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