INTB 1203 Lecture Notes - Lecture 6: Organizational Culture, Cash Register, Information System
15 Dec 2016
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INTB 1203
Test #2 Notes
Chapter 12 – The Strategy of International Business
Strategy and the Firm
- Strategy: actions managers take to attain the firm’s goals.
- To maximize the value of a firm, managers must pursue strategies that increase the
profitability of the enterprise and its rate of profit growth over time.
- Profitability: the rate of return the firm makes on its invested capital (ROIC), which is
calculated by dividing the net profits of the company by total invested capital.
- Profit growth is measured by the percentage increase in net profits over time.
1. In general: higher profitability and higher rate of profit growth will increase the value
of the company.
- Managers can increase the profitability of the firm by:
1. Pursuing strategies that lower costs.
2. Pursuing strategies that add value to the firm’s products, which enables the firm to
raise prices.
- Managers can increase the rate at which a firm’s profits grow by:
1. Pursuing strategies to sell more products in existing markets.
2. Pursuing strategies to enter new markets.
- Expanding internationally can help managers boost the firm’s profitability and
increase the rate of
profit growth over
time.
Determinants of Enterprise
Value
Value Creation→ performing activities that increase the value of goods or services to
consumers.
- The way to increase the profitability of a firm is to create more value.
- The amount of value a firm creates is measured by the difference between its costs of
production and the value that consumers perceive in its products.
- A firm has higher profits when it creates more value for its customers and does so at
lower cost
1. A strategy that focuses primarily on lowering costs is referred to as a low-cost
strategy
2. A strategy that focuses primarily on increasing the attractiveness of a product is
referred to as a differentiation strategy.
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INTB 1203
Test #2 Notes
→ According to Michael Porter: low cost and differentiation are two basic strategies for creating
value and attaining a competitive advantage in the industry.
→ superior profitability goes to firms that can create superior value, and the way to create
superior value is to drive down costs and/or differentiate the product in some way so that
consumers value it more and pay a premium for the price.
Strategic Positioning
- To maximize profitability, a firm must do 3 things:
1. Pick a position on the efficiency frontier that is viable in the sense that there is
enough demand to support that choice.
2. Configure its internal operations (marketing, manufacturing, logistics, information
systems, human resources, etc.) so that they support their position.
3. Make sure that the firm has the right organizational structure in place to execute its
strategy.
- The strategy, operations, and organization of the firm must all be consistent with
each other if it is to attain a competitive advantage and garner superior
profitability.
Operations: The Firm as a Value Chain
- Operations: the various value creation activities a firm undertakes.
1. Some distinct value creating activities:
▪ Production, marketing, sales, materials management, R & D...
2. These can be categorized as: primary activities and support activities.
3. For the firm to implement the strategy effectively, it must manage these activities
efficiently and in a manner that is consistent with its strategy.
1 Primary Activities:
- Relevant to the design, creation and delivery of the product, its marketing and its support
and after sales services.
- Divided into 4 functions:
1. Research and Development (R&D): concerned with the design of products and
production processes.
2. Production: concerned with the creation of a good or service.
▪ For a physical product, refers to the actual manufacturing of the good.
▪ For a service, refers to the moment the service is delivered to the
customer.
▪ For a retailer, refers to selecting the merchandise, stocking the store, and
ringing up the sale at the cash register.
3. Marketing and Sales: brand positioning and advertising increase the value impression
the brand or company has on the product or service. Also helps discover changing
needs and preferences in consumers, helping R&D improve the product further.
4. Customer Service: provide after sales service and support
2 Support Activities:
- Provide inputs that allow the primary activities to occur.
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INTB 1203
Test #2 Notes
- 4 Functions:
1. Information systems: the electronic systems for managing inventory, tracking sales,
pricing products, selling products, dealing with customer service inquiries.
2. Logistics: controls the transmission of physical materials through the value chain,
from procurement through production and into distribution.
3. Human resources: ensures the company has the right mix of skilled people to perform
its value creating activities effectively. Also, ensures that people are adequately
trained, motivated and compensated.
4. Company infrastructure: the context within which all the other value creation
activities occur. Includes: the organizational structure, control systems and culture of
the firm.
Value Chain Diagram
Organization: The Implementation of Strategy
- The strategy of a firm is implemented through its organization
- For a firm to have superior ROIC, its organizations must support its strategy and
operations.
Organization Architecture: the totality of a firm’s organization, including formal
organizational structure, control systems and incentives, organizational culture, processes and
people.
Organizational Structure: the three-part structure of an organization, including (1) its formal
division into subunits such as product divisions, (2) its location of decision making
responsibilities within that structure and (3) the establishment of integrating mechanisms to
coordinate the activities of all subunits.
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find more resources at oneclass.com
Document Summary
Chapter 12 the strategy of international business. Strategy: actions managers take to attain the firm"s goals. To maximize the value of a firm, managers must pursue strategies that increase the profitability of the enterprise and its rate of profit growth over time. Profitability: the rate of return the firm makes on its invested capital (roic), which is calculated by dividing the net profits of the company by total invested capital. Profit growth is measured by the percentage increase in net profits over time: in general: higher profitability and higher rate of profit growth will increase the value of the company. Managers can increase the profitability of the firm by: pursuing strategies that lower costs, pursuing strategies that add value to the firm"s products, which enables the firm to raise prices. Managers can increase the rate at which a firm"s profits grow by: pursuing strategies to sell more products in existing markets, pursuing strategies to enter new markets.
