Strategic Management Exam 2

Front 1

What are the 5 competitive strategies?

Back 1

1. Broad Low Cost

2. Focused Low Cost

3. Broad Differentiation

4. Focused Differentiation

5. Best Cost Provider

Front 2

Low-Cost Provider Strategy

Back 2

Striving to achieve lower overall costs than rivals and appealing to broad spectrum of customers, usually by underpricing rivals.

Front 3

Broad Differentiation Strategy

Back 3

Seeking to differentiate the company's product or service from rivals' in ways that will appeal to a broad spectrum of buyers.

Front 4

Focused Low-Cost Strategy

Back 4

Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs than rivals and thus being able to serve niche members at a lower price.

Front 5

Focused Differentiation Strategy

Back 5

Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rival products.

Front 6

Best-Cost provider strategy

Back 6

Giving customers more value for the money by satisfying buyers' expectations on key quality/features/performance/service attributes while beating their price expectations. This option is a hybrid strategy that blends elements of low-cost provider and differentiation strategies; the aim is to have the lowest(best) costs and prices among sellers offering products with comparable differentiating attributes.

Front 7

Cost Driver

Back 7

Is a factor having a strong effect on the cost of a company's value chain activities and cost structure.

Front 8

Uniqueness Driver

Back 8

Is a value chain activity or factor that can have a strong effect on customer value and creating differentiation.

Front 9

How to run Low-Cost markets?

Back 9

Success in achieving a low-cost edge over rivals comes from eliminating and/or curbing "nonessential" activities and/or out managing rivals in performing essential activities. Perform Value-Chain analysis more cost effectively than anybody else and than revamp the firm's overall value chain. Particular attention to cost drivers.

Front 10

Important cost drivers in the value chain?

Back 10

Labor productivity and compensation costs

Economies of scale

Learning and experience

Capacity utilization

Input costs

Production technology and design

Communication systems and information technology

Bargaining Power

Outsourcing or vertical integration

Labor productivity and compensation costs

Front 11

Revamping the value chain

Back 11

Selling directly to consumers and cutting out the activities and costs of distributors and dealers.

Streaming operations by eliminating low-value-added or unnecessary work steps and actities.

Improving supply chain efficiency to reduce materials handling and shipping costs.

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When a low-cost provider strategy works best?

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1. Price competition among rival sellers is especially vigorous.

2. The products of rival sellers are essentially identical and are readily available from several sellers.

3. There a few ways to achieve product differentiation that have value to buyers.

4. Buyers incur low costs in switching their purchases from one seller to another.

5. The majority of industry sales are made to a few, large-volume buyers.

6. Industry newcomers use introductory low prices to attract buyers and build a customer base.

Front 13

Pitfalls to Avoid in pursuing a low-cost provider strategy.

Back 13

The biggest pitfall of a low-cost provider strategy is getting carried away with overly aggressive price cutting and ending up with lower, rather than higher, profitability.

Second pitfall is relying on an approach to reduce costs that can be easily copied by rivals.

Third pitfall is becoming too fixated on cost reduction. Low costs cannot be pursued so zealously that a firm's offering ends up being too features-poor to gain the interest of buyers.

Front 14

Uniqueness Drivers

Back 14

Input quality

Innovation and technological advances

Product features, design, and performance

Production R&D

Continuous quality improvement

Employee skills, training, experience

Marketing and brand-building

Customer Service

Front 15

How does broad differentiation strategies work?

Back 15

Seek to produce a competitive edge by incorporating attributes and features that set a company's product/service offering apart from rivals in ways that buyers consider valuable and worth paying for.

Front 16

Differentiation strategies work best

Back 16

Work best in markets with diverse buyer preferences where there are big windows of opportunity to strong differentiate a company's product offering from those of rival brands, in situatins where few rivals are pursuing a similar differentiation approach, and in circumstances where technological change is fast-paced and competition centers on rapidly evolving product features.

