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Strategic MGMT Exam 2
Terms in this set (51)
overall cost leadership, differentiation, and focus
Michael Porter presented these 3 generic strategies that a firm can use to overcome the five forces and achieve competitive advantage
A tight set of interrelated tactics that include:
-aggressive construction of efficient-scale facilities
-vigorous pursuit of cost reductions from experience
-tight cost and overhead control
-cost minimization in all activities in the value chain
Overall cost leadership requires...
Automated technology to reduce scrappage rates
-In order for a firm to attain a cost leadership position using its technology development support activity, it should use automated technology effectively to reduce scrappage rates
A firm can attain an overall cost leadership position by using...
ALL value chain activities, including relationships among them, as candidates for cost reductions
Managers should explore...
-Based on the choice of a narrow competitive scope within an industry
-A firm following this strategy selects a segment or group of segments and tailors its strategy to serve them
-The essence of __________ is the exploitation of a particular market niche
-To be successful within a market niche, the key strategic requirement is to stay focused
-As you might expect, too narrow is simply not sufficient for above-average performance
-Often associated with small businesses because there is a natural fit between the narrow scope of the strategy and the small size of the firm
-May include elements of differentiation and overall cost leadership, as well as combinations of these approaches
Potential pitfalls of focus strategies
-Too focused to satisfy buyer needs
-May have too narrow of a product or service
-Nothing is forever
-Rapid changes in technology, globalization, and actions by rivals from within and outside of the industry can quickly erode this
-It's becoming increasingly important to recognize that the duration of __________________ is declining, especially in technology intensive industries
Industry Life Cycle
-Refers to the stages of introduction, growth, maturity, and decline that occur
-It's useful to think in terms of broad product lines such as personal computers, photocopiers, or long distance telephone service
-Changes tend to be slower than what is needed for forecasting
Growth Stage of the Market Life Cycle
-customers are very likely to establish brand loyalty
-the primary key to success is to build consumer preferences for specific brands
-this requires strong brand recognition, differentiated products, and the financial resources to support a variety of value-chain activities such as marketing and sales, and research and development
Repeating a process until a task becomes easier
One aspect of using a cost leadership strategy is that experience effects may lead to lower costs. Experience effects are achieved by
Key to an overall cost leadership strategy is the ________________ which refers to how business learns to lower costs as it gains experience with production processes
-With experience, unit costs of production decline as output increases in most industries
higher than firms that achieve either a cost or a differentiation advantage
-One study found that businesses combining multiple forms of competitive advantage outperformed businesses that used only a single form
Research has consistently shown that firms that achieve both cost leadership and differentiation advantages tend to perform
overall cost leadership
-Renault has found a way to generate high profits on low-priced cards by using simple designs that incorporate components from older car designs and a no-discount retail policy
-They are using a(n) ______________ strategy which requires a tight set of interrelated tactics that include: aggressive construction of efficient-scale facilities and vigorous pursuit of cost reductions from experience
-Cost cutting may lead to the loss of desirable features
-Too much focus on one or a few value-chain activities
-All rivals share a common input or raw material
-The strategy is imitated too easily
-A lack of parity on differentiation
-Erosion of cost advantages when the pricing information available to customers increases
What are some risks or potential pitfalls of cost leadership?
a market segment or group of segments
-based on the choice of a narrow competitive scope within an industry
-A firm following this strategy selects a segment or a group of segments and tailors its strategy to serve them
-The essence of focus is the exploitation of a particular market niche
A firm following a focus strategy must focus on...
-Rapid changes in technology
-Actions by rivals within the industry
Company competitive advantages can be eroded by...
It has important implications for company generic strategies, functional areas, value-creating activities, and overall objectives
Which of these statements regarding the industry life cycle is true?
In the __________ stage of the industry life cycle, the emphasis on product design is very high, the intensity of competition is low, and the market growth rate is low
-products are unfamiliar to consumers, market segments are not well defined, and product features are not clearly specified
-involves low sales growth, rapid technological change, operating losses, and the need for strong sources of cash to finance operations
-Since there are few players and not much growth, competition tends to be limited
In the __________ stage of the industry life cycle, there are many segments, competition is very intense, and the emphasis on process design is high
A market that mainly competes on the basis of price and has stagnant growth is characteristic of this cycle stage
-Aggregate industry demand softens
-As markets become saturated, there are few new adopters
-Rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising
In the __________ stage of the industry life cycle, there are few segments, the emphasis on process design is low, and the major functional areas of concern are general management and finance
Many acquisitions ultimately result in __________ which is an admission that things did not workout as planned
If a multinational firm is unable to understand how the acquired company's assets would fit with their own lines of business, it can lead to __________
gaining long-term revenue, profits, and market value through managing operations in multiple businesses
Corporate-level strategy focuses on...
-Not all diversification moves, including those involving mergers and acquisitions, erode performance
-For example, acquisitions in the oil industry, such as the British Petroleum purchases of Amoco and Arco, are performing well as is the Exxon-Mobil merger
-MetLife was able to dramatically expand its global footprint by acquiring Alico, a global player in the insurance business from AIG in 2010 when AIG was in financial distress
Does all diversification move, including those involving mergers and acquisitions, erode performance?
