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81 Cards in this Set
- Front
- Back
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What are two key elements of strategy?
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Competetive advantage
Scope of the business |
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Industries vary __________ in their average level of _________.
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Industries vary systematically in their average level of profitability.
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There si usually as much or more variation in profitability among the _____________ in a given ____________ as their are across ___________.
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There is usually as much or more variation in profitablitiy among the companies in a given industry as there is across industries.
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Firm success is based on three main factors:
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1. Macroeconomic forces
2. Industry forces 3. unique company characteristics |
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What is competative advantage?
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an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.
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Competative advantage is also a condition which enables the company to:
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operate in a more efficient or otherwise higher-quality manner than the companies it competes with, and which result in venefits accruing to that company.
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What determines sustained competetive advantage?
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a strong offense and a strong defense
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What are the components of a strong offense?
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A strong offense attains market superiority and creates a higher economic contribution (V-C)
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What are the components of a strong defense?
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Protects the sources of the market position against rivals, retains customers, and defends agains imitation
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What are three components of the Value-Cost Framework?
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Value, Cost, Effective copetitive positioning
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Describe value as associated with the value-cost framework:
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Willingness to pay: the highest price a customer would be willing to pay for a product in absence of competing product adn in context of other purchasing opportunities
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Describe cost as associated with Value-cost framework:
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marginal cost to produce a unit of the product
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Describe effective competitive positioning as associated with value-cost framework:
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offering more value per unit cost than competitors, consistently over time
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What is the difference between value and price in the value cost framework?
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buyers surplus
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What is buyers surplus
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the difference between value and price in the value cost framework
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What is the difference b/w price and cost in the value cost framework?
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firms profit
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what is the whole Value cost framework?
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The firms economic contribution
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Define resource
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a relatively stable, observable tradable asset owned by the firm that contributes to its performance
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define capability
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a set of activites and policies involving the firms organization adn people executing tasks at a high level of expertise continuously over time.
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What are some examples of a resource?
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a brand or geographical location
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What are some examples of a capability?
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practices leading to superior quality, customer service, new product development
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A resource represents
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inputs into the firms production process.
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What are 4 tangible resource inputs?
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financial
physical techological organizational |
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What are 2 intangible resource inputs?
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human resources
reputation |
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A capability represents:
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the firms capacity or ability to integrate individual firm resources to acheive a desired objective.
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Capabilities lead to a competative advantage to the extent that they are:
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valuable
rare costly to imitate non-substitutable |
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If a capability is valuable:
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it is a capability that either helps a firm to exploit opportunities to create value for customers or to neutralize threats in the environment
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If a capability is rare:
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it is a capability that is possessed by few, if any, current or potiential competitors
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If a capability is costly to imitate it:
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is a a capability that the other firms cannot develop easily, usually due to unique historical conditions, causal amiguity or social complexity
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If a capability is non substitutable it:
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is a capability that does not have strategic equivelents such as firm specific knowledge or trust based relationships
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When should you pursue value investments?
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when a large number of customers are value sensitive
Returns on increasing value are higher than returns on reducing costs |
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When should you pursue cost reductions:
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When marginal customers are price-sensitive
Value improvements are costly difficult or easily duplicated by competitors |
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What are two things to do to defend a competetive advantage?
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Barriers to imitation
Increase customer retention |
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What are four barriers to imitation?
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Property rights
dedicated assets casual ambiguity learning and development costs |
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What are some examples of property rights?
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Patents, trademarks, asset ownership
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What are some examples of dedicated assets?
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Exclusive distributions channels or suppliers
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What is an example of causual ambiguity?
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Difficulty in copying a capability b/c it cannot be modeled effectivley
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What are learning and development costs?
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A cost that is created by sunk costs, complementary practices within the dirm, and history dependent capabilities.
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What are 3 costs associated with increasing customer retention?
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Search Costs
Transition Costs Learning Costs |
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What are search costs?
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High for products whose value is apparent only after experiencing the product - experience goods
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What are transition costs?
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costs associated shifting from old equipment or practices to new
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What are learning costs?
