BA 466 Midterm 1

The typical risks of a cost leadership strategy include:

production and distribution processes becoming obsolete

Cost disadvantages independent of scale to an industry include:

proprietary product technology (patent) government regulation government subsidies

Economies of scale refers to the fact that as the:

quantity of product produced in a given time period increases, the cost of manufacturing each unit decreases

Us toy manufacturer believes its main competitive advantage lies in its continuing development of innovative toys and games. The company is facing increasing competition on price and its strongly considering outsourcing to offshore firms as a means of reducing costs. The LAST function this firm should consider outsourcing is:

research and development

Examples of support activities include all of the following:

research and development human resources procurement

Ways that a good or service can be differentiated:

responsive customer service, perceived prestige and status, engineering design and performance

Firm has been around for 70 years - this firm has capabilities that would be costly to imitate because of its:

social complexity

Beaver fighter is a pioneer in the military jet fighter manufacturing industry. Given the following 2 assumptions, what is hours per unit when Beaver fighter produces 4th jet fighter?

(1) it takes 1000 hours for the firm to manufacture the first jet fighter, (2) 90% learning curve: 810 hours

2 distinct price options for firms

1.) It can charge higher price to reflect the higher value thus increase its profitability 2.) It can charge the same price as competitor and thus gain market share Trying to maximize (V-C)

What are capabilities?

A bundle of tangible and intangible resources, emerge overtime through complex interactions among tangible and intangible resources

What are resources?

A firm's assets, including people and the value of its brand name: Capital equipment, Skills of employees, Financial resources, Talented managers, Tangible and intangible resources

Industrial Organization (I/O) Model

Above-average returns are determined primarily by factors EXTERNAL to the firm

What are core competencies?

Activities through which the firm adds unique value

Costly-to-imitate capabilities

Ambiguous cause, social complexity

Business-Level Strategy

An integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets

Differentiation strategy

An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them and will pay the premium

Focus strategies

An integrated set of actions taken to produce goods or services that serve the needs of particular (niche) market segment: Particular buyer group, Different segment of a product line, Different geographic markets

Example of cost leadership focused on "product" innovation

BMW

Bargaining power of buyers will increase when

Buyers are large, Buyers' purchases are a significant portion of supplier's annual revenues, Buyers' switching costs are low, Buyers can pose threat to integrate backward into the sellers' industry

Threat of substitute products will increase when

Buyers face few switching costs, The sub product's price is lower, Sub product's quality and performance are = to or greater than the existing product

Cost drivers

Cost of input factors, economies of scale, learning curve

What is the goal?

Creating above average returns

What are the foundation of success for business-level strategies?

Customers

6 Segments of General Environment

Demographic Sociocultural Political/Legal Technological Economic Global

Risks in following differentiation strategy

Differentiation ceases to provide value for which customers are willing to pay, Experience narrows customers' perceptions of the value of differentiated features

Which is true about Ducati's turnaround program:

Ducati improved the perceived value of new products by internalizing marketing and design function

Which is true about Ducati's strategic positioning:

Ducati's strategy is based upon a set of value chain activities that fit together tightly strategic trade-offs made by a focused differentiator like Ducati constrain growth attempt to move out of Ducati's niche may blur the original strategic positioning

Threat of New Entrants (Entry Barriers) decreases when:

Economies of scale - quantity increases and unit cost decreases (dependent on demand), Product differentiation (perceived uniqueness, brand), Capital requirements (eg. Commercial aircraft manufacturing), Switching costs, Access to distribution channels, Cost disadvantages independent of scale (eg proprietary product technology), Government policy, Network effects, Credible threat of retaliation (incumbent firms w/ deep pockets can force new entrants out)

For a retail business dependent on drive-in customers, the major cost disadvantage independent of scale would be if:

Favorable locations are not available

Cost leadership strategy

Focuses its attention and resources on reducing the cost to manufacture a product or delivering service in order to offer lower prices to its customers, Optimizes all of its value chain activities to achieve a low cost position

The external environment includes:

General, industry, competitive

The department of defense buys jetfighter from US companies for national security reasons. This is an example of ________ barrier to entry

Government policy

Value Capabilities

Help a firm neutralize threats or exploit opportunities

supporting activities

Include finance, HR, management, tech development

Primary Activities

Include inbound logistics, operations, outbound logistics, marketing sales, and after service

Example of cost leadership focused on "process" innovation

KIA

Two kinds of strategic groups

Low-cost, point-to-point (alaska, jet blue, southwest) and Differentiated, hub-and-spoke (united, American delta)

What is plan?

