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124 Cards in this Set

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What decision has eroded the attractiveness of their industries and undermined their own competitive advantages?
A company assuming that the internet changes everything, rendering all the old rules about companies and competition obsolete.
How has many companies forteited important proprietary advanges?
By rushing into misguided partnerships and outsourcing relationships.
What is a powerful set of tools that can be used, wisely or unwisely, in almost any industry and as part of almost any strategy?
The internet
The internet is not a blessing because it tends to alter ______ ____________ in ways that dampen overall profitability, and has a leveling effect on ________ ________, reducing the ability of any company to establish an ___________ _________ that can be sustained.
Industry structures
business practices
operational advantage
What do companies need to do to succeed using the internet?
Use the internet as a complement to traditional ways of competing.
Does the internet make strategy more or less essential now?
More essential
Companies that have deployed internet technology have been confused by _________ ______ _______, often of their own creation.
distorted market signals
Buyers have been able to buy goods at heavy discount, or even free, rather than pay prices that _______ ____ _____.
reflect true cost
How many reasons are there for the market signals to be distorted?
3
What is 1 reasons that industries where internet technology is widely used, have distorted signals?
Because buyers can buy goods at low prices.. this makes them artificially low, unit demand becomes artificially high.
How does curiosity make sales figures unreliable?
They are drawn to the internet out of curiosity and have been willing to conduct transactions or on-line even when the benefits have been uncertain or limited.
Why else has sales figures been unreliable for internet technology?
Some "revenues" from on-line commerce have been received in the form of stock rather than cash. The sustainability of such revenue is questionable and its true value hinges on fluctuations in stock prices.
What 2 broad conclusions can be drawn from looking at results of the impact on businsess of the internet?
1.Many businesses active on the interet are artificial businesses competing by artificial means and propped up by capital that until recently had been readily available.
2. In periods of transition such as the one we have been going through, it often appears as if there are new rules of competition. But the old rules regain their currency; the creation of true economic value once again becomes the final arbiter of business success.
What is economic value for a company?
The gap between price and cost.
How is economic value for a company reliabily measured?
Sustained profitability
How can the internet be used to create economic value?
2 fundamental factors that determine profitability;
---industry structure, which determines the profitability of the average competitor.
---sustainable competitive advantage, which allows a company to outperform the average competitor.
Why do companies compete?
To make a profit and to gain and sustain a competitive advantage
Are the two underlying drivers of profitability universal?
yes
Industry structure determines the profitability of the average competitor?
True or False
True
What allows a company to outperform the average competitor?
Sustainable competitive advantage.
Where has the internet had its greatest impact felt at?
It enabled the reconfiguration of existing industries that had been constrained by high costs for communicating, gathering info, or accomplishing transactions.
How many forces determine an industry's attractiveness?
5
What is one sorce that helps determine if an industry is attractive or not?
Intensity of rivalry among existing competitors
What is one sorce that helps determine if an industry is attractive or not?
Barriers to entry for new competitors
What is one sorce that helps determine if an industry is attractive or not?
Threat of substitute products or services
What is one sorce that helps determine if an industry is attractive or not?
The bargaining power of suppliers
What is one sorce that helps determine if an industry is attractive or not?
The bargaining power of buyers
What is a value chain?
A model that describes a series of value-adding activities connecting a company's supply side with its demand side
What is gained by analyzing the stages of a value chain?
Managers haave been able to redesign their internal and external processes to improve efficiency and effectiveness.
The value chain model treats___________ as a supporting element of the ____________ process, not as a ______ of value itself.
information
value-adding
source
How did FedEx create value and extra loyalty for its customers?
With information (free tracking system of packages)
How many steps are needed to create value in a virtual value chain?
5 sequential steps
What are the sequential five activities that must be followed to create value in a virtual value chain?
1. Gathering
2. Organizing
3. Selecting
4. Synthesizing
5. Distributing information
What does operational effectiveness mean?
Performing similar activities better than rivals perform them.
Does operational effectiveness include efficiency?
yes
Is operational effectiveness limited to efficiency?
no
What is strategic positioning?
Performing different activities from rivals OR performing similar activities in different ways.
Why are differences in operational effectiveness so important to companies?
It is an important source of differences in profitability among competitors because they directly affect relative cost positions and levels of differentiation.
What is productivity frontier?
It is a frontier that is constantly shifting outward as new technologies and management approaches are developed and as new inputs become available.
Is a productivity frontier static?
No. The frontier is constantly shifting outward as new technologies and management approaches are developed and as new inputs become available.
What is operational effectiveness?
Performing similar activies better than rivals perform them.
OE includes but is not limited to efficiency. True or False?
True
What is the productivity frontier?
The sum of all existing best practices at any given time or the maximum value that a company can create at a given cost, using the best available technologies, skills, management techniques, and purchased inputs.
When a company improves its operational effectiveness does it move towards the productivity frontier?
