Exam 2 strategic management seminar

Chaining

Pursuing scale economies by establishing a network of linked outlets 

Franchising

franchisor grants the franchisee the right to use the franchisors name, reputation and business model

advantages of a franchise

finance growth, Facilitates rapid expansion, Franshisees have a strong incentive to operate efficiently, Improve performance

disadvantage of a franchise

looser control of operations, franchisees leech profits, franchisees may face a higher cost of capital 

Horizontal integration/mergers

merging with or acquiring competitors and combining them into a single large enterprise 

Value innovator

expand the industry’s efficiency frontier. Offer value at a lower cost by developing economies of scale.

what company is considered chaining?

Starbucks

What companies are franchised?

Mcdonalds, jimmy johns, super 8

What special problems do companies face in embryonic and growth industries?

limited customer demand in embryonic industry

why is there limited customer demand in embryonic industry?

• Limited performance and poor quality of the first products

• Customer unfamiliarity with the product

• Poorly developed distribution channels

• Lack of complementary products

Describe the different strategies a firm may use to deter entry into a mature industry.

 Product proliferation strategy, Limit price strategy, Strategic commitments:

 Product proliferation strategy

catering to the needs of all market segments to deter entry by competitors 

Limit price strategy

charging a price that doesn’t maximize profits in the short run, but increases profits because it too low for new entrants to match 

Strategic commitments:

 investments that signal an incumbents long-term commitment to a market or a sement of the market 

Describe the different strategies a firm may use to manage rivalry in a mature industry.

 Price signaling, Price leadership, Market penetration, Product development, Market development, Product proliferation

 Price signaling

companies increase or decrease product prices to:

• Convey their intentions to other companies 

• Influence industry prices 

Price leadershi

when one company assumes responsibility for determining the pricing strategy that maximizes industry profitability

Market penetration

concentrates on expanding market share in existing product markets

Product development

creation of new or improved products to replace existing products

Market development

when a company searches for new market segments to increase the sale of its existing products

Product proliferation

 large companies in an industry have a product in each market segment 

 importance of capacity control

 Companies devise strategies to control or benefit from capacity expansion 

Factors causing excess capacity:

• New technologies that produce more at less cost

• New entrants in an industry 

• Economic recession that causes global overcapacity 

• High growth of demand in an industry that triggers overly rapid expansion

Explain the importance of capacity control, and describe what companies can do to manage their capacity strategy.

• 1. Each company individually can try to preempt its rivals 

  • Move quickly based on accurate demand forecasts

    • First- movers advantages & scale economies, risky

• 2. Companies can collectively coordinate to be aware of the mutual efffects of thier acitons 

  • Share forecasts & investment decisions through media 

  • Explicit coordination is illegal- antitrust 

Describe the different strategies that companies can use to compete in declining industries.

Leadership strategy:, Niche strategy, Harvest strategy, Divestment strategy

Leadership strategy

company develops strategies to become the dominant player n a declining industry

Niche strategy

company focuses on pockets of demand that are declining more slowly than the industry 

Harvest strategy

company reduces employes assets to a minimum to reduce its cost structure and extract maximum profits from its investment

Divestment strategy

when a company decides to exit an industry, be selling off its business assets to another company 

network effects

• complementary products determine demand for an industry's products 

  • Cell phones & PCs- software applications (keurig, k-cups)

Positive feedback loops:

• an increase in demand for a technology triggers an increase in demand for supporting products

Lockout

• alternative standards get locked out as consumers are unwilling to bear the switching costs 

Describe the strategies that firms can use to attempt to win format wars.

Razor and blade strategy
Leverage killer applications:
Ensure a supply of complements
Cooperate with competitors

Razor and blade strategy:

 pricing the product low to stimulate demand, and pricing the compliments high

Explain how the cost structure of many high-tech firms differs from traditional firms, and articulate the strategic implications thereof.

