MGT 3660 Study Guide - Midterm Guide: Active Management, Resource Depletion, Cost Leadership
Managing Innovation Midterm
Value Creation
DIFFERENT TYPES OF VALUE
Economic Value (e.g. growth imperative)
◦ Increasing willingness to pay/reducing costs to industry-leading levels (aka
maximizing profitability).
Social Value (e.g. improve living conditions imperative)
◦ Expectations of firms are increasing due to poverty, inequality, resource
depletion, environmental degradation, etc.
◦ Thought uestio: hat is a fis ole i eatig soial alue?
Shared value (Ecooic ad social value utually reinforcing)
◦ What is good for society is good for business – not a tradeoff.
◦ Works by focusing on constraints to economic development outside of what is
foall osideed the fi.
◦ Implies a cooperative relationship with suppliers, buyers, etc.
◦ Active management of environment rather than passive reaction.
WHAT IS PROFIT
Profit (Π) = revenue (R) – total costs (TC)
R = price (P) x quantity (Q)
TC = fixed costs (FC) + variable costs (VC)
VC = Q x marginal cost (MC)
Hence:
Revenue ----------Costs---------→
Π = P x Q – (FC + Q x MC )
Or
Π = (P – MC) x Q – FC
PO‘TE‘“ GENE‘IC “T‘ATEGIE“
Cost leadership
◦ Reduce costs in every segment of the value chain as much as possible –
operational efficiency
◦ Dot egatiel ipat the quality of the product.
◦ Differentiation
◦ Iease ou ustoes illigess to pa though ehaed ualit
◦ Buyers must value the source of differentiation
WHAT IS THE PURPOSE OF PROFIT?
Fund innovation, finance growth, meet contingencies →improve competitiveness
Reward stakeholders (investment vs. divestment)
◦ Employees
◦ Owners
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THE VALUE CHAIN
SOCIAL VALUE
Principles and/or normative standards of behavior broadly held within a society.
◦ …is desiale i its o ight.
◦ …is elated to ualit of life, idepedet of eooi alue.
◦ …is taditioall eedded ithi a society (as is business!)
Creating more social value means creating more of what society values.
◦ … the eat atue of hih is ope to opiio
◦ Economic value may be deceptively attractive because it can be measured in
dollars, and larger numbers are matheatiall geate tha salle oes.
Session 5: National Advantage
NATIONAL COMPARATIVE ADVANTAGE (PORTER 1990)
• Business Strategy: Why are some firms more successful than others?
• Industry Structure: Why are some industries more attractive than others?
• National Comparative Advantage: Why do some countries produce stronger competitors
(in specific industries) than others?
PO‘TE‘“ NATIONAL DIAMOND MODEL
Firm strategy, structure and rivalry
Factor conditions
Demand conditions
Related and supporting industries
DIAMOND MODEL EXPLANED
• Countries develop strong industries when:
• There is a lot of rivalry - only the strongest firms survive.
• Buyers are demanding – only strong firms can satisfy them.
• Factor conditions (land, labor, capital) favor the industry.
• Related and supporting industries are also strong.
Ioud
Logistis
Opeatios
Outoud
Logistis
“ales ad
Maketig
Afte
sales
seie
Poueet
Maageet / ogaizatio stutue
Hua esoues
‘eseah ad deelopet
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
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