BA422W Final Exam

An alliance management capability can be. source of

competitive advantage as better management of alliances leads to more likely superior performance

At the firm level, performance is determined by value and cost positions relative to...

competitors This is the firm's strategic position

In a differentiation strategy, the focus of competition is on value-enhancing attributes and features, while

controlling costs

Strategic tradeoffs include...

cost or value propositon

External Transaction Costs

costs of searching for a firm or an individual with whom to contract, and then negotiating, monitoring, and enforcing the contract

Merger

describes the joining of two independent companies to form a combined entity

How does a Business-level Strategy determine a firm's strategic position

details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market. It involves a single product or a group of similar products that use the same distribution channel

Business-level Strategy

determines a firm's strategic position in its quest for competitive advantage when competing in a single industry or product market

A (blank) seeks to create higher value for customers than the value that competitor create, by delivering products or services with (blank) while keep costs at the same or similar levels

differentiation strategy ; unique features

Lowering a firm's costs is primarily achieved by

eliminating and reducing the taken-for-granted factors on which the firm's industry rivals compete

Strategic positions are NOT fixed but can (and need to) change as the

environment changes ex. JetBlue, was able to create an initial comp. advantage, it was unable to refine its strategic position over time

When companies transact in the open market they incur

external transaction costs

Vertical integration is a

firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs

Business strategy is more likely to lead to a competitive advantage if it allows...

firms to either perform similar activities differently, or perform different activities than their rivals that result in creating more value or offering similar products or services at lower cost.

Non-equity alliance pros

flexible, fast, easy to get in and out

A blue ocean strategy often is difficult because the two distinct strategic positions require internal value chain activities that are (blank) from one another

fundamentally different

Firms that are able to learn how to select the right pathways to obtain new resources are more likely to

gain and sustain a competitive advantage

When a firm is able to offer a differentiated product or service and can control its cost at the same time it is able to...

gain market share from other firms by charging a similar price but offering more perceived value

A firm that is active in several different countries is pursing a

geographic diversification

Horizontal integration through mergers and acquisitions can

help firms strengthen their competitive positions by increasing differentiation

Business strategy addresses

how to compete

product features, customer service, and complements are all examples of...

important value drivers

Transition cost economics helps managers decide what activities to do (blank) versus what services and products to obtain from the (blank)

in-house (make); external market (buy)

Risks of Vertical Integration

increasing costs, reducing quality, reducing flexibility, increasing the potential for legal repercussions

To formulate an effective business strategy, managers need to keep in mind that competitive advantage is determined jointly by...

industry and firm effects

The relationship between the type of diversification and overall firm performance takes on the shape of an

inverted U

Horizontal Integration

is the process of merging with a competitor at the SAME stage of the value chain

The goal of a differentiation strategy

is to increase the perceived value of goods and services so that the customers will pay a higher price for additional features

A alliance qualifies as strategic if

it has the potential to affect a firm's competitive advantage by increasing value and/or lowering costs

Tacit knowledge concerns

"knowing how" to do a certain task

When a firm fails to resolve strategic trade-offs between differentiation and cost they end up being (blank) They then succeed at neither business strategy leading to (blank)

"stuck in the middle" ; competitive disadvantage

Firms engage in acquisitions to

(1) access new markets and distributions channels, (2) gain access to a new capability or competency, and (3) preempt rivals.

Alliances can be governed by the following mechanisms:

(1) contractual agreements for non-equity alliances (2)Equity alliances (3) Joint ventures

Corporate strategy concerns the boundaries of the firm along three dimensions

(1) industry value chain (2) products and services (3) geography (regional, national, or global market)

As a corporate strategy, firms use horizontal integration to

(1) reduce competitive intensity (2) lower costs (3) increase differentiation

The most common reasons why firms enter alliances are to

(1) strengthen competitive position (2) enter new markets (3) hedge against uncertainty (4) access critical complementary resources (5) learn new capabilities

In the BCG Matrix, the SBUs are plotted using four categories

1. Dog 2. Cash Cow 3. Star 4. Question mark Each category warrants a different investment strategy

An alliance management capability consists of a firm's ability to effectively manage alliance- related tasks through three phases:

1. partner selection and alliance formation 2. alliance design and governance 3. post-formation alliance management

When one or more of the five reasons for alliance formation are present

1. to strengthen competitive position 2. enter new markets 3. hedge against uncertainty 4. access critical complementary resources 5. learn new capabilities firm must select best possible alliance partner

Equity Alliances allow for

sharing of tacit knowledge. The partner in an equity alliance frequently exchanges personnel to make the acquisition of tacit knowledge possible

Industry value chains

vertical value chains; depict the transformation fo raw materials into finished goods and services

