sevi exam 2 - Cooper
A differentiation strategy enables a business to address the five competitive forces by
providing protection against rivalry
A manufacturing business pursuing cost leadership is likely to
rely on experience curve effects to increase efficiency
What is Nintendo's business-level strategy? How does this compare to the business-level strategy for its competitors, Sony (PlayStation) and Microsoft (Xbox)?
-Expand target market & accessibility of its products --Emphasizing portability & family games -Competitors are targeting teens & young adults & placing greater emphasis on graphics
What key forces in the general environment are impacting the gaming industry at the time this case was written?
-demographic -- people of all ages interested in video games; targeting broader audience -technology advancement -- mobile gaming, hybrid console
diversification - firm performance relationship
-high & low levels of diversification generally associated with lower overall performance -moderate levels of diversification associated with higher firm performance
5 key motivations for firms to grow
-increase profits & shareholder returns -lower costs & achieve economies of scale -increase market power -reduce risk through diversification -motivate management
combination strategies: integrating low cost & differentiation
-makes it difficult to duplicate or imitate strategy -goal = provide unique value in an efficient manner -enables a firm to provide 2 types of value to customers = differentiated abilities & lower prices approaches: -adopting automated & flexible manufacturing systems (mass customization) -using data analytics -exploiting the profit pool for competitive advantage -unscaling to create aa combination strategy - Creates higher entry barriers due to both cost leadership and differentiation. - Can provide higher margins that enable the firm to deal with supplier power. - Reduces buyer power because of fewer competitors. - Overall value proposition reduces threat from substitutes. risks: - Firms that fail to attain both overall low-cost and differentiation strategies may end up with neither and become "stuck in the middle." - Firms can also underestimate the challenges and expenses associated with coordinating value-creating activities in the extended value chain. Firms can also miscalculate sources of revenue and profit pools in the firm's industry
What are the different ways that companies can differentiate themselves?
-optimize user experience -focus on niche -become expert -challenge status quo
Which of the following best illustrates forward vertical integration?
A firm that manufactures and sells car engines to major automobile companies launches its own line of cars.
Janet wants to restructure the portfolio of all her firm's strategic business units. Janet will more than likely employ the ________ tool.
Boston Consulting Group (BCG) matrix
underlying concepts that guide the dimensions of corporate strategy
CORE COMPETENCIES - unique strategies embedded deep within a firm -allows a firm to differentiate its products/services, creating higher value for the customer or offering products & services of comparable value at lower costs ECONOMIES OF SCALE - occur when a firms average cost per unit decreases as its output increase -larger market share often leads to lower costs ECONOMIES OF SCOPE - the savings that come from producing 2 or more outputs or providing different services at less cost than producing each individually, though using the same resources & technology
related diversification strategy
Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity contrained - executives pursue only businesses where they can apply the resources & core competencies already available in the primary business -all businesses share competencies linked - executives pursue various business opportunities that share only a limited # of linkages -some businesses share competencies Benefit from economies of scale & scope: these mutli-business firms can pool & share resources as well as leverage competencies across different business lines
unrelated diversification strategy
Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business and there are few, if any, linkages among its businesses benefits -financial economies from restructuring -internal capital markets
which of the following is NOT a risk (or potential pitfall) of cost leadership?
Cost leadership is difficult to imitate.
Which of the following is most often true of mature markets?
Few or no competitors enjoy a significant operating advantage due to experience effects.
Decisions relating to the range of products and services a firm will offer determine the firm's
level of diversification
What strategies do firms apply to gain competitive advantage at each of the life cycle stages?
Generic strategies, functional areas, value-creating activities, and overall objectives all vary over the course of an industry life cycle.
Industry Life Cycle
INTRODUCTION -products are unfamiliar -market segments are unfamiliar to customers -product features are not clearly specified -competition tends to be limited GROWTH -strong increase in sales -attractive to potential competitors -developing brand recognition -need for financing complementary value chain activities MATURITY -aggregate industry demand slows -saturated market; few new adopters -direct competition -price competition -marginal competitors begin to exit -strategic emphasis on efficient operations reverse positioning - a break in industry tendency to continuously augment products, characteristics, of the product life cycle, by offering products with fewer attributes & lower price breakaway positioning - a break in industry tendency to incrementally improve products along specific dimensions by offering products that are still in the industry but that are perceived by customers as being different DECLINE -industry sales & profits begin to fall -price competition increase -industry consolidation harvesting strategy - bringing as much profit as possible out of the business in the short-to-medium term by reducing costs
make or buy?
If Costs(in-house) < Costs(market) - Vertically integrate. - Own production of the inputs. - Or own output distribution channels. If Costs(market) < Costs(in-house) - The firm should consider purchasing instead. ADVANTAGES: *FIRM -command & control (fiat, hierarchal lines of authority) -coordination -transaction of specific investments -community of knowledge *MARKETS -high powered incentives -flexible DISADVANTAGES *FIRM -admin costs -low powered incentives -principal-agent problem *MARKET -search costs -opportunism (hold up) -incomplete contracting (specifying & measuring performance) -enforcement of contracts
What innovations has Nintendo launched in the video gaming market? What were the responses of key competitors (Sony, Microsoft) to these introductions?
