IBUS Chapter 12

How much money a company makes compared to how much it has invested in its business

Profitability

The actions taken by managers to attain the goals of the firm

• Managers must pursue strategies that increase the profitability of the enterprise and its rate of profit growth over time.

Strategy and the Firm.

How can managers increase the profitability of their firm.

By pursuing strategies that lower costs or by pursuing strategies that add value to the firm’s products.

value creation

Performing activities that increase the value of goods or services to consumers.

A strategy that focuses on lowering production costs is a….

low cost strategy

A strategy that focuses primarily on increasing the attractiveness of a product as a…

Differentiation strategy.

1. Pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice.

2. Configure its internal operations, such as manufacturing, marketing, logistics, information systems, human resources, and so on, so that they support that position.

3. Make sure that the firm has the right to organization structure in place to execute its strategy.

How to maximize profitability

The various value creation activities a firm undertakes.

• including production, marketing and sales, materials management, research

  and development, human resources, information systems, and the firm infrastructure.

Operations

___________ have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service.

• Include research and development, production, marketing and sales, customer service.

Primary Activities.

1. Research and Development

2. Production

3. Marketing and sales

4. Customer service

Primary Activies

This is Concerned with the design of products and production processes.

Research and development.

_________ is concerned with the creation of a good or service.

production

When a bank originates a loan for a customer, it is engaged in _______ if the loan.

Production.

___________ Can help to create value in several ways. through brand positioning and advertising.

Marketing.

Caterpillar,

the U.S.-based manufacturer of heavy earthmoving equipment, can get spare parts to any point

in the world within 24 hours, thereby minimizing the amount of downtime its customers have to

suffer if their Caterpillar equipment malfunctions.

This is an example of …

How a company can raise its product value (V) with after-sale service and support.

Electronic tools that help businesses manage things like keeping track of inventory, sales, selling products, and handling customer questions.

Information systems

_________Function can help create more value in a number of ways. it ensures that the company has the right mix of skilled people to perform its value creation activities effectively and ensures that people are adequately trained, motivated, and compensated to perform their value creation tasks.

Human recourses

Refers to the basic systems, structures, and recourses that a company needs to run smoothly

• Includes both physical things like buildings and non physical things like technology.

Company Infrastructure

The way a company is set up, including its structure, rules, rewards, culture, how things get done, and the people who work there.

organization architecture

These are the tools or measurements used to check how well different parts of a company are doing and to see how good the managers are at running those parts.

Controls

incentives

The devices used to reward appropriate managerial behavior.

processes

The manner in which decisions are made and work is performed within any organization.

organizational culture

The values and norms shared among an organization’s employees.

The employees of the organization, the strategy used

to recruit, compensate, and retain those individuals, and

the type of people that they are in terms of their skills, values, and orientation.

People

1. Expand the market for their domestic product offerings by selling those products in

international markets.

2. Realize location economies by dispersing individual value creation activities to those

locations around the globe where they can be performed most efficiently and effectively.

3. Realize greater cost economies from experience effects by serving an expanded global

market from a central location, thereby reducing the costs of value creation.

4. Earn a greater return by leveraging any valuable skills developed in foreign operations and

transferring them to other entities within the firm’s global network of operations.

This describes things that ___________ can do

International Firms.

core competence

Firm skills that competitors cannot easily match or imitate.

Locating a value creation activity in the optimal location for that activity can have what effects

1. It can lower the costs of value creation and help the firm to achieve a low-cost position

2. it can enable a firm to differentiate its product offering from those of competitors.

When different parts of a business, like production or marketing, are spread out to different countries to get the best value or lowest costs.

Global web

The case, keyboard, and hard drive are made in Thailand; the display screen and memory in South Korea;

the built-in wireless card in Malaysia; and the microprocessor in the United States.

This is an example of

Global Web

When the cost of making something goes down over time as a company gets better at making it

Experience Curve

Labor, for example, learns by repetition how to carry out a task, such as assembling airframes, most efficiently.

This is an example of Learning effects

Cost advantages associated with large-scale production.

economies of scale

Pressures for __________ arise from national or regional differences in consumer tastes and preferences, infrastructure, accepted business practices, and distribution channels and from host-government demands.

local responsiveness

When a company tries to make more money by making its products the same everywhere.

• Hels them save money by producing in large amounts

• learning from experience

global standardization strategy

When a company makes its products or services fit the likes and needs of people in different countries to make more money

localization strategy

When a company tries to lower costs by making things more efficient and bigger, while also changing its products to fit different places around the world

• At the same time, the company shares knowledge and skills between its offices in different countries to improve overall performance.

transnational strategy

______________ strategy makes most sense when cost pressures are intense and demands for local responsiveness are limited.

global standardization

a ___________ makes most sense when demands for local responsiveness are high, but

cost pressures are moderate or low.

localization strategy

When a company tries to balance two things at once

• keeping costs low

• Being able to adapt to different local markets

Managers have to find a way to meet both goals

Transnational Strategy

When a company tries to create value by using its strengths and skills in other countries where local competitors don’t have those same strengths

international strategy

___________ refer to cooperative agreements between potential or actual competitors.

Strategic alliances

• Government Policy

• Economic Growth

• Population Growth rate

• Technology Incentives

• Discrimination Laws

• Weather

Market Environment Scan - Pestle

• Provides the inputs that allow primary activities to occur

• Include information systems, company infrastructure, logistics, human resources.

Support Activities