When the cost to pursue an activity in-house are less than the costs of transacting in the market then the fir should

vertically integrate

Strategic Alliances

voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services

Non-equity alliance cons

weak ties, lack of trust/commitment

Vertical integration denote's a firm's addition of value

what percentage of a firm's sales is generated by the firm within its boundaries

Corporate strategy addresses

where to compete (responsibility rests with CEO)

The Scope of Competition

whether to purse a specific market niche or go after the broader market

transaction costs occur

within the firm; considered internal transaction costs

A dominant-business firm derives between (blank) of its revenue from a single business, but pursues at least one other business activity

70-95 percent

A single-business firms derives (blank) of its revenues from one business

95 percent or more

In what matrix is the corporation viewed as a portfolio of businesses, much like a portfolio of stocks in financing

BCG Matrix

Strategic Alliance

a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage

A (blank) seeks to create the same or similar value for customers by delivering products or services at a (blank) than competitors, enabling the firm to offer (blank) to its customers

cost-leadership strategy; lower cost; lower prices

A company that uses a differentiation strategy can achieve a competitive advantage as long as its (blank) is greater than that of its competitors.

Economic Value Created (V-C)

To be a success blue ocean strategy the firm must be the highest value creator and the lowest-cost producers in its respective industry

False

The (blank) is the same as the differentiation strategy except with a narrow focus on a niche market

Focused Differentiation Strategy

Are their diseconomies in learning?

No

What is the most common type of alliance

Non-equity alliance; based on contracts between firms

Red Ocean

Term used when a blue ocean strategy fails; fails when a firm fails to combine differentiation and low cost

What model helps managers use generic business strategies to protect themselves against the industry forces that drive down profitability

The Five Force Model

Example of a differentiation strategy

Whole Foods- by offering top-quality foods obtained through sustainable agriculture. Business strategy implies that Whole Foods focuses on increasing the perceived value created for customers, while allows it to charge premium price

In some production processes, are learning effects minimal?

Yes

A blue ocean strategy allows a firm to offer

a differentiated product or service at a lower cost

Each stage of the vertical value chain represents

a distinct industry in which a number of different firms are competing

Co-operation

a portmanteau describing the cooperation by competitors. It is described as cooperation by competitors to achieve a strategic objective

Value Innovation

a process that will lead them to align the proposed business strategy with total perceived consumer benefits, price and cost

Tacit knowledge can only be acquired through

actively participating in the process. It does NOT involve a codified form of knowledge

The build-borrow-or-buy framework provides a conceptual model that

aides strategists in deciding whether to pursue internal develop (build), enter a contract arrangement, or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy)

Joint Venture

another special form of a strategic alliance, two or more partners create and jointly own a new organization. Since the partners contribute equity to a joint venture, they make a long-term commitment; which in turn facilitates transaction specific investments

Differentiation & Cost-leadership strategies allow firms to...

carve out strong strategic positions -protect themselves against five forces -benefit from them in competitive advantage

If economic value created is greater than that of its competitors, this allows the firm to...

charge a premium price, reflecting its higher value creation

A blue ocean strategy is difficult to implement because

it requires the reconciliation of fundamentally different strategic positions- differentiation and low cost- which in turn require distinct internal value chain activities in order to allow the firm to increase value and lower cost at the same time

When a firm differentiates itself through intangible resources that increase its differentiation appeal and provide for customer loyalty...

it will be able to pass on cost increases to the customer

Vertical integration increases the potential of

legal repercussions -Due to monopoly concerns, vertical integration has not gone completely unchallenged by the Federal Tradition and the Justice Department

Equity alliance cons

less flexible, slower, can entail significant investment

In dynamic markets, strategic alliances allow firms to

limit their exposures to uncertainty in the market ex. wake of biotechnology revolution, incumbent pharmaceutical firm such as Pfizer, Novartis, and Roche entered into hundreds of strategic alliances with biotech start-ups. These alliances allowed the big pharma firms to make small-scale investments in many of the new biotechnology ventures that were poised to disrupt existing marketing economics

In a cost-leadership strategy, the focus of competition is achieving the lowest possible cost position, while allows the firms to offer a lower price than competitors while...

maintaining acceptable value

Forward Vertical Integration involves

moving ownership of activities closer to the end (customer) point of the value chain

Backward Vertical integration invovles

moving ownership of activities upstream nearer to the originating (inputs) point of industry value chain

Learning effects...

occurs over time as output accumulates

Equity alliances are based on

partial ownership rather than contracts. The partners are used to signal stronger commitments, due to which trust and commitments between alliance partners can emerge

Internal transaction costs

pertain to organizing an economic exchange within a firm ex. costs of recruiting and retaining employees, paying salaries and benefits, maintaining production units, setting up floor, providing office space and computers, organization, monitoring, and supervising work