Front 17

Differentiation strategy is doomed

Back 17

When competitors are able to quickly copy most or all of the appealing product attributes a company comes up with, when a company's differentiation efforts meet with a ho-hum or so-what market reception, or when a company erodes profitability by overspending on efforts to differentiate its product offering.

Front 18

How does a focus strategy work?

Back 18

It delivers competitive advantage either by achieving lower costs than rival in serving buyers comprising the target market niche or by offering niche buyers an appealingly differentiated product or service that meets their needs better than rival brands.

Front 19

Focus Strategy works best

Back 19

When the target market niche is big enough to be profitable and offers good growth potential, when it is costly or difficult for multisegment competitors to put capabilities in place to meet the specialized needs of the target market niche and at the same time satisfy the expectations of their mainstream customers, when there are on or more niches that present a good match with a focuser's resource strengths and capabilities, and when few other rivals are attempting to specialize in the same target segment.

Front 20

Risk of Focused Strategies

Back 20

First major risk is the chance that competitors will find effective ways to match the focused firm's capabilities in serving the target niche. Second risk is the potential for the preferences and needs of niche members to shift over time toward the product attributes desired by the majority of the buyers. 3rd risk that the segment may become so attractive it is soon inundate with competitors, intensifying rivalry and splintering segment profits.

Front 21

How to profit best-cost provider strategy?

Back 21

To profitable employ, a company must have the capability to incorporate attractive or upscale attributes at a lower cost than rivals. Thus capability is cotingent on 1) a superior value chain configuration that eliminates or minimizes activities that do not add value, 2) unmatched efficiency in managing essential value chain activities, and 3) core competencies that allow differentiation attributes to be incorporated at a low cost.

Front 22

When does a best cost strategy work best?

Back 22

Works best in markets where product differentiation is the norm and attractively large number of value-conscious buyers can be induced to purchase midrange products rather than the basic products of low cost producers or the expensive products that are top of the line. Usually needs to position itself near the middle of the market with either a medium-quality product at a below avg price or high-quality product at an avg or slightly higher than avg price.

Front 23

Danger of an unsound best-cost provider strategy

Back 23

Company's biggest vulnerability is not having the requisite core competencies and efficiencies in managing value chain activities to support the addition of differentiating features without significantly increasing costs.

Front 24

Stuck in the middle means in terms of competitive strategies

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A company with a modest degree of differentiation and no real cost advantage will most likely find itself squeezed between the firms using low-cost strategies and those using differentiation strategies. Low-cost providers may be able to siphon customers away with the appeal of a lower price. High-end differentiators may be able to steal customers away with the appeal of appreciably better product attributes.

Front 25

Reasons why a company expand into International Markets

Back 25

1. To gain access to new customers.

2. To achieve lower cost and enhance the firm's competitiveness.

3. To further exploit its core competencies.

4. To gain access to resources and capabilities located in foreign markets.

5. To spread its business risk across a wider market base.

Front 26

Factors that shape strategy choices in International markets

Back 26

1. The degree to which there are important cross-country differences in demographic, cultural, and market conditions.

2. Whether opportunities exist to gain a location-based advantage based on wage rates, worker productivity, inflation rates, energy costs, tax rates, and other factors that impact cost structure.

3. The risk of adverse shifts in currency exchange rates.

4. The extent to which governmental policies affect the local business climate.

Front 27

Strategy options for Entering foreign markets

Back 27

1. Maintain a national (one-country) production base and export goods to foreign markets.

2. License foreign firms to produce and distribute the company's products abroad.

3. Employ a franchising strategy.

4. Establish a subsidiary in a foreign market via acquisition or internal development.

5. Rely on strategic alliances or joint ventures with foreign partners to enter new country markets.

Front 28

Thinking global and acting global

Back 28

Strategy-making approaches are also essential when host-government approaches are also essential when host-government regulations or trade policies preclude a uniform, coordinated worldwide market approach. Multidomestic strategy, global strategy, transnational strategy.

Front 29

Multidomestic Strategy (Think Local, Act Local)

Back 29

Tailor the company's competitive approach and product offering to fit specific market conditions and buyer preferences in each host country.

