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81 Cards in this Set

  • Front
  • Back
What are two key elements of strategy?
Competetive advantage

Scope of the business
Industries vary __________ in their average level of _________.
Industries vary systematically in their average level of profitability.
There si usually as much or more variation in profitability among the _____________ in a given ____________ as their are across ___________.
There is usually as much or more variation in profitablitiy among the companies in a given industry as there is across industries.
Firm success is based on three main factors:
1. Macroeconomic forces
2. Industry forces
3. unique company characteristics
What is competative advantage?
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.
Competative advantage is also a condition which enables the company to:
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.
What determines sustained competetive advantage?
a strong offense and a strong defense
What are the components of a strong offense?
A strong offense attains market superiority and creates a higher economic contribution (V-C)
What are the components of a strong defense?
Protects the sources of the market position against rivals, retains customers, and defends agains imitation
What are three components of the Value-Cost Framework?
Value, Cost, Effective copetitive positioning
Describe value as associated with the value-cost framework:
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
Describe cost as associated with Value-cost framework:
marginal cost to produce a unit of the product
Describe effective competitive positioning as associated with value-cost framework:
offering more value per unit cost than competitors, consistently over time
What is the difference between value and price in the value cost framework?
buyers surplus
What is buyers surplus
the difference between value and price in the value cost framework
What is the difference b/w price and cost in the value cost framework?
firms profit
what is the whole Value cost framework?
The firms economic contribution
Define resource
a relatively stable, observable tradable asset owned by the firm that contributes to its performance
define capability
a set of activites and policies involving the firms organization adn people executing tasks at a high level of expertise continuously over time.
What are some examples of a resource?
a brand or geographical location
What are some examples of a capability?
practices leading to superior quality, customer service, new product development
A resource represents
inputs into the firms production process.
What are 4 tangible resource inputs?
What are 2 intangible resource inputs?
human resources
A capability represents:
the firms capacity or ability to integrate individual firm resources to acheive a desired objective.
Capabilities lead to a competative advantage to the extent that they are:
costly to imitate
If a capability is valuable:
it is a capability that either helps a firm to exploit opportunities to create value for customers or to neutralize threats in the environment
If a capability is rare:
it is a capability that is possessed by few, if any, current or potiential competitors
If a capability is costly to imitate it:
is a a capability that the other firms cannot develop easily, usually due to unique historical conditions, causal amiguity or social complexity
If a capability is non substitutable it:
is a capability that does not have strategic equivelents such as firm specific knowledge or trust based relationships
When should you pursue value investments?
when a large number of customers are value sensitive

Returns on increasing value are higher than returns on reducing costs
When should you pursue cost reductions:
When marginal customers are price-sensitive

Value improvements are costly difficult or easily duplicated by competitors
What are two things to do to defend a competetive advantage?
Barriers to imitation

Increase customer retention
What are four barriers to imitation?
Property rights
dedicated assets
casual ambiguity
learning and development costs
What are some examples of property rights?
Patents, trademarks, asset ownership
What are some examples of dedicated assets?
Exclusive distributions channels or suppliers
What is an example of causual ambiguity?
Difficulty in copying a capability b/c it cannot be modeled effectivley
What are learning and development costs?
A cost that is created by sunk costs, complementary practices within the dirm, and history dependent capabilities.
What are 3 costs associated with increasing customer retention?
Search Costs
Transition Costs
Learning Costs
What are search costs?
High for products whose value is apparent only after experiencing the product - experience goods
What are transition costs?
costs associated shifting from old equipment or practices to new
What are learning costs?
costs incurred in learning a new process
Competetive advantage comes from the combination of
superior market positioning and the ability to defend the position from competition
Superior market position is based on
producing more value at lower cost than competitors
Value and cost drivers are determined by:
the firms resources and capabilities
Defending against competitors depends on
erecting barriers to imitation and retaining customers
Define network externality
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.
externalities =
side effects of a transaction
Define economies of scale:
a production process inwhich an increase in the number of units produced causes a dcrease in the average cost of each unit.
Define economies of scope
related to econ of scale but usually refers to demand-side changes rather than supply side.
What are some example of economies of SCOPE
product bundling

family branding
competetive advantage is contrained by
characteristics of the industry
innovation does not provide competitive advantage if it isi not
supported by a soldi business model
define industry
a group of companies that produce competing products or services
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
substitute producers are:
firms whose product if functionally different from the industry's product but compete to provide value to the same industry buyers.
5 forces that LOWER a firms performance
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
When forces are strong, profitability is
when forces are weak, profitability is
What are the barriers to entry:
economies of scale
brand identity and product differentiation
capital requirements
switching costs
access to distribution channels
cost disadvantages independent of scale
government policy
To prevent entry, firms in an industry may
lower price
How hard is it to get into the computer industry?
barriers to entry are very low
How do suppliers exert power in the industry?
by threatening to raise prices or reduce quality
Suppliers are likely to be powerful if...
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
how do buyers compete with the supplying industry:
Bargaining down prices

forcing higher quality

playing firms off of eachother
Buyer groups are likely to be powerful if:
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
What is the effect of buyer power on transactions with customers?
Powerful buyers will reduce price and increase quality (and cost) required to compete
Products with similar functions limit...
the prices firms can charge
What is the effect of substitutes on transactions with customers?
Powerful substitutes lower price and increase quality required to compete.
What is the effect of substitutes on the PC industry?
Push down PC prices further and reduce future growth in demand
Cutthroat competition is most likely to occur when:
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
What is the effect of competition on trasactions with customers?
strong competition can reduce price, raise cost incurred from increasing value, and increase value
What are the Price declines in the PC industry due to?
open standards

industry fragmentation

very rapid technological obscolencense

strong sophisticated buyers
What kind of industry is PC indsutry?
Very rough, not appealing to most people
What is the limitations of Porters (5 forces) model?
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
What are the forces that INCREASE firm performance
strenght of complements

legal cooperation b/w buyers and sellers

coordination among competitors
Complementary products:
products not in the same industry but whose patterns of demand are systematically positively correleated
Complementary products create a
reciprocal expansion of demand
what are two components of coooperation b/w buyers and suppliers
sharing information

sharing resources and capabilities (quality mgmt techniques)
What kind of information do buyers and suppliers share when coooperating
Operating (logistics)

strategic (techology development)
What are two components of cooperation b/w competitors?
cooperative pricing (not fixed pricing)

establishing interfirm partnerships