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What is the importance of strategic planning that should be followed by the companies?
1. U n i fi c a ti o n o f o rg a n i z a ti o n a l a n d o p e ra ti o n a l d e c i s i o n s 2. G o a l -o ri e n ta ti o n to wa rd th e d e s i re d c o mp a n y a c h i e ve me n ts 3. D i re c t fo c u s o n p l a n n i n g fo r fl e xi b l e re s p o n s e s fo r n e w d e ve l o p me n ts i n th e ma rk e t 4. Th e c re a ti o n o f b a s e s fo r e va l u a ti o n 5. Th e o ve ra l l c o mp a n y fo c u s o n th e vi s i o n 6 . Th e o ve ra l l c o mp a n y fo c u s o n M i s s i o n s ta te me n t 7. Th e o ve ra l l c o mp a n y fo c u s o n th e o b j e c ti ve s o f th e fi rm
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What are the 2 paths f or achieving organizational goals?
There are 3 organiz ational mis s ion philos ophies which are: 1. Build mis s ions 2. Hold mis s ions 3. Harves t mis s ions
Non-f inancial objectives f or a f irm are the improvement of the overall ability of the f irm to compete in the market in the long run.
Critical success factors can be defined as the organiz ations measures of success to determine the achievement of strategic objectives.
Examples on the cus tomer meas ures of s ucces s : 1. Market s hare data 2. Cus tomer s atis faction data 3. Regarding Brand recognition information 4. On- time delivery data
Examples on the learning and innovation meas ures of s ucces s : 1. Morale and corporate culture 2. Innovation in new products and methods 3. Education and training
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What are the characteristics of the segment of an organization affecting strategic planning?
What are the levels within the organization that the strategic plan should be implemented through?
It is the development of alternative plans in the event that adopted plans dont work.
1 . Do th e g o a l s o f th e fi r m co n ti n u e to b e a l i g n e d wi th th e m i s s i o n s ta te m e n t a n d cu r r e n t s tr a te g y? 2 . Ha s th e fi r m b e e n a b l e to a tta i n o r m a i n ta i n co m p e ti ti ve a d va n ta g e ? 3. Is th e fi r m a b l e to b e p r o fi ta b l e u n d e r th e cu r r e n t s tr a te g y?
Th e s e l e c te d s tra te g i c p l a n o f th e fi rm mu s t b e fl e xi b l e to a d a p t to c h a n g e s i n a re a s s u c h a s : 1. Te c h n o l o g y 2. C o mp e ti ti o n 3. C ri s i s s i tu a ti o n 4. R e g u l a to ry l a ws 5. C u s to me r p re fe re n c e s
The f irm must have a strategic plan in order to maintain competitive advantage in the market.
Demand Curve illustrates the maximum quantity of a good, consumers are willing and able to purchase at any given price, all else equal.
Quantity demanded can be defined as the quantity of a good (or service) individuals are willing and able to purchase at any given price, all else being equal.
A change in quantity demanded is a change in the amount of a good demanded resulting solely f rom a change in price.
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What is the fundamental law of demand?
What are the reasons beyond the inverse relationship between the quantity demanded and the price?
A change in demand is a change in the amount of a good demanded resulting from a change in something other than the price of the good; it causes a shift in the demand curve.
The fundamental law of demand states that the price of a product (or service) and the quantity demanded of that product (or service) are inversely related.
What are the factors that lead to the shift of the demand curve other than the price?
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What is the fundamental law of supply?
If the price of a substitute good increase, the demand for the original good will increase.
If the price of a complementary good decrease, the demand for the original good will increase.
The f undamental law of supply states that The price and quantity supplied are positively related.
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The supply curve illustrates the maximum quantity of good sellers are willing and able to produce at any price level.
Quantity supplied is the amount of a good that producers are willing and able to produce at any given price, all else being equal.
A change in the quantity supplied is a change in the amount producers are willing and able to produce resulting solely from a change in price.
