BUS-479 Test #2

Patent

(n.) exclusive rights over an invention; copyright; (v.) to arrange or obtain such rights; (adj.) plain, open to view; copyrighted

Benefits of Cost Leadership Strategies

- Appeals to the bargain-conscious buyer - Offers lower prices than competition - Attracts an increased volume of sales - Can be profitable over a long period of time

Strategic Trade Offs

- Choice between a cost or value position Purpose: - Economic Value Creation - Profit Margin

Generic Business Strategies

- Differentiation - Cost Leadership

Drivers of Value Creation

- Product Features - Customer Service - Complements

Cost Drivers (Keep Costs Low)

- Raw Materials - Capital - Labor - IT Services ex: Rooftop Solar Panels Industry

Differentiation Strategy

- Seeks to create higher value than competitors - Offers products or services with unique features - Keeps the firm's cost structure as low as possible - Charges higher prices (increased costs)

Economies of Scale Allows Firms to:

- Spread fixed costs over a larger output - Employ specialized systems and equipment - Take advantage of certain physical properties

Blue Ocean Strategy

- Successfully combining differentiation and cost-leadership activities - Uses value innovation to reconcile trade-offs ex: Trader Joes

Innovation Ecosystem

- Suppliers - Buyers - Complimentors

Metaphor of Blue Ocean

- Untapped Market Space - The Creation of additional demand - The opportunity for highly profitable growth

Incremental Innovation

An innovation that squarely builds on an established knowledge base and steadily improves an existing product or service

Red Empire Inc. , a large multinational company owned by two partners, is active in the petroleum, capital market, chemicals, steel, beverages, hospitality, airlines, education, automobiles, and consumer electronics industries. The company has multiple brands and a large product portfolio under its banner. Which of the following terms would best describe this company?

A Conglomerate

Which of the following best illustrates an equity alliance?

A partnership in which RedGate Insurance Inc. has a 40 percent ownership claim in TwinTrust Finance Inc.

How is an equity alliance different from a joint venture?

An equity alliance involves taking ownership in a partner; a joint venture involves two or more people owning a firm.

Globalization Hypothesis

Assumption that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous

Death-of-Distance Hypothesis

Assumption that geographic location alone should not lead to firm-level competitive advantage because firms are now, more than ever, able to source inputs globally

In 2007, Salesforce. com recognized an emerging market for platform as a service (PaaS) offerings and developed a new competency in delivering software development and deployment tools. This allowed its customers to either extend their existing CRM offering or build completely new types of software. This is an example of

Building new core competencies to create and compete in markets of the future.

Foreign Direct Investment (FDI)

Investment made by a foreign company in the economy of another country.

Liability of Foreignness

The inherent disadvantage that foreign firms experience in host countries because of their non-native status.

Radical Innovation

Creation of products, services, or technologies that replace existing ones

are strategic business units that compete in a low-growth market but hold considerable market share.

Cash Cows

Winner-Take All Market

Markets where the market leader captures almost all of the market share and is able to extract a significant amount of the value created

Susan is a strategist for the firm, DigiVision Inc. , which produces high-quality HD movie cameras. This company needs a specific material for a new camera they are developing, which is manufactured in large quantities by a competitor called Tech Resources Inc. However, this material is difficult to trade for. Because of this, which of the following is most likely the best strategy for Susan to suggest?

DigiVision should acquire Tech Resources

ESB Group is the parent company of many related businesses under its banner. Each share of the parent company is quoted at $220. However, if this had to be assessed by adding the stock prices of each of its strategic business units, the value would only be $200 per share. In this scenario, what has ESB Group created?

Diversification Premium

In the context of the Boston Consulting Group (BCG) growth-share matrix, if one of the strategic business units of a conglomerate is categorized under dogs, the management should

Divest the Strategic Business Unit

The partnership between Toyota and Tesla Motors, in which Toyota has made a $50 million investment in the California startup company to learn new knowledge and gain a window into new technology, is an example of a(n)

Equity Alliance

Which alliance type is the Renault-Nissan alliance, where Nissan owns 15 percent of Renault, and Renault owns 44. 4 percent in Nissan?

Equity Alliance

Which of the following examples describes the task of an alliance manager?

Fyodor trained the employees of his alliance partner in the skills needed to create a display for an e-notebook.

Business Level Strategy

Goal-directed actions managers take to achieve competitive advantage in a single product market

Cost Leadership Strategy

Goal: - Reduce the firms costs below competition - Offer adequate value Focused on: - Reducing Cost - Reducing Price - Optimizing Value Chain

Strategy Canvas

Graphical depiction of a company's relative performance versus its competitors across the industry's key success factors

Value Curve

Horizontal connection of the points of each value on the strategy canvas that helps strategists diagnose and determine courses of action

Each stage of the vertical value chain typically represents a distinct _____ in which a number of different firms are competing.

Industry

Which of the following is a common drawback of a strategic alliance?

Lack of trust between partners

_____ are best described as situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which the firms learn may vary.

Learning Races

Equity alliances are less common than non-equity alliances because they

Often require larger investments

Open Innovation

Opening up the search for new ideas beyond the organization's boundaries and allowing innovations to easily transfer inward and outward

Minimum Efficient Scale (MES)

Output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale

The main reason behind Google's decision to acquire the Israeli start-up company Waze for $1 billion was to

Preempt its competitors from buying Waze.

The managers at Movo Automobile Inc. want to diversify their business by acquiring a consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Movo Automobile is most likely a result of

Principal-agent problems.