Maximize fit between the organization and its completive environment

Learning Curve

Predicts reduction in manufacturing costs or direct labor hours as cumulative production increases, Learning curve effects are significant in the complex manufacturing process More experience over time = increased output = lower unit costs

3 value drivers that lead to competitive advantage

Product features, customer service, complements

Value Chain Analysis

Shows how a product moves from the raw-mat stage to the final customer, Allows the firm to understand the parts of its operations that create value and those that do not

What is strategy?

Strategy is a comprehensive, goal-oriented plan

What does comprehensive mean?

Strategy is multifunctional

Bargaining power of suppliers will increase when

Suppliers are larger and few in number, Suitable substitute products are not available, Suppliers' goods are critical to buyers' marketplace success, Suppliers' products are differentiated, Suppliers' products create high switching costs, Suppliers pose a threat to integrate forward into buyers' industry

The threat from substitutes is low when:

Switching costs are high, The substitute product's price is higher than the industry product's price, The quality of the substitute product is lower than the quality of the industry's product

What matters in the I/O model?

The configuration of underlying economic drivers determines the attractiveness of industry

Outsourcing

The purchase of a value-creating activity or a support function activity from an external supplier Can be effective because few, if any, organizations possess the resources & capabilities required to achieve competitive superiority in all value chain activities A firm chooses outsourcing when a firm cannot create value/has substantial disadvantages

Rivalry among existing competitors will increase when

There are equally balanced competitors, Industry growth slows or declines, There are high fixed costs or high storage costs, There is a lack of differentiation opportunities or low switching costs, The strategic stakes are high, High exit barriers prevent competitors from leaving the industry

The telecom industry in the country of Andaulus is an industry characterized by the presence of high brand loyalty, high economies of scale, and proprietary technology among incumbent firms. Thus, in the telecom industry, the:

Threat of new entrants is most likely low

Porter's 5 Forces

Threat of substitutes, Threat of new entrants, Bargaining power of suppliers, Bargaining power of buyers, Rivalry among existing competitors

Exploited by the organization

To fully realize a firm's potential for competitive advantage, a firm must be organized to exploit its resources and capabilities

The capabilities used to crease the sustainability/green initiatives at Walmart and Target are ________ but less likely to be _________.

Valuable; rare

4 Criteria of Sustainable Competitive Advantage (VRIO)

Value capabilities, rare capabilities, costly to imitate capabilities, exploited by the organization

What is competitive advantage?

When a firm implements a strategy that its competitors are unable to duplicate or find too costly to try and imitate

Even though many valuable, rare and inimitable resources were generated at Xerox, the management at its headquarters failed to gain a competitive advantage by exploiting the breakthroughs in computing software and hardware. What is the most likely implication of this example:

a firm must be effectively organized to capture value

The "World of Ducati" emphasizes how:

a set of activities can enhance intangible attributes of a successful company

Strategic groups are

a set of firms emphasizing similar strategic dimensions and using a similar strategy

Which is the following is TRUE about strategic trade-off:

a strategic position is not sustainable unless there are strategic trade-offs with other positions strategic trade-offs occur when activities are incompatible strategic trade-offs create the need for choice and protect against imitation

DWK is is only selling online but in order to gain economies of scale they need to sell their product in a retail store - the main barrier to entry DWK is likely to encounter here is:

access to distribution channels

Value chain analysis is a tool used to:

analyze a firm's value/cost position and identify the multiple means to facilitate implementation of a chosen strategy

rare capabilities

are not possessed by many others

Which of the following is true about capabilities:

are often developed in specific functional areas such as manufacturing, R&D, and marketing

Soapspuds supplies its cleaning products to All Needs which is a supermarket chain. All Needs decided to produce its own range of cleaning agents with its own label - All Needs has exercised its bargaining power as a buyer through:

backward integration

Demand for aircraft is low due to consolidation of domestic airline industry -these conditions will eggiest the domestic airline industry:

because it will make the airline industry more attractive due to the decrease of supplier power

