Exam 2 Flashcards
(131 cards)
1
Q
the goal-directed actions managers take to secure competitive advantage in a single market
A
business-level strategy
2
Q
strategy is about…
A
1) finding a unique position that 2) confers competitive advantage 3) over a sustained period of time
3
Q
when formulating a business strategy managers ask:
A
who will we serve?
what customer needs and wants will we satisfy?
why do we want to satisfy them? (v-c)
how will we satisfy their needs?
4
Q
2 generic “positions” firms can use in the quest for competitive advantage
A
1) increase V and capture higher price (differentiation)
2) decrease C by offering acceptable V at a lower cost (cost leadership)
5
Q
2 possible scope approaches
A
broad (serve the entire market)
narrow (market niche)
6
Q
4 generic business strategies
A
cost leadership, differentiation, focused cost leadership, and focused differentiation
7
Q
_____ scope involves a strategy aimed at the entire, or at least the majority, of a market
A
broad
8
Q
scope, (AKA niche), that targets a narrow and specific market segment
A
focus
9
Q
value creation and cost tend to be
A
positively correlated; so there are important tradeoffs between value creation and low cost
10
Q
create higher value by delivering products/services with unique features
A
differentiation
11
Q
create similar value by delivering products/services at a lower cost and lower prices than competitors
A
cost leadership
12
Q
combination of differentiation and cost leadership strategies
A
integration or blue ocean
13
Q
value drivers for differentiator
A
product features, customer service, complements (often used with switching costs, network externalities, and product standards)
14
Q
cost drivers for cost leaders
A
cost of input factors (suppliers), economies of scale, learning-curve effects, experience-curve effects (caveat)
15
Q
when a low cost strategy works best
A
1) price competition among rivals is especially vigorous 2) products of rivals are essentially identical and readily available from several sellers 3) limited ways to differentiate products that add value 4) buyers have low switching costs 5) majority of industry sales are made to a few large high volume buyers 6)newcomers use introductory low prices to attract buyers and build base
16
Q
pitfalls to avoid in low cost strategy
A
overly aggressive price cutting, relying on easily imitated cost reductions, becoming too fixated on cost reductions
17
Q
when a differentiation strategy works best
A
1) buyer needs and uses of the product are diverse 2) many ways to differentiate the product or service to add value 3) few rival firms have a similar approach 4) tech change is fast paced and competition revolves around rapidly changing product features
18
Q
pitfalls to avoid in differentiation strategy
A
1)pursuing a strategy keyed to product or service attributes that are easily copied 2)offering product features in which buyers see little value 3)overspending on differentiation that erodes profitability 4)not establishing meaningful gaps in quality, service, or performance features over rival products 5)overdifferentiating (exceeds needs) 6)trying to charge too much
19
Q
invention is not enough… we need _____
A
innovation
20
Q
the entire process through which an idea is funded, developed, commercialized, and brought successfully to the market
A
innovation
21
Q
four i’s framework for describing innovation
A
ideas, inventions, innovations, imitations
22
Q
abstract concepts, or findings derived from basic, fundamental research
A
ideas
23
Q
transforming an idea into a new product, process, modification, or recombinations
A
inventions
24
Q
concerns to the commercialization of an invention, investment to bring it to market successfully
A
innovations
25
copying/reproducing others' innovations
imitations
26
some methods for protecting competitive advantage on innovation
patents, secrecy, other legal protections, lead time (1st mover advantages), complementary sales and service, complementary manufacturing facilities, know-how and product complexity
27
any process, machine, manufacture, or composition of matter, or any improvement thereof can be patented, so long as the invention is
new
useful
not obvious
and sufficiently described in the document
28
procedure to secure a patent
formal application to an administrative agency (US Patent and Trademark Office) -> negotiation between examiner, inventor, and agent
29
what do you get for your patent?
a series of written claims, it describes in detail the exclusive tech space; a 20 year term from filing (app date) where you have the right to exclude competitors
30
does a patent in the US work elsewhere?