Strategic business units that have a relatively low market share but have the potential to grow are best categorized under _____ in the Boston Consulting Group (BCG) growth-share matrix.

Question Marks

In 2009, ExxonMobil bought XTO Energy, a natural gas company, for $31 billion. XTO Energy is known for its core competency to extract natural gas from unconventional places such as shale rock—the type of deposits currently being exploited in the United States. ExxonMobil hopes to leverage its core competency in the exploration and commercialization of oil into natural gas extraction. Based on this example, ExxonMobil is engaging in

Related-constrained diversification.

The _____ is a strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries.

Relational view of competitive advantage

Economies of Scope

Savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology

A drawback involved in using cross-border strategic alliances to enter new foreign markets is that

Some of the firm's proprietary know-how may be appropriated by the foreign partner.

RoboToys, Inc. is involved in the production of robotic toys. This firm produces the raw materials, including metals and oils for plastic; creates the integrated circuits, displays, and batteries; and assembles the toys. Which of the following stages of the industry value chain is RoboToys involved in?

Stages 1, 2 and 3

A _____ is best described as a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.

Strategic Alliance

Global Standardization Strategy

Strategy attempting to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost

In Eli Lilly's Office of Alliance Management, who is responsible for providing alliance training and development?

The Alliance Manager

In Eli Lilly's Office of Alliance Management, who is responsible for providing the technical expertise and knowledge needed for the specific technical area and the day-to-day management of the alliance?

The Alliance leader

First Mover Advantage

The ability of an innovative company to achieve long-term competitive advantages by being the first to offer a certain product in the marketplace

How does a conglomerate benefit from following an unrelated diversification strategy?

The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.

Diseconomies of Scale

The situation in which a firm's long-run average costs rise as the firm increases output

A drawback of short-term contracting as an alternative to making a component in-house is that....

The supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.

Which of the following is true of the parent-subsidiary relationship?

The transaction costs that arise are frequently due to transfer prices.

Which of the following is a disadvantage of equity alliances?

They can entail significant investments

Investments in specialized assets tend to incur high opportunity costs because the

Threat of one of the partners pursuing his or her self-interest is high.

Dr. Shetty: "The Henry Ford of Heart Surgery"

Wanted to drive down costs through process innovation, applied learning curves to his work. - achieved economies of scale

Organizational Inertia

a firm's resistance to change the status quo, which can set the stage for the firm's subsequent failure - COMPLACENCY

Multidomestic Strategy

a strategy in which operating decisions are decentralized to each country to enhance local responsiveness

Cultural Distance

cultural disparity between an internationally expanding firm's home country and its targeted host country

Multinational Enterprise (MNE)

A company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries

Markets-and-Technology Framework

A conceptual model to categorize innovations along the market (existing/new) and technology (existing/new) dimensions.

CAGE Distance Framework

A decision framework based on the relative distance between home and a foreign target country along four dimensions: cultural distance, administrative and political distance, geographic distance, and economic distance.

White Leo Motors (WLM) Inc. generates a major portion of its revenues by manufacturing luxury sports cars. However, the company also derives an insignificant percent of its annual revenues by selling its sports merchandise that includes apparel, shoes, and other accessories under the same brand name. Which of the following terms best describes WLM?

A dominant-business firm

Which of the following best illustrates forward vertical integration?

A firm that manufactures and sells car engines to major automobile companies launches its own line of cars.

Absorptive Capacity

A firm's ability to understand external technology developments, evaluate them, and integrate them into current products or create new ones

Integration Responsiveness Framework

A framework of MNE management on how to simultaneously deal with the pressures for both global integration and local responsiveness

Disruptive Innovation

A process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors

Which of the following is an example of explicit knowledge?

A research summary

Vibgyor Inc. , a manufacturer of smartphones, has entered into a 15-year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its cell phones. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Vibgyor and the software company best referred to as in this scenario?

A strategic alliance

FR Pharmaceuticals Inc. , BioCure Pharma Inc. , and Regime Pharma Inc. are three rival firms who have set up an alliance to conduct research and find a cure for cancer. They have made almost equal contributions to the research, and they also share their expertise with each other. However, the three firms will continue to behave as competitors in markets for other drugs and vaccines. What is this arrangement best referred to as?

Co-Opetition

Crossing the Chasm Framework

Conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group

Focused Business Strategies

Focus on a narrower competitive scope Types: - Focused Differentiation - Focused Cost Leadership

Reverse Innovation

Innovations created for or by emerging-economy markets and then imported to developed-economy markets.

Which of the following motivations for business growth involves principal-agent problems?

Motivating Managers

The Boston Consulting Group (BCG) growth-share matrix locates a firm's individual strategic business units (SBUs) in which two dimensions?

Relative market share and speed of market growth

Transnational Strategy

Strategy that attempts to combine the benefits of a localization strategy (high local responsiveness) with those of a global-standardization strategy (lowest-cost position attainable)

Grace Apparel Inc. has decided to procure fabrics required for its garments from external suppliers instead of maintaining its own dyeing and weaving facilities. How will this decision affect the firm?

The firm will have more flexibility in purchasing and comparing prices of goods and services.

It is necessary for government authorities such as the Federal Trade Commission (FTC) and/or the European Commission to approve any large horizontal integration activity because

The horizontal integration activity has the potential to reduce competitive intensity in an industry.

Real Goods Inc. is a large conglomerate. The company's beverages strategic business unit (SBU) has been recognized as a cash cow, and its tobacco SBU has been categorized as a dog. Which of the following can be inferred from this scenario?

While the market share of the company in the beverages industry will be high, the market share in the tobacco industry will be low.