Strategy Exam 1 - Custom Scholars
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Strategy Exam 1

question
Components of the value stack
answer
The difference between consumer's willingness to pay and the price of the offering is known as consumer surplus. The difference between price and cost (COGS and SG&A) is profit. Profit and consumer surplus together represent total value created while profit only represents the value captured by the firm.
question
What are the 2 ways to increase profitability?
answer
Raise prices or lower costs.
question
Learning curve
answer
Increased labor productivity as a result of learning by doing.
question
Experience curve
answer
Drop in marginal costs from process innovation.
question
Emerging Strategy
answer
Adapting activities and strategies to changing conditions... thinking on your feet.
question
Strategic planing
answer
The process of developing and maintaining a strategic fit between the organization's goals and capabilities and its changing marketing opportunities. Top down analysis and planing.
question
Scenario planning
answer
Identifies alternative future scenarios and makes plans to deal with each. What if questions...
question
Willingness to pay
answer
The maximum amount that a buyer will pay for a good. Varies by customer.
question
Fixed costs
answer
Expenses that must be paid regardless of the quantity produced. Fixed/unit goes down with production.
question
marginal cost
answer
The cost of producing one more unit of a good. Expenses that vary in direct proportion to incremental production. Marginal/unit goes up with production.
question
You should stay in business if...
answer
Your marginal revenue is greater than or equal to your marginal costs.
question
In the short run, higher demand is typically shown in...
answer
Higher price
question
In the long run, higher demand is typically shown in...
answer
Greater supply
question
Assumptions of Perfect Competition
answer
1. Products are identical
2. Many small (equilibrium price taking) participants
3. Full informations of buyers and suppliers
4. Identical sellers
5. Free entry and exit
question
Porter's Five Forces
answer
threat of entry, threat of substitute, supplier power, buyer power surrounding rivalry among existing competitors.
question
What are some factors that make an industry easy or difficult for new firms to enter?
answer
Whether there are economies of scale, learning curves, switching costs, network effects, customer loyalty, start up costs, gov restrictions, etc
question
Economic Moat
answer
a business' ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms
question
What is the most visible competitive force?
answer
Rivalry
question
What aspects are not necessarily good or bad for profitability?
answer
Government policy, high industry growth rate, technology.
question
What are some cons to five forces analysis?
answer
It assumes fairly static industry environment, industries often overlap, many firms operate in multiple industries, does not explain profitability variance among companies.
question
Business competition is about....
answer
Making profits not beating your competition.
question
What are the five ratio types?
answer
Profitability, Efficiency, Liquidity, Valuation, and Solvency
question
Net profit margin
answer
Net Income/Revenue. How much of a company's revenue is kept as net income.
question
Return on Equity (ROE)
answer
Net Income/Total Equity. How much the company earns per dollar of common equity. Higher ROE-> more efficient in utilizing its equity base and better investor returns. BUT increase in ROE does not necessarily indicate an increase in profitability.
question
DuPont Formula (ROE)
answer
profit margin x asset turnover (efficiency) x financial leverage (PEL)
question
Operational Effectiveness
answer
performing the same tasks better than rivals perform them
question
Strategic positioning
answer
Performing different tasks than rivals, or the same tasks in a different way.
question
Virtuous cycle/good strategy
answer
Set of self reinforcing activities that lead to competitive advantage
question
productivity frontier
answer
the maximum value a company can deliver at a given cost, given the best available technology, skills, and management techniques
question
Origins of Strategic Positions
answer
Variety-based positioning (Product)
Access-based positioning (Needs of a group)
Needs-based positioning (Access to customers)
(VAN)
question
Prisoner's Dilemma
answer
a game in which pursuing dominant strategies results in noncooperation that leaves everyone worse off
question
Nash Equilibrium
answer
a situation in which each firm chooses the best strategy, given the strategies chosen by other firms
question
Blue Ocean Strategy
answer
An approach where firms seek to create and compete in uncontested "blue ocean" market spaces, rather than competing in spaces and ways that have attracted many, similar rivals.
question
Red Ocean Strategy
answer
Compete in existing market space; beat the competition; exploit existing demand; make the value-cost trade-off; align the whole system of a firm's activities with its strategic choice of differentiation or low cost.
question
5 characteristics of strategically valuable resources
answer
Inimitability
Depreciates slowly/durable
Value controlled by company
Not easily substituted
Better than competitors similar resources
question
Resource-based view
answer
a model that sees certain types of resources as key to superior firm performance
question
Critiques of Resource based management
answer
Circular logic, minimal research, vague definitions, resource value is rarely constant
question
Blue ocean strategy is able to...
