OAM 331 MIDTERM LATEST STUDY GUIDE 100% VERIFIED
Why strategy matters:
1. business environment is VUCA – volatile, uncertain, complex, and ambiguous –
which does not lend itself to a simple “this or that” choice.
2. Instead, creating a sustainable competitive advantage often requires:
— Thoughtful framing of the edges of the problem
— Structured thinking to parse out the assumptions, constraints, drivers
— Selective use of relevant frameworks to enable effective decisions
— Development of a point of view – not just mere facts. Answer the question “so
what?
— Recommendations supported by analysis and evidence
3. What makes a product or company successful?
- Industry: How is it changing? Which industry?
- Company: What are we uniquely good at? How are we positioned?
- Competitor: What are they uniquely good at? How are they positioned?
- Product: What functions does it serve? What’s the substitutes?
- Customers: Who are they? What do they want?
4. Business success requires both deliberate strategy (Honda A) and emerging
strategy (Honda B). It's a combination of both the super analytical, MBA-side of
your brain and also the risk-taking, entrepreneurial, gutsy part of your brain/heart.
Honda A: Honda’s success
1. Created a 4 stroke engine with 2x the power and no additional weight
2. Revolutionized a “step through frame” easier for female riders (new market)
3. Became a fully-integrated manufacturer: engine, frame, chains, sprockets
etc. . . (did not outsource, all made themselves)
4. Heavy commitment to R&D and manufacturing; new products could be
brought to market quickly; from design production in 18 months (the time
from design to actual production is very short)
, 5. AftersuccessinJapan(3Kunit/month);aggressivelyinvestedina30Kunit/monthc
apacity
6. Primary objective was sales volume not short-term profitability (may lose
money in the short run before achieving sustainable value)
7. SuperCub Sold for $250 per bike vs. $1,000 for Sears, Roebuck version
(price low but has massive demand)
8. US sales of $500K in 1960 to $77M in 1965
Honda B: “Effective strategies often emerge from opportunistic, skillful, and
disciplined response to opportunities. . .not planning alone
See (new) opportunities, Overcome failures, Adapt to changes in demand, Take risks
and build an entrepreneurial culture; Honda was willing to pivot from the original
plan and adapt to demand; They positioned the SuperCub differently from the typical
motorcycle. Targeting a different set of users (camping, hunting); new advertising
strategy: position themselves against the bad image in the film
5. Virtuous cycle - what are the self-reinforcing activities that created momentum
of success for Honda?
- start with demand (Americans wanted this and didn't know it) or R&D (Honda had
great product, and dedication to quality)
- which allowed them to sell a lot of them
- which allowed them to increase their volumes
- which allowed to higher utilization of their factories
- which lowered their fixed costs per unit
- which then allowed them to price lower that willingness-to-pay
- which then created more demand, strong branding (word of mouth too), and the
cycle continued.
Strategy is a set of activities that work together to create a sustainable
competitive advantage
6. Honda used a mass-production, mass-market, low-cost approach for early success
with motorcycles in the US
7. How management plays the role in Honda’s success
, • - Understand business environment, made decisions based on careful research
and calculation (Use existing success in Japan as a foundation for exports; find
an underserved segment, Establish a dedicated dealer group; Carve out a new
market position; Increase productivity with volume)
- take advantage of new opportunities and willing to adapt their strategies to the new
demand market
8. Learning curve effects: increased labor productivity with increased production
9. Experience curve effects: drop in per-unit direct costs from process innovation
(same output)
Honda Key takeaways:
• Competed differently from traditional companies (e.g., Harley Davidson,
British)
―Marketing: Targeting the leisure market(e.g., outdoor stores)
— Quality: Offering higher reliability, fast model updates; established dealer
network
— Prices: Offering lower prices because of economies of scale (lower fixed
cost/unit)
• Strategy setting is not a one-time event, it’s a process combining:
— Leadership (setting direction through vision, mission)
— Strategic planning (tops down analysis and planning)
―Scenario planning by asking “what if” questions
— Emerging strategy – adapting activities to changing conditions
1. Willingness to pay is the highest price that a buyer is willing to pay.
varies a lot by market segment, by consumer, by time frame, by complements
(iPhone, iWatch)
2. Different concept: a shift in the demand curve
— Consumer buys more/less because he/she changes (not the price) ―
Example of a shift in demand: when incomes rise, people can buy more of
everything they want.
