Chapter 12

a company may be able to charge ______ prices for customized products because of the perceived value add

higher prices

in order to add value, production activities should result in the creation of higher-_______ products

higher-quality

to maximize the value of a firm, managers must pursue strategies that

increase the profitability of the enterprise and its rate of profit growth over time

in ways not available to purely domestic enterprises, expanding globally allows firms to:

increase their profitability and rate of growth

the three functions of support activities

information systems, company infrastructure logistics, and human resources

the difference between the 110-volt electrical system used in north america and the 240-volt system used in some european countries is an example of how ______ differences create pressure for local responsiveness

infrastructure differences

for many years, xerox had a monopoly on photocopiers. it could sell world-wide with little customization. xerox was able to use an ________ strategy

international strategy

in order to differentiate itself from the competition, ikea focuses on increasing the attractiveness or products by lowering costs. this demonstrates ikea's _________ strategy

low-cost strategy

a transnational strategy assists a business in what three ways

lowering costs, differentiating products, and transferring skills between different subsidiaries

production of physical products, like trucks, is called

manufacturing

value creation activities (operations) can be broken into two categories:

primary activities AND support activities

a business _________ is the manner in which decisions are made in a company

process

core competencies are typically expressed in ______ that other firms find difficult to match or imitate

product offerings

what are three examples of information systems used to support the value chain

product pricing, inventory management, and sales tracking

two factors that contribute to enterprise valuation

profitability AND profit growth

incentives

the devices used to reward appropriate managerial behavior -Incentives are very closely tied to performance metrics. For example, the incentives of a manager in charge of a national operating subsidiary might be linked to the performance of that company. Specifically, she might receive a bonus if her subsidiary exceeds its performance targets.

the production divisions within a company, the location of a company's decision-making responsibilities, and the establishment of integrating mechanisms all make up the organizational _______ of a company

structure

information system, a ________ activity, can track sales and price products, thereby helping the firm to gain a more competitive advantage

support activity

the worldwide acceptance of mcdonald's hamburgers, coca-cola, and apple iphones ______ claims of increasing homogeneity in the global marketplace

supports

experience curve

systematic production cost reductions that occur over the life of a product // reductions in production costs that have been observed to occur over the life of a product -A number of studies have observed that a product's production costs decline by some quantity about each time cumulative output doubles

what are the two ways a firm creates value

-commanding a higher price -lowering the cost of production

what are two reasons a business should follow an international strategy

-it does not face cost pressures to customize a product based on local preferences -it does not face cost pressures

how does the human resource function create value for a firm

-it ensures the company has the right mix of skilled people -it ensures that people are adequately trained, motivated, and compensated -it can boost the competitive position of the firm

how can a firm create more value

-make product more attractive to consumer -lower production costs

what are three ways becoming a multinational company can increase a firm's profitability

-realize location economies -expand the market for their domestic product -realize greater cost economies

when should a localization strategy be used

-when there are large differences across nations in tastes and preferences -when cost pressures are not intense

firms that operate internationally are able to:

1. Expand the market for their domestic product offerings by selling those products in international markets. 2. Realize location economies by dispersing individual value creation activities to those locations around the globe where they can be performed most efficiently and effectively. 3. Realize greater cost economies from experience effects by serving an expanded global market from a central location, thereby reducing the costs of value creation. 4. Earn a greater return by leveraging any valuable skills developed in foreign operations and transferring them to other entities within the firm's global network of operations.

to maximize its profitability, a firm must do three things:

1. pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice 2. configure its internal operations, such as manufacturing, marketing, logistics, information systems, human resources, and so on, so that they support that position 3. make sure that the firm has the right organizational structure in place to execute its strategy

true or false: based on the basic strategy paradigm, in order to maximize its profitability, a firm can invest in any of the positions found on the efficiency frontier

FALSE

true or false: competitive pressures are present if a firm produces a specialty product that can be easily differentiated by non-price factors

