RSM392 Midterm

What is strategy?

• strategy is the creation of a unique and valuable position, involving a different set of activities

• strategy is NOT operational effectiveness

  • OE = performing similar activities better than rivals

• OE is not a strategy as you are simply looking at what the other firms are doing → the more benchmarking companies do, the more they look alike

• How can firms find a unique positioning?

  • consider 3 key aspects (1) variety, (2) needs, (3) accessibility

• Trade-offs - choosing what activities to perform and how

• why trade-offs emerge?

  • inconsistency in brand

  • activities require change with positioning

  • limits on control

Five Forces

• the five forces are (1) internal rivalry, (2) supplier power, (3) buyer power, (4) entry, (5) substitutions

• 7 barriers to entry:

  • supply-side economies of scale

  • demand-side economies of scale

  • switching cost

  • capitalization

  • incumbency advantage independent of size

  • unequal access to channel distribution

  • government policies

• Suppliers have power if:

  • participants face high switching costs

  • supplier group does not heavily depend on the industry for its revenues

  • supplier offers differentiated products

  • no substitute

• Buyer increases power when:

  • buyers can switch without high switching costs

  • buyers purchase a large portion of the industry’s total output

  • buyers are price-sensitive

Creating Competitive Advantage

• total value created = WTP - WTS

  • price and cost are second-order effects

• added value = value created by your firm - value created by strongest rival

  • if firm’s are identical, added value is zero

• low-cost strategy → lower cost and WTS, WTP falls slightly

• differentiated strategy → increase WTP with increase in cost and WTS

• Value chain

  • primary activities: inbound logistics, operations, outbound logistics, sales & marketing, service

  • secondary activities: procurement, technological development, HR, infrastructure

  • to use value chain, go over activities and analyze costs

  • identify cost drivers = factors that make the cost of an activity rise or fall