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26 Cards in this Set
- Front
- Back
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What is Porters value chain |
Porters value chain is a model to help identify which activities within the firm were contributing to a competitive advantage and which were not. |
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What are the five primary activities of a value chain?
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- Inbound logistics: receiving, storing and handling raw material inputs. |
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What are the four secondary activities of a value chain?
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- Firm infrastructure: how the firm is organised. |
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What must a company do in order to gain a competitive edge? |
To gain a competitive advantage over its rivals a company must either: - perform value creation functions at a lower cost than its rivals, or -perform them in a way that leads to differentiation and a premium price |
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How can a value chain analysis be used to gain a competitive advantage?
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- rate its importance in the company's activities - rates how the company compares to its competitors - help decide how activities may be changed to reduce costs - help improve the value of the organisations offerings |
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Define a value network |
A value network is a web of relationships that generates economic value and other benefits through complex dynamic exchanges between two or more individuals, groups or organisations |
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What are Porters three generic competitive strategy options?
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- Cost Leadership |
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Explain Cost Leadership |
Cost leadership is to be the lowest cost producer to compete on price and earn the highest unit profits. This is achieved through: - understand your own costs and their drivers - make a comparable quality product for a lower cost |
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What are the advantages of cost leadership? |
- Higher profit margins through lower cost per unit - can reduce competitive ability by undercutting competitors prices - creates a barrier of entry, reducing the attractiveness of substitutes - low costs gives greater opportunities for expansion |
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What are the disadvantages of cost leadership? |
- only room for one cost leader in an industry - no alternative plan if cost leadership is lost - cost advanatge can be lost through inflation, exchange rates, competitors using better technology or cheaper labour - customers may want a better product |
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Explain Differentiation |
Differentiation is to create a product that is perceived to be unique in the market. This is achieved through: - quality differentiation: features make it better but not fundamentally different - design differentiation: offer a product that is truly different from dominant product - image differentiation: use marketing to feign differentiation, including non-enhancing cosmetic differences |
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What are the advantages of differentiation? |
- Better margins acheived through higher pricing - higher quality reduces competitive rivalry - Unique product reduces power of buyers - Quality reduces attractiveness of substitutes and creates barriers to entry |
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What are the disadvantages of differentiation? |
- Being out-differentiated - Cheaper copies - Customers not wanting to pay the premium - Differentiator not valued by the customer |
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Explain Focus |
Focus is to serve one particular niche in the market, such as a type of buyer or geographical location.
- Differentiation focus: concentrate on competing on the basis of differentiation |
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What are the advantages of Focus? |
- Can become an expert in the particular field - Can understand the marketplace more |
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What are the disadvantages of Focus? |
- The segment is not suitable enough to provide a profitable basis for future operations |
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Oncea competitive advantage has been achieved, what strategic capabilities can best sustain that advantage? |
- Value of strategic capabilities: one that is of value to the customer - Rarity of strategic capabilities: competitive advantage will not be attained if competitors have identical strategic capabilities - Robustness of strategic capabilities: capabilities for competitive advantage should be robust, meaning that they are hard to imitate |
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What strategic steps can an organisation take to protect their competitive position? |
- Price based strategies - Further differentiation - Lock-in |
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What price based strategies can an organisation employ? |
- Further cost efficiencies: the organisation looking for further ways to cut costs - Winning price wars: reacting aggressively to new entrants by under-cutting their prices, forcing them out of the market - Accepting lower margins: reduce selling price and lower margins in light of new competition |
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What differentiation based strategies can an organisation employ? |
• Creating difficulties in imitation: ensuring thatstrategic capabilities cannot be copied by rivals • Achieving imperfect mobility of resources: ensuringthat the capabilities that create the difference cannot be traded to rivals • Re-investing margins: investingprofits in areas such as innovation and knowledge management can sustain acompetitive advantage |
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What is the lock-in based strategy an organisation can employ? |
Users are often locked in to the product and would find itexpensive or inconvenient to switch to rivals. Ithappens where a business’ products become the industry standard. The major threat to suchbusinesses is likely to be attention from anti-monopoly regulators. |
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What is Benchmarking? |
Benchmarking is the process of comparison of a service, practice or process. Its use is to provide a target for action in order to improve competitive position. |
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What is the strategic role of Benchmarking? |
Benchmarking permeatesthe entire strategic planning process: - In strategic analysis, it can be used in value chain analysis to compare one company's values to another and compare strategic capabilities to those of rivals - In making strategic choices, a competitive advantage can be gained if a company has rarer strategic capabilities in certain areas, so a company might benchmark their production cost per unit if they are seeking a low cost strategy through cost efficiency - In putting strategy into action, benchmarking can be used in many ways to determine which processes need to be redesigned, whether staff are being utilised in the best way, setting budgets and targets, assessing the efficiency and effectiveness of IT solutions |
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What are the various types of benchmarking? |
There are varioustypes of benchmarking such as: - internal: examine past performance to determine trends and best performance - competitive: compares performance of processes against other firms in the same industry/sector - activity: looks at other organisations, not necessarily competitors, who are performing similar activities - generic: if a process is so unique, a conceptually similar process is sought as a benchmark |
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What are the benefits of benchmarking? |
- Improved performance and added value - Improved understanding of environmental pressures - Improved competitive position - A creative process of change - A target to motivate and improve operations - Increased rate of organisational learning |
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What are the risks of benchmarking? |
- You get what you measure - Benchmarking does not always reveal the reasons for good/poor performance - Need to be aware that benchmarking can appear to threaten staff if it is designed to identify weaknesses in individual performance rather than how the process itself can be improved - More innovative companies are less concerned with benchmarking numbers than they are with focusing on the processes. If a company focuses on the processes, the numbers will eventually self correct |