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costs incurred in learning a new process
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Competetive advantage comes from the combination of
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superior market positioning and the ability to defend the position from competition
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Superior market position is based on
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producing more value at lower cost than competitors
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Value and cost drivers are determined by:
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the firms resources and capabilities
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Defending against competitors depends on
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erecting barriers to imitation and retaining customers
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Define network externality
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is a characteristic that causes a good or service to have a value to a potential customer dependent on the number of customers already owning that good or using that service.
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externalities =
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side effects of a transaction
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Define economies of scale:
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a production process inwhich an increase in the number of units produced causes a dcrease in the average cost of each unit.
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Define economies of scope
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related to econ of scale but usually refers to demand-side changes rather than supply side.
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What are some example of economies of SCOPE
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product bundling
family branding |
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competetive advantage is contrained by
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characteristics of the industry
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innovation does not provide competitive advantage if it isi not
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supported by a soldi business model
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define industry
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a group of companies that produce competing products or services
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Competitors
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have products that provide value in functionally equivelent ways.
compete directly in product value and price face the same common factors and interdependence as an industry |
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substitute producers are:
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firms whose product if functionally different from the industry's product but compete to provide value to the same industry buyers.
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5 forces that LOWER a firms performance
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1. strength of competition
2. potential for entry into the industry 3. power of buyers 4. power of suppliers 5. strength of substitutes for industry's products |
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When forces are strong, profitability is
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low
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when forces are weak, profitability is
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high
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What are the barriers to entry:
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economies of scale
brand identity and product differentiation capital requirements switching costs access to distribution channels cost disadvantages independent of scale government policy |
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To prevent entry, firms in an industry may
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lower price
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How hard is it to get into the computer industry?
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barriers to entry are very low
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How do suppliers exert power in the industry?
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by threatening to raise prices or reduce quality
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Suppliers are likely to be powerful if...
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supplier industry is dominated by few firms
suppliers products have few substitutes Buyer is not important customer to supplier suppliers product is an important imput to buyers product suppliers products are differentiated or have high switching costs suppliers pose credible threat of forward integration |
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how do buyers compete with the supplying industry:
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Bargaining down prices
forcing higher quality playing firms off of eachother |
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Buyer groups are likely to be powerful if:
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buyers are concentrated or purchases are large relative to sellers sale
products are undifferentiated buyers face few switching costs buyers industry earns low profits buyers face integral threat of backwards integration buyer has full information |
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What is the effect of buyer power on transactions with customers?
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Powerful buyers will reduce price and increase quality (and cost) required to compete
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Products with similar functions limit...
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the prices firms can charge
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What is the effect of substitutes on transactions with customers?
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Powerful substitutes lower price and increase quality required to compete.
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What is the effect of substitutes on the PC industry?
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Push down PC prices further and reduce future growth in demand
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Cutthroat competition is most likely to occur when:
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When there are numerous or equally balanced competitors
industry is slow growing high fixed or storage costs lack of differentiation or switching costs capacity added in large increments high exit barriers |
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What is the effect of competition on trasactions with customers?
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strong competition can reduce price, raise cost incurred from increasing value, and increase value
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What are the Price declines in the PC industry due to?
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open standards
industry fragmentation very rapid technological obscolencense strong sophisticated buyers |
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What kind of industry is PC indsutry?
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Very rough, not appealing to most people
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What is the limitations of Porters (5 forces) model?
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assumes existence of clear recognizable industry
addresses only firms in industry and does not recognize partner firms does not take into accoutn that large firms may modify industry structure assumes industry profits, not firm resources, comprise primary determinants of firm profit difficult to apply firms in other countries where environments vary |
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What are the forces that INCREASE firm performance
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strenght of complements
legal cooperation b/w buyers and sellers coordination among competitors |
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Complementary products:
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products not in the same industry but whose patterns of demand are systematically positively correleated
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Complementary products create a
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reciprocal expansion of demand
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what are two components of coooperation b/w buyers and suppliers
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sharing information
sharing resources and capabilities (quality mgmt techniques) |
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What kind of information do buyers and suppliers share when coooperating
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Operating (logistics)
strategic (techology development) |
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What are two components of cooperation b/w competitors?
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cooperative pricing (not fixed pricing)
establishing interfirm partnerships |
