BUSA 4900 Exam 3

The disadvantages of markets

-search costs -opportunism by other parties Incomplete contracting Enforcement of contracts

Porter's Diamond Framework

1. Factor Conditions 2. Demand Conditions 3. Competitive Intensity in Focal Industry 4. Related and Supporting Industries/Complementors

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.

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.

Ambidexterity

A firm's ability to address trade-offs not only at one point but also over time. It encourages managers to balance exploitation with exploration.

Alliance Management Capability

A firm's ability to effectively manage three alliance-related tasks concurrently: (1) partner selection and alliance formation, (2) alliance design and governance, and (3) post-formation alliance management.

Foreign Direct Investments (FDI)

A firm's investments in value chain activities abroad.

Inertia

A firm's resistance to change the status quo, which can set the stage for the firm's subsequent failure.

Licensing

A form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property.

Managerial Hubris

A form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary.

Organizational Structure

A key to determining how the work efforts of individuals and teams are orchestrated and how resources are distributed.

Franchising

A long-term contract in which a franchisor grants a franchisee the right to use the franchisor's trademark and business processes to offer goods and services that carry the franchisor's brand name

Credible Commitment

A long-term strategic decision that is both difficult and costly to reverse.

Share Value Creation Framework

A model proposing that managers have a dual focus on shareholder value creation and value creation for society.

Founder Imprinting

A process by which the founder defines and shapes an organization's culture, which can persist for decades after his or her departure.

Leveraged Buyout (LBO)

A single investor or group of investors buys, with the help of borrowed money (leveraged against the company's assets), the outstanding shares of a publicly traded company in order to take it private.

Moral Hazard

A situation in which information asymmetry increases the incentive of one party to take undue risks or shirk other responsibilities because the costs incur to the other party

Groupthink

A situation in which opinions coalesce around a leader without individuals critically evaluating and challenging that leader's opinions and assumptions.

Adverse Selection

A situation that occurs when information asymmetry increases the likelihood of selecting inferior alternatives.

Joint Venture

A stand-alone organization created and jointly owned by two or more parent companies.

Corporate Governance

A system of mechanisms to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally.

Transaction Costs Economics

A theoretical framework in strategic management to explain and predict the boundaries of the firm, which is central to formulating a corporate strategy that is more likely to lead to competitive advantage.

Agency Theory

A theory that views the firm as a nexus of legal contracts.

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.

Hostile Takeover

Acquisition in which the target company does not wish to be acquired.

Liability of Foreigness

Additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances.

The disadvantages of organizing economic activity within firms

Administrative costs Low-powered incentives The principal-agent problem.

Transaction Costs

All internal and external costs associated with an economic exchange, whether within a firm or in markets.

Business Ethics

An agreed-upon code of conduct in business, based on societal norms.

Stock Options

An incentive mechanism to align the interests of shareholders and managers, by giving the recipient the right (but not the obligation) to buy a company's stock at a predetermined price sometime in the future.

Ambidextrous Organization

An organization able to balance and harness different activities in trade-off situations.

Formulization

An organizational element that captures the extent to which employee behavior is steered by explicit and codified rules and procedures.

Specialization

An organizational element that describes the degree to which a task is divided into separate jobs (i.e., the division of labor).

Hierarchy

An organizational element that determines the formal, position- based reporting lines and thus stipulates who reports to whom.

Centralization

An organizational element that refers to the degree to which decision making is concentrated at the top of the organization.

Exploitation

Applying current knowledge to enhance firm performance in the short term.

Real-Options Perspective

Approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time.

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.

Location Economies

Benefits from locating value chain activities in the world's optimal geographies for a specific activity, wherever that may be.

Inside Directors

Board members who are generally part of the company's senior management team; appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance.

Outside Directors

Board members who are not employees of the firm, but who are frequently senior executives from other firms or full-time professionals.

Mechanistic Organization

Characterized by a high degree of specialization and formalization and by a tall hierarchy that relies on centralized decision making.

Organic Organization

Characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making.

Build-Borrow-or Buy Framework

Conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual arrangement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy).

Co-Opetition

Cooperation by competitors to achieve a strategic objective.

External Transaction Costs

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

Internal Transaction Costs

Costs pertaining to organizing an economic exchange within a hierarchy; also called administrative costs.