A change in supply is a change in the amount of a good supplied resulting from a change in something other than the price of the good; it causes a shift in the supply curve.
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What is the elasticity of demand and supply?
Market supply is the total amount of a good all producers are willing and able to produce at each and every price, all else being equal.
The markets equilibrium price and output (quantity) is the point where the supply and demand curves intersect.
Elasticity is a measure of how sensitive the demand f or or supply of a product is to a change in price.
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The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price.
There are 2 methods for measuring the price elasticity of demand: 1. Point method 2. Midpoint method
The point method measures the price elasticity of demand at a particular point on the demand curve.
The midpoint method measures the price elasticity of demand between any two points on the demand curve.
Demand f or a good is price inelastic if the absolute price elasticity of demand is less than 1.0
Demand is price elastic if the absolute price elasticity of demand is greater than 1.0
Demand is unit elastic if the absolute price elasticity of demand is equal to exactly 1.0
Demand is unit elastic if the percentage change in the quantity demanded caused by a price change equals the percentage change in price
1. If s ubs titutes are available, the product demand will be more elas tic. 2. If the time period is longer, the product demand will be more elas tic becaus e more choices are available.
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What are the factors affecting the price elasticity of supply?
1. Sto ri n g th e p ro d u c t b y c u s to me rs wi l l a ffe c t th e p ri c e e l a s ti c i ty o f s u p p l y; i f th e p ro d u c t c a n b e s to re d a n d d o e s n t h a ve to b e b o u g h t to d a y th i s ma y re s u l t i n h i g h e l a s ti c i ty o f s u p p l y. 2. Th e ti me i t ta k e s to p ro d u c e a n d s u p p l y th e g o o d wi l l a ffe c t th e p ri c e e l a s ti c i ty o f s u p p l y. Fo r e xa mp l e , l o n g e r p ro d u c ti o n ti me l e a d s to l o we r p ri c e e l a s ti c i ty.
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Cros s elas ticity of demand (or s upply) is the percentage change in the quantity demanded (or s upplied) of one good caus ed by the price change of another good.
Substitute goods mean that if the price of product A goes up, the demand for product B goes up (Positive coefficient).
Compliment goods mean that an increase in the price of product A results in a decrease in quantity demanded for product B (Negative Coefficient).
Price ceiling is a price that is established below the equilibrium price, which causes shortages to develop (price cant go above this amount).
Price f loor is a minimum price set above the equilibrium price, which causes surpluses to develop (Price cant go below an amount).
Explicit costs are documented out of pocket expenses (e.g. wages, materials & utilities).
Opportunity cost is the value of the next best alternative foregone (or not chosen).
Accounting costs measure the explicit costs of operating a business (Not consider opportunity costs).
Economic costs are accounting (explicit) costs plus opportunity (implicit) costs.
Accounting prof it > Economic prof it (which takes into consideration the opportunity costs)
The inputs used for production in the long run are variable.
Marginal product (MP) equals the change in total product resulting f rom a one-unit increase in the quantity of an input employed.
Average product (AP) equals the total product divided by the quantity of an input.
The law of diminishing returns states that when more and more units of an input are combined with a fixed amount of other inputs, output increases but at a diminishing rate.
The classification of costs to fixed and variable is in the short-run only because in the long run all costs are variable.
Fixed costs dont change during the production period; they are independent of the level of production
Average Fixed Cost (AFC) = TFC/Q Average variable cost (AVC) = TVC/Q Average Total Cost (ATC) = TC/Q
TC = FC + VC
Marginal cost (incremental cost) is the change in total cost, resulting f rom a one-unit increase in quantity.
Marginal cost depends solely on variable costs. Fixed costs dont influence marginal costs MC and TC are directly proportional
The short-run supply curve is the marginal cost (MC) curve above the minimum point of its average variable cost (AVC) curve.
