Exam 1: Chapter 5- Business Level Strategy

Question 1

In developing a business level strategy, a manager must answer three fundamental questions:

Answer 1

1) Who do we serve? (a broad or narrow market segment)
2) What do we provide (a small or large range of products/services)?
3) How do we provide it (our unique production approaches or delivery processes)?

Question 2

Porter’s 5-Forces Model

Answer 2

Framework to assess an industry’s long-run profit potential

Question 3

List the 5 Forces in Porter’s Model

Answer 3

1) Threat of New Entrants
2) Bargaining Power of Suppliers
3) Threat of Substitutes
4) Bargaining Power of Customers
5) Rivalry among Existing Competitors

Question 4

The Threat of New Entrants results in

Answer 4

more of the same products being supplied to the same customer base, ultimately decreasing profits for all players

Question 5

Barriers to Entry

Answer 5

obstacles a firm may face while trying to enter a market or an industry

Question 6

Supply Side Economies of Scale

Answer 6

When a firm manufactures products in high volumes. Large volumes results in a lower production cost, lower costs can deter other firms from entering the market

Question 7

Demand Side Benefits of Scale

Answer 7

in situations where the buyers’ willingness to pay for a product increases as the number of other buyers for the industry’s product increases. buyers feel a sense of safety buying from a reputable source

Question 8

Customers switching Costs

Answer 8

arises when the consumer has to make changes to their product or operating procedure when using a new supply source

Question 9

Capital Requirements

Answer 9

large amounts of capital (money) are required by any new entrant just to begin operating

Question 10

Unequal access to distribution channels

Answer 10

many industries have overcrowded distribution channels, the barriers are significant in the form of obtaining distribution channels for its product

Question 11

Restrictive Government Policy

Answer 11

Gov’t can limit or even foreclose entry to industries via controls such as license requirement,s patents protection, foreign investment barriers, and limits on access to local raw material markets

Question 12

Bargaining Power of Suppliers

Answer 12

when the supplier limits production, the supplier does not consider the industry as one of its major customers

Question 13

First-mover advantage

Answer 13

a competitive advantage that occurs when a firm is first to offer desirable products or services that secure customer loyalty

Question 14

Characteristics of a Powerful Supplier Group

Answer 14

• supplier industry more concentrated than industry it sells to
• participants in industry face switching costs in changing suppliers
• no substitutes exist for what supplier provides
• supplier group can threaten to integrate forward into the buyer industry
• supplier group does not depend heavily on the industry

Question 15

Characteristics of a Powerful Customer Group

Answer 15

• group is concentrated or purchases in large volumes relative to the supplier
• industry’s products are undifferentiated
• buyers face few switching costs in changing vendors
• buyers could potentially integrate backward to produce the industry’s product

Question 16

Bargaining Power

Answer 16

the pressure that a supplier or buyer can exert on a company

Question 17

Porter’s Five Forces Model generally…

Answer 17

works to increase or decrease profit potential

Question 18

Resource Based View of the Firm

Answer 18

a theory that a firm can develop a competitive advantage through the collection and harvesting of resources

Question 19

Tangible Resources

Answer 19

tend to be most plan and equipment or what it uses to manufacture products,
also can be: real estate, inventory, raw materials, and computing systems

Question 20

Intangible Resources

Answer 20

include a firm’s internal processes or systems, bran names, technology, culture, and intellectual property

Question 21

Human Resources

Answer 21

include employees of all levels, from lower level employees to the CEO
just as important as its tangible and intangible resources

Question 22

SWOT Analysis

Answer 22

a tool that allows managers to take a snapshot of their firm’s internal strengths and weaknesses as well as the opportunities and threats that are evident the external environment

Question 23

4 Components to SWOT Analysis

Answer 23

Strengths
Weaknesses
Opportunities
Threats

Question 24

Strategic Flexibility

Answer 24

the capability to identify and react to changes in the external environment and to mobilize internal resources to deal with those changes

Question 25

Value

Answer 25

the amount consumers are willing to pay for a product or service, and it comes from offering a lower price than that of competitors or providing a unique product whose benefits outweigh a higher potential cost to consumers

Question 26

Cost Leadership

Answer 26

a strategy that aims to provide a product or service at as low a price as possible to a broad audience

Question 27

Economies of Scale

Answer 27

cost savings achieved when the volume of a product produced by a firm enables it to reduce per unit costs

Question 28

Differentiation

Answer 28

a strategy in which a firm seeks to be unique in its industry along a dimension or a group of dimensions that are valued by consumers

Question 29

Focus

Answer 29

a strategy in which a company “focuses” its sales efforts on a specific geographical region, a specific group of purchasers, or a specific product type

Question 30

Two types of focus strategies

Answer 30

• Low cost focus strategy

- Differentiation focused approach

Question 31

Stuck in the Middle

Answer 31

a firm that engages in numerous strategies but fails to master any one

Question 32

Value chain analysis

Answer 32

a systematic way of examining all of the activities a firm performs and determining how they interact to form a source of competitive advantage

Question 33

Primary activites

Answer 33

the activities involved in the physical creation of the product and its sale and transfer to the buyer

Question 34

Support activities

Answer 34

activities that provide the support necessary for the primary activities to occur

Question 35

Cost leadership strategy

Answer 35

involves tight control systems and cost minimization

Question 36

Value Chain Analysis 3 Aspects

Answer 36

1) how the firm uses its resources and capabilities to develop core competencies
2) compare the firm’s value chain with competitors’ value chains to better understand the competitive forces in the market and determine how to improve the firm’s value-creating activities
3) view the firm’s value chain in the context of a larger value system that includes the value chains of suppliers and distribution channels