Delegate strategy making to local managers with firsthand knowledge of local conditions.

Front 30

Global Strategy (Think Global, Act Global)

Back 30

Employ same strategy worldwide

Pursue the same basic competitive strategy theme in all country markets.

Offer the same products worldwide, with only very minor deviations from 1 country to another when local market conditions so dictate.

Utilize the same capabilities, distribution channels and marketing approaches worldwide.

Coordinate strategic actions from central headquarters.

Front 31

Transnational strategy (Think Global, Act Local)

Back 31

Employ a combination global-local strategy

Employ essentially the same basic competitive strategy theme in all country markets.

Develop the capability to customize product offerings and sell different product version in different countries.

Give local managers the latitude to adapt the global approach as needed to accommodate local buyer preferences and be responsive to local market and competitive conditions.

Front 32

Concepts associated with Cross-border coordination (few locations or many locations)

Back 32

If a firm learns how to assemble its product more efficiently at say, its Brazilian plant, the accumulated expertise and knowledge can be shared with assembly plants in other world locations. Also knowledge gained in marketing a company's product in Great Britain, for instance, can readily be exchanged with company personel in New Zealand or Australia. Also includes shifting production from a plant in one country to plant in another to take advantage of exchange rate fluctuations and to respond to changing wage rates, energy cost, or changes in tariffs and quotas.

Front 33

Primary activities of top management for diversification

Back 33

1. Picking new industries t enter and deciding on the means of entry.

2. Pursuing opportunities to leverage cross-business value chain relationships into competitive advantage.

3. Establishing investment priorities and steering corporate resources into the most attractive business units.

4. Initiating actions to boost the combined performance of the corporation's collection of businesses.

Front 34

Initiating actions to boost the combined performance of the corporation's collection of business

Back 34

Corporate strategists must craft moves to improve the overall performance of the corporation's business lineup and sustain increases in shareholder value. Strategic options for diversified corporation include (a) sticking closely with the existing business lineup and pursuing opportunities presented by these businesses, (b) broadening the scope of diversification by entering additional industries, (c) retrenching to a narrower scope of diversification by divesting poorly performing businesses, and (d) broadly restructuring the business lineup with multiple divestitures and/or acquisitions.

Front 35

Why companies divesify

Back 35

Diversifying into new industries always merits strong consideration whenever a single-business company encounters diminishing market opportunities and stagnating sales in its principal business.

Front 36

3 Test to judge diversification

Back 36

1. The industry attractiveness test.-must offer an opportunity that is = or better than that of present company

2. The cost-of-entry test.-must not be so high as to erode the potential for good profitability

3. The better-off test.- must offer potential for the company's existing businesses and the new business to perform better together under a single corporate umbrella than they would perform operating independent.

Front 37

How to diversify?

Back 37

1. Diversification by Acquistion of an existing business

2. Entering a new line of business through internal development

3. Using joint ventures to achieve diversification

Front 38

Diversification by Acquistion

Back 38

Is quicker than trying to launch a new operation, but it also offers an effective way to hurdle such entry barriers as acquiring technological know-how, establish supplier relationships, achieving scale economies, building brand awareness, and securing adequate distribution. Allowed to move straight to the task of building a strong market position in the target industry.

Front 39

Entering a new line of business through internal development

Back 39

Starting a new business from scratch has appeal when (1) the parent company already has in-house most or all of the skills and resources needed to compete effectively;(2) there is a simple time to launch the business; (3)internal entry has lower costs than entry via acquisition;(4)the targeted industry is populated with many relatively small firms such that the new start up does not have compete against large, powerful rivals;(5)adding new production capacity will not adversely impact the supply-demand balance in the industry; and (6) incumbent firms are likely to be slow or ineffective I responding to new entrant's efforts to crack the market.

Front 40

Using joint venture to achieve diversification

Back 40

1.Joint venture is a good vehicle for pursuing an opportunity that is too complex, uneconomical, or risky for one company to pursue alone.

