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7/29/2019 Cost Leader
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CORPORATE STRATEGY
Is concerned with what industries the
organisation wants to compete in.
COMPETITIVE STRATEGY
Is concerned with the basis on which an
organisation will compete in its chosen
markets.
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RESOURCE BASED VIEW
emphasises the internal capabilities of theorganisation in formulating strategy to
achieve sustainable competitive
advantage in its markets and industries.
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COST LEADEROne firm within an industry that has a
consistent cost advantage over its
competitors. This is usually achieved by a
widespread shaving of costs in all areas of
production and distribution.It does not often come from some single
dramatic cost advantage, for example, from
finding a source of cheap new materials. Costadvantages like that are rarely enjoyed alone
for long.
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Any cost leader will owe its position in part
to its exploitation of ECONOMIES OF
SCALE. Hence it needs to guard against
competitors gaining substantial MARKET
SHARE. This will allow them to gain neweconomies of scale, and to threaten the
cost leaders position.
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STRATEGIC INTENT
A term introduced by Gary Hamel and CK
Prahalad in article of the same name
published in the Harvard Business Review. It
refers to those overwhelming corporate
goals that are designed to inspire a companyand its employees over a period of at least a
decade. Examples include Coca-Colas aim
to put Coke within arms reach of everyconsumer in the world.
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KEY AREA EVALUATIONA framework for evaluating businesses evolved from
the work of Peter Drucker who maintained thatcompanies need to have OBJECTIVES in eightareas.
1. Market standing
2. Productivity
3. Profitability
4. Physical and financial resources
5. Innovation6. Manager performance and development
7. Employee performance and attitudes
8. Public and social responsibility
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EMERGENT INDUSTRY A new industry that has just emerged because of
changing technology (wireless telephony, for example)or changing consumer habits (healthy eating).
Steering a young growing company in an emergent
industry needs special skills. Some of the particular
problems to be faced include: Uncertainty as to the eventual market size;
Shortage of special skills needed for the industry
The absence of widely agreed standards Lack of faith in the long term viability of the industry
among suppliers, investors, bankers, and so on.
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MATURE INDUSTRYAn industry which relies on repeat buyers rather than
first time buyers, and where rivals market shares donot change much over time. A classic case is the carindustry in North America, Europe and Japan.
Some think that the next step for a mature industry is to
become a DECLINING INDUSTRY. But companieshave shown again and again that there are manyways to develop profitably within mature industries.
One is to concentrate less on product development
and more on process development, aiming to becomethe lowest cost producer in an industry.
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In other areas (such as photography)
companies have been highly successful in
a mature industry by introducing byintroducing technological improvements
(like automatic focusing, for example).
These have persuaded consumers toabandon still-working old cameras and to
buy new ones.
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OUTSOURCINGThe handing over of the running of a fundamentalcorporate process to another organisation; forexample, the management of a companysInformation Technology systems, or of its car-fleet management, or of its health-insurancescheme.
There are some who see the recentextraordinary rapid growth in the outsourcing ofall sorts of processes as a basic abrogation ofmanagements corporate responsibility.
Others see it as a shrewd way of turning (high)fixed costs into (lower) variable costs, ofimproving service and of gaining COMPETITIVE
ADVANTAGE.
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DELIBERATE STRATEGY
A strategy conceived by senior managers
as a planned response to the challenges
confronting an organisation. Often the
result of a systematic analysis of theorganisations environment analysis and
resources.
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EMERGENT STRATEGY
A strategy that emerges from lower down
the organisation without direct senior
management intervention. Managers use
their learning and experience to develop astrategy that meets the needs of an
external environment.
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IMPOSED STRATEGY
A strategy that an organisations
managers would not otherwise have
chosen, but is forced on them.
REALISED STRATEGY
The strategy that an organisation actually
ends up implementing. It may be
deliberate, emergent or imposed.
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ORGANISATIONAL CULTURE
Culture is how things are done around
here. It is what is typical of the
organisation, the habits the prevailing
attitudes, the grown-up pattern of
accepted and expected behavior.
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FIRST MOVER ADVANTAGE
The advantages the first major entrant to a
new industry/market can obtain, e.g. by
appropriating locations, obtaining patents
and reputational resources, and moulding
customers processes to suit its value
chain.
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VISION
A description of what an organisations leaders
aspire to achieve over the medium/long term,
and of how it will feel to work in or with the
organisation once this has taken effect.
MISSION
The set of goals and purposes that anorganisations members and other major
stakeholders agree that it exists to achieve. It is
often expressed in a formal, public mission
statement. Mission seeks to answer the question
why an organisation exists.
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JOINT VENTURE
When two organisations form a separateindependent company in which they own
shares equally or in a certain proportion.
STRATEGIC ALLIANCES
When two or more separate organisations
share some of their resources andcapabilities but stop short of forming a
separate organisation.
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EMPOWERMENT
Empowerment refers to the distribution of
AUTHORITY (particularly via the distribution of
information) to all levels of an organisation. That
distribution is made much easier by informationtechnology.
Empowering people gives them the power to do
something, making them more responsible and
more cooperative. Managers become partnersrather than bosses
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EXPERIENCE CURVE
Something that causes unit costs to decline ascumulative production increases. This happens becauseworkers get better at their jobs, manufacturing processesare improved, and support services begin to function
smoothly. As a result, according to the theory, thecompetitor that expands production capacity faster willachieve a cost advantage that leads to industrydominance.
Relentless pursuit of cost leadership, however, can lead
a company to ignore other important dimensions ofcompetitive advantage such as quality and service.
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SEVEN Ss A framework for thinking about the
structure of organisations, first developedwithin MCKINSEY, the managementconsultancy, and then popularised in anumber of books written by ex-McKinsey
consultants such as Richard Pascale. The Seven S framework maintains that
there are seven interrelated factors that
determine the effectiveness of anorganisation: the classic pair structureand strategy and five others that allhappen to begin with the letter S.
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Structure. How the firm is organised
Strategy. The route an organisation decides tofollow to achieve its goals
Systems. The formal and informal proceduresthat govern everyday activity
Skill. The unique competencies of anorganisation
Style. How the management presents itself toother employees, and how the whole workforcepresents itself to the outside world.
Superordinate goals. The fundamental
philosophy that underlies an organisation (Latertitled Shared values)
Staff.The quality of a firms human resources.