Exam 2
To formulate an appropriate business-level strategy
*Who-which customers segments-will we serve? *What customer needs, wishes, desires will we satisfy? *Why do we want to satisfy them? *How will we satisfy our customers' needs?
Cost Drivers
-Cost of input factors -Economies of scale -Learning curve effects -Experience curve effects
Single Business Firm
-Derives 95% or more of revenues from one business. -Ex: Google, online advertising
credible commitment
A long-term strategic decision that is both difficult and costly to reverse.
Product innovations
New products, such as the jet airplane, electric vehicle, MP3 player, and netbook.
Discontinuities
Period of time in which the underlying technological standard changes
Administrative costs
all costs pertaining to organizing an economic exchange within a hierarchy, including recruiting and retaining employees, paying salaries and benefits, and setting up a business
Differentiation and cost-leadership strategies
allow firms to carve out strong strategic positions, not only to protect themselves against the five forces, but also to benefit from them in their quest for competitive advantage.
Moving from less integrated to more fully integrated forms of transacting,
alternatives include: short-term contracts, strategic alliances (including long-term contracts, equity alliances, and joint ventures), and parent-subsidiary relationships.
Ambidextrous organization
an organization able to balance and harness different activities in trade off situations
Differentiation and cost leadership
are distinct strategic positions.
Reaching the productivity frontier
enhances the likelihood of obtaining a competitive advantage.
Specialized assets
assets that have significantly more value in their intended use then in their next-best use (high opportunity cost); they come in three types site specificity, physical asset specificity, and human asset specificity.
Transaction cost economic help managers
decide what activities to do in-house ("make") versus what services and products to obtain from the external market ("buy").
Industry value chain
depiction of the transformation of raw materials into finished goods and services along distinct vertical stages, each of which typically represents a distinct industry in which a number of different firms are competing
Both low levels and high levels of diversification are
generally associated with lower overall performance, while moderate levels of diversification are associated with higher firm performance.
The upper-left quadrant combines
new core competencies with existing market opportunities. Here, managers must come up with strategic initiatives of how to build new core competencies to protect and extend the firm's current market position.
Vertical integration denotes a firm's value added -
what percentage of a firm's sales is generated by the firm within its boundaries.
Multidivisional Structure
-Consists of several distinct strategic business units, each with its own profit loss responsibility -Each SBU is independent and lead by CEO -CEO then reports to corporate -Ex: Zappos is a SBU under amazon -Skype an SBU of Microsoft
Cost
-Cost to produce per unit by company- relative to competitors-needs-scale-cost leadership -Total cost firms incurs to create that value
Internal Transaction Costs
-Costs pertaining to organizing an economic exchange within a firm -Ex: Recruiting employees, paying salaries & benefits -AKA administrative costs
Value Chain, Vertical Integration
-Depict the transformation of raw materials into finished goods and services along distinct vertical stages. -Industry-level integration from upstream to downstream
Dominant Business
-Derives 70-95% of revenues from a single business, but also pursues at least one more business activity. -Ex: Harley-Davidson, primarily motorcycles, but clothing generates 10% of revenues
Specialization
-Describes the degree to which a task is divided into separate jobs -Division of labor -Ex: Accountant in large firm (specializing in internal audit) vs accountant in small firm (audit,tax,payroll)
Acquistion
-Describes the purchase or takeover of one company by another -Friendly or unfriendly -
Key elements of organizational structure
-Determines how work efforts of individuals and teams are orchestrated and how resources are distributed
Hierarchy
-Determines the formal, position based reporting lines and who reports to who. -Tall structure is when many levels of hierarchy exists between front-line employee and CEO
Question Mark
-Earnings are low and unstable, but might be growing -Negative cash flow -Corporate executives want to invest in these to increase market shares
Benefits to horizontal integration
-Reduction in competitive intensity -Lower costs -Access to new markets & distribution channels -Increased differentiation
Centralization
-Refers to the degree to which decision making is concentrated at the top of the organization -Results in slow response time and reduced customer satisfaction
Economies of Scale
-Saving more by making more -Decreases in cost per unit as output increases
Benefits of Vertical Integration
-Securing critical supplies -Lowering costs -Improving quality -Facilitating scheduling and planning -Facilitating investments in specialized assets
Cost Leadership Strategy
-Seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors. -Ex: Timex -Broad
long tail
Business model in which companies can obtain a large part of their revenues by selling a small number of units from among almost unlimited choices.
