The content of strategy - business level and positioning

Question 1

A strategic business unit (SBU) supplies goods or services for a…

Answer 1

…distinct domain of activity

Question 2

Within large organisations, SBUs:

Answer 2

1. Decentralise initiative to smaller units
2. Allow the units’ business strategies to be varied according to the different needs
3. Encourage accountability

Question 3

SBU business strategy can be divided into:

Answer 3

1. Generic strategies

2. Interactive strategies

Question 4

Porter’s generic strategies are developed across two dimensions:

Answer 4

1. Competitive advantage

2. Competitive scope

Question 5

The generic strategies are:

Answer 5

1. Cost Leadership
2. Differentiation
3. Focused - low cost
4. Focused - differentiation

Question 6

Cost drivers:

Answer 6

1. Input costs
2. Economies of scale
3. Experience
4. Product/process design - choice between cost of components and degree of customer service

Question 7

Economies independent of scale provide most durable basis for cost leadership:

Answer 7

1. Access to raw materials - backward integration
2. Access to product or process technology - temporary cost advantages that can be sustained by capitalising on learning effects
3. Access to distribution channels - forward integration
   (Murray, 1988)

Question 8

Economies of scale may be a result of:

Answer 8

1. Input/output relationships
2. Specialisation
3. Indivisibility i.e. large companies incur lower advertising costs per unit

Question 9

Experience (economies of learning) may result from:

Answer 9

1. Gains in labour productivity - through the learning curve employee spend less time making mistakes
2. More efficient design of equipment - experience shows what works best so process can be standardised and thus improves efficiency

Question 10

The “Law of Experience” states that the unit cost value added to a standard product declined by…each time cumulative output doubled.

Answer 10

…a constant % (typically 20-30%)…

Question 11

Product/process design can lower costs by:

Answer 11

1. Reengineering business processes

2. Standardising design and components

Question 12

Cost leaders have two options:

Answer 12

1. Parity - equivalence in features values by customers allows same prices
2. Proximity - closeness in terms of features met with either slightly higher or lower prices

Question 13

VCA can be used to assess cost leader strategies by showing:

Answer 13

1. The relative importance of each activity with respect to total cost
2. The cost drivers and comparative efficiency with which the SBU performs each activity
3. How costs in one activity influence costs in another

Question 14

Differentiation require clarity about key factors:

Answer 14

1. The strategic customer - on whose needs is the differentiation based
2. Key competitors - easy to fail to see who can also compete in their particular niche
3. Key drivers of uniqueness

Question 15

Differentiation viability is dependent on:

Answer 15

1. Customers’ attachment of importance to product attributes other than price
2. Industry maturity
3. The costs customers incur of inconvenience, uncertainty and potential unpleasantness - if these are low compared to product cost then differentiation is viable
4. Product quality and reliability - known to the customer as the industry matures (Porter, 1985)
   (Murray, 1988)

Question 16

Differentiation comes at a cost, requiring additional investment in…

Answer 16

…R&D, branding or staff quality.

Question 17

VCA and differentiation

Answer 17

1.

Question 18

The focuser achieves… by dedicating itself to…

Answer 18

…CA…serving its target segments better than others (which are trying to cover a wide range of segments).

Question 19

Successful focus strategies depend on at least on of the three factors:

Answer 19

1. Distinct segment needs
2. Distinct segment value chains
3. Viable segment economies - segments may become too small to economically serve as demand changes

Question 20

What does Porter mean by the phrase ‘stuck in the middle’?

Answer 20

If managers pursue multiple strategies they risk not performing adequately in any. Thus they should stick rigorously to one.

Question 21

Though Porter makes the exception where:

Answer 21

1. Organisational separation - separate SBUs

2. Technical and managerial innovation - allow radical improvements in both cost and quality

Question 22

Strategies should be continuously… to create and ever-improving fit between…

Answer 22

…defended and reinvented… competencies and customers.

Question 23

Bowman’s strategy clock dimensions are:

Answer 23

x - Price

y - Perceived value to customer

Question 24

The points on the clock are:

Answer 24

1. Low price
2. Hybrid
3. Differentiation
4. Focused differentiation
   (5. Risky high margins)
5. Monopoly

Question 25

The purpose of the clock is to explore options for... in order to get the most...

Answer 25

...strategic positioning...competitive position in the market.

Question 26

Movement around the clock can be influenced by:

Answer 26

1. Product life cycle 2. Threats from competitors 3. Changes in the dynamic market

Question 27

Strategic lock-in is where users... without switching costs.

Answer 27

...become dependent on a supper and are unable to use another supplier...

Question 28

Strategic lock-in can be achieved by:

Answer 28

1. Controlling complementary products and services 2. Creating a proprietary industry standard 3. First mover dominance

Question 29

Why does Murray (1988) propose that the simultaneous adoption of cost leadership and product differentiation strategies is not precluded?

Answer 29

The exogenous conditions for a cost leadership strategy stem from industry's structural characteristics, and the preconditions for product differentiation stem from customer tastes. These conditions are independent.

Question 30

Peters and Austin (1985) propose what argument that challenges Porter's 'stuck in the middle' concept?

Answer 30

They argue that there is "no such thing as a commodity", meaning that customers in any market will base purchases on attributes other than price.

Question 31

What relationship do Phillips et al. (1985) propose that disproves Porters (1985) arguments that a CL that competes against a PD but also be a PD?

Answer 31

They found a negative relationship between product quality, through a positive association with relative market share, and relative direct costs.

Question 32

The structural conflict between functional areas may result what?

Answer 32

Different value orientations.

Question 33

The application of conflict resolution techniques may minimise said conflict to a point that permits firms to...

Answer 33

...pursue CL and PD strategies simultaneously.

Question 34

Characteristics of a red ocean:

Answer 34

1. Industries in existence today 2. Boundaries defined and accepted 3. Overcrowding and shrinking profits and growth 4. Products/ services commoditised 5. Price wars - similar brands and customers price sensitive (K&M, 2007)

Question 35

Characteristics of a blue ocean:

Answer 35

1. Industries not in existence 2. Boundaries can be reconstructed - reconstructionist view 3. Irrelevant competition in uncontested market space 4. Invest in and capture new demand 5. High profits and growth (K&M, 2007)

Question 36

K&M suggest... which sees organisations favour red oceans due to...

Answer 36

...'The Paradox of Strategy'... the military nature of strategy. (confront and eliminate)

Question 37

Blue oceans are not about... innovation.

Answer 37

Technological

Question 38

Blue oceans are generally created within... by...

Answer 38

red oceans... incumbents (though can be created by new entrants).

Question 39

Companies and industries should not be used as benchmarks (unit of analysis) since...

Answer 39

no company or industry in consistency excellent. | K&M

Question 40

A more appropriate unit of analysis is...

Answer 40

the strategic move - the set of managerial actions and decisions involved in making a major market-creating business offering.

Question 41

Blue ocean barriers to imitation:

Answer 41

1. Immediately attract a large volume of customers, generate economies of scale, putting would-be imitators at cost disadvantage 2. Would require a change to the whole system of activities 3. Leap in value earned brand buzz and following 4. Imitation can conflict with existing brand image

Question 42

Game theory encourages and organisation to...for its own strategy.

Answer 42

consider competitors' likely moves and the implication of these moves...