tradeoffs -
how can you use the S-curve and dominant design frameworks to explain why Tesla opened its patents?
Tesla is in the middle of the s curve in the steep growth part: -they want it to be an open good (trust, publicity) -adapt the tech (don't want to be outsiders in the industry) -broaden the market (compete, not a threat) -develop the tech w other firms R&D (buy them up) -suppliers -dominant design -ego -no complacency (this is all just what i have, i'm not sure if it helps at all) They wanted to not be novel or new tech and for others to make new tech they could hopefully adopt They went from strong to weak appropriability
When responding to an industry change, how does a firm define their core assets and activities?
Test whether something is core -If it were eradicated today, would be profits be lower a year from now, despite efforts to work around what's missing?
southwest's VRIO
V: workforce and culture R: relationship w unions I: reputation O: compare to bathtub models of stocks and flows (bath tub: continual input of resources and funding to maintain firms stock and VRIO as water in tub is drained by time and new innovations/changes in the market)
how do you calculate value added of each player?
[TV-TV(without firm)]
explain the "bathtub model" of sustaining a competitive advantage through resources.
a firm can have a stock of VRIO resources and capabilities, which can be represented by a tub of water -it takes time to fill the tub, so similarly, it takes time to build up stocks of VRIO resources in a firm. -the water is constantly draining out, representing the depreciation of resources, and freshwater can be added into the tub through a faucet, representing investments in the resources and capabilities of the firm.
what is the dominant design model?
a technology management concept by Utterback and Abernathy in 1975 that identifies key technological features that become a de facto standard -the number of firms following a "bell curve"
what do we use porter's "threat of new entrants" force for?
bring new capacity and a desire to gain market share that puts pressure on prices, costs, and rate of investment necessary to compete.
what do we use porter's "bargaining power of supplier" force for?
capture more value for themselves (higher price - think apple marketing) increase profits even if prices can not be raised
what is intermediating change?
core activities threatened -relationships are fragile example: going from movie rental stores to mail-in movies
what was SWA's strategy (cost/product)?
cost leadership
what are the two fundamental strategies firms can pursue?
cost leadership and product leadership
what kind of industry change occurred when "renting movie content to consumers" changed from VHS to DVD?
creative change
What is a technology S-curve? What are the main elements of the curve?
describes the phenomenon of technological evolution and suggests that technologies evolve through an initial period of slow growth, followed by one of fast growth culminating in a plateau New innovation → tech improvement → mature technology
what happens to profits when complementary assets are freely available but there is a weak appropriability regime?
difficult to make profits -success dependent on building scale economies or finding market nice in crowded and competitive market
how do you calculate whether there is bargaining in the game?
find sum of all the different added values and if they re more than the original TV then there is bargaining power.. there I extra value that people can fight for
what is economic agglomeration?
firms with similar products and services cluster together in a geographic area
what are some examples of technologies at the growth stage, dominant design, or consolidation stage of the dominant design model?
growth phase: E-ink down down on growth... they are investing SO much dominant design: design of pick up truck
how can you identify a technology phase of a given technology on the model?
growth phase: imitators bet on dominant design. complementary assets not as critical dominant phase: competition shifts to price and away from design and complementary assets are important consolidation phase: specifics
what happens to profits when complementary assets are tightly held and there is a strong appropriability regime?
highest bargaining power profits -success dependent strong on bargaining power
what happens to profits when complementary assets are tightly held and there is a weak appropriability regime?
holder of assets profits -success dependent on finding viable and reliable way to access complementary assets
what are the main challenges from incumbency?
incumbents can accommodate new entrants, engage in price wars, enter into exclusive contracts, use strong branding and litigate
what happens to profits when complementary assets are freely available and there is a strong appropriability regime?
innovating firms profit -strong competitive position
what kind of industry change occurred when "renting movie content to consumers" changed from renting in store to renting by mail?
intermediating change
location on s curve for apple
mature technology
where on the s curve is nutrasweet?
mature technology
location on s curve for SWA
mature technology (all pilots fly the same type of plane)
what do we use porter's "threat of substitute products or services" force for?
perform the same or similar function as an industry. High threat = industry profitability suffers by placing a ceiling on prices.
what is apple's strategy (cost/product)
product leadership in an industry dominated by cost leadership
how do you calculate the highest price a firm can charge?
profit (same thing as added value)=price-cost
what kind of industry change occurred when "renting movie content to consumers" changed from streaming only to streaming and creating content?
progressive change
what is product leadership strategy?
providing superior value by offering a continuous stream of leading-edge products and services; open to new ideas and solutions and bring them quickly to the market
what kind of industry change occurred when "renting movie content to consumers" changed from DVD to streaming?
radical change
what are the four ways that industry can change?
radical change, creative change, intermediating change, and progressive change
5 forces that SWA should be worried about
rivalry= high buyers power=high suppliers power= high
what is cost leadership strategy?
seeks to create the same or similar value for customers at a lower cost compared to competitors
what is strategy?
set of guiding principles that generates a desired pattern of decision making. How people make decisions and allocate resources
what is the difference in commercializing new technology for start-ups (new firms) vs incumbents (existing firms)?
smaller firms have not achieved economies of scale yet, so any progress will be expensive and slow compared to a more established firm
what are the lessons for new competitors who want to challenge an incumbent?
they will rarely win a price war
what are porter's five forces?
threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, rivalry among existing competitors
What is the VRIO framework?
tool to analyse a firms internal resources and capabilities to see if it could be a source of comp advantage
VRIO resources for SWA
unions reputation hiring/training processes
VRIO resources for apple
user friendly design
what are VRIO resources?
valuable, rare, inimitable, organized appropriately
what do we use porter's "rivalry among existing competitors" force for?
when equal in size competition emerges business poaching begins.
