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236 Cards in this Set
- Front
- Back
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What influences a firm's profitability?
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Industry structure and competitive advantage
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What strategies can a firm use to create a competitive advantage?
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Low cost
Differentiation |
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What factors contribute to a firm's competitive advantage strategy?
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Internal skills
Capability Systems |
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Is operational effectiveness a strategy?
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No
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Serving few needs of many customer
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Variety-based positioning
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Serving broad needs of few customers
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Needs-based positioning
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Serving broad needs of many customers in a narrow market
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Access-based positioning
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What are the 5 forces that shape industry competition?
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Threat of new entrants
Bargaining power of suppliers Threat of substitute products or services Bargaining power of buyers Rivalry among existing competitors |
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What lowers the threat of new entrants?
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barriers to entry
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What are some barriers to entry?
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Economies of Scale
Network Effects Customer Switching Costs Capital Requirements Incumbency Advantages Independent of Scale Unequal Access to Distribution Channels Restrictive Government Policy |
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When are suppliers powerful?
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Suppliers are more concentrated than industry they are selling too.
Industry does not constitute a bulk of suppliers’ revenues Large switching costs are incurred when changing suppliers Suppliers’ goods are differentiated Suitable substitute for suppliers’ products are not available Suppliers pose a threat to integrate forward into buyers’ industry |
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When does buyer power increase?
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Buyers are large and few in number
Industry’s products are undifferentiated Buyers can switch to another product without incurring high switching costs Buyers pose threat to integrate backward into the sellers’ industry Industry's product doesn't save the buyer money A lot of the cost of products made by the buyers is the cost of the industry's products Buyer has low profits Industry's product is unimportant to quality of buyers product |
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When are buyers likely to use their power
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When they're price sensitive
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When is the threat of substitution high?
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Switching costs are low
Substitute product offers attractive price/performance trade-off |
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Can changes in previously unrelated industries raise the threat of substitutes?
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Yes
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When does industry rivalry increase?
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There are numerous or equally balanced competitors
Industry growth slows or declines Exit barriers prevent competitors from leaving the industry Rivals have high commitment (goals that go beyond economic performace) Firms can't read each others signals well Product lacks differentiation or switching costs Fixed costs are high or product is perishable Capacity is augmented in large increments Rivals have diverse strategies |
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The maximum amount of money that a customer would be willing to part with in order to obtain the product or service
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Willingness to pay
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Smallest amount that a supplier will accept for the services and resources required to produce a good or service, as dictated by the best opportunities that the suppliers have to sell their services and resources elsewhere.
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Supplier Opportunity Cost
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Difference between the customer's WTP and supplier's opportunity cost
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Value created by a transaction
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What is a company that has a lower opportunity cost but customers are more willing to pay than the average industry competitor called?
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Competitor with dual advantage
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What are the steps in the 4 Step Activity Analysis?
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1.) Catalog activities
2.) Use activities to analyze relative costs 3.) Use activities to analyze relative willingness to pay 4.) explore options and make choices |
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What is it called to catalog activities?
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The value chain
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Does WTP or cost levels have a greater impact on profitability?
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WTP
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How should you analyze relative costs of activities?
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Focus on individual activities
Focus on subset of the firm's activities Use sensitivity analysis since many assumptions are involved |
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What subset of the firm's activities should you focus on while analyzing relative costs?
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Significant differences across competitors
Large enough to influence total costs |
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Tangible and intangible assets of a firm
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Resources
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A subset of resources that enable a firm to take full advantage of other resources
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Capabilities
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Marketing skill, cooperative relationships, professional and social network of the employees of the firm are all:
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Capabilities
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Some firms may be more skilled in accomplishing particular business activities than other firms
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Resource heterogeneity
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Resource differences among firms may be long lasting
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Resource immobility
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To be a considered a strength and sustainable competitive advantage, the resource or capability must be:
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Rare
Valuable Costly to imitate Exploited by the organization |
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What are the steps in the 4 Actions Framework?
