Chapter 6 Strategic Management

Savings from producing two outputs at lower cost than producing each output INDIVIDUALLY while using same resources/technology is Economies of ______.

Scope

BUSINESS LEVEL STRATEGY details the actions managers take in their quest for competitive advantage when competing in a ________ product market. "How should we Compete?" (Who, What, Why, How)

Single

Blue Ocean Strategy

Strategy that successfully combines DIFFERENTIATION & COST-LEADERSHIP activities using value innovation to assume the inherent trade offs. EX) Trader Joes over Whole Foods

Most important Cost Drivers for Cost leadership? (4)

(1) Cost of Input factors. (2) Economies of Scale. (3) Learning Curve Effects. (4) Experience Curve Effects.

Risks of Blue Ocean Strategy (2)?

(1) Difficult because Cost Leadership & Differentiation are two completely different strategical positions, so it requires internal value chain activities fundamentally different from each other. (2) Can be "stuck in the middle," not succeeding in either cost leadership or differentiation. EX) Jet Blue

Value Innovation- Ways to Lower Costs via Blue Ocean (2)? IKEA EXAMPLE

(1) ELIMINATE- What factors the industry takes for ganted can be eliminated? EX) Keeping all their products in warehouse setting store, no need for warehouse (2) REDUCE- What factors should be reduced well below industrys standard? EX) do it yourself business model, take home & assemble.

Most important Differentiation Value Drivers (3)?

(1) Product Features, (2) Customer Service, (3) Complements

Blue Ocean Strategy Grants Two Pricing Options... (2)?

(1) allows firm to charge higher price than the cost leader based on higher value creation. (2) Allows a firm to charge lower prices than the differentiator due to lower cost structure, & make up for lost profit margin through increased sales.

Value Innovation - Increase Perceived Consumer Benefits Via blue ocean (2) IKEA EXAMPLE

(1)RAISE- Which factors should be raised well above industry's standard? EX) Offers 300,000 sq ft buildings vs 300 sq ft. (2)CREATE- Which factors should be created that the industry has never offered? EX) allows customers to touch all of the products in the store

Strategic Position

A firms strategic profile based on value creation & cost, determined by the firms business level strategy.

Telsa Motors, the maker of all electric cars offers a highly differentiated product & pursues a small market segment. this is an example of a _______ Differentiation strategy.

Focused

Differentiation Strategy: Understanding Value Drivers

Adding difficult to imitate features that will increase the perceived value of goods to increase customer willingness to pay higher price.

Experience Curve Effects

Change/Innovate new technology, while keeping the same output consistent

Managers must define the Scope of ________, which is the size of the market which they are competing. Narrow=focused, Broad=Generic. EX) GM implements multi-divisional strategy, having Chevy offer cheap cars=Broad cost leadership. Cadillac=broad differentiation strategy.

Competition

Economies of Scale

Decreases in cost per unit as output increases. This happens through (1) spreading fixed costs over larger output, (2) employ specialized systems & equipment, (3) take advantage of certain physical properties.

A Generic__________ strategy creates higher value for customers than that of the competition. Delivers products with unique features while keeping costs at similar levels with competition.

Differentiation

INCREASES in cost per unit when output increases is __________ of scale. When firms get too big, the complexity of managing raises the cost, negating any benefits to scale.

Diseconomies

BIC pursues a _______ cost leadership strategy, designing disposable pens at a low cost.

Focused

Learning Curve Effects

Increased output over time, while using the same technology drops unit cost. (learning by doing)

Competitive Advantage Business Strategy is determined jointly by ______ & _______ effects.

Industry, Firm

To succeed in Blue Ocean Strategy, a firm must offer Value ________. Simultaneously offering perceived higher value, while lowering costs at the same time. Makes competition irrelevant by the incredible value.

Innovation

A Generic Cost _______ strategy creates 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 customers.

Leadership

Minimum Efficient Scale

Output range needed to bring down cost/unit as much as possible, allowing a firm to charge lowest prices possible via economies of scale. EX) with more than 6 million prius cars sold since 1997, toyota has been able to reach this as per unit cost curve.

Cost Leadership Strategy: Understanding Cost Drivers

Reducing the firm's costs below that of its competitors while adding value by focusing attention on resources & reducing costs for customers.

Red Oceans (bad)

Rivalry among firms is cut throat b/c the market is crowded. Products become commodities, competition is focused only on price.

A Cost leader can achieve a competitive advantage as long as its economic ______ created is greater than that of its competition.

Value

Choices between a ______ or _______ position to address the need for managers to add value creation, while keeping their profit margins in check are STRATEGIC TRADE-OFFS

Value, Cost

Cost of Input Factors

raw materials, capital, labor.