Which of the following true about NON-CSDs impact on concentrate producers and bottlers:

bottlers incurred higher distribution and sales costs due to an ever-increasing number of products non-csd products required a smaller but specialized production process that were challenging to bottlers coke and pepsi engaged in forward integration to achieve operational synergies with bottlers

Threat of entry is high when:

capital requirements are low

Which of the following is true about economic value created:

competitive advantage goes to the firm that achieves the largest economic value created, the firm that achieves the largest economic value created can charge higher prices to reflect the higher value this increases its profitability the firm that achieves the largest economic value created van charge the same price as competitors and this gain market share (all of the above)

While implementing strategic group mapping for the US domestic airline industry, two strategic groups become apparent: low cost, point-to-point airlines vs differentiated airlines using a hub-and-spoke system. Which of the following statements is TRUE about these two groups:

competitive rivalry between Virgin Atlantic and JetBlue is likely to be higher than that between American and Southwest airlines

A firm successfully implementing a differentiation strategy would expect:

customers to be sensitive to price increases

Value-creating activity associated with the differentiation strategy:

developing policies ensure efficient hiring and retention to keep costs low and implementation training to ensure high employee efficiency

If a firm has core competencies that are valuable, rare costly to imitate and exploitable the firm will:

earn below-average returns

KitchenX Inc. is a company that manufactures plastic kitchenware. It operates at an output level that allows it to keep its unit cost per output to the lowest in the industry. This in turn allows KitchenX to be the price leader. Others competing companies cannot operate at the same level due to a lack of consumer demand for their products. This puts them at a competitive disadvantage. In this scenario, the cost driver behind KitchenX strategic position is ______. :

economies of scale

All of the following are ways that a good or service can be differentiated EXCEPT:

economies of scale and efficient operations

All of the following are forces that create high rivalry within an industry:

equally balanced competitors high fixed costs or high storage costs high strategic stakes ...fast industry growth is NOT one of these

Which of the following is true about bottlers:

establishing a nationwide bottling network needed substantial amount of financial resources

Ikea offers young customers a selection of home furnishings featuring good design, function and acceptable quality at low prices, Ikea is using which business-level strategy:

focused cost leadership

Firms within strategic groups:

follow similar strategies across certain dimensions

3 parts of the external environment which affect a firms strategic actions are:

general, industry and competitor

If a firm has a capability that is valuable, rare but not costly to imitate, the firm will:

have a temporary competitive advantage

attractive industry (high profit potential)

high entry barriers, suppliers and buyers have weak positions, few threats from substitute products, moderate rivalry among competitors

According to the five forces model, an unattractive industry would include all of the following characteristics EXCEPT:

low supplier power due to commodity inputs

True Gold is a company that sells standardized supplies to companies that manufacture jewelry. Since the company operates in an industry where many other suppliers sell standardized products, it can most likely:

only achieve competitive parity

The typical risks of a differentiation strategy do NOT include which of the following?

suppliers of raw materials erode the firms profit margin with price increases

Whens firm lay off employees, they are:

temporarily sacrificing a tangible asset that is easily replaced

A local restaurant has become successful through its menu, they have organic options and have opened several other locations in different cities that have proven to be highly profitable. This restaurant can expect that, at best, its competitive advantage will be:

temporary

Suppliers are powerful when:

they offer a credible threat of forward integration

The integration of cost leadership and a differentiation strategy is challenging because it increases the number of value-chain activities and support functions in which the firm must become competent

true

Walmart has a complex interrelationship between its activities, culture and staff that adds value in ways that other mass retailers cannot such as highly motivated employees, or trust-based relationships between the firm and suppliers. These examples illustrate which of the following criteria for sustainable competitive advantage:

valuable, rare and costly to imitate

McDonalds culture, with an emphasis on cleanliness, consistency, service and the training that reinforces the value of these characteristics, illustrates which of the following criteria for sustainable competitive advantage?

valuable, rare, and costly to imitate

Components of Internal Analysis Leading to Competitive Advantage and Strategic Competitiveness

• 1.) Resources • 2.) Capabilities • 3.) Core competences • 4.) VRIO • 5.) Outsource