no. patents are territorial so you would have to get a patent everywhere you want to sell
31
5 industry life cycle stages
introduction, growth, shakeout, maturity, decline
32
what do you see in the introduction phase
dominant design emerges (iterative process);innovation (evolution from product to process)
33
there is a lot of ______ in the growth phase
entry
34
determines the firm's boundaries along three dimensions
corporate strategy
35
the three dimensions that you determine the firm's boundaries by
1) industry value chain (how)
2) range of products and services (what)
3) where to compete: geography (where)
36
fundamentally, a firm's resources, capabilities, and competencies will influence
its options, and the possible strategic positions the firm can maintain
37
key strategic management concepts used in corporate-level strategy
core competencies
economies of scale
economies of scope (v-c across two or more activities)
transactions costs
38
diversification strategies
product diversification
geographic diversification
product-market diversification
39
range of products and services a firm offers
degrees of diversification
40
types of corporate diversification
1) single-business firm (>95% from 1 business) 2) dominant-business firm (70-95% from 1 business) 3) related diversification (<70% from 1 business) 4) unrelated diversification (<70% and few if any links among businesses)
41
does diversification lead to performance
not necessarily; it's a bell curve so you need to find the sweet spot
42
economic concepts to understand with diversification and the boundaries of the firm
specialization, principal-agent problems, information asymmetries, transaction cost economics
43
lower costs and raises quality; coordination of activities yields benefits; learning curve
specialization
44
employee (agent) may have different incentives than the employer (principal); agent may also have adverse incentives to those of the principal
principal-agent problems; example shareholders and managers (CEO) (give managers ownership interest)
45
how does the availability of information to different parties affect economic activity
information economics
| asymmetric information leaders to market failure
46
all economic activity occurs in some kind of transaction and economic activity will tend to be organized so that transaction costs are minimized
transaction cost economics
47
all internal and external costs associated with an economic exchange
transaction costs
48
the big decision with firms versus markets
make or buy
49
disadvantages of make
firms suffer disadvantages that markets do not (office politics/hierarchy); transactions inside the firm come with different costs
50
disadvantages of buy
markets can pose hazards that firms can help mitigate
51
what does the make buy decision help determine
the firm's boundaries and dictates the firm's design
52
firms are usually similar in size in this combination
merger
53
purchase or takeover that can be friendly or hostile
acquisition (one is bigger than the other)
54
upstream (backward) or downstream (forward) along the industry value chain
vertical integration
55
market concentration integration
horizontal integration
56
Herfindahl-Hirschman Index (HHI)
calculated by summing the squared market shares of all the firms in the industry (not percentages but numerals)
57
low HHI =
highly fragmented
58
high HHI =
highly concentrated; can get higher HHI with fewer firms and more unequal distribution of market share
59
a structural characteristic of the business sector; the degree to which production in an industry is dominated by a few large firms
concentration
60
horizontal integration (merger) can have benefits for the firm in terms of v-c; what area the sources of value creation
reduction in competitive intensity; lower costs; increased differentiation
61
sources of costs in mergers
integration failure; reduced flexibility; increased potential for legal repercussions
62
the _______ of mergers fail to create value (and many of them fail altogether)
majority
63
can add to resources and position the firm for competitive advantage (not equals)
acquisitions
64
an alternative to mergers and acquisitions
strategic alliances
65
why do firms enter into alliances
strengthen competitive position; enter new markets; hedge against uncertainty; access critical complementary assets; learn new capabilities
66
the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market
business-level strategy
67
choices between a cost or value position
strategic tradeoffs
68
generic business strategy that seeks to create higher value for customers than the value that competitors create while containing costs
differentiation strategy
69
a firm's business-level strategy determines its
strategic position in a specific product market
70
generic business strategy that seeks to create the same or similar value for customers at a lower cost
cost-leadership strategy
71
the size - narrow or broad - of the market in which a firm chooses to compete
scope of competition
72
savings that come from producing two (or more) outputs at less cost than producing each output individually despite using the same resources and technology
economies of scope
73
decreases in cost per unit as output increases
economies of scale
74
increases in cost per unit when output increases
diseconomies of scale
75
difference between learning curve and experience curve
in learning curve the underlying technology remained constant while only cumulative output increased; in the experience curve, the underlying technology changes while the cumulative output stays constant
76
business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent tradeoffs
blue ocean strategy
77
the simultaneous pursuit of differentiation and low cost in a way that creates a leap in value for both the firm and the consumers; important for blue ocean
value innovation
78
blue ocean gone bad
DONT BE STUCK IN THE MIDDLE
79
competition is driven by
innovation
80
firms must be able to _____ while also fending off competitors' ______ attempts
innovate
| imitation
81
the transformation of an idea into a new product or process, or the modification and recombination of existing ones
