Chapter 4 for Spring 2011

Chapter 4 for Spring 2011 - Chapter4 CostLeadership

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Cost Leadership Chapter 4
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Mission Objectives External Analysis Internal Analysis Strategic Choice Strategy Implementation Competitive Advantage The Strategic Management Process Diagram of Key Elements of Strategic Management Process
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Business-Level Strategy We’ve been focusing on the external and internal  analyses phases of the strategic management process Next step is strategic choice Two main areas of strategic choice Business-level strategy (this week and next) Corporate strategy (after Spring Break)
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Business-Level Strategy Business-level strategy: Actions a firm takes to try to gain competitive advantage in a  single market or industry Corporate-level strategy: Actions a firm takes to gain competitive advantage(s) in  multiple markets/industries at the same time
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Business-Level Strategy Two main kinds of business-level strategy Cost leadership strategy (Chapter 4) Differentiation strategy (Chapter 5)
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Cost Leadership Cost leadership strategy: A firm pursuing a cost leadership strategy focuses on gaining a  competitive advantage by reducing its costs below that of it  competitors Examples of cost leaders: Ryanair Wal-Mart
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Cost Leadership Important sources of cost advantage Size differences and economies of scale Size differences and  dis economies of scale Experience differences and learning-curve economies Differential low-cost access to productive inputs Technological advantages independent of scale Policy choices
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Sources of Cost Advantage (1) Size differences and economies of scale Economies of scale exist when increases in volume of  production (i.e., firm size) reduce the average cost of  production Volume of production during a particular period Not cumulative production Diseconomies of scale usually exist after a certain volume of  production
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Sources of Cost Advantage (1) Size differences and economies of scale  (continued) Sources of scale economies Higher volume of production can allow more use of specialized  machinery Higher volume of production can allow more employee  specialization Working on more narrow task can increase efficiency Higher volume of production can reduce cost of plant and  equipment Can build larger manufacturing facilities—sometimes costs are  lower
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(1) Size differences and economies of scale  (continued) Sources of dis economies of scale Physical limits to efficient size Managerial diseconomies With greater size comes greater complexity
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Chapter 4 for Spring 2011 - Chapter4 CostLeadership

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