Yes
Is competition based on operational effectiveness alone mutually destructive?
Why?
Yes.
It leads to wars of attrition that can be arrested only by limiting competition.
Can only OE be practiced by itself over an extended period of time?
Why or Why Not?
No.
Because competitors are quickly able to imitate best practices like management techniques, new technologies, input improvements, etc.
OE competition shifts the frontier outward and effectively raises the bar for everyone.
What competition only produces absolute improvement in operational effectiveness and no relative improvement for anyone?
Operational effectiveness practiced by itself.
What is necessary to achieve superior profitability?
Constant improvement in operational effectiveness.
Give an example of how OE practiced by itself is self- destructive for a company.
3 major players in the printing industry all doing the same actions to improve their OE, but the resulting major productivity gains are captured by customers and equipment suppliers.
If OE is practiced by itself what happens to profit margins?
They fall because of competition and face diminishing returns, zero-sum competition, static or declining prices, and pressures on costs that compromise companies’ ability to invest in the business for the long term.
What is another reason that operational effectiveness is insufficient to maintain a company?
Competitive convergence.
What is competitive convergence?
The rivals that outsource activities to efficient third parties, often being the same ones, the more generic those activities become.
When rivals imitate one another's improvements in quality, cycle times, or supplier partnerships what happens?
Strategies converge and competition becomes a series of races doewn identical paths that no one can win.
What is competitive strategy about?
Being different.
What does deliberately choosing a different set of activities to deliver a unique mix of values mean?
Competitive strategy is being used.
What is the essence of strategy?
It is in the activities - choosing to perform activities differently or to perform different activities than rivals.
Strategic positions emerge from _____ sources, which are not ________ _________ and often _______.
Three
mutually exclusive
overlap
Strategic positions emerge from three sources. Name them.
Variety-based positioning
Needs-based positioning
Access-based positioning
What source is based on the choice of product or service varieties rather than customer segments.
Variety-based positioning
Variety-based positioning produces a subset of an industry’s products or services.
True or False?
True
It is economically feasibly only when a company can best produce particular products or services using distinctive sets of activities.
What strategic source is this?
Variety-based positioning
Needs-based positioning serves most or all the needs of a particular group of customers.
True or False
True
It arises when there are a group of customers with differing needs, and when a tailored set of activities can serve those needs best.
Which strategic position source does this apply to?
Needs-based positioning
Needs-based positioning is based on _________ a segment of customers.
Targeting
Access-based positioning: Segmenting customers who are accessible in different ways.
True or False?
True
With access-based positioning customers needs are _______ to those of other customers, the best configuration of activities to reach them is _________.
similar
different
Access can be a function of customer geography or customer scale or of anything that requires a different set of activities to reach customers in the best way.
Which strategic positioning source is this?
Access-based positioning
Segmenting customers who are accessible in different ways, describes which strategic positioning source?
Needs-based positioning
What is an example of variety-based positioning?
Jiffy Lube International. Only provides auto lubricants and does not offer other car repair or maintenance service.
What is an example of needs-based positioning?
Ikea. It seeks to meet all the home furnishing needs of its target customers, not just a few of them.
What critical element of needs-based positioning is not intuitive and is often overlooked?
Differences in needs will not translate into meaningful positions unless the best set of activities to satisfy them ALSO differs. Otherwise every competitor would meet those same needs, and there would be nothing unique or valuable about the positioning.
Give an example of needs-based positioning.
Private banking.
Bessemer Trust Co targets families with a minimum of $5 million investable assets. The account officer ratio is 1:14 families.
Citibank is cookie-cutter services and serves clients with minimum asses of about $250,000. Their manager-to-client ratio is 1:125.
What can be a function of customer geograph or customer scale - or of anything that requires a differrent set of activities to reach customers in the best way?
Access-based positioning
Give an example of access-based positioning
Rural versus urban-based customers are one example of access driving differences in activities.
Carmike Cinemas serves only places with population under 200,000 people. They maintain profits by keeping a lean cost structure. Technology is less sophisticated, less employees and overhead, more personal attention to customers.
Whatever the basis-variety, needs, access, or some combination of the three-positioning requires a ________ set of activities because it is always a function of ___________ in activities (or differences on the supply side).
tailored
differences
Is positioning always a function of the demand (customer) side?
No
Which two positionings do not rely on any customer differences?
variety and access
What does a trade-off mean?
A trade-off means that more of one thing necessitates less of another.
Sustainable advantage can OR cannot be guaranteed by simply choosing a unique position?
Cannot
What is one of two ways competitors will imitate a valuable position?
A competitor can choose to reposition itself to match the superior performer.
What is another way competitors will imitate a valuable position?
A competitor can seek to match the benefits of a successful position while maintaining its existing position (known as straddling).
In order for a strategic position to be sustainable there must be _____-____with other positions
Trade-offs
Trade-offs occur when activities are incompatible.
