This documents contains every exam question spoken about in class with the answers to them. It also includes all the cases with other examples that will give you higher distinction on your exam. 90 pages with a summary of the most important models and examples. This class was given by Prof. Dr. Pet...
Strategic Management
Topic 1
What is strategy
Case: Netflix
Every company is an answer to a challenge (a problem that’s existing and the
entrepreneur is trying to fix this)
Strategic decision: every strategy is an informed bet = the future is
uncertain but strategy is about the future (make an investment in
organization where you want to go with a particular idea in mind)
Risk: making their own production house
1 STRATEGY AND COMPETITORS
Strategy is about competing differently from rivals (not copy)
a) Doing what they don’t do or doing it better!
b) Doing what they can’t do!
c) Doing that which sets the firm apart and attracts customers.
d) Deciding what we should or should not do to produce a competitive edge.
e) Can be described as adopting a particular position
Purpose of a company: creating value NOT maximize profitability
Customer, employees and suppliers comes first when creating a company
Strategy: how do I create value in the uncertain future (put profitability in
perspective)
Vb: people pick Nike shoes because they identify with the brand
Case: strategy difference between Nike and Adidas
• Nike: more fashion, identify with people who stand for something
• Adidas: more sport focused
Original philosophies are different, they try position themselves as sports brand with
fashion (focus on people who do not have to do anything with sport)
!!! Good brands can only thrive when they are different
1.1 Quest for competitive advantage
Competitive Advantage
= Meeting customer needs more effectively, with products or services that
customers value more highly, or more efficiently, at lower cost.
Sustainable Competitive Advantage
= Giving buyers lasting reasons to prefer a firm’s products or services over those
of its competitors
Case: Apple vs Android
Apple is almost an identity, not just an operational element (choice depends on who you
are, where you are and what you are)
!!! we cannot serve everybody
1
,Strategy: how can you be different (not about being the best)
An idea perfected in product, service or experience that allows you to infiltrate
yourself in industry that attracts customers who are willing to pay a price for it
Performance results in profitability above the average
1.2 Strategic approach choices
1.3 Evolving nature of organization strategy
Realized (current) strategy is a blend of:
a) Proactive (deliberate) strategy elements that include both continued
and new initiatives.
b) Reactive (emergent) strategy elements that are required due to
unanticipated competitive developments and fresh market conditions
Deliberateness vs Emergence: Honda case in ‘50s
Intended strategy: Honda (Japanse) emerge motercycles in USA to compete with
Harley Davidson
• Didn’t work very will (failed)
o Americans didn’t think it could compete with Davidson
o Different climate for the engines
• Persistency: through pure luck → Japanse person came with motorcycle
and American wanted to invest in it and sell it to people
• With advertising “this is the future of males and females” (emerging
strategy was the one that got realized)
2
,2 BUSINESS MODEL
2.1 Elements
The Customer Value Proposition
• Satisfying buyer wants and needs at a price customers will consider a good
value.
• The greater the value provided (V or WTP) and the lower the price (P), the
more attractive the value proposition is to customers
The Profit Formula
• Creating a cost structure that allows for acceptable profits, given that
pricing is tied to the customer value proposition.
➢ V—the value provided to customers (V or WTP)
➢ P—the price charged to customers
➢ C—the firm’s costs
• The lower the costs (C) for a given customer value proposition (V–P), the
greater the ability of the business model to be a moneymaker.
2.2 Business = value creation
Think value, not profit
a) Increasing the Willingness to Pay (Customers’ perspective)
b) Decreasing the Willingness to Sell (Employees’ and Suppliers’ perspective)
Key principles of value – based strategy
a) Companies that excel at creating value focus squarely on WTP (enhance
the customer experience) and WTS (make it more attractive for vendors and
employees to work with the company)
b) Companies that outperform their peers increase WTP or decrease WTS
in ways that are difficult to imitate
c) Simplicity opens room for creativity and broad engagement
d) Many of most successful companies focus on
competitive position inside industry <->
average performance of their segment of the
economy
3
, Customer Value Proposition
• Satisfying buyer wants and needs at a price
customers will consider a good value.
• The greater the value provided (V or WTP)
and the lower the price (P), the more
attractive the value proposition is to
customers
Value Capturing
• Companies create value by increasing WTP
and decreasing WTS.
• These companies capture value by setting
prices and compensation
The Supplier & Employee Value Proposition
• The share to the suppliers is the difference
between how much they get paid by he firm
(i.e. the firm’s cost) and their WTS. Think of
it as a surplus that the suppliers earn from
the transaction.
• A similar logic applies to the employee. The
compensation – WTS represents the
satisfaction of the employee.
Case: value creation by Apple
• The WTP for Apple devices tends to be high
for customers who adore sleek design and
appreciate ease of use => Customer
delight
• Suppliers like shopping malls give Apple a
special break: the company pays no more
than 2% of its sales per square foot in rent,
compared with 15% for a typical tenant:
Why are mall owners so generous to Apple?
Because Apple increases foot traffic by about
10% for all the other stores in the mall
• Creation of value = Increase WTP +
Decrease WTS
EXAM QUESTION
“What does the line between WTP and price have as a difference?”
For economics it is customer value
4
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