Business Strategy
     Sources of competitive advantage:
     •  External 
         – Examples include: changing customer demand, changing prices, 
           technological change
         – How a firm takes advantage of changes in its external environment 
           depends on its ability to anticipate the changes and the speed by 
           which it can react to the changes
     •  Internal
         – Firms can create competitive advantage through innovation of 
           products and processes
         – Examples include: creating new industries, new customer segments
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     Two ways firms create competitive advantage:
         – Cost leadership 
            • Broadly defined as supplying the same product or service at a 
              lower cost
            • Characteristics:
                – Existence of economies of scale and scope
                – Efficient production
                – Simpler product design
                – Lower input costs
                – Low-cost distribution
                – Little R&D or brand advertising
                – Tight cost control system
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     Two ways firms create competitive advantage:
         – Differentiation 
             • Broadly defined as supplying a unique product or service at a cost 
               lower than the price premium customers are willing to pay
             • Characteristics:
                 – Superior product quality
                 – Superior product variety
                 – Superior customer service
                 – More flexible delivery
                 – Investment in brand image
                 – Investment in R&D and advertising
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     Corporate Strategy
        –Product scope 
           • Many different products in many different industries – the tools of 
             competitive strategy analysis above can be used to analyze how 
             the firm can compete in each industry 
        –Geographical scope
           • The firm sells (or produces, or both) its products in many different 
             countries.
        –Vertical scope
           • Backward – the firm produces its own components or other inputs
           • Forward – the firm takes over activities previously undertaken by 
             its customers
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     • Sources:
        – Palepu and Healy, Business Analysis and Valuation Using Financial 
           Statements, 4th ed.
        – Grant, Contemporary Strategy Analysis, 7th ed. 
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