Chapter 2

Question 1

Where did Michael Porter present hi framework of bus analysis?

Answer 1

In a series of articles and his text Competitive Advantage 1985

Question 2

What are the 2 frameworks by Porter that combines 2 levels of analysis at the industry level?

Answer 2

5-forces model/ industry structure analysis

Value-chain analysis

Question 3

What is the 5 forces model?

Answer 3

Concerned with evaluating the industry you are currently operating in or wish to enter

Question 4

What is value chain analysis?

Answer 4

How firms need to manage interventions in their value chain to secure cost/differentiation advantage

Question 5

Why do firms need strategy?

Answer 5

eBecause in a highly competitive environment many firms find it easy to enter the market and compete w similar products. Thus, price structures are unstable - where excess profit might be competed away. Due to monopolistic advantage

Question 6

What was Porter concerned with?

Answer 6

Needs for firms within their industry to achieve above-average profitability

Question 7

How about firms in perfect competition?

Answer 7

Economists believe that firms will earn a normal profit. Here, avg revenue per unit equates to avg unit cost - breakeven position is maintained

Question 8

What does 5 forces model do?

Answer 8

Designed to assess the nature of the industry environment - where can firms position themselves to achieve profit adv

Question 9

What does value chain do?

Answer 9

Helps manager assess the degree to which their firm can intervene in the value chain to obtain a low-cost w above avg. profit/differentiation advantage w above market price.

Question 10

What did Porter consider “industry structure analysis” to be?

Answer 10

It described the underlying economics of the business

Question 11

What does Porter’s framework of analysis used to classify?

Answer 11

To classify the reaction of a business to its’ suppliers, competitors and distribution network

Question 12

2 details that 5 forces model allows?

Answer 12

The framework becomes check list against which the mangers can generally position its’ business against the industry

Then can be used to describe the competitive forces giving rise to the shape of the industry structure

Question 13

What did Porter say a Strategist should do?

Answer 13

“to influence that environment in the company’s favour they must learn what makes the environment tick”

Question 14

2 main things 5 forces model tells us?

Answer 14

Where you sit in the industry?

Nature of relative powers in the industry

Question 15

E.g of supplier relationship?

Answer 15

Suppliers of new cars are known to exert strong control over dealership margins as they can restrict price and volume

Question 16

E.g of 5 forces model user?

Answer 16

GSK and patents

Question 17

What are the 5 forces?

Answer 17

Suppliers- concentration, info of selling price
Customers - volume, sub. products, concentration

Exiting rivalry in industry - product diff, corporate stakes, industry growth, concentration, exit barriers

Threat of new entrants- entry barriers, capital, identity, access to distr.
Substitutes - buyers willingness, price

Question 18

2 examples of supplier relation?

Answer 18

When threat entry is high price is lower than when entry barriers are high
Changes in tech may offer a substitute that displaces sales income of a business thus, putting pressure on profits

Question 19

supermarkets have strong buying power so.?

Answer 19

exerted on supply chain especially on farm prices and incomes

Question 20

2 strategic choices porter has given after establishing yourself w the 5 forces?

Answer 20

To sustain competitive advantage relative to its’ competitors -
1. Become a low cost leader
2. Differentiate - oligopoly/monopoly
Usually at this stage of strategic choice can’t do both

Question 21

How do firms choose between the 2 main strategies?

Answer 21

Through bus anal. done in practice firms w a product portfolio where some are differentiated and some are price competitors

Question 22

Porter classifies the 2 generic strategies into 4 categories?

Answer 22

look in notes

Question 23

What is the industry analysis of low cost leadership?

Answer 23

identified market leadership can only be sustained where output is sold at the lowest cost

Question 24

What should an orgs strategy be to be a low cost leader?

Answer 24

One of seeking to produce product/service at lowest cost within the industry sector

Question 25

What did Porter say about low cost producers?

Answer 25

"A low cost producer must find and exploit all sources of cost advantage" To do this exploitation - Firm must obtain benefits of economies of scale across all areas of business - given that there will profitability.

Question 26

4 non price factors that differentiation involves?

Answer 26

Quality, design, after sales service, presentation.

Question 27

Define differentiation?

Answer 27

Involves non price factors identified from the demand side industry structure analysis. Very niche market where adv is taken from a certain segment of market rather than overall competitive advantage.

Question 28

What did Porter say about Value chain analysis?

Answer 28

1985: Company is profitable when the value it creates exceeds cost of performing the value chain functions

Question 29

2 ways Porter described to achieve value higher than cost?

Answer 29

1. Lower cost than competitors 2. A value chain function in such a way that premium price can be charged because the product/service is differentiated from competitors

Question 30

What did Porter say about business analysis and strategic choice?

Answer 30

Business analysis informs strategic choice between generic strategies: Orgs. that choose generic strategy sensitive to industry structure analysis - increases chances of securing competitive advantage

Question 31

What is Value chain analysis?

Answer 31

Describes how a series of sequential activities adds value to inputs

Question 32

Process of value chain analysis?

Answer 32

1. Inbound raw materials flow through internal operations 2. Distributed 3. Marketed 4. Provided w after sale service

Question 33

What is value chain used for?

Answer 33

As at a each age human, tech, and financial resources are applied - it adds cost/value to product. Value chain is used to determine where value cost is being added within the operation sequence - can use value identification to compare w competitors

Question 34

What does the value chain digram illustrate?

Answer 34

How value enhancement (increased margin) is achieved both via 1. Efficient ,management of resources across supply chain (suppliers and distributors) 2. Internal business functions

Question 35

2 other ways value chain can also be looked at?

Answer 35

Physical terms - product and materials from left to right to become final products Financial term - Income/finance moving from right to left

Question 36

How can info from value chain be best used strategically?