FALSE

subsidiary

a company that is owned or controlled by another company, which is called the parent company. in some cases it's a government or state-owned enterprise

global standardization strategy

a firm focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies

profitability

a ratio or rate of return concept

differentiation strategy

a strategy that focuses primarily on increasing the attractiveness of a product

low-cost strategy

a strategy that focuses primarily on lowering production costs

regionalism

a tendency toward the convergence of tastes, preferences, infrastructure, distribution channels, and host-government demands within a broader region that is composed of two or more nations -we tend to see this when there are strong pressures for convergence due to, for example, a shared history and culture or the establishment of a trading block where there are deliberate attempts to harmonize trade policies, infrastructure, and the like

strategy

actions that managers take to attain the goals of the firm -most of the time the preeminent goal is to maximize the value of the firm for its owners, its shareholders (subject to the constraint that this is done in a legal, ethical, and socially responsible manner)

which three sales and marketing functions can help a firm create value

advertising, brand positioning, and consumer assessments

what is one conflict firms can face in the global marketplace

balancing cost reductions and the need to be locally responsive

two factors that contribute to pressure for companies to reduce costs if they want to compete globally include

competitors that are based in low-cost locations AND persistent excess capacity

managers use ______ to analyze data about how the business and its employees are functioning in order to make appropriate administrative decisions

controls

strategic alliances

cooperative agreements between potential or actual competitors

location economies

cost advantages from performing a value creation activity at the optimal location for that activity

learning effects

cost savings from learning by doing -Equally important in new production facilities, management typically learns how to manage the new operation more efficiently over time. Hence, production costs decline due to increasing labor productivity and management efficiency, which increases the firm's profitability.

organizational ______ are the values and behaviors that contribute to the unique social and psychological environment of an organization

culture

the primary activities in the value chain are R&D, production, marketing and sales, and _______

customer service

primary activities involve

design, creation, and delivery of the product; its marketing; and its support and after-sale service

company b has improved the look, design, and speed of its cell phone, attempting to make it more attractive to consumers. this is an example of a ________ strategy

differentiation strategy

when more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs, _______ has/have been achieved

economies of scale

the _____ frontier is the name given to all of the different decisions a firm can make regarding adding value and lowering product cost

efficiency frontier

the _____ of value creation activities occurs when different stages of the value chain are performed in a variety of world-wide locations, based on maximizing value and/or minimizing costs

global web

the firm's after-sale service and support comprise its _____ activity

enterprise activity

a commodity's production costs tend to decline over time. this is referred to as the _____ curve

experience

transnational strategy

firms are trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects; differentiate their product offering across geographic markets to account for local differences; and foster a multidirectional flow of skills between different subsidiaries in the firm's global network of operations

localization strategy

focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national or regional markets

pursuing a low-cost strategy on a global scale that comes from economies of scale, learning effects, and location economies is a _______ strategy

global standardization strategy

how can logistics help create more value for a firm

logistics allow the transmission of physical materials to be done more efficiently and, therefore, lowers costs

what is the result when a company efficiently uses logistics?

it can significantly reduce costs

a firm has high profits when

it creates more value for its customers and does so at a lower cost

__________ refers to the cost savings that result from learning by doing such as when an assembly line operator learns to do their job more efficiently

learning effects

______ is the practice of adjusting a product's functional properties and characteristics to accommodate the language, cultural, political, and legal differences of a foreign market or country

localization

when competition intensifies, a ______ strategy becomes less viable for a company to pursure

localization strategy (the company will instead want to pursue a global standardization or a transnational strategy)

what is the term for the economies that result from a business undertaking a value creation activity in the optimal locality

location economies

organizational structure

means three things: 1. the formal division of the organization into subunits such as product divisions, national operations, and functions (most organizational charts display this aspect of structure) 2. the location of decision-making responsibilities within that structure (ex. centralized or decentralized) 3. the establishment of integrating mechanisms to coordinate the activities of subunits including cross-functional teams and or pan-regional committies

if company h has a culture that values diversity, its employee pool should consist of a ______. this is an example of the interdependence of the elements of organizational architecture