Horizontal relationships which are businesses sharing intangible (e.g., core competencies such as marketing) and tangible (e.g., production facilities, distribution channels) resources
When firms diversify into related businesses, the primary potential benefits come from...
derived largely from hierarchical relationships, which is value creation derived from the corporate office
-Horizontal relationships are the primary benefit of diversification into related businesses
When a corporation diversifies into unrelated businesses, the primary potential benefits are...
Economies of scope
cost savings from leveraging core competencies or sharing related activities among businesses in a corporation
it must meet three criteria:
-it must enhance competitive advantage by creating superior customer value
-different businesses in the corporation must be similar in at least one important way related to the core competence
-it must be difficult for competitors to imitate or find substitutes for it
For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation...
-With Watson, the unique computer developed by IBM that processes natural language, they were able to leverage their computing expertise(core competence) to solve important medical problems and thus become medical experts
(T/F) IBM leverages its competencies in computing technology to provide health care services. This is an example of a core competence being used across dissimilar businesses within the same corporation
they can enable a firm to rapidly enter new product markets
-has been critical to many corporations in a wide variety of high-technology and knowledge-intensive industries
-Speed (speed to market, speed to positioning, and speed to becoming a viable company) is critical in such industries
An advantage of mergers and acquisitions is that...
represent a special case of alliances, wherein two (or more) firms contribute equity to form a new legal entity
-entering new markets
-reducing manufacturing (or other) costs in the value chain
-developing and diffusing new technologies
Strategic alliances and joint ventures have many potential advantages which include:
not having to share the wealth with alliance partners or face the difficulties associated with combining activities across the value chains of several firms or merging corporate cultures
Compared to mergers and acquisitions, firms that engage in internal development capture the value created by their own innovative activities by...
-The acquiring company pays a premium for the common stock of the target company
-Top executives act in their best interests rather than those of the shareholders
-The acquired company assets are poorly integrated into the acquiring company business lines
Reasons for merger and acquisition failures
-mergers and acquisitions
Diversification initiatives include...
related diversification to acquire economies of scope by leveraging core competencies
3M leverages its competencies in adhesives technologies to many industries, including automotive, construction, and telecommunications. This is an example of using...
Proctor and Gamble is a large multinational organization that has many business sharing distribution resources
-Diversification strategies take advantage of the __________ that exist in their organization
-This word means working together
the suppliers of raw materials to the firm are unable to maintain quality standards
if the company is not satisfied with the quality of the value that its present suppliers and distributors are providing
A firm should consider vertical integration when
transaction costs are higher than internal administrative costs
-If transaction costs are higher than administrative costs, that is, those costs incurred when coordinating the activities elsewhere in the value chain
Vertical integration is attractive when...
-mergers and acquisitions (corporations can directly acquire company assets and competencies)
-joint ventures and strategic alliances (corporations may agree to pool the resources of other companies with their resource base)
-internal development (corporations may diversify into new products, markets, and technologies through internal development)
The primary means by which a firm can diversify are...
-The firm is able to capture wealth created without having to share the wealth with alliance partners
-Firms can often develop products or services at a lower cost, if they rely on their own resources instead of external funding
-Many companies use internal development to extend their product or service offers
refers to new value creation and can include activities in major corporations
-usually associated with start-up companies
-new value can be created in many different contexts including: start-up ventures, major corporations, family-owned businesses, non-profit organizations, and established institutions
-The process of identifying, selecting, and developing new venture opportunities is known as...
-Refers to more than just the Eureka feeling that people sometimes experience at the moment they identify a new idea
-Although such insights are often very important, this process involves TWO phases of activity (discovery and evaluation) that lead to viable new venture opportunities
low-budget start-ups launched with personal savings and the contributions of family and friends
Most entrepreneurial firms first seek financing from...
private individuals who provide equity investments for seed capital during the
stages of a new venture
pioneering new entry
breakthrough, creating new ways to solve old problems or meeting customer needs in a unique new way
-New entrants with a radical new product or highly innovative service may change the way business is conducted in an industry
adaptive new entry approach
-Does not involve reinventing the wheel nor is it merely imitative either
-It involves taking an existing idea and adapting it to a particular situation
Entrepreneurial competitive dynamics
Refers to a cycle of actions and responses between firms competing for the same customers
-Intense rivalry, involving actions and responses, among similar competitors vying for the same customers in a marketplace
tactical competitive actions
Cutting prices or increasing marketing efforts are examples of...
-Refinements or extensions of strategies
EX: cutting prices, improving gaps in service, or strengthening marketing efforts. Such actions typically draw on general resources and can be implemented quickly
What are the characteristics of an entrepreneurial opportunity?
personal savings, private investors, and investments by friends and family
primary sources of financing for entrepreneurial start-ups
Which of the following is the most important resource for a start-up activity?
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