Integration strategy
Business-level strategy that successfully combines differentiation and cost leadership activities.
Simple Structure
-Small firms, low organizational complexity. -Top management makes important decisions -Low degree of formalization and specialization -Ex: Small accounting firm
Superior Acquisition & Integration Capability
-Some firms are consistently able to identify,acquire, and integrate target companies to strengthen their competitive positions. -Since this is valuable, rare and difficult to imitate it can lead to competitive advantage
Overcome Competitive Disadvantage
-Some firms use M&A to compete more successfully with a rival firm. -Ex: Adidas acquired reebok to overcome competitive disadvantage from Nike
Joint Ventures
-Standalone organization created and owned jointly by two or more parent companies -Ex: Hulu jointly owned by NBC,ABC and Fox -Long-term commitment -Usually end in break ups
Why do firms enter strategic alliances?
-Strengthen competitive position (Apple vs Amazon) -Enter new markets (Microsoft with Yahoo on search) -Hedge against uncertainty (Real options Perspective) -Access critical complementary assets (Pixar with disney) -Learn new capabilities (GM & Toyota, NUMMI)
Non-Equity Alliance
-Supply agreements, distribution agreements, licensing agreements -Most common -Flexible, easy to terminate -Microsoft-IBM agreement
Customization
-Tailoring for specific customers -Ex: Thread less T-shirts
Economic Value Created
-The greater the (Value- Cost), means the greater the competitive advantage (Profit)
External Transaction Costs
-Transact in the open market -Cost of searching for a firm or individual to contact; negotiating, monitoring, & enforcing the contract
Dog
-Underperforming businesses -Low earnings, unstable -Cash flow is neutral -Divest or harvest
Core Competence
-Unique skills and strengths -Allows firms to increase the value of products/services -Lowers costs Ex:Walmart's ability to effectively arrange a globally distributed supply chain at a low cost
Core Competencies
-Unique strengths embedded deep within a firm. -Allows differentiation of products and services from rivals, higher value created for customers, or offering products and services of comparable value at lower costs -Ex: Honda's small, highly reliable engines
To achieve competitive advantage a firm's organizational culture must be...
-Valuable, rare, inimitable, non-substantial -Ex: Southwest, friendly energized employees work collaboratively
Hostile Takeover
-When a target firm does not want to be acquired through acquisition -
The trade-offs between differentiation and low cost
can either be addressed at the business level or at the corporate level.
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.
Not reaching the productivity frontier implies
competitive disadvantage if other firms are positioned at the productivity frontier.
When should a firm vertically integrate and make a product in house?
-When the cost of pursuing an activity in house are less than the costs of transacting for that activity in the market -Ex: Google hiring coders to write code in house rather than contracting in the market, salaries paid are less than contracts would be
Discontinuities can lead to
a paradigm shift, in which a new technology revolutionizes an existing industry and eventually establishes itself as the new standard.
Innovation is
a potent competitive weapon; it enables firms to redefine the marketplace in their favor and achieve much-needed growth.
Technologies follow
a predictable technology S-curve, improving in performance over time as a consequence of continued R&D efforts.
Strategic network
a social structure composed of multiple organizations (network nodes) and the links among the nodes (network ties) e.g., Star Alliance is composed of 5 well-known airlines allowing for seamless travel among more than 25 international airlines.
Any competitive advantage must be
a string of short-lived advantages. This is achieved through a constant escalation of competition in the areas of price, quality, timing and know-how, capital commitments, and supply-chain management.
Taper integration
a way of orchestrating value activities in which a firm is backwardly integrated but also relies on outside market firms for some of its supplies, and/or is forwardly integrated but also relies on outside market firms for some of its distribution
Hostile takeover
acquisition in which the target company does not wish to be acquired
While business strategy addresses "how to compete"
corporate strategy addresses "where to compete."
