Capstone _ Exam 1

differentiation strategies

- Focused on adding value •Unique features •Customer service •Effective marketing - Can increase costs •R&D / innovation needed - Customers willing to pay a premium

implementation

a set of coherent actions

competitive parity

two or more firms that perform at the same level

sustainable competitive advantage

A firm that is able to outperform its competitors or the industry average over a prolonged period

strategic trade-offs

- Choices between a cost OR value position - Tension between: •Value creation and •Pressure to keep cost in check - Purpose to maximize the firm's: •Economic value creation •Profit margin

cost drivers that keep costs low

- Cost of input factors •Raw materials, capital, labor, and IT services - Economies of scale •Decreases in cost per unit as output increases - Learning-curve effects •Less time to produce output with experience - Experience-curve effects •Improvements to technology and production processes-

Mission: Strategic Commitments

- Credible actions that back up vision and mission statements. - These commitments are often: •Costly •Long-term oriented •Difficult to reverse

Blue ocean strategy

- Differentiation and cost-leadership activities - Uses value innovation to reconcile trade-offs Blue oceans represent: •Untapped market space •Creation of additional demand Opportunities for highly profitable growth

AFI strategy framework

- Helps managers craft and execute a strategy. - Enhances chances of achieving superior performance. -Includes three broad tasks: • Analyze (A) • Formulate (F) • Implement (I)

to achieve successful value innovation

- Lower costs •Eliminate: Which of the factors should be eliminated? •Reduce: Which of the factors should be reduced? - Increase perceived consumer benefits •Raise: Which of the factors should be raised? •Create: Which factors should be created?

economic value creation

- The difference between: •A buyer's willingness to pay for a product / service (V) •And the firm's total cost to produce it (C) - Economic value created: The difference between value (V) and cost (C) (V-C)

mission

- What an organization actually does •The products and services it will provide •The markets in which it will compete - Defines how the vision is accomplished

How to gain a competitive advantage

- provide goods or services consumers value more highly than those or its competitors (Tesla) - Provide goods or services similar to the competitors' at a lower price ( Walmart)

what strategy is not

1.Grandiose statements •Example: "We will be No. #1" •Provide little managerial guidance and often lead to goal conflict and confusion 2.A failure to face a competitive challenge •Example: Blockbuster didn't address challenges from Netflix, Redbox, Amazon Prime, and Hulu 3.Operational effectiveness, competitive benchmarking, or tactical tools •Examples: "pricing strategy," "operations strategy," "brand strategy"

What is a good strategy?

A diagnosis of the competitive challenge. •Analysis (A) •A guiding policy to address the competitive challenge. •Formulation (F) A set of coherent actions to implement the firm's guiding policy. •Implementation (I)

solve a problem for a consumer

A customer-oriented vision statement focuses employees to think about how best to

provide products similar to its compe"tors, but at lower prices.

A firm is said to gain a compe""ve advantage when it can

organizational structures are aligned with the firm's vision statement

A positive relationship between vision statements and firm performance is more likely to exist when

Strategy

A set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.

differentiation

Beach Grub is a chain of "fast casual" restaurants that sells its menu items at higher prices than its compe"tors. Yet, the restaurant has a large customer base due to its wide product por$olio and superior customer service. Which of the following generic business strategies has Beach Grub adopted in this scenario?

product oriented vision statements

Defines a business in terms of a good or service provided •Forces managers to take a more myopic view •Can hinder understanding of the competitive landscape

customer oriented vision statements

Defines a business in terms of providing solutions to customer needs •Customer needs may change •The means of meeting those needs may change also

Fomulation

Effective guiding policy Backed by strategic commitments •Investments •Changes

analysis

Diagnosis of the competitive challenge Analysis of the firm's internal and external environments

Generic business strategies

Differentiation •Seeks to create higher value vs. competitors •Offers unique features •Charges higher prices Cost Leadership •Seeks to create similar value vs. competitors •Charges lower prices

cost leadership strategies

Focus on: •Offering lower costs than competitors •Maintaining acceptable quality Appeals to the bargain-conscious buyer •Attracts an increased sales Can be profitable over a long period of time

Cost leadership strategy

Goal: •Reduce cost below competitors •Offer adequate value •Reduce prices for customers Optimize the value chain for low cost

the strategy canvas

Graphical depiction of a company's performance •Relative to its competitors oShows focus or divergence Viewed across the industry's key success factors Provides insights into strategy •Differentiator and cost-leader diverge Zigzag indicates lacking an effectiveness in its strategic profile

VALUES

Helps employees •Understand the company culture •Deal with complexity •Resolve conflict Organizational core values •Ethical standards and norms •Govern the behavior of individuals •Provide stability to the strategy •Serve as guardrails to keep the company on track

delivers low-cost products and services to a specific, narrow part of the market.

In a focused cost-leadership strategy, a firm

blue ocean

In a successful ________ strategy, the trade-offs between differentiation and low cost are reconciled.

successful business strategy

Leverages the firm strengths Mitigates firm weaknesses Helps the firm: •Exploit external opportunities •Avoid external threats

compe""ve advantage.

Mainline Ltd. is a landline telephone manufacturer whose average return on invested capital is approximately 2 percent. Because demand for landline telephones has declined significantly, the industry average return on invested capital has been nega"ve (-5 percent) for the last few years. In this scenario, Mainline Ltd. has a

strategic positioning requires trade-offs

Managers must make conscious trade-offs. •How to allocate resources •Which activities to pursue

Marigold's organiza"onal structures do not align with the vision.

