Strategic Management 2

Front 1

Is a factor with a strong influence on a firm’s costs.
Can be asset- or activity-based

Back 1

cost driver

Front 2

ways to secure a cost advantage

Back 2

Use lower-cost inputs and hold minimal assets
Offer only “essential” product features or services
Offer only limited product lines
Use low-cost distribution channels
Use the most economical delivery methods

Front 3

how to revamp the value chain to lower costs

Back 3

Bypass the activities and costs of distributors and dealers by selling directly to consumers.
Coordinate with suppliers to bypass activities, speed up their performance, or otherwise increase overall efficiency.
Reduce handling and shipping costs by locating suppliers close to the firm’s own facilities

Front 4

when a low cost provider works best

Back 4

Price competition among rival sellers is vigorous.
Products are readily available from many sellers.
Industry products are not easily differentiated.
Most buyers use the product in the same ways.
Buyers incur low costs in switching among sellers.
Large buyers have the power to bargain down prices.
New entrants can use introductory low prices to attract buyers and build a customer base

Front 5

pitfalls of a low cost provider

Back 5

Lowering selling prices results in gains that are smaller than the increases in total costs, reducing profits rather than raising them.
Relying on a cost advantage that is not sustainable because rivals can copy or otherwise overcome it.
Becoming too fixated on cost reduction such that the firm’s offering is too features-poor to generate sufficient buyer appeal

Front 6

pitfalls of a differentiation strategy

Back 6

Relying on product attributes easily copied by rivals.
Introducing product attributes that do not evoke an enthusiastic buyer response.
Eroding profitability by overspending on efforts to differentiate the firm’s product offering.
Not opening up meaningful gaps in quality, service, or performance features vis-à-vis the products of rivals.
Adding frills and features such that the product exceeds the needs and uses of most buyers.
Charging too high a price premium

Front 7

when a focused low cost or focused differentiation is attractive

Back 7

The target market niche is big enough to be profitable and offers good growth potential.
Industry leaders do not see that having a presence in the niche is crucial to their own success.
It is costly or difficult for multi-segment competitors to meet the needs of target market niche buyers.
The industry has many different niches and segments.
Rivals have little or no interest in the target segment.
The focuser has a reservoir of buyer goodwill and long-term loyalty

Front 8

The Risks of a Focused Low-Cost or Focused Differentiation Strategy

Back 8

Competitors will find ways to match the focused firm’s capabilities in serving the target niche.
The specialized preferences and needs of niche members to shift over time toward the product attributes desired by the majority of buyers.
As attractiveness of the segment increases, it draws in more competitors, intensifying rivalry and splintering segment profits

Front 9

market characteristics favoring a best cost provider

Back 9

Product differentiation is the market norm.
There are a large number of value-conscious buyers who prefer midrange products.
There is competitive space near the middle of the market for a competitor with either a medium-quality product at a below-average price or a high-quality product at an average or slightly higher price.
Economic conditions have caused more buyers to become value-conscious

Front 10

successful competitive strategies are...

Back 10

resource based; resources and capabilities match strategy and are difficult for rivals to duplicate

Front 11

when to diversify

Back 11

It can expand into businesses whose technologies and products complement its present business.
Its resources and capabilities can be used as valuable competitive assets in other businesses.
Costs can be reduced by cross-business sharing or transfer of resources and capabilities.
Transferring a strong brand name to the products of other businesses helps drive up sales and profits of those businesses

Front 12

advantages of acquisition

Back 12

Quick entry into an industry
Barriers to entry avoided
Access to complementary resources and capabilities

Front 13

disadvantages of acquisition

Back 13

Cost of acquisition—whether to pay a premium for a successful firm or seek a bargain in struggling firm
Underestimating costs for integrating acquired firm
Overestimating the acquisition’s potential to deliver added shareholder value

Front 14

advantages of new internal venture

Back 14

Avoids pitfalls and uncertain costs of acquisition.
Allows entry into a new or emerging industry where there are no available acquisition candidates

Front 15

disadvantages of intrapreneurship

Back 15

Must overcome industry entry barriers.
Requires extensive investments in developing production capacities and competitive capabilities.
May fail due to internal organizational resistance to change and innovation

Front 16

Occur when the value chains of the different businesses present opportunities for

Back 16

Strategic Fit benefits: Transfer of resources among businesses.
Lowering of costs in combining related value chain activities or resource sharing.
Use of a potent brand name across businesses.
Cross-business collaboration to build stronger competitive capabilities

Front 17

key indicators of industry attractiveness

Back 17

Social, political, regulatory, environmental factors
Seasonal and cyclical factors
Industry uncertainty and business risk
Market size and projected growth rate
Industry profitability
The intensity of competition among market rivals
Emerging opportunities and threats

Front 18

in perfect competition, economists argue

Back 18

0 profitability in long run and firms in same industry have the same cost structure