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Raise
Create Reduce Eliminate |
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What factors should be exceed the industry standard?
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Raise
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What factors should be there that the industry has never offered?
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Create
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What factors has the industry has taken for granted?
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Eliminate
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What factors should be below the industry standard
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Reduce
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How does a traditional company view the industry?
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Focuses on rivals within its industry
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How does a traditional company view the strategic group?
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Focuses on competitive position within strategic group
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How does a traditional company view the buyer group?
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Focuses on better serving the buyer group
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How does a traditional company view the scope of product or service offering?
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Focuses on maximizing the value of product or service offering
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How does a traditional company view the functional-emotional dimension?
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Focuses on improvements within the existing functional-emotional orientation of the industry
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How does a traditional company view time?
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Focuses on adapting to external trends as they occur
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How does a company using Blue Ocean Strategy view the industry?
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Looks across alternative industries
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How does a company using Blue Ocean Strategy view the strategic group?
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Looks across strategic groups within industry
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How does a company using Blue Ocean Strategy view the buyer group?
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Redefines the industry buyer group
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How does a company using Blue Ocean Strategy view the scope of product or service offering?
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Looks across to complementary product or service offerings
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How does a company using Blue Ocean Strategy view the functional-emotional dimension?
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Rethinks the functional-emotional orientation of an industry
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How does a company using Blue Ocean Strategy view time?
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Participates in shaping external trends over time
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When a firm’s actions in an industry or market add value but several competing firms are creating similar value.
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Competitive Parity
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When a firm’s actions in an industry or market add value and when few competing firms are creating similar value.
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Competitive advantage
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When a firm’s actions in an industry or market fail to create economic value
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Competitive disadvantage
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performing similar activities better than rivals perform them
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Operational effectiveness
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performing different activities from rivals or performing similar activities in different ways
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Strategic positioning
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Choosing what to do and what not to do
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Trade-offs
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The sum of all existing best practices at any given time
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Productivity frontier
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Creation of a unique and valuable position, involving a different set of activities
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Strategy
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Reasons for trade-offs:
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Inconsistencies in image or reputation
The activities themselves Limits on internal coordination and control |
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Types of activity fit:
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Simple consistency (first-order fit)
Activities are reinforcing (second-order fit) Optimization of effort (third-order fit) |
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The fundamental unit of strategic analysis is the
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Industry
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Real name of 5 Force Framework
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Porter's Five Force Framework
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Marginal improvements in efficiency that a firm experiences as it incrementally increases its size.
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Economies of scale
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Buyer’s willingness to pay for a product increases with the number of other buyers.
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Network effect
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One-time costs customers incur when they buy from a different supplier
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Customer Switching Costs
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Availability of capital for unrecoverable expenditures, fixed facilities, customer credit, start-up losses, etc.
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Capital requirements
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Cost or quality advantages not available to potential rivals
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Incumbency advantages independent of sclae
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Potential entrants unable to secure distribution of product
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Unequal access to distribution channels
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Rivalry based on competing on different aspects of product
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Positive-sum
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Rivalry based on basic price competition
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Zero-Sum
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How to position your company:
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Know your full competition and know what positions they're weak
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Who are the competitors?
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Customers
Suppliers Potential entrants Substitute products Established companies |
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What does the seriousness of threat of entry depend on
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Barriers of entry and reaction from existing competitors that the entrant can expect
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Substitute products deserve the most attention when:
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May improve their price-performance tradeoff with the industry's product
Made by industry's earning high profits |
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Ways to devise a plan of action according to the 5 Force Framework:
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Position for best defense against competitive force
Use strategic moves to influence the balance of the forces and improve the company's position Anticipate shifts in the factors underlying the forces and respond |
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finding an integrated set of choices that distinguishes a firm from its rivals
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Creating advantage
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Directly generate a good or service
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Primary activities
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Make the primary activities possible
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Support activities
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What activities are primary activities?
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Inbound Logistics, Operations, Outbound Logistics, Marketing & Sales and Service
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What activities are support activities?
