4750 Exam 2
What does overall cost leadership require?
Aggressive construction of efficient scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control
Maturity stage
Aggregate industry demand slows, market becomes saturated, direct competition becomes predominant, marginal competitors exit
What are the four major entrepreneurial resources?
Financial, human capital, social capital, and government resources
How does the Focus strategy work?
Firm selects a segment and tailors its strategy to serve them to gain competitive advantage
Achieving Competitive Advantage in Global Markets by:
Reducing costs and adapting to local markets
Synergy
Related businesses sharing resources like manufacturing facilities, patents, copyrights, and skills
Dispersed approach to corporate entrepreneurship
Dedication to the principle and practices of entrepreneurship is spread throughout the organization
Broad differentiation strategy has:
A broad target market and a superior perceived value by customer
Overall cost leadership has:
A broad target market and low cost position
Differentiation requires:
A level of cost parity relative to competitors
Differentiation focus strategy has:
A narrow target market and a superior perceived value by customer
Cost focus strategy has:
A narrow target market and low cost position
Corporate level strategy
A plan that indicates in which industries and national markets an organization intends to compete
Entrepreneurship
An act of innovation that involves endowing existing resources with new wealth-producing capacity
Vertical Integration
An expansion of the firm by integrating preceding or successive production processes
What motivates a company for international expansion?
An increase in size of potential market, to enhance a product's growth potential, and to optimize physical location
Later-stage financing
Angel investors, venture capital (equity financing) and commercial banks
What are the four qualities of viable opportunities?
Attractive, achievable, durable, and value creating
The five Demensions of entrepreneurial orientation:
Autonomy, innovativeness, proactiveness, competitive aggressiveness, risk taking
Corporate restructuring
Buy another company, restructure its assets to allow it to operate more profitably and then resell it
How does economies of scale lower costs?1
By spreading fixed costs or specializing
Global strategy
Can reduce costs by taking full advantage of economies of scale
Phillip Morris bought Miller Brewing and used its marketing expertise to improve Miller's market share. This justification for diversification is best described as:
Capitalizing on core competencies
Asset restructuring
Change in scale of unproductive assets
Mangement restructuring
Changes in top management team
Capital restructuring
Changing debt equity mix
Who has the largest population?
China
Transnational strategy risks
Choice of a seemingly optimal location cannot guarantee that the quality and cost will be optimal
Blue ocean vs. Red ocean strategy
Companies that are willing to venture into market spaces where there is little or no competition (blue ocean) will outperform those who limit growth to incremental improvements in competitively crowded industries (red oceans)
Where: Corporate strategy
Comprises the decisions and goal-directed actions in the quest for competitive advantage in several industries simutaniously
Two variants of focus strategy
Cost focus and differentiation focus
Which generic strategy is usually associated with the discount retailers such as Wal-Mart?
Cost leadership
Multidomestic strategy
Cost of reduction pressure is low, high pressure for adapting to local markets
Two payoffs for sharing activities:
Cost savings and Revenue enhancements
Economies of scope
Cost savings from leveraging core competencies or sharing related activities
Multidomestic strategy risks
Cost structure increase
Cost focus
Creates a cost advantage in target market segment
Differentiation strategy
Creates products that are unique and valued with non-price attributes that customers will pay a premium
Pioneering new entry
Creating new ways to solve old problems Meeting customer's needs in a unique new way
Corporate parenting
Creating value within business units through support and experience/ expertise of the corporate office
Internal development strategies
Develop everything from scratch: time consuming and uncertain
International strategy risks and challenges
Different activities in the value chain have different optimal locations, the lack of local responsiveness may result in alienation
Differentiation focus
Differentiate in the target market segment
Merger and acquisition strategies
Directly acquire other firm's assets: expensive and quick
Portfolio management
Each circle represents one of the firm's business units, the size represents relative size of business unit in terms of revenue
What are the five sources of cost advantage?
Economies of scale, learning and experience, input costs, efficient internal operations, and policy choice
What two ways do firms create value through diversification?
Economies of scope and market power
Product innovation:
Efforts to create products of technology to develop new products for end users, early stages of industry life cycle
New venture creation
Entrepreneurship in the context of a team of entrepreneurs launching a new business
Which generic strategy concentrates an organization's effort on a narrowly defined market to achieve either a cost leadership or differentiation strategy?
Focus Strategy
diamond of national advantage
Four conditions are important for gaining and maintaining competitive superiority: Factor conditions. Demand conditions. Related and supporting industries. Firm strategy, structure, and rivalry.
new venture groups
Goal is to identify, evaluate, and cultivate venture opportunities Typically function as semi-autonomous units with little formal structure
What may restrict market power?
Government regulations
Why might some companies have lower input costs?
Greater bargaining power over suppliers or labor, superior cooperation with suppliers, or sourcing from low-cost locations
What questions should a firm answer when defining the strategic envelope?
How much will it cost How likely is it to actually become viable How much value will it add What will be learned if this doesn't pan out
How: Business strategy
How to compete in a single product market
What is the most important asset of an entrepreneurial firm?
Human capital
Process innovation
Improving of some aspect of a process, later stages of industry life cycle
Risks of vertical integration
Increase in costs Reduction in quality Reduction in flexibility Increase in the potential for legal repercussions
Differentiation
Increases the perceived value and uniqueness of the firm's product
Who has the second largest population?
India
Decline stage
Industry sales and profits fall, price competition increases, industry consolidation occurs
What are the key dimensions of entrepreneurship?
Innovativeness, proactiveness, and risk propensity
Imitative new entry
Introducing the same basic product or service in another segment of the market
What are the four stages of the industry life cycle?