Unrelated diversification strategy
corporate strategy in which a firm derives less than 70 percent of its revenues from a single business activity and there are few, if any, linkages among its businesses. For example, GE has household appliances, TV shows, jet engines, ultrasound machines. There are few linkages between its businesses.
Integration strategy often is
difficult because the two distinct strategic positions require internal value chain activities that are fundamentally different from one another.
Industries generally
follow a predictable industry life cycle, with four distinct stages; introduction, growth, maturity, and decline.
Vertical integration contributes to competitive advantage
if the incremental value created is greater than the incremental costs of the specific corporate-level strategy.
No matter how low the price.
if there is no acceptable value proposition, the product or service will not sell
Competitive intensity has
increased and periods of competitive advantage have shortened, especially in newer, technology-based industries.
Diseconomies of scale
increases in the average total cost of producing a product as the firm expands the size of its plant (its output) in the long run. as firms get too big, the complexity of managing and coordinating raises the cost, negating any benefits to scale.
Risks of vertical integration include:
increasing costs, reducing quality, reducing flexibility, and increasing the potential for legal repercussions.
The goal of a differentiation strategy
is to increase the perceived value and goods and services so that customers will by a higher price for additional features.
The upper-right quadrant combines
new core competencies with new market opportunities. This is likely the most challenging diversification strategy because it requires building new core competencies to create and compete in future markets.
Strategic entrepreneurship focuses
on generating integrated insights pertaining to innovation and change using the concepts available in strategic management.
Value drivers contribute to competitive advantage
only if their increase in value creation exceeds the increase in costs.
Non-equity alliance
partnership based on contracts between firms. the most frequent forms are supply agreements, distribution agreements, and licensing agreements
Equity alliance
partnership in which at least on partner takes partial ownership in the other partner
Hypercompetition can
result form a lack of strategic positioning
Firms vs Markets (make or buy alternatives)
review slides 8.5 and 8.6
Focused differentiation strategy
same as differentiation strategy except with a narrow focus on a niche market. La Fraicheur pursues a _____________, offering exquisite luxury wine coolers priced at up to 100,000 euros a piece
Focused cost-leadership strategy
same as the cost leadership strategy except with a narrow focus on a niche market. BIC corperation is an example; they offer lighters and pens at a very low price.
When applying an existing/new dimension
to core competencies and markets, four quadrants emerge.
The goal of a cost- leadership strategy is
to reduce the firm's cost below that of its competitors.
Cost of Input Factors
-Access to lower-cost raw materials, capital, labor & IT services
Learning Curve
-Reduces costs of products as more products are produced based on short term learning
LO 6-5 Explain why it is difficult to succeed at an integration strategy.
- A successful integration strategy requires that trade-offs between differentiation and low cost be reconciled. - Integration strategy often is difficult because the two distinct strategic positions require internal value chain activities that are fundamentally different from one another. - When firms fail to resolve strategic trade-offs between differentiation and cost, they end up being stuck in the middle. They then succeed at neither strategy , leading to a competitive disadvantage.
Structure,Culture, and Routines
- Ambidextrous Organization, explore(long-term) and exploit(short-term) -Intel's current and future products and services
LO 6-1 Define business-level strategy and describe how it determines a firm's strategic position.
- Business-level strategy determines a firm's strategic position in its quest for competitive advantage when competing in a single industry or product market. - Strategic positioning requires that managers address strategic trade-offs that arise between value and cost, because higher value tends to go along with higher cost. - Differentiation and cost leadership are distinct strategic positions. - Besides selecting an appropriate strategic position, managers must also define the scope of competition-whether to pursue a specific market niche or go after the broader market.
Value
- Perceived value(price) a firm is able to create for its consumers relative to competitors- wants-scope-differentiation
LO 6-7 Describe and evaluate the dynamics of competitive positioning.
- Strategic positions need to change over time as the environment changes. - Best practices determine the productivity frontier at any given time. - Reaching the productivity frontier enhances the likelihood of obtaining a competitive advantage. - Not reaching the productivity frontier implies competitive disadvantage if other firms are positioned at the productivity frontier.