Economies of scale are reductions in unit costs resulting from increased size of operations.
1. Opportunity f or specialization 2. Utilization of advanced technology 3. Mass production is normally more ef f icient
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Diseconomies of scale are increases in average costs of operations resulting from problems in managing large-scale enterprises.
1. Bottlenecks and costs of transporting materials 2. Difficulty of supervising and managing a large bureaucracy (inefficient performance of the management function).
Under a perfectly competitive market, strategic plans may include maintaining the market share and responsiveness of the sales price to market conditions.
Under a perf ectly competitive market, no individual f irm can inf luence the market price of its product.
Under a perfectly competitive market, no individual firm can shift the market supply sufficiently to make a good more scarce or abundant.
1. A large number of s uppliers and cus tomers acting independently 2. Homogenous products 3. No barriers to entry becaus e firms exert no influence over the market or price.
In a pe rfe ctly co mpe titive marke t a pro fit maximizing firm will co ntinue adding units to pro ductio n until the co st o f pro ducing o ne mo re unit is gre ate r than the re ve nue that unit will ge ne rate (P=MR=MC).
In the perfect competitive market the firm should continue to produce as long as price is greater than the variable costs
In the perf ect competitive market the f irm is a price taker not a price setter like at the Monopolistic market
1 . Lo w p r i ce s 2 . La r g e q u a n ti ti e s 3. If a b n o r m a l p r o fi ts e xi s t, n e w co m p e ti to r s e n te r a n d d r i ve th e p r i ce d o wn . 4 . Re s p o n s i ve n e s s to co n s u m e r wi s h e s , In cr e a s e i n d e m a n d l e a d s to i n cr e a s e i n s u p p l y.
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What are the assumptions and market conditions for Monopolistic competition market structure?
There is little market control by each firm in the monopolistic competition market structure.
Under the monopolis tic competition the firm maximiz es profits by producing the level of output that equates MR and MC (i.e., produce where MR = MC)
Because there are free barriers to entry under monopolistic competition, in the long run, monopolistically competitive firms will earn z ero profits
Unde r and o ligo po ly, strate gic plans fo cus o n marke t share , and call fo r the pro pe r amo unt o f adve rtising and ways to pro pe rly adapt to price change s o r re quire d change s in pro ductio n vo lume
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What are the assumptions and market conditions under the Oligopoly market structure?
An Oligopoly is a market structure in which few sellers dominate the sales of a product and entry of new sellers is difficult or impossible
1. Relatively few firms with differentiated products 2. Fairly s ignificant barriers to entry (e.g. , high capital required) 3. Strongly interdependent firms (prices tend to be fixed)
Oligopolists face a kinked demand curve because firms match price cuts of competitors but ignore price increases.
Regardless of the model that represents the industry, the firm will operate best when marginal revenue equals marginal cost (MR=MC)
Under Monopoly, strategic plans will likely ignore market share and focus on profitability from production levels that maximiz e profits.
1. A single firm with a unique product 2. Significant barriers to market entry 3. The ability of the firm to set output and prices 4. No substitute products
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Under the Monopoly market structure the f irms demand curve is the same as the industrys demand curve
Cartels are groups of firms acting together to coordinate output decis ions and control prices as if they were a s ingle monopoly (i.e., OPEC). The likely effect of a cartel is to increas e price and reduce output below the s ocially efficient level.
Boycotts are organized group refusals to conduct market transactions with a target group
If t he demand f or a f irms out put increases, t he demand f or t he input s used t o produce t hat out put will also increase.
If the marginal product of an input increases, the demand for that input will also increase.
Firms desiring to achieve competitive advantage must focus on the needs and preferences of the buyers, and then either meet or exceed their expectations.
Value Chain analysis is a strategic tool that assists a firm in determining how important its perceived value by the buyers- is with respect to the market the firm operates in.
Managers must determine the flow of activities undertaken by the organiz ation to produce a service or product and critique the value added to the customer by each link in the value chain.
