Strategic Management - Essay Questions

927 Words Oct 10th, 2012 4 Pages
Chapter 5 – Summary Review Questions

1. Explain why the concept of competitive advantage is central to the study of strategic management

The concept of competitive advantage is central to the study of strategic management, since a company (or an organization) must follow an aligned strategy to outperform their rivals in the industry. Michael Porter introduces three generic strategies that a firm may apply in order to do so. (Overall cost leadership, Differentiation and Focus). In order to create and sustain competitive advantage, companies such as KFC (case in beginning of CH5) should analyze the value chains of their customers and suppliers to see where they can add value.

Furthermore studies have shown that businesses
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* Prestige or brand image * Technology (North Face camping equipment) * Innovation * Features * Customer service (Nordstrom) * Dealer network (Caterpillar)

Firms achieve and sustain differential advantages when their price premiums exceed the costs of incurred in being unique.

Must attain cost parity relative to competitors (that is – they cannot completely ignore the costs, even though their customers are willing to pay a higher-end price for their products).
Porsche does this by reducing costs in the areas that does not affect differentiation. (By keeping high focus on engine performance and low focus on instrument panel and radio design).

Focus:
“a firms generic strategy based on appeal to a narrow market segment within an industry”.

Has two variants. Cost focus (strives to create a cost advantage in its target segment) and differentiation focus (seeks to differentiate in its target market).
Thus, focus requires that a firm either have a low cost position with its target segment, high differentiation of both.

3. Explain the relationship between the three generic strategies and the five forces that determine the average profitability within an industry.

OCL and 5F: Protects a firm against rivalry from competitors. And from powerful buyers as

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