LO 6-4 Assess the benefits and risks of cost leadership and differentiation business strategies vis-à-vis the five forces that shape competition.
- The 5 forces model helps managers use generic business strategies to protect themselves against the industry forces that drive down profitability. - Differentiation and cost-leadership strategies allows firms to carve out strong strategic positions, not only to protect themselves against the five forces, but also to benefit from them in their quest for competitive advantage. **Exhibit 6.7 lists benefits and risks of each business strategy.**
LO 6-3 Examine the relationship between cost drivers and cost-leadership strategy.
- The goal of a cost-leadership strategy is to reduce the firm's cost below that of competitors. - In a cost-leadership strategy, the focus of competition is on lowest-possible price, while offering acceptable value. - Some of the unique cost drivers that managers can manipulate are the cost of input factors, economies of scale, and earning and experience curve effects. - No matter how low the price, if there is no acceptable value proposition, the product or service will not sell.
LO 6-2 Examine the relationship between value drivers and differentiation strategy.
- The goal of a differentiation strategy is to increase the perceived value of goods and services so that customers will pay a higher price for additional features. - In a differentiation strategy, the focus of competition is on non-price attributes. - Some of the unique value drivers managers can manipulate are product features, customer service, customization, and complements. - Value drivers contribute to competitive advantage only if their increase in value creation exceeds the increase in costs.
Corporate Strategy
-Comprises decisions senior management makes and the goal-directed actions it takes in the quest for competitive advantage in multiple industries & markets simultaneously -Provides answers of where to compete -Ex:GE quest in both the health care and clean energy industries
LO 6-6 Evaluate value and cost drivers that may allow a firm to pursue an integration strategy.
- To address the trade-offs between differentiation and cost leadership at the business level, managers may leverage quality, economies of scope, innovation, and the firm's structure, culture, and routines. - The trade-offs between differentiation and low cost can either be addressed at the business level or at the corporate level.
Conglomerate
-A company that combines two or more strategic business units under one overarching corporation and follows an unrelated diversification strategy. -Ex: Samsung
Complements
-Add value to a product or service when one is consumed before another -TIVO DVR
Economies of Scope
-Adding a different product line -Savings that arise due to producing two or more outputs at a less cost than producing each output individually -Ex:Starbucks adding hot tea in addition to coffee
Transaction Costs
-All costs associated with an economic exchange. - Internal & external, whether it occurs within the scope of a firm or market -Make or buy decision -If mature market, buy -If new market, make -Waste of time=cost -Ex: negotiating and enforcing contracts -Time=costs
Upstream Industries (Value Chain, Vertical Integration)
-Backwards vertical integration, Making (Scale) -Ex: Raw materials, components, intermediate goods
Quality
-Can increase perceived value & lower costs
Organizational Culture
-Collectively shared norms and values of an organization's members
Matrix Structure
-Combination of M form structure and functional structure -Versatile -Enhanced learning from different SBU's -Difficult to implement
Value And Cost Drivers of Integration Straties
-Quality -Economies of scope -Customization -Innovation -Structure, culture, routines
Alliance management capabilities
-Firms ability to effectively manage three alliance-related tasks concurrently. -30-70 percent of all strategic alliances do not deliver the expected benefits & are considered failures by at least one alliance partner
Downstream Industries (Value Chain, Vertical Integration)
-Forward vertical integration, Selling (Scope) -Marketing, Sales, After-Sales service & support
Functional Structure
-Groups employees into distinct functional areas based on domain expertise. -Area on expertise corresponds to distinct stages in the value chain -Ex: Major in accounting then go on to work in accounting
Mechanistic Organizations
-High degree of specialization, formulation, and a tall hierarchy that replies on centralized decision making -Ex: McDonalds
Cash Cow
-High stable or growing earnings -Neutral cash flow -Hold or invest for growth -Compete in low-growth markets but hold substantial market share
Star
-High, stable or growing earnings -Neutral cash flows -Hold or invest for growth -High market share in fast growing market
Higher value tends to require..