Innovations of Nintendo- in response to the Wii, Xbox released the Kinect and PS released the Move (neither were as popular, and the PS was significantly worse)
Which of these statements regarding the industry life cycle is true?
It is important for company generic strategies, functional areas, value-creating activities, and overall objectives.
Understand Nintendo's key resources (tangible and intangible) and capabilities. Which of these (or combination of these) is VRIN?
Tangible - the ability to play at home on the console or a limited amount on the go
Billy is the founder and CEO of Billy's Kicks, a soccer ball retailer. He decides to purchase a synthetic rubber manufacturing firm so he can create his own soccer balls and sell them nationally in his retail stores. Billy will engage in
backward vertical integration
3 dimensions of corporate strategy
VERTICAL INTEGRATION - describes the transformation of raw materials into finished goods & services along district vertical stages -back ward -- owning inputs on value chain -forward -- ongoing activities closer to customer end DIVERSIFICATION -product diversification -- increase in variety of products -geographic diversification -- increase in variety of markets GEOGRAPHIC SCOPE -where should the company compete geographically in term of regional, national, or international markets?
overall cost leadership strategy
a company achieves the lowest production and distribution costs and allows it to lower its prices and gain market share involves: -aggressive construction of efficient scale facilities -vigorous pursuit of cost reductions from experience -tight cost & overhead control -avoidance of marginal customer accounts -cost minimization in all activities in the firms value chain experience curve -the decline in unit costs of production as cumulative output increases competitive parity -a firms achievement of similarity or being "on par" with competitors with respect to low cost, differentiation or other strategic product characteristics improving competitive position -protects a firm against rivalry from competitors -protects against powerful buyers -provides more flexibility to cope w demand from powerful suppliers who want to increase input costs -provides substantial entry barriers due to economies of scale & cost advantage -puts the firm in favorable position with respect to substitute products pitfalls -too much focus on 1 or few value chain activities -increase in the cost of inputs -strategy can be too easily imitated -a lack of parity on differentiation -reduced flexibility -obsolescence of the basis of a cost advantage
diversification
a firm that engages in diversification increases the variety of products/services it offers or markets & the geographic regions in which it competes
focus strategy
a firm's generic strategy based on appeal to a narrow market segment within an industry; focus strategy based on the choice of a narrow competitive scope within an industry 2 variants: *cost focus -creates a cost advantage in its target segment -exploits differences in cost behavior *differentiation focus -differentiates itself in its target market -exploits the special needs of buyers improving competitive position -creates higher entry barriers due to cost leadership or differentiation or both -can provide higher margins that enable the firm to deal with supplier power -reduces buyer power because the firm provides specialized products or services -focused niche less vulnerable to substitutes pitfalls -erosion of cost advantages within narrow segment -highly focused products/services still subject to competition from new entrants & from limitation -focusers too focused to satisfy buyer needs
A firm following a focus strategy must focus on
a market segment or group of segments
business level strategy
a strategy designed for a firm or a division of the firm that competes within a single business OR an integrated integrated & coordinated set of commitments & actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets requires a choice "How to overcome the five forces & achieve competitive advantage?"
turnaround strategy
a strategy that reverses a firm's decline in performance and returns it to growth and profitability through: -asset & cost surgery -selected market & product pruning -piecemeal productivity improvement
taper integration
a way of orchestrating value activities in which a firm is backwardly integrated but also relies on outside market firms for some of its supplies, and/or is forwardly integrated but also relies on outside market firms for some of its distribution
the primary aim of strategic management at the business level is
achieving & sustaining competitive advantage
transaction costs
all internal and external costs associated with an economic exchange, whether within a firm or in markets internal - costs pertaining to organizing an economic exchange within a hierarchy (admin costs) -recruiting & retaining employees -setting up shop floor external - when companies transact in the open market -costs of searching for a firm or an individual with whom to contract & then negotiating, monitoring, & enforcing the contract
generic strategies
basic types of business level strategies based on breadth of target market (industrywide (low cost & differentiation) versus narrow market segment (focus)) and type of competitive advantage (low cost versus uniqueness)
Vertical Integration
benefits -lowering costs -improving quality -facilitating scheduling & planning -facilitating investments in specialized assets -securing critical supplies & distribution channels risks -increasing costs -reducing quality -reducing flexibility -increasing the potential for legal repercussions
Which of the following most exemplifies a way in which a firm can achieve differentiation?
better customer service
Amerie is the strategic business unit (SBU) leader in charge of manufacturing men's bow ties. While the market Amerie's firm competes in is low growth, its SBU's earnings and cash flow are both ranked high and stable. When examining Amerie's SBU through the Boston Consulting Group (BCG) growth-share matrix lens, we can conclude that her SBU would be classified as a
cash cow
John owns John's Trucking Corporation and is trying to determine if his firm should engage in vertical integration and diversify the range of services his business sells. Before John goes through with these decisions, he'll need to consider what is his
corporate level strategy
High product differentiation is generally accompanied by
decreased emphasis on competition based on price
Value chain support activities that involve excellent applications engineering support (technology development) and facilities that promote a positive firm image (firm infrastructure) characterize what generic strategy?