Once the firm is aware of how its product is perceived, value chain analysis is invaluable in assessing the ability of the firm to attain competitive advantage.
The result of the value chain is the reduced cost or the improved innovation.
The one who has first suggested the idea of the Value Chain is called Michael Porter at 1985.
According to Porter, there are 2 major categories of business value activities exist which are: 1. Primary activities 2. Support activities
Sup p o rt Ac tivitie s a re tho s e a c tivitie s tha t a re p e rfo rme d b y the s up p o rt s ta ff o f a n o rg a niz a tio n (e .g ., p urc ha s ing o f the ma te ria ls a nd s up p lie s , d e ve lo p me nt o f the te c hno lo g y us e d , ma na g e me nt o f e mp lo ye e s , a c c o unting , fina nc e , s tra te g ic p la nning , e tc .).
There are 3 forms of the value chain analysis: 1. Internal costs analysis 2. Internal differentiation analysis 3. Vertical linkage analysis
Analyz ing the vertical linkage of the firm means unders tanding the activities of the s uppliers and buyers of the product and determining where the value can be created external to the firms operations .
Often the greates t value and competitive advantage s tems from the information obtained from the vertical linkage analys is becaus e the activities that create the mos t and leas t amount of value can be determined.
Value Chain analys is cons is ts of 3 s teps which are: 1. Identify value activities 2. Indentify cos t drivers as s ociated with each activity 3. Develop a competitive advantage by reducing cos t or adding value
Value activities are generally those processes that are involved with designing, preparing, manufacturing, and delivering a good or service
Identification of cost drivers assist the organization in determining those areas in which it has a competitive advantage.
Th e l a s t s te p i n th e va l u e ch a i n a n a l ys i s i s to s tu d y th e co s t d r i ve r s a s s o ci a te d wi th e a ch a cti vi ty i n th e va l u e ch a i n fr o m a s p e ci fi c p e r s p e cti ve : a . Id e n ti fy co m p e ti ti ve a d va n ta g e b . Id e n ti fy o p p o r tu n i ti e s fo r a d d e d va l u e c. Id e n ti fy o p p o r tu n i ti e s fo r r e d u ce d co s t
In s o m e ca s e s th e va l u e th a t e a ch s te p i n th e va l u e ch a i n p r o d u ce n o t o n l y b e n e fi ts th e s p e ci fi c a cti vi ty i n th e ch a i n b u t a l s o b e n e fi ts o th e r a cti vi ti e s ( e .g . Cu s to m e r s e r vi ce m i g h t n o t o n l y b e n e fi t th e fi r m b y cr e a ti n g l o ya l ty fr o m i ts cu s to m e r s b u t ca n a l s o i n fl u e n ce th e p r o d u ct d e s i g n i n th e fu tu r e ) .
The re a re 3 typ e s o f s tra te g ic fra me wo rks tha t ha ve p ro ve n to b e us e ful fo r the va lue c ha in a na lys is whic h a re : 1. Ind us try s truc ture a na lys is 2 . Co re c o mp e te nc ie s a na lys is 3. Se g me nta tio n a na lys is
Co r e co m p e te n ci e s ca n b e cr e a te d wh e n th e fi r m h a s a s o l i d fo u n d a ti o n i n th e fo l l o wi n g : 1 . Exce l l e n t e m p l o ye e s 2 . Q u a l i ty p h ys i ca l r e s o u r ce s 3. S u p e r i o r te ch n o l o g y 4 . Ab i l i ty to i n te g r a te a l l th o s e fa cto r s a p p r o p r i a te l y
A co m p e te n cy i s d e e m e d a co r e co m p e te n cy i f i t h a s th e a b i l i ty to : 1 . Re d u ce th e th r e a t th a t co m p e ti to r s m a y co p y th e p r o d u ct 2 . In cr e a s e d p e r ce i ve d cu s to m e r va l u e 3. P r o vi d e l e ve r a g e ( i .e . ca n a l a r g e a m o u n t o f m a r ke ts b e a cce s s e d ? )
Whe n d e te rmining the e ffe c ts o f the ma rke t o n b us ine s s s tra te g y, a lo o k a t the o ve ra ll ma c ro -e nviro nme nt in whic h the firm o p e ra te s is e s s e ntia l b e c a us e it c a n s ig nific a ntly a s s is t the c o mp a ny in d e ve lo p ing a nd c ho o s ing the b e s t s tra te g y to me e t its g o a ls .