Marigold Servers, a web services firm, has experienced a 7% decline in revenues in consecu"ve quarters. In an effort to reduce opera"ng costs, managers reduced the customer service staff from 12 employees to 6. Management also enlisted the remaining employees to help produce a new company vision: to give customers of all budgets a customizable, stress-free web hos"ng experience. What is wrong with this scenario?

Focused business strategies

Narrower competitive scope - Focused Differentiation •Ex: Mont Blanc: exquisite pens at several hundred dollars - Focused Cost Leadership •Ex: BIC: disposable pens and lighters at low cost

value drivers.

Product features, customer service, and complements are all examples of important

strategic position

Profile based on value creation and cost •In a specific product market A valuable and unique position, which: •Meets customer needs •At the highest possible product value •For the lowest possible product cost

Vision and competitive advantage

Research shows that vision statements and firm performance are related. This relationship is strongest when: •The vision is customer-oriented. •Internal stakeholders help define the vision. •Organizational structures align to the vision.

long-term oriented

Strategic commitments are actions that are

competitive advantage

Superior performance relative to other competitors in the same industry or the industry average. Assess competitive advantage: •Compare firm to competitors in the same industry. •Compare firm to industry average.

Vision, mission, and values

The first step in gaining and sustaining a competitive advantage Vision: •What do we want to accomplish ultimately? Mission: •How do we accomplish our goals? Values: •What commitments do we make, and what guardrails do we put in place, to act both legally and ethically as we pursue our vision and mission?

define a firm's vision, mission, and values.

The first step to gain and sustain a competitive advantage is to

Strategy

To achieve superior performance, companies compete for resources: •New ventures: financial and human capital •Existing companies: profitable growth •Charities: donations •Universities: the best students and professors •Sports teams: championships Celebrities: media attention

competitive disadvantage

Underperformance relative to other firms in the same industry or the industry average results in a(n) ________ for a firm.

differentiation strategy

Unique features that increase value •Consumers pay a higher price The focus of competition: •Unique product features •Service •New product launches •Marketing and promotion Competitive advantage achieved when: •Value - Cost > competitors

the increase in value crea"on exceeds the increase in costs.

Value drivers contribute to a firm's competitive advantage only if

stuck in the middle

When a blue ocean strategy goes bad, a firm has neither a clear differentiation nor a clear cost- leadership profile. This situation is referred to as

the tension between value creation and the pressure to keep costs in check

Which of the following best describes a strategic trade-off?

a set of coherent actions to implement the firm's guiding policy

Which of the following is an element of good strategy?

Economies of scale

_______ is best described as decreases in cost per unit as output increases.

Strategy

________ is best described as a set of goal-directed ac"ons a firm takes to gain and sustain superior performance rela"ve to compe"tors.

Minimum efficient scale

________ is best described as the output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost posi"on that is achievable through economies of scale.

competitive disadvantage

a firm that underperforms its rivals or the industry average

strategic positioning

a unique position within an industry that allows the firm to provide value to customer, while controlling cost. V - C = Economic contribution

Customer-oriented vision statements

allow companies to adapt to changing environments . •Focus employees on problem solving for the customer

Strategy

is best described as a set of goal-directed ac"ons a firm takes to gain and sustain superior performance rela"ve to compe"tors.

Product oriented vision statements

often constrain this ability. •Focus employees on improving existing products and services

Value drivers

product features, customer service, complements

a unique strategic position

the key to successful strategy: requires combining activities Competitive advantage has to come from: •Performing different activities or •Performing the same activities differently than rivals

Profitability and market share

the rewards of superior value creation and capture •Tesla: electric vehicles address global warming •Spanx: shapewear changes women's lives •Walmart: lowest prices for customers

Vision

•Captures an organization's aspiration •Identifies the long-term objective •Should be forward-looking and inspiring •An effective vision: •Pervades the organization •Provides a sense of winning •Motivates employees to aim for the same target •Leaving room for individual and team contributions

Broad-market strategies

•Cost leadership •Differentiation •Combination => Provide features attractive to most buyers

Economies of Scale

•Decreases in cost per unit •Achieved as output increases

Diseconomies of Scale:

•Firms too big •Complexities of too much coordination •Inflexible and slow

Narrow-market strategy

•Focus => Provide features attractive to only a few buyers

Cost leaders in an industry

•Many cost leadership strategies •Only one can succeed—cost advantage -Only 1 can be #1 -Must be lowest cost producer to provide lowest prices long term

differentiators in an industry

•Many differentiation strategies •Many can succeed—differentiation advantage -many segments -many unique features possible

focusers in an industry

•Many, many focus strategies •Many can succeed—cost and/or differentiation advantage -large number of niches possible

differentiation or focus - What is the difference?

•Market segmentation

Economies of Scope

•Producing two outputs at less cost •Shares resources or technology

economies of scale

•Spreads fixed costs over a larger output •Employs specialized systems and equipment •Takes advantage of certain physical properties

cost leadership strategy

•Standardized product •Broad appeal •Usually high volume production •Aim for cost advantage •Underprice everyone else •Maintain acceptable quality(competitive parity in differentiation)

differentiation strategy

•Unique product, special feature(s) •Meet different customer needs •Aim for differentiation advantage •(Usually) charge a premium price •Maintain acceptable costs (near competitive parity)

focus strategy

•Very narrow target market (tiny market niche) •Understand target segment well •Tailor product to exact customer needs •Provide both cost and differentiation advantage