BUS 496 – Ch. 4

actions firms take to gain competitive advantages in a single market or industry.

are actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously.

Cost leadership and product differentiation are two important business-level strategies is so widely recognized that they are called: _____.

focuses on gaining advantages by reducing its costs to below those of all its competitors.

said to exist when the increase in firm size is associated with lower costs.

As the volume of production in a firm increases, the average cost per unit decreases until some optimal volume of production is reached, after which the average costs per unit of production begin to rise due to _______.

The link between volume of production and the cost of building manufacturing operations is particularly important in industries.

are any supplies used by a firm in conducting its business activities; they include, among other things, labor, capital, land, and raw materials.

Firms have to make choices about the kinds of products and services they will sell---choices that have an impact on their relative cost position.

managers sometimes commit to an incorrect (cost-increasing or revenue reducing) course of action increase their commitment to this action as its limitations become manifest.

a structure used to implement all business-level strategies a firm might pursue, although this structure is modified when used to implement these different strategies.

In a functional structure, each of the major business functions is managed by ___.

The functional manager has many different titles -- including president, CEO, chair, or founder.

There is only one person in this organization that has a broad, multifunctional corporate perspective.

where employee reports to two or more people, are usually avoided.

1) specialized machines 2) Large plants 3) employee specialization 4) spread overhead costs

When a firm has high levels of production, it is often able to purchase and use specialized manufacturing tools that cannot be kept in operation in small firms.

High volumes of production may also enable to build larger manufacturing operations.

High volumes of production are also associated with high levels of employee specialization.

As workers specialize in accomplishing a narrow task, they can become more and more efficient at this task, thereby reducing their firm's costs.

A firm with high volumes of production has the luxury of spreading its overhead costs over more units and thereby reducing the overhead costs per unit.

1) physical limits to efficient size 2) managerial diseconomies 3) worker demotivation 4) distance to markets and suppliers To avoid _______ of scale, consider the above.

Applying the two-thirds rule to the construction of manufacturing facilities seems to imply, for some industries at least, that larger is always better. However, there are some important physical limitations to the size of some manufacturing processes.

*Beyond a certain point, is no good*

are an even important cause of cost increases. As a firm increases in size, it often increases in complexity, and the ability of managers to control and operate it efficiently becomes limited.

It has already been suggested that one of the advantages of increased volumes of production is that it allows workers to specialize in smaller and more narrowly defined production tasks. With specialization, workers become more and more efficient at the particular task facing them. *However, significant stream of research suggests that these types of very specialized jobs can be unmotivating for employees.

Distance between a large manufacturing facility and where the goods in question are to be sold or where essential raw materials are purchased.

*Firms that build highly efficient plants without recognizing these significant transportation costs may put themselves at a competitive disadvantage compared to firms with slightly less efficient plants that are located closer to suppliers and key markets.

With experience the company learns how to lower costs. There is no corresponding increase in costs in the learning-curve model as the cumulative volume of production grows. Rather, costs continue to fall until they approach the lowest technologically possible cost.

Access to raw materials, land, labor, and capital. Create a cost advantage, the cost of acquiring low-cost productive inputs must be less than the cost savings generated by these factors.

The larger firms may have technology-based cost advantages that reflect their ability to exploit economies of scale. Technology-based cost advantages has focused on machines, computers, and other physical tools that firms use to manage their business.

the machines and robots

things such as the quality of relations between labor and management, an organization's culture, and the quality of managerial controls.

When firms produce essentially the same outputs, differences in economies of scale, learning curve advantage, differential access to productive inputs, and differences in technology can all create cost advantages (and disadvantages) for them.

*Firms decide what market that they want to be in and what products they want to sell*

A __ ___ strategy is valuable to extent it neutralizes threats and exploits opportunities.

How does a cost leadership strategy neutralize the following threats?

**Learning Curve Factors of production Technological software Diseconomies of scale Policy choices economies of scale **Technological Hardware (RARE from top to bottom) We want resources valuable, rate and costly to imitate.

**Technological software Factors of production policy choices technological hardware learning curve diseconomies of scale economies of scale

(reward for cost reduction, incentives for all) - Reward them for saving $, find a way to give incentives for everybody.

*Creative firms incorporate ALL EMPLOYEES. Compensation in Cost leadership firms is usually tired directly to cost reducing efforts. Such firms often provide incentives for employees to work together to reduce costs and increase or maintain quality, and they expect every employee to take responsibility for both costs and quality.

(close supervision, quantitative goals, cost leadership orientation) - Cost leadership firms are typically characterized by very tight cost control systems; frequent and detailed cost control reports; an emphasis on quantitative cost goals and targets; and close supervision of labor, raw materials, inventory, and other costs.

1) focus on one or a few value chain activities 2) rivals generally have common raw materials needs 3) strategy may be easily imitated 4) Pricing information becoming more available on the internet **Cost leadership, is not always about having the lowest price***