Deck 6: Assessment of Renal Function

Question 1

What are the major sources of competitive advantages of an organization that can be effectively developed to support a cost leadership strategy for competing in the market?

Answer 1

To answer this question, it is necessary for students to find out how an organization can strategize to lower its fixed costs, how it can attain economy of scale, how it can avoid marginal customer accounts, etc.
The major sources of competitive advantages that can be developed by adopting a cost leadership strategy are economies of scale, which refers to the cost saving attributed to decreased fixed costs per unit while the volume of production and sales increase; learning curve, which represents cost saving attributed to reduction of costs as a result of fewer mistakes and an improvement in problem solving by repetition of operations; and, last but not least, technological improvement, which is cost saving attributed to improved efficiency through innovation of the production process.

Question 2

What industry forces might cause a propitious niche to appear or disappear?

Answer 2

Newman's argument for a propitious niche includes the implication that a corporation with such a niche will be successful so long as it fills that niche. This niche is the specific competitive role held by a corporation, division, or product/service. A propitious niche is one that is so well suited to the firm's internal and external environment that competitors are not likely to challenge or dislodge it. In terms of automobiles, both Rolls Royce and Ferrari fill two very different niches in the industry.
The key to answering this question is in understanding that a propitious niche exists not only because of environmental opportunities, but also because a company has the resources to take advantage of these opportunities. Therefore, a niche can disappear because of changes within a company as well as because of environmental changes. Some of the possible changes are:
a. The environment/industry changes. The company/SBU continues to make its products or services, but the size of the market changes.
1) Contracts. The market gets smaller because of factors beyond the control of the company/SBU. For example, the increasing price of gasoline in 2008 followed by a recession contracted the market for gas-guzzling, performance-oriented automobiles. The niche could then support only the strongest companies/SBUs.
2) Expands. The company/SBU, through its own efforts, not only fills a demand in the market but also causes the market to expand. Unless the company/SBU can manufacture sufficient products to meet growing demand or is able to defend a patented process (as Proctor & Gamble did with Crest-Fluoride toothpaste for years), profit opportunities will cause competitors with sufficient internal resources to join the niche. Such competitors may be stronger and drive the original company/SBU out of the market, thus causing it to lose its niche.
b. The company/SBU changes. The same market demand continues for specific products or services, but the company/SBU itself changes so that there is no longer synchronization between itself and the market.
1) Contracts. Due to demands for resources elsewhere in the corporation, the company/SBU may be forced to cut back its activities. It is unable to satisfy market demand. Customers either leave the market by buying a substitute product or stay in the market by buying a competitor's product. Such unfulfilled demand encourages competitors, which may drive the original company/SBU out of the niche.
2) Expands. Its own success in the niche may cause the company/SBU to move into nearby niches. The need for resources in the battle for new niches may cause the company/SBU to take its original niche for granted. Small competitors may take advantage of the lack of concern by fighting to expand their piece of the market, thereby squeezing the company/SBU out of the original market and thus out of its niche.
If a company/SBU loses its niche, it is likely to become much less profitable unless it can find a new niche. The specifics of what might happen depend on how the company/SBU originally lost its niche. The possibilities for class discussion can be almost endless.

Question 3

How does a hypercompetitive environment change the strategic approach for a company?

Answer 3

Hypercompetitive environments require companies to continue improving their competitive advantage through continuous improvement practices. D'Aveni contends that when industries become hypercompetitive, they tend to go through escalating stages of competition. Initially, firms compete on costs, then move out into untapped markets, and finally, raise barriers of entry so that no other players can join in the competition.

Question 4

Explain the importance of strategic alliances.

Question 5

How can an organization develop a competitive advantage internally without the help of outsiders?

Question 6

Explain how our understanding of the three generic strategic approaches available to companies can be used to direct the efforts of all employees at those companies.