-Higher costs
Customer Service
-Identifies customer needs and satisfies them -Ex: Zappos & Ritz Carlton
Experience Curve
-Increases the percentage of reduction along the learning curve due to experience (long term)
Risks of Vertical Integration
-Increasing costs -Reducing quality -Reducing flexibilty
Industry trend towards horizontal integration leads to...
-Industry consolidation -Ex:Live nation with ticket master
Merger
-Joining of two independent companies to form a combined entity -Tend to be friendly, when most target companies want to be acquired -Generally similar in size -Ex:Disney acquiring pixar
Unrelated Diversification
-Less than 70% of its revenues comes from a single business and there are few, if any, linkage among businesses. Unrelated product lines -Ex:GE, Samsung
Organic Organizations
-Low degree of specialization and formalization, flat organizational structure, decentralized in decision making -Higher employee motivation -Faster decision making -Ex: Zappos
Formalization
-Measures the extend to which an employees work is directed by codified rules -Ex: McDonalds issuing an employee handbook that details standard operations to ensure consistent quality and service
Do mergers& Acquisitions create competitive advantage?
-Most M&A's destroy firm values, because synergies never materialize -If value is created it usually goes to the shareholders of the firm taken over (acquiree), because acquirers often pay a premium when acquiring the company
Product Features
-Most important & clearest drivers -Unique features that command a higher price -Ex:BMW M3
Equity Alliance
-One partner takes partial ownership in the other -Explicit exchange of tacit knowledge -Stronger ties, trust & commitment can emerge -Toyota with tesla
Horizontal Integration
-Process of merging with a competitor at the same stage of the industry value chain. -Can improve a firm's strategic position -Ex:HP buys compaq
Organizational Design
-Process or creating, implementing, monitoring, modifying the structure, process, and procedures of an organization -Goal is to translate strategies into realized ones -Structure follows strategies -Must be flexible -Ex: Yahoo CEO failed at implementing
Value Drivers
-Product features -Customer Service -Complements
Core Competence-Market Matrix
-Provides guidance to executives on how to identify core competencies and diversify in order to achieve continued growth. -Identify a combination of existing/new core competencies and understand the firms current market situation
Types of diversification and revenue from primary activity
1. Single business; >95% revenues from primary activities; Coca-Cola 2. Dominant business; 70-90% revenues form primary activities; Microsoft 3. Related diversification; <70% revenues from primary activities; Disney 4. Unrelated diversification; <70% revenues from primary activities; GE
Strategic Position
A firm's strategic profile based on value creation and cost. The goal is to create as large a gap as possible between the value the firm's product or service creates and the cost required to produce it (V-C).
Corporate strategy concerns the scope of the firm along three dimensions:
1. Vertical integration (along the industry value); 2. Horizontal integration (diversification); and 3. Geographic scope (global strategy)
licensing
A form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property
Boston Consulting Group (BCG) growth-share matrix
A corporate planning tool in which the corporation is viewed as a portfolio of business units, which are represented graphically along relative market share (horizontal axis) and speed of market growth (vertical axis). SBUs are plotted into four cow, star, and question mark), each of which warrants a different investment strategy.
absorptive capacity
A firm's ability to understand, evaluate, and integrate external technology developments.
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; the franchisee in turn pays an up-front buy-in lump sum and a percentage of revenues.
architectural innovation
A new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets.
Hypercompetition
A situation in which competitive intensity has increased and periods of competitive advantage have shortened, especially in newer, technology-based industries, making any competitive advantage a string of short-loved advantages
thin markets
A situation in which transactions are likely not to take place because there are only a few buyer and sellers who have difficulty finding each other.
Paradigm shift
A situation is which a new technology revolutionizes an existing industry and eventually establishes itself as the new standard.
Transaction cost economics
A theoretical framework in strategic management to explain and predict the scope of the firm, which is central to formulating a corporate-level strategy that is more likely to lead to competitive advantage
Strategic alliance
A voluntary agreement 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
Standard
An agreed-upon solution about a common set of engineering features and design choices; also known as dominant design.
diversification
An increase in the variety of products or markets in which to compete.
radical innovation
An innovation that draws on novel methods or materials, is derived from either an entirely differently knowledge base or from the recombination of the firm's existing knowledge base with a new stream of knowledge, or targets new markets by using new technologies.
disruptive innovation
An innovation that leverages new technologies to attach existing markets from the bottom up.
incremental innovation
An innovation that squarely builds on the firm's established knowledge base, steadily improves the product or service it offers, and targets existing markets by using existing technology.
