Strategy and contemporary issues > Chapter 8 > Flashcards

Chapter 8 Flashcards

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1
Q

What are the three distinct branches of an organization’s business strategy?

A
  • Generic competitive strategies
  • Interactive strategies
  • Business models

These themes provide the structure for understanding business strategy and models.

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2
Q

Define competitive strategy.

A

How a company achieves competitive advantage in its domain of activity

It involves issues such as costs, product features, and branding.

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3
Q

What are the two fundamental means of achieving competitive advantage?

A
  • Lower costs than competitors
  • Differentiated products or services valued by customers

These advantages allow a company to create greater value than its rivals.

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4
Q

True or false: An organization must create greater value than competitors to have a competitive advantage.

A

TRUE

Without a competitive advantage, an organization is vulnerable to competitors with better products or lower prices.

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5
Q

What are the four key cost drivers that can help deliver cost leadership?

A
  • Input costs
  • Economies of scale
  • Experience
  • Product/process design

These drivers contribute to an organization’s ability to maintain the lowest costs.

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6
Q

Fill in the blank: Cost-leadership strategy involves becoming the systematically _______ organization in a domain of activity.

A

lowest-cost

An example is Ryanair, which saves costs in various operational aspects.

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7
Q

What is the experience curve?

A

Cumulative experience gained by an organization with each unit of output leading to reductions in unit costs

It implies that costs can decrease as production volume increases.

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8
Q

What are the two options for cost leaders regarding product or service features?

A
  • Parity with competitors
  • Proximity to competitors

Parity allows charging average prices, while proximity allows for slightly lower prices with maintained profits.

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9
Q

What does differentiation strategy involve?

A

Uniqueness along a dimension valued by customers allowing a price premium

An example is Miele, which targets higher-income households with high-quality appliances.

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10
Q

What are the basic components of business models?

A
  • Value creation
  • Value configuration
  • Value capture

These components are essential for understanding how organizations operate and deliver value.

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11
Q

What is the role of competitive advantage in competitive strategy?

A

To create value for users greater than the costs of supplying them and superior to rivals

Competitive advantages should underpin competitive strategies.

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12
Q

What is the principal alternative to cost leadership?

A

Differentiation strategy

Differentiation involves uniqueness along dimensions valued by customers to allow a price premium.

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13
Q

Give an example of a company that pursues a differentiation strategy in the domestic appliance industry.

A

Miele

Miele targets higher income households with high-quality and durable appliances.

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14
Q

In clothing retail, competitors may differentiate by which dimensions?

A
  • Store size
  • Locations
  • Fashion

These dimensions vary between markets and influence competitive strategies.

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15
Q

What are the three primary differentiation drivers to consider?

A
  • Product and service attributes
  • Customer relationships
  • Complements

Each driver plays a crucial role in establishing a differentiation strategy.

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16
Q

Fill in the blank: Differentiation can rely on the relationship between the organization and the customer, often relating to how the product is perceived by the _______.

A

customer

Perceived value can increase through customer services and responsiveness.

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17
Q

What is an example of a company that customizes its products to meet specific customer needs?

A

SAP

SAP customizes its standardized software for business-to-business clients.

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18
Q

What is a key aspect of Vanguard’s low-cost strategy in the mutual fund industry?

A
  • Lower annual fees
  • Direct distribution to customers
  • Internalized investment advisory functions

Vanguard’s approach contrasts with traditional high-fee, actively managed funds.

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19
Q

True or false: Vanguard is a listed company.

A

FALSE

Vanguard is a mutual company owned by its clients, allowing it to roll profits back into the business.

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20
Q

What are the two variants of a focus strategy?

A
  • Cost focus strategy
  • Differentiation focus strategy

Each variant targets a narrow segment with tailored products or services.

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21
Q

Give an example of a company that follows a cost focus strategy.

A

Ryanair

Ryanair targets price-conscious travelers with a no-frills approach.

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22
Q

What are the three key factors for successful focus strategies?

A
  • Distinct segment needs
  • Distinct segment value chains
  • Viable segment economics

These factors help maintain competitive advantage in targeted segments.

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23
Q

Fill in the blank: A hybrid strategy combines different generic strategies but requires careful consideration of the fundamental trade-off between low cost and __________.

Study These Flashcards
A

differentiation

Hybrid strategies can be complex and should be pursued cautiously.

24
Q

What is an example of a company that successfully uses a hybrid strategy?

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A

IKEA

IKEA combines low prices with differentiated Scandinavian design.