Traditional industries display law of diminishing returns:
High-tech industry cost structures tend towards: High fixed costs & low marginal costs

law of diminishing returns:

• marginal costs rise as a company expands output

  • More labor, more plant and machinery

Explain the nature of technological paradigm shifts and their different implications for the strategies of established companies versus new entrants

• Shifts in technology that: revolutionize industry structure

• Dramatically alter the nature of competition

• Require new strategies for survival 

What is globalization?

• Globalization of production and markets: 

  • Increased as companies took advatnatge of lower barriers to international trade and investment 

  • National markets started merging into one global marketplace 

How does globalization impact modern organizational strategy?

• Implications

  • Foreign competitors entering firms ’s home markets

  • Thus, it is critical to maximize efficiency, quality, innovativeness, and customer responsiveness

Explain the different ways in which international expansion can lead to competitive advantage.

• Sell goods internationally to increase growth rate 

• Spreading fixed costs over its global sales volume

• Production facilities are utilized more intensively when serving a global market

• Bargaining power with suppliers & distributors

• Increasing sales volume more rapidly 

What are the two types of pressures which influence the decision to pursue one of the four broad types of global strategies?

Pressure for local responsiveness
Pressure for cost reductions-

Pressure for local responsiveness-

1. Occurs as a result of- differences in customer tastes and preferences

2. Differences in distribution channels and business practices

3. Host government demands and legal standards 

Pressure for cost reductions-

1. Pressure is intense when: industry produces commodity-type products

2. Product serves universal needs

3. Major competitors are based in low-cost locations, there is excess capacity, and or consumers face low switching costs 

List and explain the four different strategies companies use to compete in the global marketplace.

Global standardization strategy, Localization strategy, International strategy,Transnational strategy

Global standardization strategy

pursuing low cost strategy on a global scale. Standardized product worldwide to reap maximum economies of scale 

Localization strategy:

1. increasing profitability by customizing a companies goods. 

   1. Most appropriate:

      1. Consumer preferences differ across nations

      2. Lower cost pressures

   2. Benefit- product value increases in local market 

   3. Limitation- no cost reductions from mass- production of standardized product 

International strategy

1. Establishes manufacturing & marketing functions in each major country they do business in 

2. Local customization of product & marketing is limited 

3. Appropriate when: produce serves universal needs, companies are not confronted with cost pressure 

Transnational strategy 

1. Achieve low costs

2. Differentiates product across geographic markets

3. Foster a flow of skills between global subsidiaries 

4. Difficult to pursue

   1. Conflicting demands 

 

Explain the five primary ways in which diversification can increase profitability.

Transfer competencies, Leverage competencies, Share resources & capabilities, product bundling, general organizational competencies

Transfer competencies

1. between business units in diff industries Tesla

   1. Applying a distinctive competency developed by one business unit to a business unit operating in another industry 

Leverage competencies

1. create business units in new industries Apple

   1. Taking a distinctive competency developed by a business unit and using it to create a new business unit in a different industry 

   2. Lower costs in another industry 

Share resources & capabilities:

1. between business unites to realize synergies or economies of scope Bounty

   1. Synergies from sharing across business units that allows loweres costs or increased differentiation. Bounty ( tide pods, paper towel…) 

   2. Sharing lower cost structure 

Use product bundling

tostidos- Power prices superiors set of services 

Utilize general organizational competencies that improve performance  

Help business units within a company perform at a higher level than it could if it operated independently.

- Entrepreneurial capabilities

• Organizaitonal design capabilities

• Strategic management capabilites 

Related diversification-

• Corporate level strategy establishing a new business unit in an industry related to companies e’s existing business unit 

• Related through commonality or links in value- chain functions

• Should:

  • Take advantage of strong commonalities and or shared resources to increase competitive advantage

  • Allow a company to use general organizational competencies it possesses 

Unrelated Diversification

• level strategy that uses general organizaitonal competiticeis to increase performance of companies business units 

  • Companies pursuing this are called conglomerates 

  • DQ

  • Benefits of an internal capital market are limited by the efficiency of the external capital market 

might lead managers to pursue related diversification

Related diversification: 

• competencies can be applied across more industries 

• Less potential for extreme bureaucratic costs