, 3. Price discrimination: Sellers try to claim more economic value by charging
different prices to different buyers for same product. (ask for different price for same
product or service), people have different willingness to pay
4. Price elasticity of demand: The slope of the demand curve measures how
responsive buyers are to the change in prices
- Demand elasticity = %Δ Quantity / %Δ Price
- Demand may be inelastic in the short-run until alternatives are developed. In the
long run, there’s more likely to have substitutes
- why imperfect: 1) Super hard to measure on people 2) Slope varies at different
points of curve (not a straight line) 3) the % change from 10 to 15 and 15 to 10 (both
5 units), is quite different on a percentage basis
5. Fixed cost and Marginal Cost: Fixed costs are incurred regardless of the level of
production; marginal costs are incurred with each additional unit
- FC: Expenses that must be paid regardless of the quantity of production, such as
building cost, depreciation, insurance, rent, salary (full-time), technology, property
tax, interest expense
- VC: Expenses that vary in direct proportion to the incremental production, such as
raw materials, packages, Manufacturing related labor, utilities, maintenance and
repair.
Labor cost can both be fixed and marginal cost (wage paid for full-time employees; if
want to produce one more unit of product, need to hire more people)
How does a company’s cost structure affect its decisions?
- For companies with huge fixed cost: will have less marginal cost, may
want higher volume with lower prices; as quantity sold scales up, AFC
can be scaled down and be profitable in the long term
- For outsourcing companies, have lower fixed cost but higher MC, need
to always set price above MC
In the short-run, firms should produce as long as the price meets or exceeds their
marginal cost
• Keep producing as long as MR > MC?
— Fixed costs are already sunk
Why strategy matters:
1. business environment is VUCA – volatile, uncertain, complex, and ambiguous –
which does not lend itself to a simple “this or that” choice.
2. Instead, creating a sustainable competitive advantage often requires:
— Thoughtful framing of the edges of the problem
— Structured thinking to parse out the assumptions, constraints, drivers
— Selective use of relevant frameworks to enable effective decisions
— Development of a point of view – not just mere facts. Answer the question “so
what?
— Recommendations supported by analysis and evidence
3. What makes a product or company successful?
- Industry: How is it changing? Which industry?
- Company: What are we uniquely good at? How are we positioned?
- Competitor: What are they uniquely good at? How are they positioned?
- Product: What functions does it serve? What’s the substitutes?
- Customers: Who are they? What do they want?
4. Business success requires both deliberate strategy (Honda A) and emerging
strategy (Honda B). It's a combination of both the super analytical, MBA-side of
your brain and also the risk-taking, entrepreneurial, gutsy part of your brain/heart.
Honda A: Honda’s success
1. Created a 4 stroke engine with 2x the power and no additional weight
2. Revolutionized a “step through frame” easier for female riders (new market)
3. Became a fully-integrated manufacturer: engine, frame, chains, sprockets
etc. . . (did not outsource, all made themselves)
4. Heavy commitment to R&D and manufacturing; new products could be
brought to market quickly; from design production in 18 months (the time
from design to actual production is very short)
, 5. AftersuccessinJapan(3Kunit/month);aggressivelyinvestedina30Kunit/monthc
apacity
6. Primary objective was sales volume not short-term profitability (may lose
money in the short run before achieving sustainable value)
7. SuperCub Sold for $250 per bike vs. $1,000 for Sears, Roebuck version
(price low but has massive demand)
8. US sales of $500K in 1960 to $77M in 1965
Honda B: “Effective strategies often emerge from opportunistic, skillful, and
disciplined response to opportunities. . .not planning alone
See (new) opportunities, Overcome failures, Adapt to changes in demand, Take risks
and build an entrepreneurial culture; Honda was willing to pivot from the original
plan and adapt to demand; They positioned the SuperCub differently from the typical
motorcycle. Targeting a different set of users (camping, hunting); new advertising
strategy: position themselves against the bad image in the film
5. Virtuous cycle - what are the self-reinforcing activities that created momentum
of success for Honda?
