Advanced Management

Airbus believes in a hub-and-spoke system
• Large amount of traffic between international hubs
• Development of the A380:
-  Largest passenger airplane
-  550 – 800 passengers
-  Because of its size and weight, the A380 can currently land at approximately only 35 airports
-  15% of the work was outsourced

Boeing believes in a point-to-point system:
• More routes, no need for enormous airplanes. Direct transportation without stopovers
• Development of the 787 Dreamliner:
-  Fuel-efficient midsize aircraft
-  240 – 320 passenger
-  85% of the work was outsourced

“A strategy is an integrated and coordinated set of commitments and actions designed to develop and exploit core competencies and gain a competitive advantage” (Volberta)

• Understanding how to exploit a competitive advantage is important for firms seeking to earn above-average returns
• Above-average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk

A business-level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by selecting specific product markets and positioning within this market.

A corporate-level strategy specifies actions a firm takes to gain a competitive advantage by making optimal make or buy decisions.

Price determination:
• Price is lower than the maximal willingness to pay,  which equals the (perceived) benefit
P ≤ B
• The firm will not supply the product or service unless it receives a price that at least covers the costs
P ≥ C
• Thus, the price lies between the (perceived) benefit and the costs
B ≥ P ≥ C

The value added is split between the firm and the consumers
• The consumers receive the consumer surplus, defined as:
(B - P)
• The firm receives the producer surplus, defined as:
(P - C)

An industry is a group of firms producing products and/or services that are close substitutes
• Firms should select an industry with low competition
• Porter‘s (1980) five-forces framework helps to analyze industry competition

1. Internal rivalry
2. Threat of new entrants
3. Threat of substitute products
4. Bargaining power of suppliers
5. Bargaining power of buyers