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Firm Infrastructure, Human Resources, Technology Development, and Procurement
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How to explore activity options:
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Understand what drives each competitor
Consider competitor response Avoid narrow focus, expand activities analyzed |
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How to make choices about which activities to pursue
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Eliminate costs that don't boost WTP
Low cost means of generating more WTP Look at the whole not the parts |
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Why analyzing the industry is necessary to create a competitive advantage:
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Neutralize unattractive features and exploit attractive ones
See if competitive advantage is even possible due to industry conditions Tension between managing industry structure and pursuing an advantage in that structure( can/will competitors copy) |
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The maximal value created by all participants in a transaction minus the maximal value that could be created without the firm
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Firm's added value
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The amount of value a firm can claim cannot exceed its added value
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Unrestricted bargaining
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What causes competitive advantage?
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Scarcity
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In value creation, why should you analyze a firm activity by activity
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1.) Understand why the firm does or doesn't have a competitive advantage
2.) Spot opportunities to increase competitive advantage 3.) Foresee future shifts in competitive advantage |
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Factors that make the cost of an activity rise or fall
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Cost drivers
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Why are cost drivers critical?
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Allow estimation of competitors' cost positions
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While reviewing a cost analysis what should you focus on?
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Differences in individual activities and costs
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Where should you focus most on cost drivers?
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Activities that have highest costs
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Which cost drivers should you focus most on?
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The drivers that have the biggest impact of the cost category
Vary across competition Vary across strategic options that will be considered |
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Why does sensitivity analysis matter?
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Identifies assumptions that matter and need focus
Shows how confident to be in results |
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How to calculate WTP
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1.) Think about who the buyer is
2.) What the buyer wants 3.) How successful are they and competitors at fulfilling wants 4.) Relate differences in success to meeting customers needs back to activities |
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Different customers rank products differently
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Horizontal differentiation
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Customers agree on which product is better
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Vertical differentiation
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Find customers who share preferences and analyze WTP for each segment
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Segmentation
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Tailor products to individual customers
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Mass customization
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What is done while exploring options and making choices?
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Analyze cost and WTP to search for ways to widen the wedge between the two
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Generally successful ways of creating competitive advantage
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1.) Know what drives each competitor
2.) Consider competitors reactions 3.) Avoid narrow focus by drawing customers and suppliers value chains as well as links 4.) Pay attention to bleeding edge customers 5.) Adjust scope of operation 6.) Reverse the 4 step analysis |
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Customers whose demands presage the needs of the larger marketplace
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Bleeding edge customers
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Rance of customers a company serves or the products that it offers
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Scope
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Evaluating growth options requires
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Understanding the advantages of new opportunities
How opportunities may impact existing business. Don’t blur your core positioning!!! |
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What constrains growth?
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Tradeoffs made by differentiation
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Are price and willingness to pay the same thing?
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No
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Should you focus on income statements while comparing a diversified company?
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No
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Why is it hard to match companies with a dual competitive advantage?
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Tradeoffs
Complexity and fit Anticipation Organizational resistance to choice |
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Raise willingness to pay a great deal with only slight increases in cost
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Differentiation strategy
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Reap large cost savings with only slight decrease in WTP
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Low-cost strategy
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What position should you take to create a competitive advantage in a commodity business such as wheat farming?
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Low-cost strategy
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Should you compare costs as percentage of sales or dollar value while analyzing costs?
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Dollar value
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Should you mix one time costs and recurring costs together while analyzing costs?
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No
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Should you compare cost positions of comparable products or overall product mixes while analyzing costs?
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Comparable products
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How to use activities to analyze relative costs
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1.) Calculate costs of each activity
2.) Determine cost drivers associated with each activity |
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What framework to use while evaluating a firm's internal capabilities?
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Resource based view
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How framework to use to create a competitive advantage?
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Value Creation using the Four-Step Activity Analysis
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What tool should you use for the Value Creation framework?
