BUSİNESS MANAGEMENT

One essential strategic feature of markets is competition. Producers, whether manufacturers or service providers, would like to be ahead of their competitors for achieving their goals such as profit, growth, and market share. A company which reaches a higher performance relative to other rivals in the same industry or the industry average has a competitive advantage. Competitive advantage is always relative, not absolute. To evaluate competitive advantage, we compare company performance to either the performance of other companies in the same industry or an industry average.  A company which can surpass its competitors or the industry average over an extended period has a sustainable competitive advantage. 

The root of the word of strategy is found in the Greek: strategia, which means “office or command of a general”. Strategia’s root is strategos, “general, commander of an army”, also the title of various civil officials and magistrates, which is composed of stratos, “multitude, army, expedition, encamped army”, and agos, “leader”.5 As we see from the etymology of the word, strategy relates to competition, leading, and achieving a particular goal. 

A vision is a statement about where the company wants to be in the future. It is composed of the desired achievements of the company. A clearly phrased vision communicates management’s aspirations to stakeholders about “where we are going” and helps channel the energies of company personnel in a common direction. 

 We observe different behavior patterns by producers across markets to a great degree. In some markets, producers are highly competitive; in others, they seem in some ways to coordinate their actions to avoid competing with one another; and, in some markets, there is no competition at all. For understanding markets and explaining the behaviors in them, economists have developed four principal models of market structure which are based on four dimensions:20 21 (1) the number of producers in the market, (2) the companies’ degree of pricing power, (3) whether the products offered are undifferentiated or differentiated (products that are different but viewed substitutable by customers), and (4) the market is consolidated or fragmented (market share for the leading four firms is equal to or less than 40% of total industry sales). 

Michael E. Porter’s well-known analytical framework, the Five Forces model is essential in identifying opportunities and threats facing a specific company in an industrial context. Porter developed two important assumptions that form the basis of his five forces model: (1) rather than defining competition narrowly as rivalry to explain and predict a firm’s performance, competition must be viewed more broadly through considering the other forces in an industry, (2) the profit potential of an industry is a function of the five forces that shape competition.

Core competencies are unique strengths, that are deeply embedded within a company. Core competencies are key for sustainable competitive advantage. Being superior in marketing, in creating algorithms, or in designing products are some examples of core competencies. Companies preserve their core competencies through resources and capabilities: resources reinforce and capabilities orchestrate core competencies. Core competencies leverage company activities, which will lead to competitive advantage.

Value chain analysis (VCA) is the process whereby a company determines the costs associated with organizational activities. The value chain analysis aims to identify where cost advantages or disadvantages exist anywhere along the value chain. The VCA process can enable a company to better identify its own strengths and weaknesses, especially as compared to a competitors’ value chain analyses and their own data examined over time. The initial step in implementing VCA is to divide a firm’s operations into specific activities or business processes. Then the analyst attempts to attach a cost to each discrete activity; the costs could be in terms of both time and money. Finally, the analyst converts the cost data into information by looking for competitive cost strengths and weaknesses that may yield competitive advantage or disadvantage. It is important to note that value chains differ vastly across industries and companies. 

Corporate-level strategy includes the determination of the long-term goals and objectives, the allocation of resources, and the adoption of courses of action in seeking competitive advantage when competing in more than one industry and market simultaneously. It concerns the broad question, where to compete and effects the entire business. Thus, corporate-level strategy is concerned with decisions about in what businesses to operate. 

The BCG matrix separates SBUs into four categories. Stars are SBUs that have a large share of a fast-growing market. To take advantage of a star, the corporation must invest considerably in it. Question marks are SBUs that have a small share of a fast-growing market. If the corporation invests in these companies, they may finally become stars, but their relatively small share in the market makes investing in question marks more risky than investing in stars. Cash cows are SBUs which have a large share of a slow-growing market. SBUs in this situation are often highly profitable, therefore the name “cash cow.” Finally, dogs are SBUs which have a small share of a slow-growing market. As the name suggests, having a small share of a slow-growth market is often not profitable. Since dogs lose money, they should either be sold to other companies or closed down and liquidated for their resources.

Global strategy refers to the determination of the long-term goals and objectives, the allocation of the resources, and the adoption of courses of action in seeking competitive advantage when competing around the world.

Companies primarily confront two sets of pressures in the global context: cost reduction and local responsiveness. The framework that considers these two sets of pressure is called the global integration-local responsiveness framework which indicates: cost pressure often require global integration and local responsiveness press companies to adapt locally. In both domestic and international competition, pressures for cost reductions are almost universal. What is unique in international competition is the pressure for local responsiveness, which is reflected in different consumer preferences and host country demands. Consumer preferences vary extremely around the world

Sustainable competitive advantage is either being ahead of competitors or achieving higher performance than the industrial average for a long time. For this reason, the correct answer is D.

Perfect competition markets have many producers which sell an undifferentiated product such as iron, crude oil, and olives with a little or no pricing power in a fragmented market. For this reason, the correct answer is D.

Michael E. Porter’s well-known analytical framework, the Five Forces model is essential in identifying opportunities and threats facing a specific company in an industrial context. For this reason, the correct answer is A.

If the suppliers’ industry is dominated by a small number of companies and suppliers threaten to be rival producers, companies are not important customers for suppliers. When there are few good substitutes, which can be used instead of others, and suppliers do not depend heavily on the industry for a large portion of their revenues, the bargaining power of suppliers is high. For this reason, the correct answer is D.

The threat of substitute products is high if (1) good substitutes are readily available or new ones are emerging; (2) substitutes are attractively priced; (3) substitutes have comparable or better performance characteristics; (4) customers have low costs in switching to substitutes; and (5) customer companies grow more comfortable with using substitutes. For this reason, the correct answer is B.

A company’s value chain contains two categories of activities that create value: the primary activities that create value for customers directly, and the support activities that facilitate and increase the performance of the primary activities. Supply chain management, production, sales and distribution, and after-sale services are primary activities of many companies. Support activities of many companies are human resource management, accounting, finance, and research and development (R&D). For this reason, the correct answer is E.

Dominant-business diversification happens as a company gains 70% to 94% of the revenue from one business, which shares its resources, capabilities, and core competencies with all the other SBUs. For this reason, the correct answer is B.

There are a few companies that can hybridize cost leadership and differentiation. The essence of an integration strategy is offering customers more value for the money by satisfying their desires and reducing costs compared to competitors with similar caliber product offerings. For this reason, the correct answer is C.

Production strategy plays the leading role when a company adopts a cost leadership strategy. There are three major tools utilized by production department for achieving lower costs: economies of scale, experience effects, and process innovation. Economies of scale which refers to decreases in average costs per unit of production as output increases, have important effects on lowering costs. For this reason, the correct answer is B.

Based on the integration-responsiveness framework, there are four strategic choices for companies: home replication, localization, global standardization, and transnational strategy. For this reason, the correct answer is B.