What is a Strategy?
Strategy refers to actions that managers take to attain the goals of the firm.
What is the goal of a firm?
To maximize the value of the firm for owners and
shareholders.
What is profitability?
The rate of return a firm makes on its invested capital.
Divide net profits by total invested capital.
What is profit growth?
Measures percentage increase in net profits over time.
What are the determinants of enterprise value?
Profitability and Profit Growth
How is value creation measured?
Measured by the difference between a firm’s costs of
production and the quality/value that consumers perceive in its products.
What are Porter’s two strategies for value creation?
Low Cost and Differentiation
According to Porter, to maximize profitability, a firm must:
- Pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice.
- Configure its internal operations, such as manufacturing, marketing, logistics, information systems, human resources, and so on, so that they support that position.
- Make sure that the firm has the right organizational structure in place to execute its strategy.
What are the value chain creation activities?
- Production.
- Marketing and sales.
- Materials management.
- R&D.
- Human resources.
- Information systems.
- Infrastructure.
What are supporting activities in a value chain?
- Information systems
- Logistsics
- Human resources
What are the primary activities in a value chain?
- R&D
- Production
- Marketing and Sales
- Customer Service
What is the definition of primary activities in a value chain?
Anything that directly adds value to a product or service.
What is the definition of supporting activities in a value chain?
Provide inputs that allow the primary activities to occur.
International firms are able to:
- Expand the potential size of the market for domestic products.
- Realize location economies.
- Realize greater cost economies from experience effects.
- Earn a greater return on investment.
What are core competencies?
Skills within the firm that competitors cannot easily match or imitate.
What is an Experience Curve?
Systematic reductions in production costs that have been observed to occur over the life of a product.
What are learning effects?
Cost savings that come from learning by doing.
What is economics of scale?
Reductions in unit cost from producing large volumes of a product.
What is strategic significance?
Moving down the experience curve allows a firm to reduce its cost of creating value and increase its profitability.
What are the four international strategies for value creation when entering a new market?
- Global standardization.
- Localization strategy.
- Transnational strategy.
- International strategy.
What is the Global Standardization Strategy?
• Looks to reap the cost reductions that come from
economies of scale, learning effects, location economies.
• Production, marketing, R&D, and supply chain activities are concentrated in a few favorable locations.
• Avoids customization.
What is the goal of the Global Standardization Strategy?
The goal is to pursue a low-cost strategy on a global scale.
When is it most appropriate to use the Global Standardization Strategy?
Makes the most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.
What is the Localization Strategy?
Customizes the firm’s goods or services so they are a
good match to tastes and preferences in different national markets.