Backward Vertical integration
Changes in an industry value chain that include moving ownership of activities upstream to the originating (inputs) point of the value chain. HTC was able to upgrade its capabilites from merely manufacturing phones to also designing them.
forward vertical integration
Changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain.
related diversification strategy
Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business activity but obtains revenues from other lines of business that are linked to the primary business activity.
geographic diversification strategy
Corporate strategy in which a firm is active in several different countries
product-market diversification strategy
Corporate strategy in which a firm is active in several different product markets and several different countries.
Product diversification strategy
Corporate strategy in which a firm is active in several different product markets.
Corporate venture capital (CVC)
Equity invewstments by established firms in entrepreneurial ventures; CVC falls under the broader rubric of equity alliances. CVC investments create real options in terms of gaining access to new, and potentially disruptive, technologies.
Differentiation strategy
Generic business strategy that seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping the firm's cost structure at the same or similar levels.
Cost-leadership Strategy
Generic business strategy that seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers.
Strategic outsourcing
Moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain. For example, rather than developing their own human resources management systems, most companies outsource these non-core activities to companies like PeopleSoft
Process innovations
New ways to produce existing products or deliver existing services.
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.
productivity frontier
Relationship that captures the result of performing best practices at any given time; the function is convex (bowed outward) to capture the trade-off between value creation and production cost.
Diversification discount
Situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units
Diversification premium
Situation in which the stock price of related diversification firms is valued at greater than the sum of their individual business units.
information asymmetries
Situations in which one party is more informed than another, mostly due to the possession of private information.
Strategic Trade-Offs
Situations that require choosing between a cost or value position, necessary because higher value tends to require higher cost.
Structural hole
Spaces where two organizations are connected to the same organization, but are not connected to one another. Firms that bridge structural holes (broker) gain information and control benefits over the nonconnected firms.
Business-level strategy
The actions managers take in their quest for competitive advantage when competing in a single product market. To formulate a _______________, managers must answer the"who, what, why, and how" questions of competition: -WHO-which customer segments will we serve? -WHAT-customer needs, wishes, and desires will we satisfy? -WHY-do we want to satisfy them? -HOW-will we satisfy our customer needs?
scope of the firm
The boundaries of the firm along three dimensions: industry value chain, products and services, and geography (regional, national, or global markets).
vertical integration
The firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs
Industry life cycle
The four different stages- introduction, growth, maturity, and decline-that occur in the evolution of an industry over time.
Merger (know benefits and drawbacks)
The joining of two independent companies to form a combined entity
network effects
The positive effect (externality) that one user of a product or service has on the value of that product for other users.
Acquisition (know benefits and drawbacks)
The purchase or takeover of one company by another; can be friendly or unfriendly. BENEFITS -
strategic entrepreneurship
The pursuit of innovation using the tools and concepts available in strategic management.
The long tail describes
a business model in which companies can obtain a significant part of their revenues by selling a small number of units from among almost unlimited choices.
Principal-agent problem
a conflict of interest that occurs when agents (workers or managers) pursue their own objectives to the detriment of the principals' (stockholders') goals
In the resource-based view of the firm,
a firm's boundaries are delineated by its knowledge bases and competencies.
Alliance management capability
a firms ability to effectively manage three alliance-related tasks concurrently: 1.partner selection and alliance formation. 2.alliance design and governance. 3.post formation alliance managment
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. 1. managers of the acquiring company convince themselves that they can manage the business of the target company more effectively than that of the original owners. 2. Managers think that they are the exception to the rule that the vast majority of acquisitions destroy shareholder value.
A dominant-business from derives
between 70 and 95 percent of its revenues from a single business, but pursues at least one other business activity.
