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Questions and Answers
A company can gain a competitive advantage through both cost leadership and differentiation strategies simultaneously.
A company can gain a competitive advantage through both cost leadership and differentiation strategies simultaneously.
True
The goal of a cost leadership strategy is to become the highest-cost provider in your industry or market.
The goal of a cost leadership strategy is to become the highest-cost provider in your industry or market.
False
Conducting a value chain analysis can help businesses create a cost disadvantage over competitors.
Conducting a value chain analysis can help businesses create a cost disadvantage over competitors.
False
A value chain analysis is a process that helps organizations understand only the financial aspects of their business.
A value chain analysis is a process that helps organizations understand only the financial aspects of their business.
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The value chain framework is used to understand and evaluate sources of only positive cost efficiency.
The value chain framework is used to understand and evaluate sources of only positive cost efficiency.
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Break each primary and secondary activity down into subactivities is the last step in conducting a value chain analysis.
Break each primary and secondary activity down into subactivities is the last step in conducting a value chain analysis.
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A business can gain a competitive advantage through cost leadership strategy by offering unique products or services.
A business can gain a competitive advantage through cost leadership strategy by offering unique products or services.
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A value chain analysis is a start-to-finish process that provides a complete solution for businesses.
A value chain analysis is a start-to-finish process that provides a complete solution for businesses.
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Differentiation strategy involves reducing the overall price of the product or service.
Differentiation strategy involves reducing the overall price of the product or service.
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Conducting a value chain analysis can help businesses optimize activities to minimize output and maximize organizational expenses.
Conducting a value chain analysis can help businesses optimize activities to minimize output and maximize organizational expenses.
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Study Notes
Gaining Competitive Advantage
- A business can gain a competitive advantage in one of two areas: cost leadership or differentiation.
Cost Leadership
- The goal of a cost leadership strategy is to become the lowest-cost provider in the industry or market.
- Companies that excel with a low-cost strategy have extreme operational efficiency and use low-cost materials and resources to reduce the overall price of their product or service.
Differentiation
- The competitive advantage is gained by offering a unique or highly specialized product or service.
- A successful differentiation strategy allows the business to set a premium price for its product or service.
- The business needs to dedicate time and resources to innovation, research, and development.
Value Chain Analysis
- The value chain framework helps organizations understand and evaluate sources of positive and negative cost efficiency.
- Conducting a value chain analysis can help businesses:
- Support decisions for various business activities.
- Diagnose points of ineffectiveness for corrective action.
- Understand linkages and dependencies between different activities and areas in the business.
- Optimize activities to maximize output and minimize organizational expenses.
- Potentially create a cost advantage over competitors.
- Understand core competencies and areas of improvement.
- A value chain analysis is a process that helps organizations understand points in their value chain and relationships between these different points.
- Conducting a value chain analysis helps a company identify factors that create or hinder cost efficiency in its business model.
Steps to Understand Value Chain
- Break each primary and secondary activity down into subactivities.
- Analyze each function on a more granular level to compare the financial return of each function to the time, effort, and cost required.
- Look for connections between subactivities, as inefficiencies in one activity or subactivity can be linked to another.
- Diagnose areas of improvement by considering trends and patterns in the different sub-activities and connections between sub-activities.
- Evaluate for potential improvement opportunities in those particular points in the value chain.
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Description
Learn about the two primary strategies for gaining a competitive advantage in business: cost leadership and differentiation. Understand how companies can achieve operational efficiency and reduce costs to gain an edge in the market.