25
What is the challenge of managing **SBUs** with different generic strategies?
Preventing negative spillovers ## Footnote High head office costs from differentiated strategies can burden low-cost SBUs, while low-cost strategies may damage brand value of differentiated SBUs.
26
What are the two types of market spaces in the **Blue Ocean Strategy**?
* Blue Oceans: Uncontested market spaces * Red Oceans: Well-defined industries with intense rivalry ## Footnote Blue Oceans represent opportunities with minimal competition, while Red Oceans are characterized by fierce competition.
27
What is a **strategy canvas** used for in Blue Ocean Strategy?
To compare competitors based on **critical success factors (CSFs)** ## Footnote It helps managers visualize competitor positioning and identify new strategies.
28
Define **value innovation**.
Creation of new market space by excelling on established CSFs or creating new CSFs ## Footnote It represents previously unrecognized customer wants and can lead to competitive advantage.
29
What are **critical success factors (CSFs)**?
* Factors valued by customers * Factors providing significant cost advantages ## Footnote CSFs are essential for establishing competitive advantage or disadvantage.
30
What does a **value curve** depict?
Customers' perception of competitors' performance across **critical success factors** ## Footnote It visually represents how different competitors perform relative to each other.
31
True or false: A **value innovator** excels on established CSFs while also creating new ones.
TRUE ## Footnote Value innovators effectively meet customer needs and introduce new factors that enhance their competitive position.
32
What should a high-cost organization consider when facing a **low-cost competitor**?
* Threat assessment * Differentiation response * Cost response ## Footnote These considerations help determine the appropriate strategic response to competitive threats.
33
What is the importance of **game theory** in competitive strategy?
It provides insights into competitor interactions and when to compete or cooperate ## Footnote Game theory helps strategists anticipate competitor moves and adjust their strategies accordingly.
34
What are the two guiding principles of interdependence in competition?
* Get in the mind of competitors * Think forwards and reason backwards ## Footnote These principles help strategists understand competitor behavior and plan their own moves effectively.
35
What is the **prisoner's dilemma** in game theory?
A situation where two interdependent players must choose between cooperation and betrayal ## Footnote It illustrates the complexities of trust and decision-making in competitive environments.
36
What is the **prisoner's dilemma** in the context of mutual loyalty?
A situation where two prisoners must decide to either stay silent or betray each other, affecting their outcomes based on trust ## Footnote The dilemma highlights interdependence and the challenge of cooperation without communication.
37
In business, which two major players are compared in the **prisoner's dilemma**?
* Airbus * Boeing ## Footnote This analogy illustrates strategic decision-making in competitive environments.
38
What is a key challenge in the **prisoner's dilemma** for companies?
Achieving cooperation while facing tight interdependence ## Footnote Cooperation is attractive but difficult due to competition.
39
True or false: Game theory is commonly used as a strategic tool in the public sector.
FALSE ## Footnote Game theory has often been viewed as too theoretical for real-world managerial problems.
40
What are the **basic principles** of game theory used for in public-sector organizations?
* Evaluating strategic options * Understanding partners' intentions * Anticipating behavior under different circumstances ## Footnote These principles help in improving public services through collaboration.
41
What is the purpose of **war gaming** in public-sector organizations?
To simulate interactions among various stakeholders and develop insights ## Footnote War gaming helps prepare for government reforms by testing strategies against simulated opponents.
42
What roles do participants play in a **war game** for healthcare systems?
* Payers * Hospitals * Physician groups * Regulators * Suppliers ## Footnote Participants act as different stakeholders to explore responses to challenges.
43
What are the **three fundamental elements** of business models?
* Value creation * Value configuration * Value capture ## Footnote These components explain how businesses create and share value among stakeholders.
44
How does **Airbnb** create value for its users?
* Provides a platform for hosts and guests * Offers a wide selection of accommodations * Includes a review system for trust ## Footnote This model facilitates transactions between hosts and guests effectively.
45
What does the **value capture** component of a business model describe?
* Revenue streams * Cost structures * Apportioning value between stakeholders ## Footnote This component explains how profit is generated and shared.
46
What is a common **business model pattern** that focuses on value capture?
Razor and blade model ## Footnote This model involves selling a primary product at low cost and capturing revenue through high-margin complementary products.
47
Give an example of a **razor and blade** business model.
* Gillette razors and blades * Mobile operators offering cheap phones with subscription plans * Ink-jet printers and expensive ink ## Footnote These examples illustrate how companies use this model to generate ongoing revenue.
48
What is the significance of **network effects** in business models?
They enhance value creation as more users join the network ## Footnote This effect can lead to competitive advantages for platforms like Airbnb.
49
What is a **fee-based subscription plan**?
A model where services, maintenance, and parts are priced expensively while the basic product is sold at low margins ## Footnote Example: Ink-jet printers are sold cheaply, but manufacturers profit from expensive ink.
50
Define the **freemium** business model.
A model offering a basic version of a service for free to attract users, with revenue generated from a small portion of premium customers ## Footnote Example: Flickr offers free photo sharing but charges for premium services.
51
Name two companies that use the **freemium** model.
* LinkedIn * Spotify ## Footnote These companies attract a large user base with free services and convert a portion to premium subscriptions.
52
What is a **multi-sided platform**?
A platform that brings together two or more distinct, interdependent groups of participants to interact ## Footnote Example: YouTube connects video creators, viewers, and advertisers.
53
List three examples of **multi-sided platforms**.
* Uber * Airbnb * Amazon ## Footnote These platforms facilitate interactions between different user groups, enhancing value for each side.
54
What are the **three important factors** to consider in platform strategies?
* Platform distinctiveness and size * Choosing platform sides * Multi-homing costs ## Footnote These factors influence the success and competitiveness of a platform.
55
True or false: **Network effects** mean that the value of a platform increases as more participants join.
TRUE ## Footnote More users enhance the platform's value for all participants.
56
What is meant by **multi-homing costs**?
Costs incurred by participants when using multiple platforms simultaneously ## Footnote Example: Transferring data between different social media platforms can be cumbersome.
57
What is the **life cycle** of a competitive advantage?
* Launch stage * Ramp-up period * Exploitation phase * Erosion phase ## Footnote Companies must manage these stages to maintain competitiveness.
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