Organisational Business Strategy

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Chapter 1: Business Model: is a framework for making money. It is the set of activities which a firm performs, how it performs them, and when it performs them so as to offer its customers benefits they want and to earn a profit. Components: Positions, Resources, Costs, Industry Factors = Profitability. Determinants of profitability: Industry factors: Competitive Forces: exerted by suppliers (is high – bargaining power over industry firm; extract high prices raising costs; lower quality supply), customers, rivals (if high – there are many identical products; forcing higher quality products), potential entrants (high if barriers to entry are low), complementors, and substitute products. Cooperative Forces: working together with suppliers and firms, Macro Environment: P.E.S.T.E.L. Critical Industry Value Drivers: impact on value; low cost/differentiation, R&D. Firm Specific Factors: Positions of a Firm: Customer Value: Making customers prefer one product over another: differentiation, low cost, market segments (source of revenue), relative positioning, price reservation price: maximum a customer is willing to pay for perceived benefits. Activities of a Firm: Which, How, When (deliver value to segment). Resources of a Firm: using tangible/intangible assets to create value. Revenue Model: set of activities performed to create, offer and appropriate value to and from customers. How a firm generates income. Business Model: How a firm earns profit; revenue + costs. Three levels of strategy: Corporate (portfolio performance) Business/ Competitive (creation of value), Functional (functions: R&D etc.)

Chapter 2: Customers choose one firm’s products over its competitor’s products if the firm’s product offers benefits that customers need and that either are superior/identical (or both) to benefits of competitors’ products as well as low price. Differentiation Strategy: product features, brand-name reputation, network size, timing, location, service, product mix. Determining demand for differentiated benefits: Multi-dimensional scaling, Hedonics, Technological Progress, Sources of Differentiation. Low Cost and its Determinants: Economies of Scale (per unit cost of activities decrease as output increases; Fixed costs are costs that must be expended no matter what the total output ends up being, Variable costs: are costs whose total increase with output), Factor costs, Industry specific cost drivers, innovation, economies of learning, Agency Costs: costs that a firm incurs because employees slack off and do not perform their duties. Differentiation vs Low Cost: low cost = market share – profitability; Differentiation = low market share – premium price/profitability. Creating customer value: Complementors: firms that offer products that are complementary to the firm’s products; increases demand for complementary products, Coopetitors: suppliers, rivals, complementors, and customers whom a firm must cooperate or compete. Profits = Revenue – Costs. Cooperating to create value: Rivalry (price wars, advertising) Potential new entry, substitutes. Determinants of Relative Positioning among Coopetitors: competitive forces exerted: Supplier power (concentration of firms, forward integration, cost savings), Buyer Power (concentration, backward integration, substitute products), Rivalry (increasing/declining industry growth, excess capacity), Threat of Entry (economies of scale, capital requirements), Substitutes (availability, price elasticity of demand), Complementors (availability).

Chapter 3: Contribution Margin: the amount over variable costs that is contributed to recovering fixed costs (PQ-VCQ). The difference between price and per unit variable cost is contribution margin. Cost based pricing: sets prices by adding a mark-up or subtracting a markdown to its prices. Return on sales: profits divided by sales. Return on investment: return for investment in a product from is price. Contribution to fixed costs: selling at a loss to...
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