differentiation
Jill is the CEO of Note's Etc, a stationary manufacturer. She decides to open up a retail store to sell her products directly to consumers instead of just selling to retailers. In order to do this, Jill will need to engage in _______, which is a corporate level strategy.
forward vertical integration
external analysis
leads to identification of market segments & customer groups that may still find the product attractive
which of the following is a reason for the possible erosion of company competitive advantage?
globalization
One aspect of using a cost leadership strategy is that experience effects may lead to lower costs. Experience effects are achieved by
increasing speed & decreasing mistakes as tasks become easier through repetition
________ is best described as a situation in which one party possesses private information and is therefore better informed than another party.
information asymmetry
In the _____ stage of the industry life cycle, the emphasis on product design is very high, the intensity of competition is low and the market growth rate is low.
introduction
Initech developed a superior touch screen technology for tablet computers that enabled multiple users to operate the screen at the same time. The technology was leased to Accent Technologies, a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate?
licensing
An overall ________ position enables a firm to achieve above-average returns because it protects firms against powerful buyers.
low cost
Single Business Diversification Strategy
low level of diversification derives more than 95% of revenue from one business
strategic outsourcing
moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain -reduces its level of vertical integration
A firm can achieve differentiation through all of the following means except
offering lower prices to frequent customers
Many financial service firms, IT firms, and health-care companies are among the most active when it comes to________, which occurs when value chain activities are taken care of outside the home country of the firm.
offshore outsourcing
What is the name of the situation that can arise when strategic leaders pursue their own interests in conflict with the firm's goals?
principal-agent problem
Amazon.com has decided to enter the college bookstore market. The goal of "Amazon Campus" is to offer co-branded university-specific web sites that offer textbooks and paraphernalia, such as logo sweaters and baseball hats. This development shows Amazon's relentless pursuit of
product diversification
differentiation strategy
products and/or services that are unique & valued; emphasison nonprime attributes for which customers will gladly pay a premium for can take many forms: -prestige or brand image -quality -technology -innovation -features -customer service -dealer network requires: -a level of cost parity relative to competitors -integration of multiple points along the value chain (superior material handling, low defect rates to improve quality, accurate & responsive order processing, personal relationships to customer service requests) improving competitive position -creates higher entry barriers due to customer loyalty -provides higher margins that enable the firm to deal w supplier power -reduces buyer power because buyers lack suitable alternatives -established customer loyalty & hence less threat from substitutes pitfalls -uniqueness that is not valuable -too much differentiation -too high a price premium -differentiation that easily imitated -dilution of brand identification through product line extensions -perceptions of differentiation may vary between buyer & seller
which of the following statements about the introduction stage of the market life cycle is true?
products offered by pioneers may be perceived as differentiated because they are new
internal analysis
results in actions aimed at reduced costs & higher efficiency
Since Coca-Cola focuses on selling only soft drinks, a low degree of product diversification, we would conclude that they compete in a(n) ________ market versus their main competitor PepsiCo, that sells a wide variety of products.
single product
diversification discount
situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units -firms that pursue unrelated diversification are often unable to create additional value
diversification premium
situation in which the stock price of related-diversification firms is valued at greater than the sum of their individual business units -companies that pursue related diversification are more likely to improve their performance
A firm pursuing an overall cost leadership strategy typically achieves an absolute cost advantage by offering a _____ product or service to a _____ target market using standardization to derive the greatest benefits from economies of scale and experience.
standard; broad
________ are best described as voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage.
strategic alliances
Which of the following is an example of an internal transaction cost?
the cost of maintaining a production unit
Which if the following is an example of an external transaction cost?
the cost of searching for a contract manufacturer
corporate level strategy
the decisions that senior management makes and the actions it takes in the quest for competitive advantage in several industries and markets simultaneously; addresses where to compete "where to compete"
Dominant Business Diversification Strategy
the firm generates between 70 and 95% of its total revenue within a single business area but pursues at least one other business activity from which not derives the remainder of its revnue
restructuring
the process of reorganizing and divesting business units and exiting industries to refocus upon a company's core business and rebuild its distinctive competencies QUESTION MARK -earning -- low, unstable, or growing -cash flow -- negative -strategy -- increase marketshare or harvest/divest STAR -earnings -- high, stable, or growing -cash flow -- neutral -strategy -- hold or invest for growth CASH COW -earnings -- high, stable -cash flow -- high, stable -strategy -- hold DOG -earnings -- low, unstable -cash flow -- neutral or negative -strategy -- harvest/divest
As markets mature,
there is increasing emphasis on efficiency
A firm follows a(n) ________ when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses.
unrelated diversification strategy
A company that engages in strategic outsourcing reduces its level of
vertical integration
Decisions relating to "what stages of the industry value chain to participate in" determines a firms
vertical integration
which statement regarding competitive advantage is true?
with an overall cost leadership strategy, firms need to be concerned with competitive parity