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Four-Step Activity Analysis
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What tool should you use for the Resource Based View or VRIO framework?
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VRIO Questions
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What framework should you use to choose a strategy?
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Porter's Five Forces
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provides a comparative look at a firm’s capabilities to find what are the firm's strengths and weaknesses and how these compare to competitors
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Internal analysis
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According to the resource-based view, what should you focus on as sources of competitive advantage?
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Resources and capabilities controlled by a firm
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What are the four categories of resources?
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Financial
Physical Human Organizational |
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What category of resources are retained earnings and capacity to raise funds
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Financial
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What category of resources are plant & equipment, geographic location, access to raw materials
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Physical
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What category of resources are skills & abilities of individuals
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Human
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What category of resources are reporting structures, control systems, culture, relationships
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Organizational
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What are a firm's capabilities often based on?
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developing, carrying and exchanging knowledge through the firm’s human capital
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What is the foundation of many capabilities?
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The unique skills and knowledge of a firm’s employees
The functional expertise of those employees |
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What is the Question of Value?
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Does a resource enable a firm to exploit an environmental opportunity and/or neutralize an environmental threat?
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What questions need to be asked while conducting a resource-based analysis
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The Question of Value
The Question of Rarity The Question of Imitability The Question of Organization |
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What is the Question of Rarity?
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Is a resource currently controlled by only a small number of competing firms?
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What is the Question of Imitability?
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Do firms without a resource face a cost disadvantage in obtaining or developing it?
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What is the Question of Organization?
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Are a firm’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources?
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How should you solve the question of value?
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The same as the value chain from creating competitive advantage
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What does competition look like if a resource is not rare?
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Perfect competition with no competitive advantage or above normal profits
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How rare must a resource be to have a competitive advantage?
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Perfect competition cannot set in because there is still scarcity
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How can the temporary competitive advantage of valuable and rare resources can be sustained?
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If competitors face a cost disadvantage in imitating the resource
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Are tangible or intangible resources more costly to imitate?
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Intangible resources
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What are some reasons that imitation can be costly?
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Unique historical conditions, such as, first mover advantage or path dependence
Causal ambiguity Social complexity Patents |
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What is included in the question of organization?
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Formal reporting structure
Management control systems Compensation policies |
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What is a valuable and rare resource or capacity that is not costly to imitate and moderately exploited by the organization referred to as?
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A temporary competitive advantage
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What is a valuable resource or capacity that is not rare but is somewhat exploited by the organization referred to as?
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Competitive Parity
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What is an invaluable resource or capacity that is not exploited by the organization referred to as:
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a competitive disadvantage
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What is a weakness
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An invaluable resource or capacity that isn't exploited by the organization
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What is a strength?
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A valuable resource or capability that isn't rare but is somewhat exploited by the organization
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What is a strength and distinctive competence?
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A valuable and rare resource or capability that is moderately exploited by the organization but is not costly to imitate
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What is a strength and sustainable competitive advantage?
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A valuable and rare resource or capability that is costly to imitate and is exploited by the organization
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What is VRIO Framework helpful in analyzing?
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Resources and capabilities that contribute to sustainable competitive advantages
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When should a resource based view analysis be reevaluated?
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When entering new markets
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What resources/ capabilities is the VRIO framework good for?
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All
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Where can you always find competitive advantage?
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Control your expenses better than your competition.
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Which actions in the Four Action Framework effect WTP?
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Raise and create
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Which actions in the Four Action Framework effect cost?
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Eliminate and reduce
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What industries does the Blue Ocean Strategy exist in?
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New and existing
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How long does the Blue Ocean Strategy take?
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It's ongoing
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What does value innovation challenge?
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Environmental determinism
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Uncontested market spaces where the competition is irrelevant
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Blue oceans
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What does the blue ocean create links to?
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What buyers value
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What do red oceans represent?
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Existing industries
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How does demand in blue oceans differ from demand in red oceans?
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It is created not fought over
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How are most blue oceans created?
