MGMT 464- Test 2

Economic Value

The relationship between economic value creation and competitive advantage is fundamental in strategic management. For now, it is important to note that a firm has a competitive advantage when it creates more economic value than rival firms. Economic value created is the difference between a buyer's willingness to pay for a product or service and the firm's total cost to produce it. (V-C, where V= Value and C= Cost, also called the economic contribution).

Skim pricing

offers the opportunity to "skim the cream" from the top of the demand curve with a high price while the product is novel and competitors are few

Fixed asset turnover

(Revenue/Fixed assets) measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE)

Perfectly Competitive Model

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Innovation Strategies

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Strategic tradeoffs

A successful integration strategy requires that trade-offs between differentiation and low cost are reconciled. For an integration strategy to succeed, managers must resolve trade-offs between the two generic strategic positions—low cost and differentiation. Other companies are able to conquer this trade-off by using the Internet. To address the trade-offs between differentiation and cost leadership at the business level, managers may leverage quality, economies of scope, innovation, and the firm's structure, culture, and routines. The trade-offs between differentiation and low cost can be addressed either at the business level or at the corporate level.

Isolating mechanisms

Do specific conditions exist—above and beyond core competencies obeying the VRIO attributes—that might help a firm protect and sustain its competitive advantage? Although no competitive advantage can be sustained indefinitely, several conditions can offer some protection to a successful firm by making it more difficult for competitors to imitate the resources, capabilities, or competencies that underlie its competitive advantage: (1) better expectations of future resource value (or simply luck), (2) path dependence, (3) causal ambiguity, and (4) social complexity.25 These barriers to imitation are important examples of isolating mechanisms because they prevent rivals from competing away the advantage a firm may enjoy.26 If one, or any combination, of these isolating mechanisms is present, a firm may strengthen its basis for competitive advantage, increasing its chance to be sustainable over a longer period of time.

Economies of scale and scope and their advantages

Firms with greater market share might be in a position to reap economies of scale, decreases in cost per unit as output increases. What causes per-unit cost to drop as output increases (up to point Q1)? Economies of scale allow firms to: ◾Spread their fixed costs over a larger output. ◾Employ specialized systems and equipment. ◾Take advantage of certain physical properties. The concept economies of scope describes the savings that come from producing two (or more) outputs at less cost than producing each output individually, even though using the same resources and technology.

Follow the sun

Follow-the-sun is a type of global workflow in which tasks are passed around daily between work sites that are many time zones apart. Such a workflow is set up in order to reduce project duration and increase responsiveness. Thus, the work is "following the sun" and never stops.

Receivables turnover

Higher ratios of receivables turnover (Revenue/Accounts receivable) imply more efficient management in collecting accounts receivable and shorter durations of interest-free loans to customers

Dedicated transfer lines

In computer networks and telecommunications, a dedicated line is a communications cable or other facility dedicated to a specific application, in contrast with a shared resource such as the telephone network or the Internet. Like Entergy, dedicated to one thing

Competitive advantage from an investors perspective

Investors are primarily interested in a company's total return to shareholders, which is the return on risk capital, including stock price appreciation plus dividends received over a specific period. A firm's stock price generally increases only if the firm's rate of growth exceeds investors' expectations. This is because investors discount into the present value of the firm's stock price whatever growth rate they foresee in the future. Investors also adjust their expectations over time.

Customer experience

Managers can increase the perceived value of their firms' product or service offerings by focusing on customer service and responsiveness. customers reward it with a willingness to pay a higher price for its environmentally friendly products

Business model types

Razor-Razor-Blade. The initial product is often sold at a loss or given away for free in order to drive demand for complementary goods. The company makes its money on the replacement part needed Subscription-Based. The subscription-based model has been traditionally used for (print) magazines and newspapers. Users pay for access to a product or service whether they use the product or service during the payment term or not. Pay-as-You-Go. In the pay-as-you-go business model, the user pays for only the services he or she consumes. The pay-as-you-go model is most widely used by utilities providing power and water and cell phone service plans, but is gaining momentum in other areas such as rental cars (i.e., Zipcar) and cloud computing. Freemium. The freemium (=free+premium) business model is a model in which the basic features of a product or service are provided free of charge, but the user must pay for premium services such as advanced features or add-ons.

