Essay on Business Policy

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Chapter 2

General Environment: the broad trends in the context within which a firm operates tha can have an impact on a firm’s strategic choices. (6 elements: tech change, demographic trends, cultural trends, economic climate, legal/political conditions, specific international events)

Technological Change: creates both opportunity, as firms begin to explore how to use technology to create new products and services, and threats, as technological change forces firms to rethink their technological strategies.

Demographics: the distribution of individuals in a society in terms of age, sex, marital status, income, ethnicity, and other personal attributes that may determine buying patterns.

Culture: the values, beliefs, and norms that guide behavior in a society. They define what is “right and wrong,”

Chapter 4

Business-level strategies: actions firms take to gain competitvive advantages in a single market or industry. The two main strategies are cost leadership and product differentiation (known together as generic business strategies).

Corporate-level strategies: actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously

Cost leadership business strategy: gaining advantages by reducing costs to below those of all competitors

Table 4.1 – Important Sources of Cost Advantages for Firms 1. Size differences and economies of scale 2. Size differences and diseconomies of scale 3. Experience differences and learning-curve economies 4. Differential low-cost access to productive inputs 5. Technological advantages independent of scale 6. Policy choices

Size differences and economies of scale: exist when the increase in firm size (measured by volume of production) is associated with lower cost (measured by average costs per unit of production). High volume of production may allow firms to cut costs via: 1) specialized machines, 2) the use of fewer, larger plants and pieces of equipment, 3) employee specialization, and 4) broader spread of overhead costs over a larger number of products.

Size differences and diseconomies of scale: the increase of prices due to a firm’s growth in size beyond the optimal point. When other firms are operating in diseconomies of scale, a smaller firm will have the advantage as it is closer to the optimal point. These diseconomies of scale may rise from: 1) Physical limits to efficient size, 2) managerial diseconomies (the firm becomes too large for managers to control), 3) worker demotivation, and 4) distance to markets and suppliers.

Experience differences and learning-curve economies: the link between cumulative volumes of production and falling per unit costs. (The more a firm does a process, the better and more efficiently it will be able to do it.)

Differential low-cost access to productive inputs: the ability to obtain the supplies used by a firm in conducting its business activities (labor, capital, land, raw materials) for a lower cost than its rivals.

Technological advantages independent of scale: possession of technological hardware and software employed to manage business operations more effectively/efficiently

Policy choices: choices made by firms regarding the kinds of products and services they will sell, which will impact their relative cost position.

|Table 4.4 - The Rarity of Sources of Cost Advantage |
|Likely-to-be rare |Less-likely-to-be-rare
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