Firms use SWOT analysis to assist in developing their appropriate strategic plans
SWOT analysis consists of 2 factors that influence the firms strategy which are: 1. Internal factors (Strengths and Weaknesses) 2. External factors (Opportunities and Threats)
What are the external factors the influence the strategy of the firm?
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What are the factors that impact market competitiveness?
Typ e s o f b a rri e rs to ma rk e t e n try: 1. G o ve rn me n t re g u l a ti o n 2. Su p p l i e r a c c e s s 3. H i g h u p -fro n t c a p i ta l re q u i re me n ts 4. Pre -e xi s ti n g c u s to me r p re fe re n c e s a n d l o ya l ti e s 5. Ec o n o mi e s o f s c a l e 6 . Le a rn i n g c u rve i s s u e s 7. O th e r u p -fro n t c o mp e ti ti ve c o s t d i s a d va n ta g e s , a s Pa te n ts , tra d e b a rri e rs a n d o th e r re s tri c ti o n s
1. Ability of rival firms to res pond to change 2. Advertis ing of rival firms 3. R&D of rival firms 4. Alliances of rival firms and s uppliers 5. Increas e in competition
What are the factors that lead to strengthening the bargaining power of customers?
1. Large volume of a firms bus ines s (high buyer concentration) 2. Availability of information 3. Buyers low cos t of s witching products 4. High number of alternate s uppliers
What are the factors that lead to strengthening the bargaining power of the supplier?
1. Firm is unable to change suppliers 2. Reputation of supplier and demand f or its goods
When firms des ire to achieve competitive advantage with res pect to products , there are two bas ic forms of advantage that they will choos e from: 1. Cos t leaders hip advantage 2. Differentiation advantage
Cost leadership advantage may be used by the firm in one of two ways: 1. Build market share 2. Match the price of rivals
Differentiation leadership advantage may be used by the firm in one of two ways: 1. Build market share 2. Increase price
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What are the types of Competitive strategies?
1. Buye rs have large amo unts o f bargaining po we r 2. Buye rs are able to switch be twe e n co mpe titive pro ducts witho ut incurring significant co st 3. The re is he avy co mpe titio n
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What are the dif f erentiation strategies that a f irm may use?
1. Create/Promote a unique feature in the product 2. Build customer brand loyalty 3. Perception is often greater than reality
The be st co st strate gy co mbine s the co st le ade rship strate gy with the diffe re ntiatio n strate gy to give custo me rs highe r value fo r the ir purchase price (i.e . , a quality pro duct at a re aso nable price )
Under the best cost strategy the overall lowest cost in industry is not an option.
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What are the Focus/Niche strategies?
Best cost strategies work well when generic products are not acceptable to the varied needs of the buyers
Best cost strategies lose when it fails to attain the proper middle ground in the marketplace
Fi r m s wi th co s t l e a d e r s h i p o r d i ffe r e n ti a ti o n s tr a te g i e s m a y ch o o s e to fo cu s th e i r ch o s e n s tr a te g y o n a s e l e ct s m a l l g r o u p o f co n s u m e r s o r a n i ch e wh e r e co n s u m e r s h a ve s p e ci a l i z e d n e e d s a n d p r e fe r e n ce s , r a th e r th a n h a vi n g to a d d r e s s th e n e e d s a n d p r e fe r e n ce s o f a b r o a d r a n g e o f co n s u m e r s .
