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84 Cards in this Set
- Front
- Back
In what industry life cycles is a cost leadership strategy rare? |
Emerging |
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Under what conditions is the cost leadership strategy inimitable? When is it easily and not easily imitated? |
cost leadership is inimitable in high cost conditions. EASILY = unbalanced industry capacity&demand, non-proprietary technology, highly observable technology, transactional exchange NOT EASILY = balanced industry capacity and demand, protected tech, highly unobservable tech (Causal ambiguity), relational exchange (social complexity) |
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What organizational structure is generally best for a cost leadership strategy? |
FUNCTIONAL |
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What managerial controls are used to implement a cost leadership strategy? |
R&D = focus on product extensions and process improvements MKT = emphasis on value, reliability, and price Manufacturing = Lean, low cost, good quality Finance = focus on low cost & stable financial structure ACC = collect cost data & adopt conservative acc principles Sales = focus on value, reliability, and low price |
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What activities are employees motivated for to properly implement a cost leadership strategy? |
should reinforce formal & informal management controls; examples = stock options, bonuses for cost reduction/financial performance, non-monetary rewards like vacations, parking places etc |
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FIVE sources of cost leadership |
1. Economies of Scale 2. Diseconomies of Scale 3. Learning Curve Economies 4. Differential Access to input 6. Policy Choices |
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Economies of scale |
average cost per unit falls as quantity increases; cost advantage because competitors may not be able to match scale BC of capital requirements (barrier to entry) |
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Diseconomies of Scale |
occurs when firms become too large and bureaucratic; are an advantage for those who do not have diseconomies of scale when production is excessive, per unit costs increase from: physical limits to efficient size, worker de-motivation, managerial diseconomies (complexity), physical distance to market & suppliers. |
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Learning Curve Economies |
a firm becomes more efficient at a process with experience; more complicated processes offer greater experience advantage |
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Differential (Low Cost) Access to (Productive) Inputs-- 4 ways to do this |
1. History -- being in the right place at the right time 2. Market timing -- being 1st into new market 3. Natural endowment -- being owner of mineral deposit 4. Locking up source -- being owner of all output from source |
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Technology Independent of Scale |
Technology differences create cost differences, may allow small firms to become cost competitive, size advantage depends of how valuable and protectable the tech is |
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Policy Choices |
decisions ab products/services added, high sales volume needed for low cost goods, every manager/employee involved with cost reduction strategy EX - Ryanair |
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Bases of Differentiation (3) |
1. Product attributes 2. Firm-customer relationships 3. Firm linkages |
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Product Attributes -- 4 ways |
1. Product features -- shape of a golf club head 2. Product Complexity -- ex multiple functions on a watch 3. Timing of intro -- first to market 4. Location -- ex locating next to freeway |
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Firm Customer Relationships --3 ways |
1. Customization -- ex creating a unique piece of jewelry for customer 2. Consumer Marketing -- creating brand loyalty to a consumer thru image/marketing/advertising 3. Reputation -- sponsoring local schools w/ charitable gifts |
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Firm Linkages |
1. Linkages among internal departments' -- sharing new incentive plan developed in mkt dept with all depts 2. Linkages among other firms-- companies sponsoring NASCAR 3. Product mix -- a furniture store beings to sell home gym equipment, computer and lawn mowers 4. Distribution channels -- a doughnut shop begins selling products in gas stations 5. Service and support -- |
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The ability of companies that produce complex software packages to tailor these packages to the specific needs of their customers is an example of product differentiation through: 1. timing 2. complexity 3. product customization 4.consumer marketing |
3. product customization |
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TRUE OR FALSE: In emerging industries, product-differentiation efforts often focus on product refinement as a basis for product differentiation. |
FALSE |
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In developing a compensation policy used to implement a product-differentiation strategy, firms will: 1. punish individuals for taking risks when their projects are not successful. 2. provide appropriate incentives for managers and employees to reduce costs. 3. reward employees for creativity 4. hold individuals responsible for experiments that fail. |
3. |
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Cross-functional product development teams are suitable for a firm pursuing a ________ strategy. |
differentiation |
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Which of the following bases of product differentiation is typically the easiest to duplicate? 1. Product customization 2.Product features 3.Firm reputation 4.Product mix |
2 |
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________ levels of production are associated with ________ levels of employee specialization. |
high; high |
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As the volume of production in a firm increases, the average cost per unit decreases until some optimal volume of production is reached, after which the average costs of production begin to rise because of_________ |