A firm follows
an unrelated diversification strategy when less than 70 percent of its revenues come from a single business, and there are few, if any, linkages among it businesses
To gain and sustain competitive advantage,
any corporate strategy must support and strengthen a firm's strategic position regardless of whether it is a differentiation, cost leadership, or integration strategy.
Strategic positions need to
change over time as the environment changes.
A single-business firm
derives 95 percent or more of its revenues from one business.
The probability of a
discontinuity increases when a given technology approaches its physical limit.
The lower-left quadrant combines
existing core competencies with existing markets. Here, managers needs to come up with ideas of how to leverage existing core competencies to improve their current market position.
The lower-right quadrant combines
existing core competencies with new market opportunities. Here, managers need to think about how to redeploy and recombine existing core competencies to compete in future markets.
Cost leadership strategy
generic business strategy that seeks to create the same or similar value for customer by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to it customers.
Different life-cycle stages
have different consumer adoption rates and different competitive implications
Explicit knowledge
knowledge that can be codified (information, facts, instructions, recipes); 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 the task.
Innovations frequently
lead to the birth of new industries.
To address the trade-offs between differentiation and cost leadership at the business level
managers may leverage quality, economies of scope, innovation, and the firm's structure, culture, and routines.
The five forces model helps
managers use generic business strategies to protect themselves against the industry forces that drive down profitability.
Horizontal integration (know benefits and drawbacks)
process of merging and acquiring competitors e.g., Live Nation buys Ticketmaster in 2010 BENEFITS -reduce competitive intensity -lower costs -Boost differentiation -Access to new markets and distribution channels DRAWBACKS -Integration Failure -Reduced Flexibility -Increased potential for legal repercussions
Some of the unique value drivers managers can manipulate are
product features, customer service, customization, and complements.
The successful commercialization of a new
product or service allows a firm to extract temporary monopoly profits.
Strategic positioning
requires that managers address strategic trade-offs that arise between value and cost, because higher value tends to go along with higher cost.
Benefits of vertical integration include:
securing critical supplies, lowering costs, improving quality, facilitating scheduling and planning, and facilitating investments in specialized assets.
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
No single strategy can
sustain competitive advantage over time
The Internet is a strongly disruptive force
that digitized any industry that can be digitized.
A successful integration strategy requires
that trade-offs between differentiation and low cost be reconciled.
Innovation
the commercialization of any new product, process, or idea, or the modification and recombination of existing ones. To drive growth, ______________ also needs to be useful and successfully implemented
In the BCG matrix,
the corporation is viewed as a portfolio of businesses, much like a portfolio of stocks in finance. the individual SBUs are evaluated according to relative market share and speed of market growth, and plotted into one of four categories (d0g, cash cow, star, and question mark). Each category warrants a different investment strategy.
When the cost to pursue an activity in-house are less than
the costs of transacting int he market (C in-house<C market), then the firm should vertically integrate.
Continuous innovation is
the engine behind successful companies.
Four types of innovation emerge when applying
the existing versus new dimensions of technology and markets: incremental, radical, architectural, and disruptive innovations,
In a cost leadership strategy
the focus of competition is on lowest possible price, while offering acceptable value.
In a differentiation strategy
the focus of competition is on non-price attributes.
Mass customization
the manufacture of a large variety of customized products or services at relatively low unit cost. Example: Nike allows customers to order customized shoes online.
entrepreneurship
the process by which people undertake economic risk to innovate - to create new products, processes, and sometimes new organizations.
Best practices determine
the productivity frontier at any given time.
Besides selecting an appropriated strategic position, manager must also define
the scope of competition-whether to purse a specific market niche or go after the broader market.
Scope of competition
the size--narrow or broad-- of the market in which a firm chooses to compete. When considering different business strategies, managers must determine the ______________. For example, Rolex focuses on a small market segment comprised of affluent customers who want to present a certain image. On the other hand, Timex offers watches for many different segments of the mass market.
The relationship between
the type of diversification and overall firm performance takes on the shape of an inverted U.
When firms fail to resolve strategic trade-offs between differentiation and cost
they end up being stuck in the middle. They then succeed at neither strategy, leading to a competitive disadvantage.