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Within red oceans when a company alters the boundaries of an existing industry
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According to the Blue Oceans Strategy what matters as more than competition?
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Development of markets with little to no competition
Protect and exploit blue market |
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Should competition be used as a benchmark for blue ocean creators?
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No
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Do tradeoffs exist in the Blue Ocean Strategy?
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No, pursue differentiation and low cost simultaneously
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How does the Blue Ocean Strategy view competition?
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irrelevant
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Where are cost savings made in blue oceans?
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Elimination and reduction of the factors that an industry competes on
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How is buyer value lifted in blue oceans?
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Creation of elements the industry hasn't offered
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What must be aligned for a blue ocean to be achieved
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utility
price cost activities |
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Worldview in which market boundaries and industries can be reconstructed by the actions and beliefs of industry players
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re-constructionist view
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Why are blue ocean companies able to reap the benefits for a long time?
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Barriers of entry
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What are the barriers of entry of most blue ocean companies?
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Quickly achieve economies of scale
Incumbency advantages independent of scale Necessary to change all existing activities Network effect Conflicts with existing image |
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What is the function-emotional orientation of an industry?
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The functional or emotional appeal to buyers
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What should you consider while brainstorming according to The Four Actions framework?
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Six new paths for the offering, looking across rather than within
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What are the steps to creating a blue ocean?
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1.) Determine factors to eliminate, reduce, raise, and/or create in developing new business model. When brainstorming, consider six new paths for the offering, looking across rather than within
2.) distinguish blue oceans from mirages |
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How can you distinguish blue oceans from mirages
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Compare values looking for:
1.) focus 2.) divergence 3.) a compelling tagline or consistency across factors |
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What does it mean to look across complementary product and service offerings?
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Define the total solution based on what happens before, during, and after your product is used
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How should a blue ocean company look across time?
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Analyze how current trends will affect customer value
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Is the Blue Ocean Strategy a supply or demand framework?
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Demand
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The rate at which the performance of a product has improved, and is expected to improve, over time.
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Performance trajectory
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Tend to maintain a rate of improvement; that is, they give customers something more or better in the attributes they already value.
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Sustaining technologies
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Introduce a very different package of attributes from the one mainstream customers historically value, and they often perform far worse along one or two dimensions that are particularly important to those customers.
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Disruptive technologies
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Traits of products based on disruptive technologies:
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Cheaper
Simpler Smaller More convenient |
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What buyers should disruptive technologies target?
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Non-consumers
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The logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership.
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The Innovator's dilemma
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Is it possible to predict which innovations will create new waves of growth?
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No
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Percentage of venture capital funded start-up that succeeds
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20%
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Percentage of new products launched by established companies that succeeds
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25%
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What are the four phases of product/service evolution?
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Functionality
Reliability Convenience Price |
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What factor drives the transition from one of the product/service evolution model's phase to the next?
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Performance oversupply
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What are the needs for Tier 3 customers?
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Performance
Reliability Connivence Price |
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What are the needs for Tier 2 customers?
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Performance
Reliability Convenience |
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What are the needs for Tier 1 customers
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Performance
Reliability |
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What tier of customers needs the most functionality?
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Tier 3
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What's Strategy 1 for managing technological changes?
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Push upmarket toward higher-end customers
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What's Strategy 2 for managing technological changes?
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Stay with the customers
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What's Strategy 3 for managing technological changes?
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Change the market's demand functionality by steepening the slope
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When Does a Product Become a Commodity ?
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market needs on each attribute or dimension of performance have been fully satisfied by more than one available product.
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When does differentiation loose its meaning?
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the features and functionality have exceeded what the market demands.
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shows precisely the improvement in performance and how much effort has been expended to gain that improvement
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S-Curve
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What type of tool is the S-Curve?
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A forecasting tool
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A typical pattern of S-Curves:
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a long period of little progress followed by growing success
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What is performance ultimately constrained by?
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Physical limits
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What's the dilemma that managers face with disruptive technologies?
