Strategy Exam 2015 StudyGuide UPDATED

Strategy Exam 2015Study guideThe exam is “open book and open notes”. Computers or other electronic devices, including cell phones, are not allowed.The exam consists of three parts: 1) a case analysis (guided by precise questions from me) 2) open questions (see examples at the end of this document), and 3) multiple choice questions. The exam is set up to reflect the relative emphasis we put on various issues during our class discussion. Expect numerous questions from topics 1-5 below. Although I will not ask questions about the cases we discussed in class, my expectation is that you understood the main messages of each case.As an indication, part of the exam last year was based on a shorter version of the Bananas case. General advice: Make sure you understand the main concepts and be ready to apply them. The topics discussed in this class can be grouped in the following categories1. What is strategic coherence? What do we mean by trade-offs? Why are strategic coherence and trade-offs important when analyzing a firm’s strategy? What is the difference between« strategy » and operational effectiveness?Relevant Reading “Can you say what your strategy is? “ by Collis & Rukstad2. Industry analysiso Be prepared to perform Porter’s five forces analysis + identify the role of the force of “complements”, whenever relevanto Use PESTEL framework to analyze how the industry will evolveo In Porter’s five forces, Rivalry is usually depicted in the middle, suggesting that Rivalry is not only influenced by the direct competitive a ctions taken by incumbent firms, but also by the strength of other forces. Be prepared to discuss how the other forces influence the degree of rivalry in price and non-price dimensions.o How can a firm reshape industry forces in its favor?o When performing an industry analysis, why is important to distinguish betweensubstitutes and complements?Relevant reading: Porter’s article3. Positioning: Is the firm pursuing a low cost or a differentiation strategy? Is the firm targetinga narrow segment of the market or does it compete rather broadly? Make sure you understand the difference between vertical and horizontal differentiation. What conditions should a differentiation / low cost strategy meet in order to be successful? (This question will be asked in the context of a case; the general criteria a listed on the slides).See lecture notes4. Analyze firm’s activities in terms of willingness to pay and cost implications. Relative to the average competitor, does the firm have a competitive advantage?Relevant reading: "Creating Competitive Advantage" by Ghemawat & Rivkin.5. Make sure you understand the d ifference between the concepts of “econom ies of scale”, “learning economies”, and “minimum efficient scale”. What is the relevance of these concepts in the context of industry (five forces) analysis? How do economies of scale and learning economies affect positioning?Source: lecture notes; Porter’s article6. Competitor response: how do you expect competitors to respond to a firm’s decision s? Our in-class analysis of Telmore case is relevant here.7. Competitive advantage and sustainability of competitive advantage: Once you analyzed whether and how the firm creates competitive advantage (as per point 4 above, and as we did in class when we discussed Southwest, Bananas-Demonstrate, and Telmore cases), can you identify which of the firm’s resources and capabilities are quintessential for the firm’s competitive advantage?This requires you to identify which resources and/or capabilities are valuable, rare, and difficult-to-imitate. You can start from identifying resources by type and capabilities by function. Alternatively, you may start from the value chain of the firm, and at each step of the value chain you need to identify the resources- capabilities that a firm uses in order to complete that activity in the value chain. Finally, assess whether the firm is well organized to fully exploit the competitive potential of its valuable and rare and difficult-to-imitate resources/capabilities. Source: lecture notes8. Threats to the sustainability of a firm’s competitive advantage: what “isolating mechanisms” may help a firm to sustain its competitive advantage?Isolating mechanisms are economic forces that limit the extent to which a competitive advantage can be duplicated or neutralized through the resource-creation activities of other firms. Isolating mechanisms are to a firm what an entry barrier is to an industry: just as entry barriers impede new entrants from competing away profits from incumbent firms, isolating mechanisms prevent other firms from competing away the extra profit that a firm earns from its competitive advantage.I emphasized two broad categories of isolating mechanisms:The category of “I mpediments to imitation” focuses on factors that impede other firms and potential entrants from duplicating the resources and capabilities that form the basis of a firm’s advantage. Examples include path dependency, causal ambiguity, time compression diseconomies, legal protection, complementarities or “fit”, superior access to inputs or customers. Notice that these are the same factors that we discussed in the context of VRIO analysis. According to this classification, a valuable, rare, and inimitable resource/capability creates the basis for a sustainable competitive advantage.In addition, firms can also enjoy what we call “Early-mover advantages”: these are isolating mechanisms that increase the power of a firm advantage over time. Examples include learning curve, reputation under buyer uncertainty, network effects, and buyer switching costs.Relevant material: lecture notes + “Sustainability of Competitive Advantage” by Eric Van den Steen, especially pages 2 and 3.9. What is the difference between direct and indirect network effects?Make sure you are able to discuss the role of network effects (direct and indirect) when performing a Porter’s five forces analysis and a firm analysis.Relevant material: Summary notes from the videogame case and all readings that mentioned network effects, including the article on the “Strategic Decisions for Multisided Platforms” by Andrei Hagiu.Example of open questions:A famous quote from Warren Buffett states: “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”How would a brilliant manager refute Buffett’s statement? Provide theoretical arguments related to both industry and firm factors followed by concrete examples from the cases we studied in class. Notice that “economics” here refers to the industry in which the firm operates.Why is Rivalry in an industry characterized by a) product innovation b) advertising more likely to be moderate?When is entry with high variable costs and low fixed costs preferable to entry with comparably low variable costs and high fixed costs? (hint: Telmore case)。