diseconomies of scale |
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TRUE OR FALSE: Compensation at cost-leadership firms is usually tied directly to product innovation and customer service efforts. |
FALSE |
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If a firm gets too large, it will eventually experience both diseconomies of scale and an increase in costs associated with the learning-curve effect as cumulative volume of production grows. |
FALSE |
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Which of the following compensation policies is most likely to enhance a firm's ability to pursue a low-cost strategy? 1.Awarding employees bonuses that are equal to 50% of the total cost savings achieved based on employee suggestions and initiatives 2. Awarding employees bonuses based on the total amount of goods produced 3. Awarding employees bonuses based on customer comment cards 4. Awarding employees bonuses based solely on how long they have been employed with the company 5. All are appropriate responses |
1 |
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Compensation Policies for Cost Leadership |
1. Stock options 2. Monetary rewards for cost reduction/financial performance 3. Non-monetary rewards like vacations and parking spots |
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Compensation Policies for Differentiation |
1. Reward for creativity 2. Reward risk taking; don't punish failures 3. Broad measures of performance |
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Organizational Structure(s) for Cost Leadership |
Functional |
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Organizational Structure(s) for Differentiation |
Cross-functional teams; Complex matrix structure |
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How to create value in fragmented industry? |
Branding |
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How to create value in emerging industry? |
First mover advantage: take market share |
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How to create value in mature industry? |
Refining product/adding service |
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How to create value in declining industry? |
Exploit niches |
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Strategy |
firms theory about how to gain a competitive advantage |
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Competitive advantage |
ability to create more economic value than competitor |
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Economic Value |
difference between the perceived value and cost of production |
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SMART Objectives are: |
Specific, measurable, appropriate, realistic, timely |
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DEPICT tool used for ____ and means |
used for general environment that affects all industries; Demographic, Economic, Poli-Legal, International, Cultural, Technological |
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Porter's Five Forces used to describe ____ and five forces are _____ |
describe industry specific environmental issues; Threat of Suppliers, New Entrants, Rivals, Buyers, Substitutes |
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What came up with Porter's Five Forces? What's the ideal outcome of using this? |
Michael Porter; low because profitability is HIGH when threats are LOW |
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What do use to conduct internal analysis |
VIRO = Valuable, Inimitable, Rare, Organizational |
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Who created VIRO? When? |
Jay Barney - 1991 |
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movingcloser to the raw materials by moving up supply chain into another industry(pre - assembly) |
Backward integration |
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movingcloser to the end consumer farther down the supply chain |
Forward Integration |
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Three BROAD Ways to Diversify |
1. Product Diversification - diversify by offering various types of products 2. Geographic market diversification - diversify by where products are offered 3. Product market diversification - offering multiple products in multiple markets |
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FOUR Economies of Scope |
1. Operational 2. Financial 3. Anticompetitive actions 4. Managerial Incentives |
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Difference between diversification and differentiation |
Diversification means moving into differentmarkets or industries while differentiation is making yourself different in your industry |
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THREE Types of Strategic Alliances |
Nonequity; Equity; Joint Venture |
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Threats in Strategic Alliances |
1. Adverse Selection - misrepresenting the values of skills/abilities 2. Hold up costs - exploit the investment of partners; demanding higher returns than agreed 3. Moral Hazard - providing skills/abilities of lesser value than promised |
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Related vs Unrelated acquistion |
Related acquisition - operational economies of scope, synergies…combined will be higher thanindividual sums
Unrelatedacquisition - final cost to firm is the sum of the two independentorganizations |
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FIVE Economies of Scope in International |
1. To manage corporate risk
2. Leverage current core competencies 3. Develop new core competencies 4. Gain access to low- cost factors of production 5. Gain access to new customers |
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FOUR Organizational Structures for International Strategy |
1. Coordinated Federation - each country is full profit/loss center
2. Centralized Hub - corporate level decisions 3. Decentralized Federation - few relationships among units 4. Transnational Structure - low cost & local; capabilities shared across profit & loss centers |
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When is a strategy of vertical integration difficult for competitors to imitate? |
The function may be costly to imitate if: 1. Integrated resources possess resource combinations that are the result of:Historical uniqueness, Causal ambiguity, Social complexity 2. Capital requirements are prohibitive 3. Strategic alliances may be a substitute for vertical integration |
