BSM 600 QUIZ 1 WITH ACCURATE
ANSWERS
6 stages of Value chain analysis correct answer 1. Break down the
firm into separate activities
Understanding the chain of processes involved in the
transformation of inputs into output and its delivery to the
customer
The separateness of one activity from another,
The importance of an activity,
The dissimilarity of activities in terms of cost drivers, and
The extent to which there are differences in the way competitors
perform the particular activity
2. Establish the relative importance of different activities in the
total cost of the product
Focus on the activities that are the major sources of cost
Porter Suggests a detailed assignment of operating costs and
assets to each value activity
Can also identify the critical activities, establish which activities
are performed relatively efficiently or inefficiently, identify cost
drivers, and offer recommendations
3. Compare costs by activity
To establish which activities the firm performs relatively
efficiently and which it does not
Benchmark unit costs for each activity against those of
competitors
4. Identify cost drivers
For each activity, what factors determine the level of cost relative
to other firms?
For some activities, cost drivers are evident simply from the
nature of the activity and the composition of costs
For capital-intensive activities, the principal factors are likely to
be capital equipment costs, weekly production volume, and
downtime between changes
For labour-intensive assembly activities, critical issues are wage
rates, speed of work, and defect rates
, 5. Identify linkages
The costs of one activity may be determined, in part, by the way
in which other activities are performed
6. Identify opportunities for reducing costs
By identifying areas of comparative inefficiency and the cost
drivers for each, opportunities for cost reduction become evident
Achieving higher rate of profit correct answer 1. Cost advantage:
Supply an identical product or service at a lower cost
Goal: Become the cost leader in the industry and industry
segments
Requires that the firm "must find and exploit all sources of cost
advantage . . . [and] . . . sell a standard, no-frills product."
2. Differentiation: Supply a product or service that is
differentiated in a way that the customer is willing to pay a price
premium that exceeds the additional cost of the differentiation
The two approaches are two fundamentally different approaches
to business strategy
Acquiring capabilities correct answer Firms can acquire resources
and capabilities in two ways:
It can buy them or it can build them
A key issue for imitators is the existence of first-mover
advantage: the initial occupant of a strategic position or niche
gains access to resources and capabilities that a follower cannot
match
Analysis Process correct answer five stages:
1. Identify possible segmentation variables
2. Construct a segmentation matrix (limit characteristics
considered in analysis)
3. Analyze segmentation attractiveness
4. Identify key success factors in each segment
5. Analyze the attraction of broad vs. narrow scope (segment
ANSWERS
6 stages of Value chain analysis correct answer 1. Break down the
firm into separate activities
Understanding the chain of processes involved in the
transformation of inputs into output and its delivery to the
customer
The separateness of one activity from another,
The importance of an activity,
The dissimilarity of activities in terms of cost drivers, and
The extent to which there are differences in the way competitors
perform the particular activity
2. Establish the relative importance of different activities in the
total cost of the product
Focus on the activities that are the major sources of cost
Porter Suggests a detailed assignment of operating costs and
assets to each value activity
Can also identify the critical activities, establish which activities
are performed relatively efficiently or inefficiently, identify cost
drivers, and offer recommendations
3. Compare costs by activity
To establish which activities the firm performs relatively
efficiently and which it does not
Benchmark unit costs for each activity against those of
competitors
4. Identify cost drivers
For each activity, what factors determine the level of cost relative
to other firms?
For some activities, cost drivers are evident simply from the
nature of the activity and the composition of costs
For capital-intensive activities, the principal factors are likely to
be capital equipment costs, weekly production volume, and
downtime between changes
For labour-intensive assembly activities, critical issues are wage
rates, speed of work, and defect rates
, 5. Identify linkages
The costs of one activity may be determined, in part, by the way
in which other activities are performed
6. Identify opportunities for reducing costs
By identifying areas of comparative inefficiency and the cost
drivers for each, opportunities for cost reduction become evident
Achieving higher rate of profit correct answer 1. Cost advantage:
Supply an identical product or service at a lower cost
Goal: Become the cost leader in the industry and industry
segments
Requires that the firm "must find and exploit all sources of cost
advantage . . . [and] . . . sell a standard, no-frills product."
2. Differentiation: Supply a product or service that is
differentiated in a way that the customer is willing to pay a price
premium that exceeds the additional cost of the differentiation
The two approaches are two fundamentally different approaches
to business strategy
Acquiring capabilities correct answer Firms can acquire resources
and capabilities in two ways:
It can buy them or it can build them
A key issue for imitators is the existence of first-mover
advantage: the initial occupant of a strategic position or niche
gains access to resources and capabilities that a follower cannot
match
Analysis Process correct answer five stages:
1. Identify possible segmentation variables
2. Construct a segmentation matrix (limit characteristics
considered in analysis)
3. Analyze segmentation attractiveness
4. Identify key success factors in each segment
5. Analyze the attraction of broad vs. narrow scope (segment