Firm's resource flow

Resource flows - investments to maintain or build a resource

Firm resources tangible vs intangible

Tangible resources have physical attributes and are visible. Examples of tangible resources are labor, capital, land, buildings, plant, equipment, and supplies. Intangible resources have no physical attributes and thus are invisible. Examples of intangible resources are a firm's culture, its knowledge, brand equity, reputation, and intellectual property.

Experience curve

The concept of an experience curve attempts to capture both learning effects and process improvements. In this perspective, economies of learning allow movement down a given learning curve based on current production technology. By moving further down a given learning curve than competitors, a firm can gain a competitive advantage.

Opportunity costs:

The value of the best forgone alternative use of the resources employed

Generic business strategies

There are two fundamentally different generic business strategies—differentiation and cost leadership. Differentiation strategy seeks to create a higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping the firm's cost structure at the same or similar levels. Cost-Leadership Strategy seeks to create 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 its customers.

Core competency

These are unique strengths, embedded deep within a firm. Core competencies allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost.

Value

Value denotes the dollar amount (V) a consumer would attach to a good or service.Value captures a consumer's willingness to pay and is determined by the perceived benefits a good or service provides to the buyer.

Mass customization

a manufacturing type that is quicker and allows for mass customization

Capabilities

are the organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically. Capabilities are by nature intangible. They find their expression in a company's structure, routines, and culture

Triple bottom line

combination of economic, social, and ecological concerns that can lead to a sustainable strategy. ◾Communicate and link the strategic vision to responsible parties within the organization ◾Translate the vision into measureable operational goals ◾Design and plan business processes ◾Implement feedback and organizational learning in order to modify and adapt strategic goals when indicated

Leveraged buyout

company is acquired in a transaction financed largely by debt usually obtained from a third party

Purchasing strategy

deals with obtaining raw materials, parts and supplies needed to perform the operations function Options include: •Sole suppliers (Deming) •Just-in-time •Parallel sourcing

Marketing strategies

deals with pricing, selling and distributing a product(skim pricing, penetration pricing, line extension, push strategy, and pull strategy)

Innovation

describes any new product and process, or any modification of existing ones. Innovation is frequently required to resolve existing trade-offs when companies pursue an integration strategy.

Competitive advantage is more likely to spring from

intangible rather than tangible resources.

Reverse stock split

investor's shares are split in half for the same total amount of money

How does VRIO help in strategic decision making

it is a decision tree to decide if the resource, capability, or competency under consideration fulfills the VRIO requirements. The attributes accumulate. Only if a firm's managers are able to answer "yes" four times to the attributes listed in the decision tree is the resource in question a core competency that underpins a firm's sustainable competitive advantage.

Exploration

searching for new knowledge that may enhance a firm's future performance

Mass customization

the manufacture of a large variety of customized products or services done at a relatively low unit cost.

Firm approaches to technology

•Follow the sun management •Internet •Extranet •Intranet

Pull vs. push strategy

•Push strategy- promotions to gain or hold shelf space in retail outlets •Pull strategy- advertising to "pull" products through the distribution channel

Elements of VRIO framework

•Valuable --Attractive features --Lower costs (& price) --Higher profits ----Honda - design & build engines •Rare --Only a few firms possess --Toyota - lean manufacturing --Temporary competitive advantage •Costly to Imitate --Unable to develop or buy at a reasonable price --Nike - Yes --Crocs - No •Organized to Capture --Exploit competitive potential --Structure --Coordinating systems ----Xerox PARC - No

Dynamic capabilities perspective

◾A firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage ◾Essential to create a sustained competitive advantage ◦A dynamic fit between internal strengths and external opportunities

Balanced scorecard advantages

◾Communicate and link the strategic vision to responsible parties within the organization ◾Translate the vision into measureable operational goals ◾Design and plan business processes ◾Implement feedback and organizational learning in order to modify and adapt strategic goals when indicated

Effective ways to maintain a differentiation strategy

◾Product features ◾Customer service ◾Complements