Chapter 6: Business Strategy: Differentiation, Cost Leadership, and

Ocean
Blue
ÚhttpxsÒ://quizlet.com/
_4hilhi
Business-level strategy The goal-directed actions managers take in their quest for com-
petitive advantage when competing in a single product market.
To formulate an effective business strategy, managers need to keep
in mind that competitive advantage is determined jointly by industry and firm effects

at the firm level, performance is determined by value and cost positions relative to competitors.

this is the firms strategic position

the difference between perceived value a firm is able to create for
competitive advantage is based on consumers (V), captured by how much consumers are willing to pay
for a product or service, and the total cost (C) the firm incurs to create
that value.
economic value (V-C) ~ the greater a firms potential for competitive advantage

V and C are a firms primary competitive levers

strategic position strategic profile based on value creation and cost

determined by a firms business-level strategy

strategic trade-offs Choices between a cost or value position. Such choices are nec- essary
because higher value creation tends to generate higher cost.
two fundamentally generic business strategies differentiation and cost leadership
Generic business strategy that seeks to create higher value for
differentiation strategy customers than the value that competitors create.
Generic business strategy that seeks to create the same or similar value
cost-leadership strategy for customers at a lower cost.
it allows firms to either perform similar activities or perform differ-
business strategy is more likely to lead to a competitive advantage
if ent activities than their rivals that result in creating more value or
offering similar products at a lower cost.
scope of competition The size-narrow or broad-of the market in which a firm chooses to
compete.
focused-differentiation strategy Same as the differentiation strategy except with a narrow focus on a
niche market.
focused cost-leadership strategy Same as the cost leadership strategy except with a narrow focus on a
niche market.
savings that come from producing two or more output at less cost than
economies of scope levers producing each output individually, despite using the same resources
and technology
managers can adjust improve a firm's strategic position
either increase perceived value or decrease costs
product features
customer service
complements
value drivers These value drivers are related to a firm's expertise in, and orga-
nization of, different internal value chain activities. Although these are
the most important value drivers, no such list can be complete

181
A cost leader can achieve a competitive advantage as long as its
cost-leader comp. advantage economic value created (V—C) is greater than that of its competi- tors.
when cost leader creates the same value as other firms
differentiation parity ?

1/
 Chapter 6: Business Strategy: Differentiation, Cost Leadership, and
Ocean
Blue
ÚhttpxsÒ://quizlet.com/
_4hilhi Cost of input factors.

Economies of scale.
cost drivers
Learning-curve effects.

Experience-curve effects.
Spread their fixed costs over a larger output.

economies of scale allow firms to Employ specialized systems and equipment.

Take advantage of certain physical properties.

Output range needed to bring down the cost per unit as much as
possible, allowing a firm to stake out the lowest-cost position that is
achievable through economies of scale.
minimum efficient scale (MES)
The concept of minimum efficient scale applies not only to man-
ufacturing processes but also to managerial tasks such as how to
organize work.
diseconomies of scale Increases in cost per unit when output increases.
are critical to driving down a firm's cost and strengthening a cost-
scale economies
leadership position.
See 188 about learning curves and 190 for experience curves
a new method or technology to produce an existing product—may
process innovation
initiate a new and steeper curve.
Business-level strategy that successfully combines differentiation and
blue ocean strategy cost-leadership activities using value innovation to reconcile the
inherent trade-offs.
The simultaneous pursuit of differentiation and low cost in a way that
value innovation creates a leap in value for both the firm and the consumers; considered
a cornerstone of blue ocean strategy.
Horizontal connection of the points of each value on the strategy
value curve canvas that helps strategists diagnose and determine courses of action.
Graphical depiction of a company's relative performance vis-à-vis its
competitors across the industry's key success factors.
strategy canvas

2/