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Moving to new s-curve almost always appears to be less efficient than staying with existing technology
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What are S-Curves used for?
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Mapping technological progress
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How should a disruptive technology be managed?
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Determine whether the technology is disruptive or sustaining
Define the strategic significance of the disruptive technology Locate the initial market for the disruptive technology Place responsibility for building a disruptive technology business in an independent organization Keep the disruptive organization independent |
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Opportunities for business value creation while simultaneously expanding the development horizon of the world's poorest people and communities in ways that are culturally appropriate and environmentally sustainable can be done by creating disruptive technologies at the:
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Base of the pyramid
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Can environmental or social innovations be considered disruptive
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Yes
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What are some internal barriers to responding to disruptive technologies?
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Perception
Motivation Inspiration Coordination |
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What is a motivation to not respond to disruptive technologies?
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Fear of accelerated cannibalization of existing business.
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Are tradeoffs necessary when dealing with disruptive innovations?
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Yes
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How does perception effects a company's response to disruptive technologies?
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Dominant mental model of what the product or service should look like
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Technologies that sacrifice performance along dimensions that are important to current customers and offers a very different package of attributes that are not yet valued by those customers
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Disruptive innovation
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What should companies do to prevent disruptive technologies from slipping through their fingers?
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Identify and nurture innovations on a modest scale
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Who are the last people to ask about a disruptive technology?
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Your best customers
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Why should you house the disruptive technology in an independent entity
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So it isn't required to compete with established products for company resources
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Technological changes that damage established companies typically:
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1.) Different package of performance attributes
2.) Performance attributes that customers value improve so quickly they can later invade established markets |
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Where are disruptive technologies first valued?
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New markets or new applications
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Choices managers typically see when deciding on a disruptive technology
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Go downmarket
Go upmarket |
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Accept lower profit margins of the emerging markets
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Downmarket
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Enter market segments whose profit margins are alluringly high by going with sustaining technologies
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Upmarket
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How well can established players compete to disruptive technologies
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Not very will- unprepared from looking upmarket and discounting the threat
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Approach to identify disruptive technology:
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Examine internal disagreements over the product. Marketing and financial managers rarely support them. Technical personnel will usually argue with marketing, financial staff, and customers that a new market will emerge for the technology
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How do you define the strategic significance of the disruptive technology
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Ask the right people the right questions
Making a graph with the mainstream markets on the vertical axis and time on the horizontal axis. Draw trajectory line based on customers historic expectations of existing markets. Estimate initial performance of new technology and likely slope of performance improvement Compare the two slopes |
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When is disruptive technology strategically critical
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When it might progress faster than market's demand
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If a technology progresses at the same speed as performance demand how strategically critical is it?
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Less so
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Is market research helpful for locating the initial market for a disruptive technology?
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no
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How should a company locate the initial market for a disruptive technology?
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Create information about the new markets- who the customers are and what will matter most to them
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How can companies create information that will help them locate the initial market for a disruptive technology??
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Experimenting with both the product and market
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Why use start-ups while locating the initial market for a disruptive technology:
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Good economical bets
Agile Change products and market strategies |
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Allowing small pioneers to lead the way into uncharted market territory
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Second to invent
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How to avoid start-ups from dominating new markets:
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Monitor their progress through nontraditional sources of information
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Why can't companies monitor start-ups progress through nontraditional sources of information?
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Channels not designed for that
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Forming small teams to create disruptive technology to isolate them from stifling demands of mainstream org
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Skunk-works approach
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When is the skunk-works approach necessary
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Disruptive technology has a lower profit margin that the mainstream business and must serve the unique needs of new customers
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Why is the skunk-works approach necessary?
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Prevent acting like its an established market
Small orders create energy |
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Why should disruptive organizations be independent?
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Arguments over resources and whether/when to cannibalize established products
Allows full potential of new tech to be realized |
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Do all business units have a finite life span regardless of industry?
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Yes
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When to manage strategically important disruptive technologies
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Fast, low-cost entry into market
Overhead low to permit profit |
