Strategy chapter 4

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bendmar
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Strategy chapter 4
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2013-03-03 21:48:40
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Strategy chapter 4
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  1. What are business level strategies concerned with?
    positioning of specific businesses.
  2. What about corporate level strategies?
    decisions about which businesses to enter and how to enter them.
  3. Two generic business level strategies?
    cost leadership and differentiation.
  4. Cost leadership?
    generate economic value by having lower costs than competitors
  5. Product differentiation?
    generate economic value by offering a product that customers prefer over competitors’product
  6. Why does cost leadership matter?
    • allow the focal firm to have average total costs (ATC) that are less than the
    • industry average total costs
  7. Cost leadership matters because it will allow the focal
    firm to have average total costs (ATC) that are less than the industry average
    total costs (ATCind).
    Thus, an above normal return is possible.
  8. True or false, the

    1-The focal firm does not have to charge a lower price—it can enjoy a wider margin than competitors. (i.e. to be a cost leader a firm doesn’t have to sell at the lowest price)
    TRUE
  9. True or false, If other firms have higher cost (such as the industry average total cost) they can never win a price war with the cost leader (firms in a market with a cost leader have strong incentive not to compete on the basis of price).
    TRUE
  10. True or False, Rather firms have a strong incentive to compete on cost (not price) because of the advantages explained above.
    TRUE
  11. True or False, firms enjoying cost advantages typically face strong competitive pressures on their cost positions.
    TRUE
  12. True or False, finding out that the focal firm is not likely to have a cost advantage may be just as valuable as finding out that the focal firm is likely to have a cost advantage.
    TRUE
  13. average cost per unit falls as quantity increases-until the minimum efficient scale is reached are a cost advantage because competitors may not be able to match the scale because of capital requirements (barrier to entry) or insufficient demand
  14. physical diminishing returns to scale?
    machinesthat handle larger volumes may be prone to more defective pieces and/or may be so expensive as to result in higher average per unit costs
  15. transportation costs?
    trying to cover a vast geographic area from a very large plant may contribute to diseconomies of scale
  16. human factors?
    overly bureaucratic, de-motivated
  17. True or false,

    a firm gets more efficient at a process with experience the more complicated/technical the process, the greater the experience advantage
    True
  18. How differential low cost access?
    • may
    • result from:

    • history—being
    • in the right place at the right time
    • being first into a market—esp. foreign markets

    • natural
    • endowment—owning a mineral deposit

    • locking up a
    • source—buying in bulk all of its output
  19. True or False, A
    single source of cost advantage may be valuable for multiple reasons?
    True
  20. True or False,

    The more threats that are neutralized by the cost advantages a firm possesses, the
    more value they will create.
    True
  21. True or false, may
    become more rare as the industry matures if the minimum efficient scale is
    discovered to be quite large and if industry demand roughly equals industry
    capacity—such that an incremental plant at minimum efficient scale would vastly
    exceed industry demand—this is even more likely as an industry declines
    True
  22. True or false,
    Economies of scale may
    become less rare in a declining industry if demand falls sharply leaving most
    firms with excess capacity—this is not a likely scenario
    True
  23. True or false, Learning curve economies

    are likely to become less rare as the industry matures as competitors also move
    along the learning curve—as the learning curve flattens the advantage of more
    cumulative experience lessens
    True
  24. True or false,

    Differential Low-Cost Access to
    Inputs:

      •  may be rare in emerging industries if the inputs themselves are rare, such as mineral deposits or input factor markets
    that are of limited size, otherwise there is not likely to differential
    low-cost access
    True
  25. True of false, differential low cost access

    may arise (and be rare by definition) as the industry matures if a firm is able to
    tie-up sources of supply by acquiring suppliers or forming exclusivity
    agreements with suppliers
    True
  26. True or false on policy choice

    some valuable policy choices will remain rare if those policies are 1) difficult to
    observe and/or understand, or 2) if the adoption of those policies is costly
    for competitors because of path dependency—other airlines face a large cost
    disadvantage in attempting to adopt some of Southwest Airlines’ human resource
    policies
    True
  27. Non-Proprietary Technology?
    • technology cost advantages based on technology that is not owned and tightly controlled by the focal firm will be less costly to imitate, especially if vendors can sell
    • the technology to the focal firm’s competitors
  28. Highly Observable Technology?
    •   •  technology
    • advantages based on technology that is highly observable can be imitated at
    • lower cost, even when the technology is proprietary because competitors can
    • more easily see a way around the protection (patents)
  29. Transactional Exchange ?
    •   •  Example:  The bonus policy of an appliance manufacturer
    • that has a cost advantage because it uses a bonus system with production line
    • employees to reduce defective parts can easily be imitated.
  30. True or false, economies
    of scale advantages are more costly to imitate in balanced industries because
    would-be imitators face a lower net benefit if they add industry capacity
    (excess capacity will lead to lower overall prices for output, lowering the net
    benefit of entry)—economies of scale present a barrier to entry
    True
  31. True or false, diseconomies
    of scale may be more difficult to recognize for firms that have expanded beyond
    the minimum efficient scale, making the advantage for the focal firm more
    durable
    True
  32. True or false, cost
    advantages that developed through a set of unique historical circumstances may
    be very costly, if not impossible, to imitate?
    True
  33. Protected Technology?
    • a technology protected by patent, copyright, trademark, etc. will present a
    • higher cost of imitation than unprotected technologies—although such protection
    • does not guarantee that imitation will not occur
  34. Highly Unobservable Technology (Causal Ambiguity)
    •   •  a cost
    • advantage based on a relatively unobservable technology will present a high
    • cost of imitation to competitors because they will not know what to imitate
  35. Relational Exchange
    (Social Complexity) ?
    •   •  cost
    • advantages that stem from socially embedded exchanges are more costly to
    • imitate because competitors face the cost (or impossibility) of recreating
    • socially complex relationships
  36. Organizational
    structure?
    • refers to how management responsibilities are divided and the reporting relationships
    • among various managers
  37. Organization
    control?
    • refers to the policies a firm adopts to give people incentives to behave in certain
    • ways.
  38. What are the intentions of the two organization of structure and control?
    • These policies are intended to align the interests of employees with the interests of
    • the organization.
  39. When is functional structure used?
    • functional structure is used to implement strategy at the business level in organizations
    • of significant size
  40. Why do CEO's use a functional structure?
    • -shared cost reduction practices
    • -encourage decision making
    • -coordinate efforts
  41. true or false,

    Most successful cost leaders have strong cultural norms that focus the attention of
    employees on achieving low costs.
    true
  42. compensation policies?
    orginizational control
  43. true or false,

    Successful cost leaders implement their business level strategies such that the whole organization is focused on cost consciousness?
    true

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