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When does vertical integration make sense? |
When the focal firm can capture more value than a market exchange provides |
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What controls are used to successfully oversee and implement forms of verticalintegration? |
1. Budgets 2. Board committees 3. Compensation= individuals get bonuses for individual performance + salary; group get bonuses for group performance to support capabilities & stock options for performance to support flexibility |
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Geographic market diversification example? |
US company going into UK market |
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Product diversification example ? |
make bicycles, now going to make vehicles |
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Product-market diversification example? |
L'Oreal making different products for different markets to fit tastes/preferences of locals |
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Three Types of Diversification? |
1. Limited Diversification 2. Related Diversification 3. Unrelated Diversification |
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Types of limited diversification? |
1. Single business = 95% or more of revenues come from a business |
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Types of related diversification? |
1. Related - constrained= less than 70% of firm revenues come from a single business, & different businesses share numerous links & common attributes |
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Unrelated diversification |
Less than 70% of firm revenues come from a single business, and there are few, if any, links or common attributes among businesses |
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What type of diversification is capsim? |
LIMITED |
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When is corporate diversification valuable to the firm? |
hjhjhjjh |
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Subcatergories for Operational Economies of Scope |
1. Shared activities (Input activities like purchasing/warehousing/suppliers/inventory delivery system; production activity like components, assembly facilities, maintenance operation; warehousing and distribution; sales and marketing like common advertising efforts, promotional activities, pricing systems, sales force, order processing services; dealer support and service like dealer training, service network, warranties & guarantees, etc) |
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Subcategories for Financial Economies of Scope |
1. Capital allocation = in an internal capital market, businesses of a firm compete for corporate capital; insiders can allocate capital more efficiently than external capital markets |
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Subcategories for Anticompetitive Economies of Scope |
1. Multipoint Competition/Tacit Collusion = when firms work together to reduce competitive forces to a mutually beneficial level. |
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Subcategories for Incentives to Diversify |
1. Managerial Compensation = compensation tied to firm size, incentivizes managers to increase firm size via employees/sales/etc, larger scope = more compensation |
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What are 4 costly to duplicate economies of scope? |
1. Core Compentencies |
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What are 4 easy to duplicate economies of scope? |
1. Shared activities |
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Which structure is most appropriate for corporate diversification? |
M Form = Multi-divisional structure |
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What is the function of 1. Owners |
1.
2. Monitor decision-making in the firm; ensure decisions are consistent with interests of outside equity holders 4. Responsible for managing day to day of business, oversee managers, compete for capital/exploit corporate economies of scope, have strategic formulation & implementation responsibilies |
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What managerial controls are used in a corporate diversification strategy? |
(1) evaluating performance across divisions;
(2) allocating capital across divisions, and (3) transferring intermediate products between divisions |
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3 Ways Value is Created with Strategic Alliances |
1. Improve Current Operations |
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Subcategories for shape competitive environment |
1. Facilitating tech standards : partners agree on a standard and avoid a battle for the industry standard |
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Subcategories for Facilitate Entry & Exit |
1. Low-cost entry into new industries = partner provides instant access and legitimacy |
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When are strategic alliances valuable, rare, inimitable, and how are they organized? |
Can become this with combo of resources that is hard to figure out (social complexity, causal ambiguity, historical uniqueness) and rare |
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Can an M&A strategy generate a sustained competitive advantage?
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YES, HOW? Exploiting managerial competency/capability |
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Value is created for ____ in M&A strategy at announcement? long term? |
announcement = Target firm long term = acquiring firm |
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Subcategories of Low Cost Factors of Production |
1. Raw Materials |
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Subs of Develop New Core Compentencies |
1. Intent to learn |
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Subs of manage corporate risk |
1. Barriers to diversification may exist for individual equity holders and not for international firms. 2. In private firms, owners can maintain control and manage risk without “cashing out” |
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How do firms organize international business operations? |
1. Market Governance = exporting |