Answer 36

Becomes useful strategic knowledge when info is used to adjust flow and use of resources to meet benchmark cost reduction targets

Question 37

4 new techniques introduced from the 70s to 80s?

Answer 37

SWOT BCG Matrix PEST analysis

Question 38

What were the 4 new forms aim?

Answer 38

Context of which the industry offers threats and opportunities and aim is to seize opportunities and avoid strategic pitfalls

Question 39

What is SWOT?

Answer 39

An analysis of company's internal strength and weaknesses and the external side of org -threats and opportunities

Question 40

What is PEST?

Answer 40

tick box checklist approach - evaluates impact of the following in an org's environment: Political, Socio-cultural, Economical and Technological E.g political stability, investment cost, employment and wages Uses these variables to make a hierarchy of which is most important - but order changes overtime

Question 41

BCG Matrix (Boston Consulting Group)?

Answer 41

2 x 2 matrix concerned with classifying an org's product portfolio.

Question 42

4 types of products in BCG?

Answer 42

Cash Neutral: Star product - High growth and market share (Invest more money because still growing ) may turn into cow Dog - Coming to end of its product lifecycle, volume of consumer decreasing despite discounts Cash generator: Cash Cow - Lion's share w lowest product costs - gives surplus to invest in star products or new product development Cash user: Problem child: Suffering from much competition, volume growth is starting to decline and discounting is spoiling margin

Question 43

Why is star product cash neutral?

Answer 43

Assumed that there are other products generating more cash than this start product is eating

Question 44

What are business analysis models used for ?

Answer 44

Helping management make strategically informed business decisions to improve competitiveness. Business analysis needs to be sensitive to: Nature of firm's industry and competitors

Question 45

What should businesses do in order to reduce cost or recover?

Answer 45

``` Org must continuously analyse: 1. Take out cost from product to increase profit - make cash cow 2. Exploit market opportunity from: internal and external resources ```

Question 46

Management must see strategic business opportunities from?

Answer 46

Domestic and international markets

Question 47

To meet business opportunities..?

Answer 47

firms need to secure market expansion | Must utilise resources to reduce costs or increase differentiation action of aspects of firm

Question 48

What does Porter concentrate on strategy as..?

Answer 48

industry selection and market positioning to promote cost reduction cost recovery

Question 49

What does the resource based view of strategy emphasise?

Answer 49

individuality of firms can exploit their unique capabilities to formulate a strategy that takes advantage of these capabilities E.g GSK deploys their resources in a way that capitalises their unique capabilities

Question 50

What does Porter say about industry selection?

Answer 50

Firms should choose an industry where competition is less intensive and exploit advantage of an oligopolistic and monopolistic position in market thus earn above avg industry profits

Question 51

If domestic market conditions are bad?

Answer 51

move overseas for globalisation

Question 52

strategic moves must generate ..?

Answer 52

Financial results

Question 53

What is Globalisation?

Answer 53

concerned with how firms compete in international markets to win or lose against other international firms

Question 54

What is financialisation?

Answer 54

helps us understand that analysis and strategic moves need to understand the operation of capital markets and how this impacts on competition

Question 55

History of globalisation?

Answer 55

began in the 1980s because: 1. exporting overseas 2. investing in overseas production/retail/assembly 3. increasing volume and share of their sale revenue

Question 56

during globalisation what did Ohmae notice?

Answer 56

between the triad nations North America, Europe and Asia-Pacific nationally based firms became most exposed to external competitive forces

Question 57

What did management theorists believe would happen to nationally based firm due to global competition?

Answer 57

1. Globalisation would increase competition between nation states 2. Nationally based firms would be demanded due to competitive edge 3. Once exposed to external threats of more efficient competitors nationally based from would need to - improve performance or go out of business

Question 58

When did the debate of these management theorists establish?

Answer 58

When Japanese firms like Toyota Sony and Cannon displaced many domestic companies in US and Europe

Question 59

What did Hirst and Thompson find?

Answer 59

1996 - found that American multi nationals were selling most most of their products in the home market and not overseas. E.g Caterpillar Inc - 80% of output sold in US

Question 60

What was theocratical problem with Globalisation?

Answer 60

New entrants could steal market share form native firm thus damaging home based products

Question 61

What did Porter and Hamel & Prahalad (1985) argue?

Answer 61

``` Firms must benchmark themselves w their global competitors to adopt world class best practice, resist competition and make profit; improve where they are weak : Consultancy benchmark studies provided firms w a checklist of factors they should be attending to based on an analysis of competitors ```

Question 62

What else affects globalisation competition according to theorists?

Answer 62

not only nature of product market and org of firms but exchange rates and working hours as well. E.g Japanese Favourable Yen to $ rate till 1985 and longer working hours increased their competitiveness

Question 63

Williams and Froud thoughts on Japanese working hrs and currency?

Answer 63

These factors are beyond control of firms and managers within USA and Europe

Question 64

What did the shift from globalisation to financialisation in the 1990s bring?

Answer 64

Less weight in product market competition in shaping international business strategy and more on international level global capital markets

Question 65

What do asset management industry do?

Answer 65

manages shares on behalf of investors: to maximise ROCE on their companies by increasing dividend and increase capital gain from share capital that the shareholders own

Question 66

How is the shift to financialisation affected the company's reports and accounts?

Answer 66

last 5 years more common for managers to declare inter accounts "pursue value-maximising investments", "release value for shareholder or "generate value for shareholder"

Question 67

What effect does financialisation have on the arena of competition?

Answer 67

Competition within a financialised framework is now located in the capital market because - firms compete on loyalty to attract and maintain assets manager/shareholder to: increase profit, dividend yield, ROCE