Discussion Question: Chapters 134, 32, And 42 ✓ Solved
Discussion Question Chapter 134 Chapter 32 And Chapter 42 Cha
Discuss the following topics based on the assigned chapters and cases:
1. As noted in the chapter, research found that firm effects are more important than industry effects. What does this mean? Can you think of situations where this might not be true? Explain.
2. Choose an industry with a clear leader, and then examine the differences between the leader and one or two of the other competitors in the industry. How do the strategies differ? What has the leader done differently? Or what different things has the leader done?
3. How do the five competitive forces in Porter’s model affect the average profitability of the industry? For example, in what way might weak forces increase industry profits, and in what way do strong forces reduce industry profits? Identify an industry in which many of the competitors seem to be having financial performance problems. Which of the five forces seems to be strongest?
4. a. Conduct a value chain analysis for McDonald’s. What are its primary activities? What are its support activities? Identify the activities that add the most value for the customer. Why? Which activities help McDonald’s to contain cost? Why?
b. In the past few years, McDonald’s has made a lot of changes to its menu, adding more healthy choices and more higher-priced items, such as those offered in McCafé (e.g., premium roast coffee, frappé, and fruit smoothies), and has also enhanced its in-restaurant services (e.g., free, unlimited Wi-Fi; upgraded interiors). Did McDonald’s new priorities—in terms of a broader, healthier menu and an improved in-restaurant experience—require changes to its traditional value chain activities? If so, how? Try to be as specific as possible in comparing the McDonald’s from the recent past (focusing on low-cost burgers) to the McDonald’s of today.
5. Interface, Inc., is discussed in Strategy Highlight 5.1. It may seem unusual for a business-to-business carpet company to be using a triple-bottom-line approach for its strategy. What other industries do you think could productively use this approach? How would it change customers’ perceptions if it did?
6. The chapter highlights several firms that are developing business models around a “sharing economy.” The idea being that assets not currently in use by their owners (cars, car seats, homes, rooms, etc.) can be rented to (shared with) others. What other industries can you think of that can be disrupted by this new business model? Where do you see “excess” space or other assets that could perhaps be utilized more efficiently?
7. In Chapter 4, we discussed the internal value chain activities a firm can perform in its business model (see Exhibit 4.8). The value chain priorities can be quite different for firms taking different business strategies. Create examples of value chains for three firms: one using cost leadership, another using differentiation, and a third using value innovation business-level strategy.
8. The chapter notes there are key differences between economies of scale and learning effects. Let us put that into practice with a brief example. A company such as Intel has a complex design and manufacturing process. For instance, one fabrication line for semiconductors typically costs more than $1.5 billion to build. Yet, the industry also has high human costs for research and development (R&D) departments. Semiconductor firms spend an average of 17 percent of revenues on R&D. For comparison, the automobile industry spends a mere 3 percent of sales on R&D.44 Thus, Intel’s management must be concerned with both scale of production and learning curves. When do you think managers should be more concerned with large-scale production runs, and when do you think they should be most concerned with practices that would foster or hinder the hiring, training, and retention of key employees?
Sample Paper For Above instruction
Introduction
Understanding the dynamics of industry and firm effects is crucial in strategic management. The debate between the importance of firm effects versus industry effects centers on whether individual company actions or the broader industry environment predominantly determine performance outcomes. Additionally, analyzing competitive forces, value chain activities, and business models provides insights into establishing sustainable competitive advantages. This paper explores these themes, emphasizing their implications through real-world examples and theoretical frameworks.
Firm Effects vs. Industry Effects
Research indicates that firm effects—unique capabilities, resources, and management practices—are more influential than industry effects in determining firm performance (Porter, 1980). This suggests that a company's strategy, innovation, and execution can outweigh the impact of external industry factors. For example, Apple’s success in the smartphone industry reflects strong firm effects, such as brand reputation and product design, more than the overall industry environment.
However, there are situations where industry effects dominate. Highly regulated industries, such as utilities or telecommunications, often see limited strategic variability, making industry effects more pronounced. External factors like regulatory changes or technological disruptions can also significantly impact all firms within an industry, overshadowing individual strategies.
