MGMT 110 Midterm Review, Business Strategy Essentials

Economies of Scale

a reduction in costs per unit due to increases in efficiency of production as the number of goods being produced increases

Fixed cost of production

costs such as plant and equipment, which are relatively fixed, meaning that they don't increase with an increase in number of units produced

general and administrative costs

expenses and taxes that are directly related to the general operation of the company and executive salaries, general support, and taxes related to the overall administration of the company

Task specialization

breaking a large process into smaller tasks that required specialized knowledge

employee specialization

Increased efficiency that results when employees perform a narrow range of tasks over and over again, leading them to acquire specialized knowledge that helps them complete the task more efficiently

Scale curve

a graphic representation of the relationship b/w cost per unit and scale (volume) of production in a given time period

Minimum Efficient Scale

The smallest level of output (unit volume) that a plant or firm can produce to minimize its long run avg costs

In a graphic presentation of output/unit volume (x axis) and cost per unit (y axis), it is the output level where costs per unit flatten and no longer continue going down with increased output

Diseconomies of scale

an increase in marginal cost when output is increased

Economies of scope

avg total cost of production decreases as a result of increasing the number of different goods produced

Cost advantage strategy

a strategy in which the unique value offered to customers is lower priced products or services

Learning curve

concept that labor costs per unit decrease with increases in volume due to learning. new skills or knowledge can be quickly acquired initially, but subsequent learning becomes slower

Experience Curve

a representation of the relationship b/w cumulative volume and product cost

law of experience

costs per unit decrease with increases in cumulative volume of production (inverse)

Relative cost

the costs incurred by one company compared to the costs paid by a competitor

Proprietary knowledge

information that is not public and that is viewed as the property of the holder

Inputs

resources such as people, raw materials, energy, information, or financing that are put into a system (such as an economy, manufacturing plant, computer system, etc.) to obtain a desired output

business model

the plan and set of activities implemented by a company to offer unique value and generate revenue and make a profit from operations

Value Chain

The sequence of all activities that are performed by a firm to turn raw materials into the finished product that is sold to a buyer

Product Differentiation

a strategy whereby companies attempt to gain competitive advantage by offering value that is not available in other products or services or that other products don't do as well

Mass customization

when a company mass-produces the various modules of the product and then allows the customer to select which modules will be combined together

Network effects

when some products or services are more convenient to use because there is a large network of other users

Brand image

When products are differentiated through marketing, via advertisements, promotions, and other marketing activities

Prestige brands

when products are differentiated by being associated with positive qualities in the minds of customers

Customer segmentation

Grouping customers based on similar needs

Customer segments

groups of people who share similar needs and thus are likely to desire the same features in a product

mapping the consumption chain

identifying all the steps through which customers pass, from the time they first become aware of your product to the time when they finally have to dispose of it or discontinue using it

business strategy

A plan to achieve competitive advantage involving strategic choices in markets, unique value, resources, and ways to sustain advantage

competitive advantage

Consistently higher profits compared to competitors

market

The industry, customer segment, or geographic area a company competes in

unique value

The reason a firm wins with customers, such as low cost advantage or differentiation advantage

above-average profits

Returns exceeding expectations from investments with similar risk

strategic management process

Formulating a plan and allocating resources to achieve competitive advantage

external analysis

Examining forces influencing industry attractiveness, including opportunities and threats

internal analysis

Assessing a firm's resources and capabilities to deliver unique value effectively

cost advantage

Firm's advantage in producing a product or service at lower cost

differentiation strategy

Making a product more attractive by offering unique qualities

mission

A company's primary purpose specifying the business or customers it intends to serve

SWOT analysis

Evaluating strengths, weaknesses, opportunities, and threats in a business

price sensitivity

The degree to which price affects consumers' willingness to purchase

segmentation analysis

Dividing customers into groups based on similar needs or wants

resource-based review of firm

Determining the strategic resources available to a company

corporate strategy

Decisions about what markets to compete in, made by executives

business unit strategy

Decisions about how to gain and sustain advantage for each standalone business unit

functional strategy

Decisions about implementing business unit strategy within functional areas

strategy vehicles

Activities and choices influencing a firm's ability to enter markets, deliver unique value, or create barriers

strategy implementation

Translating a chosen strategy into organizational action

strategic leaders

Organizational leaders formulating and implementing strategy for survival and success

deliberate strategy

A plan formulated through a deliberate planning process to achieve organizational goals

emergent strategy

A plan that develops over time in an organization despite a mission or goals

stakeholders

Those with a share or interest in the activities and performance of an organization

shareholders

Owners of a company

rivalry

Competition among firms within an industry, limiting profit potential

substitute

A product serving the same function as another product

threats

Conditions endangering the profitability of a firm in the competitive environment

opportunities

Ways of taking advantage of conditions in the environment to become more profitable

attractiveness of an industry

The degree to which an average firm in the industry can earn good profits

switching costs

Barriers imposing extra costs for buyers to switch suppliers

supplier

A firm providing products that are inputs to another firm's production process

backward integration

A firm purchases its suppliers to make a product itself

forward integration

A firm goes into the business of its former buyers

barriers to entry

Ways organizations make it difficult for potential entrants to get a foothold in the industry

network effects

Growth in demand for a firm's product resulting from a growth in the number of existing customers

complementary products or services

Products or services used in tandem with those from another industry

value chain

A visual description of the steps required to turn raw materials into finished products and/or services

resources

All assets, brands, land, information, knowledge, etc., controlled by a firm

capabilities

Procedures, processes, and routines firms employ in their activities

priorities

A firm's values and rankings of what is most important

assets

Tangible or intangible resources creating economic value for the firm

operating capabilities

Procedures, processes, or routines for delivering value to stakeholders

dynamic capabilities

Procedures, processes, and routines continuously expanding resources or improving operating capabilities

value

Worth or utility

rarity

To be uncommon, or not available to other competitors

inimitability

The degree of difficulty a competitor would face in copying the value of a resource

positive network externalities

When the value of a product increases with the number of users

virtuous circle

When more sellers attract more buyers, who, in turn, attract more sellers

organized to exploit

The degree to which the firm captures rents generated by resources

competitive failure

When firms can't create value for their stakeholders and don't survive

competitive parity

When a company survives but has no real competitive advantage over rivals

sustained competitive advantage

When firms capture high profits from valuable, rare, and inimitable resources, capabilities, or priorities