mix of races, ages, and sexes

universal needs

needs that are the same all over the world, such as steel, bulk chemicals, and industrial electronics

the different value creation activities that a company undertakes comprises its

operations

the totality of a firm's organization can be referred to as organizational _________

organization architecture

value creation

performing activities that increase the value of goods or services to consumers

in general, which industry is often subject to a high level of local responsiveness as a result of host government demands

pharmaceuticals

a transnational strategy is NOT easy to pursue because it _______

places conflicting demands on the company

factors that contribute to profitability

reduce costs and add value/raise prices

R&D means

research and development

bank nuela has recently created a new smart debit card. this new product was the result of which primary activity

research and development

the design of products and production processes is called

research and development

the four functions of primary activities:

research and development, production, marketing and sales, and customer service

factors that contribute to profit growth

sell more in existing markets and enter new markets

which statement about customer tastes and preferences is accurate

significant differences in consumer preferences still exist across nations and regions

core competence (core competency)

skills within the firm that competitors cannot easily match or imitate -These skills may exist in any of the firm's value creation activities: production, marketing, R&D, human resources, logistics, general management, and so on. Such skills are typically expressed in product offerings that other firms find difficult to match or imitate.

decisions and actions that managers take to meet the company's goals are known as _______

strategy

which three elements must all be consistent with each other for superior organizational performance to be attained

strategy, market conditions, and operations

the operations of a firm means

the different value creation activities a firm undertakes

people

the employees of the organization but also the strategy used to recruit, compensate, and retain those individuals and the type of people that they are in terms of their skills, values, and orientation

the rise of regionalism is particularly evident in

the european union

processes

the manner in which decisions are made and work is performed within the organization -Processes are conceptually distinct from the location of decision-making responsibilities within an organization, although both involve decisions. While the CEO might have ultimate responsibility for deciding what the strategy of the firm should be (i.e., the decision-making responsibility is centralized), the process he or she uses to make that decision might include the solicitation of ideas and criticism from lower-level managers.

controls

the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits

organizational culture

the norms and value systems that are shared among the employees of an organization -Organizations are societies of individuals who come together to perform collective tasks. They have their own distinctive patterns of culture and subculture. As we shall see, organizational culture can have a profound impact on how a firm performs.

profit growth

the percentage increase in net profits over time

economies of scale

the reductions of unit cost achieved by producing a large volume of a product // cost advantages associated with large-scale production -Attaining economies of scale lowers a firm's unit costs and increases its profitability

to attain a competitive advantage and garner superior profitability, ____________ of the firm must all be consistent with each other

the strategy, operations, and organization of the firm must all be consistent with each other

information systems are

the systems that refer to the electronic systems for managing inventory, tracking sales, pricing products, selling products, dealing with customer service inquiries, and so on -Information systems, when coupled with the communications features of the Internet, can alter the efficiency and effectiveness with which a firm manages its other value creation activities

organization architecture

the totality of a firm's organization, including formal organizational structure, control systems and incentives, organizational culture, processes, and people

the logistics function controls...

the transmission of physical materials through the value chain, from procurement through production and into distribution -The efficiency with which this is carried out can significantly reduce cost (lower C), thereby creating more value.

operations

the various value creation activities a firm undertakes -includes production, marketing and sales, materials management, research and development, human resources, information systems, and the firm infrastructure

the basic infrastructure of a company includes the organizational structure, control systems, and the culture of the firm. what other factors should also be included in this basic infrastructure

top management

a business like Caterpillar, should follow the ______ strategy because it is under pressure to reduce costs and be locally responsive

transnational strategy

true or false: to survive increasing competition, multinational firms may need to shift from an international to a transnational strategy

true!

international strategy

trying to create value by transferring core competencies to foreign markets where indigenous competitors lack those competencies it involves taking products first produced for their domestic market and selling them internationally with only minimal local customization

consumers demonstrate ______ needs when the preferences of people in different countries are similar, if not exactly the same

universal needs

global web

when different stages of value chain are dispersed to those locations around the globe where value added is maximized or where costs of value creation are minimized