invention
82
innovation describes the discovery, development, and transformation of knowledge in the 4 step process known as the
four i's, idea, invention, innovation, and imitation
83
a form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea
patent
84
valuable proprietary information that is not in the public domain and where the firm makes every effort to maintain its secrecy
trade secret
85
the COMMERCIALIZATION of any new product or process, or the modification and recombination of existing ones
innovation
86
competitive benefits that accrue to the successful innovator
first-mover advantages (such as economies of scale, experience effects, learning curve effects)
87
characteristics an innovation needs in order to help firms gain and sustain a competitive advantage
novel, useful, successfully implemented
88
the process by which people undertake economic risk to innovate
entreprenuership
89
the agents that introduce change into the competitive system
entreprenuers
90
the pursuit of social goals while creating a profitable business
social entrepreneurship
91
the five different stages (introduction, growth, shakeout, maturity, and decline) that occur in the evolution of an industry over time
industry life cycle
92
the positive effect (externality) that one user of a product or service has on the value of that product for other users
network effects
93
an agreed upon solution about a common set of engineering features and design choices
standard
94
two basic types of innovation
product or process innovation
95
conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group
crossing-the-chasm framework
96
an innovation that squarely builds on an established knowledge base and steadily improves an existing product or service
incremental innovation
97
an innovation that draws on novel methods or materials, is derived either from an entirely different knowledge base or from a recombination of the existing knowledge bases with a new stream of knowledge
radical innovation
98
a new product in which components, based on existing technologies, are reconfigured in a novel way to attack new markets
architectural innovation
99
an innovation that leverages new technologies to attack existing markets from the bottom up
disruptive innovation
100
an innovation that was developed for emerging economies before being introduced in developed economies
reverse innovation
101
the decisions that senior management makes and the goal directed actions that it takes to gain and sustain a competitive advantage in several industries and markets simultaneously
corporate strategy
102
corporate strategy determines the boundaries of the firm along 3 dimensions:
vertical integration along the value chain, diversification of products and services, and geographic scope
103
why firms need to grow
increase profits, lower costs, increase market power, reduce risk, motivate management
104
situation in which an agent performing on behalf of a principal pursues his or her own interests
principal-agent problem
105
situation in which one party is more informed than another because of the possession of private information
information asymmetry
106
information asymmetry can lead to a ________
lemon problem
107
alternatives on the make or buy continuum
short-term contracts, strategic alliances (long-term contracts, equity alliances, or joint ventures)
108
voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services
strategic alliances
109
a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property
licensing
110
a long-term contract in which a franchisor grants a franchisee the right to use the franchisor's trademark and business processes to offer goods and services that carry the franchisor's brand name
franchising
111
a partnership in which at least one partner takes partial ownership in the other partner
equity alliance
112
a stand-alone organization created and jointly owned by two or more parent companies
joint venture
113
the firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs
vertical integration
114
depiction of the transformation of raw materials into finished goods and services along distinct vertical stages, each of which typically represents a distinct industry in which a number of different firms are competing
industry value chain
115
change in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain
backward vertical integration
116
changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain
forward vertical integration
117
benefits of vertical integration
lowering costs, improving quality, facilitating scheduling and planning, facilitating investments in specialized assets, securing critical supplies and distribution channels
118
risks of vertical integration
increasing costs, reducing quality, reducing flexibility, increasing the potential for legal repercussions
119
an alternative to vertical integration
strategic outsourcing
120
moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain
strategic outsourcing
121
three ways to diversify
vertical integration, product diversification, geographic diversification
122
an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes
diversification
123
4 types of corporate diversification
single business, dominant business, related diversification, unrelated diversification (the conglomerate)
124
why do firms enter strategic alliances
strengthen competitive position, enter new markets, hedge against uncertainty, access critical complementary assets, learn new capabilities
125
cooperation by competitors to achieve a strategic objective
co-opetition
126
partnership based on contracts between firms
non-equity alliance; most common
127
the joining of two independent companies to form a combined entitity
merger
128
the purchase or takeover of one company by another; can be friendly or hostile
acquisition
129
acquisition in which the target company does not wish to be acquired
hostile takeover
130
3 main benefits of horizontal integration
reduction in competitive intensity, lower costs, increased differentiation
131
why do firms acquire other firms
to gain access to new markets and distribution channels
to gain access to a new capability or competency
to preempt rivals
