Competitive Advantage Reading Questions PDF

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Caleb Scott Corporate Strategy Professor Lawson Reading Questions: Competitive Advantage Based on the reading from the Harvard Business School course pack, provide short answer responses to the following questions: 1. Why is it important to compare and analyze firms within their industry? It is important to compare and analyze firms within their industry to create competitive advantage. By analyzing other firms in comparison to their own they can make better decisions on how they will market and price their products. A firm has a competitive advantage over its rivals if it has driven a gap between the amount its customers are willing to pay and the costs it incurs—indeed, a wider wedge than its competitors have achieved. Analyzing and comparing firms within the industry helps create this gap. 2. What are the three ways in which firms can establish a competitive advantage? 1 – By stripping out costs without sacrificing commensurate willingness to pay among target customers (a low-cost strategy) 2 – By boosting willingness to pay among target customers without incurring offsetting costs (a differentiation strategy) 3 – Sometimes by raising willingness to pay and reducing costs at the same time (a dual advantage) 3. In Interactive Illustration 1 of the Core Reading, what happens if Harnischfeger increases the price to $6 million? If Harnischfeger increases their price to 6,000,000, the percent share of value for them goes from 45% to 64%, lowering International Paper’s share to 27%. However, it does not change the percent share of the supplier 9% 4. What is a value chain? How can it be used to analyze relative costs? A value chain is an analytical tool that illustrates the sequence of activities that constitute the economic performance and capabilities of a firm. The value chain reflects the company’s operations, which can be used to analyze and contribute to a firm’s relative cost. 5. How are cost drivers used to assess competitive advantage? Cost drivers are critical because they allow managers to estimate competitors’ cost positions. Using their own company’s costs and the numerical relationships to cost drivers, managers can estimate a competitor’s cost position helping them create a competitive advantage. 6. How does a value proposition help a firm analyze its competitive advantage? Value proposition looks at customers. It is a statement that conveys why a buyer should buy a company’s product or service. The customer is essential in

order to compete in any industry. The value proposition helps a firm understand the attributes customers want in a product or service. Once you know these attributes you can compare your firm with others and see where you meet the customer’s desires and where you don’t compared to other firms. 7. Which has a greater impact on profitability: variations in levels of cost or in willingness to pay? Why? Willingness to pay has a greater impact on profitability because it is more sensitive to activity in the value chain. 8. How can a firm generate favorable options? For a firm to generate favorable options they have to get creative. Overall, a firm should scour its value chain for, and eliminate, activities that generate costs without creating willingness to pay. It should also search for inexpensive ways to increase willingness to pay, at least among a portion of customers. 9. Refer to Interactive Illustration 2 in the Core Reading. Imagine that Harnischfeger decides to use higher-quality materials in order to produce a longer-lasting crane. This decision slows the production process and increases the supplier cost to $2.5 million. International Paper agrees that this improvement translates into fewer repairs to its cranes and increases its willingness to pay to $7.8 million. Does this change give Harnischfeger an advantage over Kranco? It does not give Harnischfeger an advantage. If the willingness to pay had increased more than the increase of the supplier cost, then it would give Harnischfeger an advantage. In this situation Harnischfeger is $–0.3 million. 10.Refer to Interactive Illustration 3 in the Core Reading. If a supplier’s opportunity cost remains at the industry average (the default setting in the interactive illustration), is it possible for that supplier to achieve a dual competitive advantage? It is not because in order to achieve a dual competitive advantage, a company must increase WTP and reduce supplier opportunity costs.

A hard-copy is due in class. If you have trouble printing you are responsible for emailing the assignment to TA Gmail address. You are also responsible for submitting a hard-copy of the assignment to Professor Lawson’s mailbox in the Managerial Studies office (Calhoun 215). Should you have any questions, please contact the TA or Professor Lawson....