2. Joint venture make sense when the opportunities in a new industry require a broader range of competencies and know-how than an expansion-minded company can marshal.

Drawbacks-conflicting objectives, disagreements over how to best operate the venture, culture clashes, and so on. Least durable of the entry options, usually lasting only until the partners decide to go their own ways.

Front 41

Related businesses

Back 41

Enhance shareholder value by capturing cross-business strategic fits.

-transfer skills and capabilities from one business to another

-share facilities or resources to reduce cost

-Leverage use of a common brand name.

-Combine resources to create new strengths and capabilities.

Front 42

Unrelated businesses

Back 42

Spread risks across completely different businesses.

Build shareholder value by doing a superior job of choosing businesses to diversify into and of managing the whole collection of businesses in the company's portfolio.

Front 43

Strategic Fit

Back 43

Exists when value chains of different businesses present opportunities for cross-business skills transfer, cost sharing, or brand sharing.

Front 44

Cash Cow

Back 44

Generates operating cash flows over and above its internal requirements, thereby providing financial resources that may be used to invest in cash hogs, finance new acquisitions, fund share buyback programs, or pay dividends.

Front 45

Cash Hog

Back 45

Generates operating cash flows that are too small to fully fund its operations and growth; a cash hog must receive cash infusions from outside sources to cover its working capital and investment requirements.

Front 46

Restructuring

Back 46

Involves radically altering the business lineup by divesting businesses that lack strategic fit or are poor performers and acquiring new businesses that offer better promise for enhancing shareholder value.

Front 47

Business ethics

Back 47

involves the application of general ethical principles to the actions and decisions of businesses and the conduct of their personnel. If being ethical entails adhering to generally accepted norms about conduct that is right and wrong, then manager must consider such norms when crafting and executing strategy.

Front 48

Drivers of unethical behavior

Back 48

Overzealous pursuit of wealth and other selfish interests.

Heavy pressures on company managers to meet or beat performance targets.

A company culture that puts profitability and good business performance ahead of ethical behavior.

Front 49

Consequences of unethical actions (costs included)

Back 49

Visible Costs

-Government fines & penalties

-Civil penalties arising from class-action lawsuits and other litigation aimed at punishing the company for its offense and the harm done to others

-The costs to shareholders in the form of a lower stock price (and possibly lower dividends)

Front 50

Consequences of unethical actions (costs included)

Back 50

Internal Administrative Costs

-Legal and investigative costs incurred by the company

-The cost of providing remedial education and ethics training to company personnel

-Costs of taking corrective actions

-Administration costs associated with ensuring future compliance

Front 51

Consequences of unethical actions (costs included)

Back 51

Intangible or less visible costs

-Customer defections

-Loss of reputation

-Lost employee morale and higher degrees of employee cynicism

-Higher employee turnover

-Higher recruiting costs and difficulty in attracting employees

-Adverse effects on employee productivity

-The costs of complying with often harsher government regulation

Front 52

Ethical schools of thought

Back 52

1. School of Ethical Universalism

2. School of Ethical Relativism

3. Integrative Social Contracts Theory

Front 53

School of Ethical Universalism

Back 53

Implement ethics same as your own.

Front 54

School of Ethical Relativism

Back 54

Ethics they do in country

Front 55

Integrative Social Contracts Theory

Back 55

5-8 things universal, Remaining is relative.

Front 56

Corporate Social Responsibility

Back 56

Balance between companies economic, legal, ethical and philanthropic responsibilities.

Front 57

Environmental sustainability

Back 57

Deliberate actions to protect environment for future generations.

Front 58

Creating competitive advantage through CSR

Back 58

They can be conducive to greater buyer patronage, reduce the risk of reputation-damaging incidents, provide opportunities for revenue enhancement, and lower costs. Well-crafted CSR and environmental sustainability strategies are in the best long-term interest of shareholders, for the reasons above and because they can avoid or preempt costly legal or regulatory actions.