True or False
True
How many reasons do trade-offs arise for?
3
Trade-offs occur when activities are incompatible.
Name one type.
A company known for delivering one kind of value may lack credibility and confuse customers or undermine its own reputation by delivering another kind of value or attempting to deliver two inconsistent things at the same time.
Trade-offs occur when activities are incompatible.
Name one type.
Trade-offs arise from activities themselves. Different positions require different product configurations, different equipment, different employee behavior, different skills, and different management systems. In general, value is destroyed if an activity is over designed or under designed.
Trade-offs occur when activities are incompatible.
Name one type.
Trade-offs arise from limits on internal coordination and control. By choosing to compete in one way and not the other, management is making its organizational priorities clear. In contrast, companies that try to be all things to all customers, often risk confusion amongst its employees, who then attempt to make day-to-day operating decisions without a clear framework.
What is an example of a company trying to deliver two inconsistent things at the same time?
Ivory soap, with its position as a basic, inexpensive everyday soap trying to match Neutrogena's premium "medical" reputation.
Trade-offs arise from activities themselves. How?
Different positions with tailored activites require different; product configuration, equipment, employee behaviour, skills, and management systems.
Do trade-offs reflect inflexibilities in machinery, people, or systems?
yes
What is an example of an inflexible trade-off.
Ikea. It has configured its activities to lower costs by having its customers do their own assembly and delivery, the less able to satisfy customers who require higher levels of service.
Do trade-offs arise from limits on internal coordination and control?
Yes, by clearly choosing to compete in one way and not another, senior management makes organizational priorities clear.
Do companies that try to be all things to all customers have confusing or clear priorities?
Confusing. Because this might lead to confusion as employees attempt to make day-to-day operating decisions without a clear framework.
Do trade-offs create the need for choice and protect against repositioners and straddlers?
Yes
________ can also be defined as making in _____-____ competing.
Strategy
trade-offs
Are positioning trade-offs essential to strataegy?
Yes
They create a need for choice and purposefully limit what a company offers.
What is an example of straddling?
When US Airways tried using the concept of Southwest and serving both the low cost market while maintaining their full-service market.
Is quality always free?
No
False trade-offs between cost and quality occur primarily why?
When there is redundant or wasted effort, poor control or accuracy, or weak coordination.
When can simultaneous improvement of cost and differentiation be possible?
Only when a company begins far behind the productivity frontier OR when the frontier shifts outward.
Where are companies at when they have achieved current best practices?
At the frontier. The trade-off between cost and differentiation is very real.
As managers improve operational effectiveness, they have internalized the idea of what?
That eliminating trade-offs is a good thing.
Can companies achieve a sustainable advantage with no trade-offs?
NO
They will have to run faster and faster just to stay in place.
Do trade-offs add a new dimension to strategies?
Yes
Strategy is making trade-offs in competing.
True or False
True
The essence of strategy is choosing what ___ to do.
Not
Without trade-offs, there would be no need for ______ and thus no need for ________.
choice
strategy.
Any good idea could and would be quickly imitated and performance would depend wholly on OE would happen if..
What?
Trade-offs were not made so no choices would be needed and no strategy.
Positioning choices determine not only which activities a company will perform and how it will configure individual activities but also how activities relate to one another.
True or False
True
While operational effectiveness focuses on individual activities, what does strategy concentrate on?
strategy concentrates on combining activities.
Fit is the central component of competitive advantage because... why?
discrete activities often affect one another.
When a companie's activities complement one another in ways that create real economic value it shows they have what?
Good strategies.
When one activity's cost is lowered because of the way other activities are performed. Similarly, one activity's value to customers can be enhanced by a company's other activities. What is this?
This is the way strategic fit creates competitive advantage and superior profitability.
Fit locks out _________ by creating a chain that is as strong as its _________ link.
imitators
strongest
Why is fit important?
Because discrete activities often affect one another.
What is a far more central component of competitive advantage?
Fit
What is the most valuable type of fit and why?
Strategy-specific because it enhances a position’s uniqueness and amplifies trade-offs.
Can fit be generic and apply to many companies?
Yes
There are _____ types of fit, which are ___ ________ exclusive.
three
not mutually
What is the first-order fit?
Simple consistency between each activity (function) and the overall strategy.
___________ ensures that the competitive advantages of activities cumulate and do not erode or cancel themselves out. Further, consistency makes it easier to ___________ the strategy to customers, employees, and shareholders, and improves ______________ through single-mindedness in the corporation.
Consistency
communicate
implementation
When does the second-order fit occur?
When activities are reinforcing.
What is optimization of effort according to Porter?
Coordination and information exchange across activities to eliminate redundancy and minimize wasted effort are the most basic types of effort optimization.
Third-order fit: Goes beyond ______ reinforcement to what Porter refers to as ____________ of effort.
activity
optimization