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Business Policy is concerned with specifying and achieving an organizations objectives. It therefore involves (a) setting out the long term goals for a firm in line with the expectations of its stakeholders, ith th t ti f it t k h ld (b) formulating an action plan for meeting these goals, (c) allocating resources for meeting the goals, (d) implementing the action plan by modifying/building an appropriate structure within the organization, and (e) evaluating the end-results through a review of results and future possibilities.
Action plan must be formulated in the light of systematic examination of the environment
External and Internal Analysis
Industrial Organization
We will be concerned with a field of Economics, which is called Industrial Organization in America and Industrial Economics in Europe. It studies how some organizing mechanism like the market or the firm brings the productive activities in an industry in harmony with the demand for its goods or services, - and how imperfections in these mechanisms affect the efficiency with which this demand is met.
Systematic Examination of the Environment Internal Analysis External Analysis human resources interest rates (knowledge) demographics manufacturing social trends abilities technology technology
Differences
Both Business Policy and Industrial Organization are concerned with the behavior of firms. But while Business Policy tries to spell out how firms should behave, Industrial behave Organization tries to find out how firms actually behave and why. Business Policy is process-oriented: it tells firms how they should go about doing what they do. Industrial Organization is logicoriented: it analyses why firms do what they do.
Differences
Business Policy is concerned with the private welfare of stakeholders, while Industrial Organization is concerned with social welfare. - Consequently, Business Policy addresses business managers, while Industrial Organization addresses policy makers.
Differences
Business Policy is multi-disciplinary and uses ideas from Economics, Political Science, Behavioral Sciences and other fields of management. Industrial Organization is firmly rooted in Economics. Economics - As a result, Business Policy tries to analyze behavior from a number of perspectives. Industrial Organization, on the other hand, assumes that firms maximize profits, subject to the availability of relevant information and the need to reconcile the aspirations of different stakeholders.
Differences
Business Policy derives its generalizations from in-depth studies of individual firms. Industrial Organization derives its generalizations from models developed to explain data collected from large samples of firms.
Value
The value created in the production process is distributed between the consumers and the firm The consumers get consumer surplus, surplus while the firm earns profit
Value Created
Value created = Consumer surplus + Producer surplus = (B - P) + (P - C) = B-C A positive (B - C) does not guarantee economic profit. Competition among producers can allow consumers to capture all of the value created.
Price-Quality Tradeoff
Price-Quality Tradeoff
The steepness of the indifference curve reflects the tradeoff between price and quality that the consumers are willing to make Consumers are willing to pay B more to obtain the incremental quality q Firms try to offer their products at the lowest feasible indifference curve P
Lower consumer
Product D surplus Product A
indifference curve
Product B
Product C
q, quality
If 2 sets P2 = C2, this ensures that consumer will get a CS of B2 C2 from firm 2. This is the most aggressive bid from firm 2
Tata-Corus
Wharton management professor Paul Tiffany reads Tata's statement differently. "When Tata said he would have even paid more, I wonder about that," he says. "Was that simply a statement [made] in the joy of winning or was it indicative of too much emotion triumphing over reason?" Tiffany says he finds the price and the rationale for the Corus acquisition to be "a little dubious.... It's a very cyclical industry and prices today will not be the price of tomorrow if history is any guide. We are near the peak of the cycle. So, clearly, the price that Tata is paying [for Corus] is a lot more than anyone thought."
Competitive Advantage
The Ability to Create More Economic Value Than Competitors
Competitive Advantage
Two Types of Difference
there must be something different about a firms offering vis vis competitors offerings vis--vis competitors if all firms strategies were the same, no firm would have a competitive advantage competitive advantage is the result of doing something different and/or better than competitors
1) Preference for the firms output people choose the firms output over others people are willing to pay a premium
Example: Nordstrom
2) Cost advantage vis--vis competitors lower costs of production/distribution
Example: Wal-Mart
Strategic Positioning
Thus there are two broad approaches to strategic positioning in order to achieve competitive advantage
Attain a lower cost while matching the benefit provided by the competitor (cost advantage) Offer a higher benefit while keeping the cost the same the competitors (benefit advantage)
q qE qF q, quality
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