Cultural Distance

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

Poison Pill

Defensive provisions to deter hostile takeovers by making the target firm less attractive.

Corporate Venture Capital (CVC)

Equity investments by established firms in entrepreneurial ventures; CVC falls under the broader rubric of equity alliances.

The advantages of markets

High-powered incentives Increased flexibility

IPO

Initial Public Offering

Strategic Control-and-Rewards System

Internal-governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees).

Explicit Knowledge

Knowledge that can be codified; concerns knowing about a process or product.

Tacit Knowledge

Knowledge that cannot be codified; concerns knowing how to do a certain task and can be acquired only through active participation in that task.

Input Controls

Mechanisms in a strategic control-and- reward system that seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures that are considered prior to the value-creating activities.

Output Controls

Mechanisms in a strategic control-and- reward system that seek to guide employee behavior by defining expected results (outputs), but leave the means to those results open to individual employees, groups, or SBUs.

Simple Structure

Organizational structure in which the founders tend to make all the important strategic decisions as well as run the day-to-day operations.

Matrix Structure

Organizational structure that combines the functional structure with the M-form.

Multi-divisional Structure

Organizational structure that consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility.

Functional Structure

Organizational structure that groups employees into distinct functional areas based on domain expertise.

Global Strategy

Part of a firm's corporate strategy to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world.

Non-Equity Alliance

Partnership based on contracts between firms.

Equity Alliance

Partnership in which at least one partner takes partial ownership in the other.

Exploration

Searching for new knowledge that may enhance a firm's future performance.

SEC

Securities and Exchange Commission

Shareholder Capitalism

Shareholders—the providers of the necessary risk capital and the legal owners of public companies—have the most legitimate claim on profits.

The Principal-Agent Problem

Situation in which an agent performing activities on behalf of a principal pursues his or her own interests.

CEO/Chairperson Duality

Situation where the CEO of a publicly traded company is also the chairperson of the board of directors.

Learning Races

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.

Relational View of Competitive Advantage

Strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries.

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.

Integration-Responsiveness Framework

Strategy framework that juxtaposes the pressures an MNE faces for cost reductions and local responsiveness to derive four different strategies to gain and sustain competitive advantage when competing globally.

Multi-domestic Strategy

Strategy pursued by MNEs that attempts to maximize local responsiveness, with the intent that local consumers will perceive them to be domestic companies.

Transnational Strategy

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

International Strategy

Strategy that involves leveraging home-based core competencies by selling the same products or services in both domestic and foreign markets.

Board of Directors

The centerpiece of corporate governance, composed of inside and outside directors who are elected by the shareholders.

National Culture

The collective mental and emotional "programming of the mind" that differentiates human groups.

Organizational Culture

The collectively shared values and norms of an organization's members; a key building block of organizational design.

Corporate Strategy

The decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industries and markets simultaneously.

Merger

The joining of two independent companies to form a combined entity.

Local Responsiveness

The need to tailor product and service offerings to fit local consumer preferences and host-country requirements.

Span of Control

The number of employees who directly report to a manager.

Globalization

The process of closer integration and exchange between different countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs.

Organizational Design

The process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization.

Horizontal Integration

The process of merging with competitors, leading to industry consolidation.

Acquisition

The purchase or takeover of one company by another; can be friendly or unfriendly.

Strategic Alliances

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

National Competitive Advantage

World leadership in specific industries.

Economies of Scale

a firm's average cost per unit decreases as its output increases

Fiduciary Duty

a legal duty to act solely in another party's interests

GroupThink

a situation in which opinions coalesce around a leader without individuals critically challenging and evaluating that leader's opinions and assumptions.

Opportunism

behavior characterized by self-interest seeking with guile.

caveat emptor

buyer beware

The Advantages of Firms

command-and-control decisions Coordination Transaction-specific investments Creation of a community of knowledge

GAAP

generally accepted accounting principle

Holacracy

organizational structure in which decision making authority is distributed through loose collections or circles of self-organizing teams.

Information Asymmetries

situations in which one party is more informed than another, because of the possession of private information.

Economies of Scope

the savings that come from producing two (or more) outputs or providing different services at less cost than producing each individually

Core Competencies

unique strengths embedded deep within a firm