Analysis of Industry Leadership and Strategies
Examining the technology industry reveals notable differences between industry leaders and competitors. For instance, Apple’s strategy differs markedly from its rivals like Samsung and Huawei. Apple emphasizes premium branding, a closed ecosystem, and seamless user experience, whereas competitors often compete on price, specifications, or broad product portfolios (Kim & Mauborgne, 2005). Apple's focus on innovation and ecosystem integration has allowed it to maintain premium pricing and customer loyalty, differentiating it significantly from competitors.
Porter’s Five Forces and Industry Profitability
Porter’s five forces—competitive rivalry, bargaining power of suppliers and buyers, threat of new entrants, and threat of substitutes—directly influence industry profitability. Weak forces, such as low supplier bargaining power or minimal threat from new entrants, tend to expand profit margins. Conversely, intense rivalry and high bargaining power reduce profitability.
For example, the airline industry struggles with high rivalry, regulatory barriers, and bargaining power of fuel suppliers, leading to razor-thin margins (Porter, 1980). Many airlines face financial problems, with high fixed costs and fierce competition, indicating that rivalry and bargaining power are significant forces suppressing profits.
Value Chain Analysis of McDonald’s
Conducting a value chain analysis for McDonald’s highlights primary activities such as inbound logistics (ingredient procurement), operations (food preparation), outbound logistics (distribution), marketing & sales, and service. Support activities include firm infrastructure, human resource management, technology development, and procurement.
Primary activities that add most value include operations and marketing, where efficiency and brand recognition drive customer satisfaction and loyalty. Cost containment is primarily supported by streamlined operations and supply chain management, enabling McDonald’s to maintain low prices.
Recent initiatives, such as menu diversification and enhanced customer experience, have likely necessitated modifications in inbound logistics (new ingredients), operations (training staff for new menu items), and technology (ordering systems). These changes reflect a strategic shift towards healthier options and improved service, aligning with evolving consumer preferences.
Triple Bottom Line in Business Strategy
Interface, Inc., demonstrates the idea of integrating social, environmental, and financial performance—core to the triple-bottom-line approach. Expanding this approach to other industries like retail, transportation, or manufacturing could promote sustainable practices.
For example, a clothing manufacturer adopting this approach might focus on eco-friendly materials and ethical labor, which can enhance brand perception and customer loyalty while also maintaining profitability.
The Sharing Economy
The sharing economy disrupts traditional business models by utilizing underused assets—vehicles, homes, equipment—for shared use (Botsman & Rogers, 2010). Industries ripe for disruption include real estate, transportation, and even healthcare equipment sharing.
Potential assets for more efficient utilization include unused office spaces, underused parking lots, or idle machinery in manufacturing, which can generate new revenue streams or reduce costs.
Value Chains and Business Strategies
Cost leadership firms like Walmart focus on highly efficient, streamlined operations, minimizing costs across inbound logistics, operations, and distribution. Differentiators like Apple prioritize innovation, branding, and customer experience, investing heavily in R&D and marketing. Firms pursuing value innovation, such as Tesla, integrate cost and differentiation by creating innovative products at accessible prices, reshaping industry standards.
Economies of Scale vs. Learning Effects
Management should focus on large-scale production when fixed costs are substantial, and economies of scale can reduce per-unit costs, as seen in semiconductor manufacturing by Intel. Conversely, when skilled labor, innovation, and continuous learning are critical—such as R&D-intensive industries—methods that foster employee expertise, retention, and knowledge retention become paramount.
Conclusion
Strategic management involves understanding firm and industry effects, analyzing competitive forces, optimizing value chains, and embracing innovative business models. Recognizing when to emphasize scale versus learning for managing high R&D costs can significantly influence a firm's long-term success.
References
- Kim, W. C., & Mauborgne, R. (2005). Blue Ocean Strategy. Harvard Business Review.
- Porter, M. E. (1980). Competitive Strategy. Free Press.
- Botsman, R., & Rogers, R. (2010). The Sharing Economy. Harvard Business Review.
- Clark, E. (2011). Value Chain Analysis. Strategic Management Journal.
- Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management.
- Prahalad, C. K., & Hamel, G. (1990). The Core Competence of the Corporation. Harvard Business Review.
- Hollensen, S. (2015). Marketing Management. Pearson.
- Grant, R. M. (2016). Contemporary Strategy Analysis. Wiley.
- Rothaermel, F. T. (2017). Strategic Management. McGraw-Hill Education.
- Chesbrough, H. (2006). Open Innovation. Harvard Business Review.