MODULE 8

Created by

Naz

Cards (57)

Why engage in business?
Business firms are in quest for profit and competitiveness
Strategy 
means trying to slow erosion
Firms have a competitive advantage 
Deliver the same product or service benefits as competitors at a lower cost
Firms have a competitive advantage 
They can deliver superior product or service benefits at a similar cost
Strategy 
about raising price or reducing cost
Strategy 
all about how to increase the size of the profit box
Customer Value 
Maximum willingness to pay
Strategy 
a plan of action or policy designed to achieve a major or overall aim
Strategy 
a carefully developed plan or method for achieving a goal or the skill in developing and undertaking such a plan or method
Strategy 
Long-range plans for the effective management of environmental opportunities and threats, in light of corporate strengths and weaknesses
Strategy 
The "hows'" of doing business
Level of Strategy
Corporate Strategy
Business Strategy
Functional Strategy
Corporate Strategy 
describes a company's overall direction
Corporate Strategy
describes a company’s overall direction regarding its general attitude toward growth and the management of its businesses and product lines to achieve a balanced portfolio of its products and services.
Corporate Strategy 
examples: growth/expansion, stability, retrenchment, concentration, integration
Business Strategy 
also known as competitive strategy
Business Strategy 
usually is developed at the divisional level and emphasizes improving the competitive position of a corporation’s products or services in the specific industry or market segment served by that division.
Business Strategy 
Examples are cost-leadership and differentiation
Functional Strategy
concerned primarily with maximizing resource productivity at the departmental level
Functional Strategy 
Examples are market development, technological followership, and technological leadership
Strategy 
the art of matching the resources and capabilities of a firm to the opportunities and risks in its external environment for the purpose of developing a sustainable competitive advantage
Two Perspectives or Schools of Thought
Industrial organization economics
Resource-based view
Industrial organization economics 
Locates the source of advantage at the industry level
Resource-based view 
build the right firm; locate the source of advantage at individual firm level
Industry 
the key issue
Under the IO view of strategy, focus on the external environment
Industry structure 
determines the conduct of firms, which in turn determines their performance
Typical structure characteristics that are of interest to IO researchers
Barrier to entry
Product differentiation among firms
The number and seize distribution of firms
The key to generating economic profit for a business is its selection of industry
According to the Five Forces model of Michael Porter
the best industries are characterized by:
high barriers to entry
low buyer power
low supplier power
low threat from substitutes
low levels of rivalry between existing firms
(cooperation from complementary products)
The advice is to pick a good industry and work to make it even more attractive
Industry 
comprised of a group of firms producing products that are close substitutes to each other to serve each other
For a multi-product company, industry analysis may need to be done on a product-by-product basis
To use the Five Forces model, one must consider "value capture"
Because you are in an industry that creates value, it already means that you are going to capture it
False
Value is created in each industry and distributed across suppliers, industry rivals, and buyers
Five Forces Model 
Helps you think about how much of the industry value your firm is likely to capture
Suppliers 
the providers of a any input to the product or service
Suppliers 
power tends to be higher when the input provided are critical inputs or highly differentiated
Concentration among suppliers gives suppliers power because a firm will have fewer bargaining options