- start with demand (Americans wanted this and didn't know it) or R&D (Honda had
great product, and dedication to quality)
- which allowed them to sell a lot of them
- which allowed them to increase their volumes
- which allowed to higher utilization of their factories
- which lowered their fixed costs per unit
- which then allowed them to price lower that willingness-to-pay
- which then created more demand, strong branding (word of mouth too), and the
cycle continued.
Strategy is a set of activities that work together to create a sustainable
competitive advantage
6. Honda used a mass-production, mass-market, low-cost approach for early success
with motorcycles in the US
7. How management plays the role in Honda’s success
, • - Understand business environment, made decisions based on careful research
and calculation (Use existing success in Japan as a foundation for exports; find
an underserved segment, Establish a dedicated dealer group; Carve out a new
market position; Increase productivity with volume)
- take advantage of new opportunities and willing to adapt their strategies to the new
demand market
8. Learning curve effects: increased labor productivity with increased production
9. Experience curve effects: drop in per-unit direct costs from process innovation
(same output)
Honda Key takeaways:
• Competed differently from traditional companies (e.g., Harley Davidson,
British)
―Marketing: Targeting the leisure market(e.g., outdoor stores)
— Quality: Offering higher reliability, fast model updates; established dealer
network
— Prices: Offering lower prices because of economies of scale (lower fixed
cost/unit)
• Strategy setting is not a one-time event, it’s a process combining:
— Leadership (setting direction through vision, mission)
— Strategic planning (tops down analysis and planning)
―Scenario planning by asking “what if” questions
— Emerging strategy – adapting activities to changing conditions
1. Willingness to pay is the highest price that a buyer is willing to pay.
varies a lot by market segment, by consumer, by time frame, by complements
(iPhone, iWatch)
2. Different concept: a shift in the demand curve
— Consumer buys more/less because he/she changes (not the price) ―
Example of a shift in demand: when incomes rise, people can buy more of
everything they want.
, 3. Price discrimination: Sellers try to claim more economic value by charging
different prices to different buyers for same product. (ask for different price for same
product or service), people have different willingness to pay
4. Price elasticity of demand: The slope of the demand curve measures how
responsive buyers are to the change in prices
- Demand elasticity = %Δ Quantity / %Δ Price
- Demand may be inelastic in the short-run until alternatives are developed. In the
long run, there’s more likely to have substitutes
- why imperfect: 1) Super hard to measure on people 2) Slope varies at different
points of curve (not a straight line) 3) the % change from 10 to 15 and 15 to 10 (both
5 units), is quite different on a percentage basis
5. Fixed cost and Marginal Cost: Fixed costs are incurred regardless of the level of
production; marginal costs are incurred with each additional unit
- FC: Expenses that must be paid regardless of the quantity of production, such as
building cost, depreciation, insurance, rent, salary (full-time), technology, property
tax, interest expense
- VC: Expenses that vary in direct proportion to the incremental production, such as
raw materials, packages, Manufacturing related labor, utilities, maintenance and
repair.
Labor cost can both be fixed and marginal cost (wage paid for full-time employees; if
want to produce one more unit of product, need to hire more people)
How does a company’s cost structure affect its decisions?
- For companies with huge fixed cost: will have less marginal cost, may
want higher volume with lower prices; as quantity sold scales up, AFC
can be scaled down and be profitable in the long term
- For outsourcing companies, have lower fixed cost but higher MC, need
to always set price above MC
In the short-run, firms should produce as long as the price meets or exceeds their
marginal cost
• Keep producing as long as MR > MC?
— Fixed costs are already sunk