A strategy canvas

plots industry factors among competitors

Joint venture cons

potentially long negotiations and significant investments, long-term solution, managers may have two reporting lines (two bosses)

The focus of competition in a differentiation strategy tends to be on unique product, features, services, and new product launches, or on marketing and promotion rather than...

price

One of the obvious but most important levers that managers can adjust is the...

product features and attributes, thereby increasing the perceived value of the product or service offering

A differentiator would focus product research and development on...

product features or packaging in order to add uniqueness

Some of the unique value drivers managers can manipulate are...

product features, customer service, customization, and complements

Increasing perceived buyer value is primarily achieved by

raising existing key success factors and by creating new elements that the industry has not yet offered

The goal of a cost-leadership strategy is to...

reduce the firm's cost below that of its competitors while offering adequate value

The cost leader focuses its attention and resources on...

reducing the cost to manufacture a product or deliver service in order to offer lower prices to its customers

When a firm derives less than 70 percent of its revenues from a single business activity, but obtains revenues from other liens of business that are linked to the primary business activity the firm follows a

related diversification strategy

Choices within a related diversification strategy can be

related-constrained OR related-linked

When executives of a firm consider business opportunities only where they can leverage their existing competencies and resources, it can be concluded that the firm is using

related-constrained diversification

In the BCG Matrix, the individual SBUs are evaluated according to

relative market share (horizontal axis) and the speed of market growth (vertical axis)

Explicit knowledge examples

research summaries, patents, user manuals, fact sheets, scientific publications can be codified

Besides selecting an appropriate strategic position, managers must also define the...

scope of compeitition

Benefits of Vertical Integration

securing critical supplies, lowering costs, improving quality, facilitating scheduling and planning, facilitating investments in specialized assets

A differentiation strategy...

seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels

Moving from less integrated to more fully integrated forms of transacting alternatives include

short-term contracts, strategic alliances (long-term contracts, equity alliances, joint ventures), and parent-subsidiary relationships

A strategy of related-constraint or related-linked diversification is more likely to enhance corporate performance than either a single or dominant level of diversification or unrelated level of diversification. What is the reason?

sources of value creation include not only restructing, but more fundamentally, the potential benefits of economies of scope and scale

Differentiation and cost leadership are distinct...

strategic positions

Managers will track their opportunities and risks for lowering a firm's costs and increasing perceived value vis-a-vis their competitors by use of a

strategy canvas

Equity alliance pros

stronger ties, potential for trust/commitment, window into new technology

Joint venture pros

strongest tie, trust/commitment most likely, may be required by institutional setting

To gain and sustain competitive advantage, any corporate strategy must

support and strengthen a firm's strategic position, regardless of whether is a differentiation, cost-leadership, or blue ocean strategy

Joint ventures allow for the exchange of both

tacit and explicit knowledge

Strategic Positioning requires...

that managers address strategic trade-offs (cost or value proposition) Address the tension between value creation (tends to generate higher cost) and the pressure to keep cost in check so as not to erode the firm's economic value creation and profit margin.

In defining mergers and acquisitions size can matter. Why>

the combining of two firms of comparable size is often described as a merger even though it might in fact be an acquisition

Some of the unique cost drivers that managers can manipulate are...

the cost of input factors, economies of scale, and learning- and experience-curve effects

Joint ventures involve

the creation of new entities by two or more parent firms

If a blue ocean strategy has gone bad, the firm ends up being stuck in the middle meaning

the firm has neither a clear differentiation nor a clear cost-leadership profile; leads to inferior performance and resulting in competitive disadvantage

A blue ocean strategy differs from a low-cost strategy in that...

the intent of a blue ocean strategy is not to be the absolute lowest-cost provider because a blue ocean must also increase perceived value

An Acquisition

the purchase or takeover of one company by another. Can be friendly OR hostile

Blue ocean strategy requires

the reconciliation of fundamentally different strategic positions- Differentiation & Lower Cost

The industry value chain describes

the transformation of raw materials into finished goods and services along distinct vertical stages decision determines the firms vertical integration

Value drivers contribute to competitive advantage only if...

their increase in value creation exceeds the increase in costs (V>C)

Firms can use M&A activity for competitive advantage when

they possess a superior relational capability, which os often built on superior alliance management capability

The goal of an integration strategy is

to offer a differentiated product or service at a low cost

A successful blue ocean strategy requires that (blank) between differentiation and low cost reconciled

trade-offs

A successful blue ocean strategy requires that

trade-offs between differentiation and low cost be reconciled.

Adding unique product features allows firm to...

turn commodity products into differentiated products commanding a premium price

When less than 70 percent of its revenues come from a single business, and there are few, if any, linkages among its businesses a firm follows a

unrelated diversification strategy

To address the trade-offs between differentiation and cost leadership at the business level, managers must employ

value innovation