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What are the reasons beyond the merger or acquisition of any firm to another?
What are the reasons that might lead to the formation of strategic or cooperative alliances?
1 . Wh e n co m p a n i e s d e s i r e to a ch i e ve s u ch th i n g s a s e co n o m i e s o f s ca l e ( i n m a r ke ti n g o r p r o d u cti o n ) 2 . To s h a r e th e co s t o f o b ta i n i n g i n fo r m a ti o n o n i n n o va ti o n s i n te ch n o l o g y 3. To o b ta i n i n fo r m a ti o n a s a g r o u p th a t th e y co u l d n t o b ta i n i n d i vi d u a l l y
1. Individual partne rs are able to wo rk as a te am to ward a co mmo n go al 2. Partne rs do no t take the info rmatio n the y re ce ive and be gin to co mpe te he avily with e ach o the r.
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What are the disadvantages of vertical integration competitive strategy?
Vertical integration is a s trategy in which the firm s eeks to control the value chain on the s upply end and on the demand end within the s ame indus try via integration of thes e proces s es to the firms operations .
Reducing the firms flexibility with respect to suppliers and distribution channels and force the firm to be too focused on one industry or too committed to one supplier or distribution channel.
Integrated s upply chain management is a collaborative effort between buyers and s ellers that let them been able to reas onably predict the expected demand of cons umers for a product and then plan accordingly for s upplying that demand
The go al o f the ISCM is to be tte r unde rstand the ne e ds and pre fe re nce s o f custo me rs and cultivate the re latio nship with the m, also the se he lps in minimizing the co sts all alo ng the supply chain.
Th e Su p p l y c h a i n o p e ra ti o n s mo d e l SC O R a s s i s ts a fi rm i n ma p p i n g o u t i ts tru e s u p p l y c h a i n a n d th e n c o n fi g u ri n g i t to b e s t fi t th e n e e d s o f th e fi rm a n d c o n s i s ts o f fo u r k e y ma n a g e me n t p ro c e s s e s (C o re a c ti vi ti e s o f SC O R ): 1. Pl a n 2. So u rc e 3. M a k e 4. D e l i ve r
1. The fundamentals 2. Cros s - functional teams 3. Integrated enterpris e 4. Extended s upply chain 5. Supply chain communities
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In the f undamentals stage of the supply chain management, the main business issue it is concerned with is the cost of quality
In the cro ss-functio nal te ams stage o f the supply chain manage me nt, the main busine ss issue the firm is co nce rne d with is unre liable o rde r fulfillme nt, and it is ve ry co nce rne d abo ut custo me r se rvice .
In the extended supply chain of the supply chain management, the main business issue of this stage is slow, prof itable growth.
In the supply chain communities stage of the supply chain management, networks play a large role and the main business issue facing the firm is creating networks of preferred suppliers
1. As s e s s th e o p p o rtu n i ti e s i n th e s u p p l y c h a i n 2. D e ve l o p a vi s i o n fo r th e ISC M 3. D e ve l o p a s tra te g y fo r th e ISC M 4. C re a te a n o p ti mu m o rg a n i z a ti o n a l s tru c tu re fo r ISC M 5. Es ta b l i s h a n i n fo rma ti o n a n d c o mmu n i c a ti o n n e two rk fo r ISC M 6 . Tra n s l a te th e ISC M s tra te g y i n to a c ti o n s
The supply chain of a firm must be both responsive to the changing needs of customers and allow the firm to do so in an efficient manner.
Supply chain drivers are drivers that determine the supply chain performance
S u p p l y ch a i n d r i ve r s i n cl u d e : 1 . P r o d u cti o n 2 . In ve n to r y 3. Lo ca ti o n 4 . Tr a n s p o r ta ti o n 5 . In fo r m a ti o n
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