Introduction, growth, maturity, and decline
Global strategy challenges and risks
Leads to higher transportation and tariff costs, activity is isolated, the firm becomes dependent on location
Economies of scope can be achieved by:
Leveraging core competencies and sharing activities
Firm strategy, structure, and rivalry
Local rules and incentives that encourage investment and productivity, lots of competition
Incremental innovation pace
May be six to two years and use a milestone approach
What are the means to achieve diversification?
Merger and acquisition, internal development, and joint ventures
3 Core Competencies criteria
Must enhance competitive advantage by creating superior customer value, different businesses must be similar, must be difficult to imitate
Focus strategy
Narrow product lines, buyer segments, or targeted geographic markets and attain advantages through differentiation or cost leadership
Entrepreneurship is also called the:
New Value Creation
Horizontal and hierarchy relationships are:
Not mutually exclusive
A firm following an overall cost leadership position must:
Obtain parity on the basis of differentiation relative of competitors
Adaptive new entry
Offer product or service that is "somewhat new and different"
Opportunity Analysis Framework involves a cycle of:
Opportunity, resources, and entrepreneurs
Transnational strategy
Optimization of tradeoffs associated with efficiency, local adaptation, and learning Firm's assets and capabilities are dispersed according to the most beneficial location for a specific activity
Discovery phase
Period when you first become aware of a new business concept
Parity on the basis of differentiation
Permits a cost leader to translate cost advantage into higher profits and allows firm to earn above-average profits
What are the three entry strategies?
Pioneering, imitative, and adaptive
Potential risks of international expansion
Political, currency, and management risks
Joint ventures strategies
Pool resources from other firms with a firm's own research: good for risk sharing, good choice of foreign expansion
Achieving synergy through market power:
Pooled negotiating power and vertical integration
International strategy
Pressure for both adaptation and low costs are low, all sources are centralized
What are the two opposing pressures in Global market
Pressure for cost reductions and Pressure for local responsiveness
Introduction Stage
Products are unfamiliar, market segments are not well defined, limited competition
Business incubators
Provide 5 functions: funding, physical space, business services, mentoring, and networking
Who has the greatest land mass?
Russia
Challenges of innovation
Seeds vs weeds, experience vs initiative, internal vs external staffing, building capabilities vs collaborating, incremental vs preemptive launch
Pooled negotiating power can be strengthened by:
Similar businesses working together, the affiliation of a business with a strong parent, and consolidating an industry
Demand conditions
Sophisticated and demanding local customers
New value can be created in:
Start-up ventures, major corporations, family-owned businesses, non-profit, established instituations
Growth stage
Strong increase in sales, attractive to potential competitors, build customer preferences
What are the sources of differentiation advantage?
Superior product features, better quality/reliability, convenience, and brand image
In order for a company to gain benefits from diversification they must have:
Synergies (More than one business doing the same thing)
Who has the largest capital market?
The US
Focus is based on:
The choice of a narrow competitive scope within an industry
Pooled negotiating power
The improvement in bargaining position relative to suppliers and customers
Those that do not identify with even a single type of advantage are:
The lowest performers who are "stuck in the middle"
Related supporting industries
The presence of clusters of suppliers, competitors, and skilled workforce instead of isolated firms
Product diversification
The process of firms expanding their operations by entering new businesses
Opportunity recognition
The process of identifying, selecting, and developing potential opportunities
Entrepreneurial orientation
The strategy-making practices that businesses use in identifying and launching corporate ventures
What is the goal of a combination strategy?
To provide unique value in an efficient manor
Radical innovation pace
Typically long term, 10 years, uses an experimentation approach
Three characteristics of entrepreneurial leadership
Vision, dedication, commitment
What four important questions do you need to ask yourself before choosing a mode of entry?
What are the critical resources and capabilities? Are there entry barriers? What is the speed? What is the comparative cost?
Offshoring
When a firm decides to shift and activity that they were previously performing in a domestic location to a foreign location
Outsourcing
When a firm decides to utilize other firms to perform value-creating activities that were previously performed in-house
The strategy formulation centers around key questions of:
Where and how to compete
Overall cost leadership strategy
a company achieves a low-cost position relative to a firm's peers and manages relationships throughout entire value chain
Related diversification
a growth strategy whereby the current target market and/or marketing mix shares something in common with the new opportunity
Restructuring can involve:
changes in assets, capital structure, or management
focused approaches to corporate entrepreneurship
corporate entrepreneurship in which the venturing entity is separated from the other ongoing operations of the firm
Incremental innovation
enhances existing practices or makes small improvements in products and processes
Economies of scale
factors that cause a producer's average cost per unit to fall as output rises
Radical innovation
fundamentally changes nature of competition in an industry; new product, service or technology developed by an organization that completely replaces existing product, service or technology in an industry
Opportunity evaluation phase
involves analyzing an opportunity to determine whether it is viable and strong enough to be developed into a full-fledged new venture.
A firm implements a corporate diversification strategy when:
it operates in multiple industries or markets simultaneously
What are the four sources of new knowledge?
latest technology, results of experiments, creative insights, competitive information
Unrelated diversification
operating several businesses under one ownership that are not related to one another
The Three generic strategies at business level:
overall cost leadership, differentiation, and focus
Early stage financial resources
personal savings, bank financing, public financing, venture capital(debt and equity)
Factor endowments
quality and cost of factors of production
Overall cost leadership
reduce manufacturing and other costs below those of all competitors
Benefits of vertical integration
securing critical supplies, lowering costs, improving quality, facilitating scheduling and planning, facilitating investments in specialized assets
Strategy formulation
the process of choosing among different strategies and altering them to best fit the organization's needs