answer
lower cost and raise value by focusing on differentiation
1 of 38
question
Components of the value stack
answer
The difference between consumer's willingness to pay and the price of the offering is known as consumer surplus. The difference between price and cost (COGS and SG&A) is profit. Profit and consumer surplus together represent total value created while profit only represents the value captured by the firm.
question
What are the 2 ways to increase profitability?
answer
Raise prices or lower costs.
question
Learning curve
answer
Increased labor productivity as a result of learning by doing.
question
Experience curve
answer
Drop in marginal costs from process innovation.
question
Emerging Strategy
answer
Adapting activities and strategies to changing conditions... thinking on your feet.
question
Strategic planing
answer
The process of developing and maintaining a strategic fit between the organization's goals and capabilities and its changing marketing opportunities. Top down analysis and planing.
question
Scenario planning
answer
Identifies alternative future scenarios and makes plans to deal with each. What if questions...
question
Willingness to pay
answer
The maximum amount that a buyer will pay for a good. Varies by customer.
question
Fixed costs
answer
Expenses that must be paid regardless of the quantity produced. Fixed/unit goes down with production.
question
marginal cost
answer
The cost of producing one more unit of a good. Expenses that vary in direct proportion to incremental production. Marginal/unit goes up with production.
question
You should stay in business if...
answer
Your marginal revenue is greater than or equal to your marginal costs.
question
In the short run, higher demand is typically shown in...
answer
Higher price
question
In the long run, higher demand is typically shown in...
answer
Greater supply
question
Assumptions of Perfect Competition
answer
1. Products are identical
2. Many small (equilibrium price taking) participants
3. Full informations of buyers and suppliers
4. Identical sellers
5. Free entry and exit
question
Porter's Five Forces
answer
threat of entry, threat of substitute, supplier power, buyer power surrounding rivalry among existing competitors.
question
What are some factors that make an industry easy or difficult for new firms to enter?
answer
Whether there are economies of scale, learning curves, switching costs, network effects, customer loyalty, start up costs, gov restrictions, etc
question
Economic Moat
answer
a business' ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms
question
What is the most visible competitive force?
answer
Rivalry
question
What aspects are not necessarily good or bad for profitability?
answer
Government policy, high industry growth rate, technology.
question
What are some cons to five forces analysis?
answer
It assumes fairly static industry environment, industries often overlap, many firms operate in multiple industries, does not explain profitability variance among companies.
question
Business competition is about....
answer
Making profits not beating your competition.
question
What are the five ratio types?
answer
Profitability, Efficiency, Liquidity, Valuation, and Solvency
question
Net profit margin
answer
Net Income/Revenue. How much of a company's revenue is kept as net income.
question
Return on Equity (ROE)
answer
Net Income/Total Equity. How much the company earns per dollar of common equity. Higher ROE-> more efficient in utilizing its equity base and better investor returns. BUT increase in ROE does not necessarily indicate an increase in profitability.
question
DuPont Formula (ROE)
answer
profit margin x asset turnover (efficiency) x financial leverage (PEL)
question
Operational Effectiveness
answer
performing the same tasks better than rivals perform them
question
Strategic positioning
answer
Performing different tasks than rivals, or the same tasks in a different way.
question
Virtuous cycle/good strategy
answer
Set of self reinforcing activities that lead to competitive advantage
question
productivity frontier
answer
the maximum value a company can deliver at a given cost, given the best available technology, skills, and management techniques
question
Origins of Strategic Positions
answer
Variety-based positioning (Product)
Access-based positioning (Needs of a group)
Needs-based positioning (Access to customers)
(VAN)
question
Prisoner's Dilemma
answer
a game in which pursuing dominant strategies results in noncooperation that leaves everyone worse off
question
Nash Equilibrium
answer
a situation in which each firm chooses the best strategy, given the strategies chosen by other firms
question
Blue Ocean Strategy
answer
An approach where firms seek to create and compete in uncontested "blue ocean" market spaces, rather than competing in spaces and ways that have attracted many, similar rivals.
question
Red Ocean Strategy
answer
Compete in existing market space; beat the competition; exploit existing demand; make the value-cost trade-off; align the whole system of a firm's activities with its strategic choice of differentiation or low cost.
question
5 characteristics of strategically valuable resources
answer
Inimitability
Depreciates slowly/durable
Value controlled by company
Not easily substituted
Better than competitors similar resources
question
Resource-based view
answer
a model that sees certain types of resources as key to superior firm performance
question
Critiques of Resource based management
answer
Circular logic, minimal research, vague definitions, resource value is rarely constant
question
Blue ocean strategy is able to...
answer
lower cost and raise value by focusing on differentiation
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