Strategic Management Chapter 8

Conglomerate

A company that combines two or more strategic business units under one overarching corporation; follows an unrelated diversification strategy. (United Technologies)

Boston Consulting Group (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). SBU's are plotted into four categories (dog, cash cow, star and question mark), each of which warrants a different investment strategy.

Licencing

A form of long-term contracting in the manufacturing sector that enables firms to commercialise intellectual property. (AMD chips for Dell)

Core-Competency market

A framework to guide corporate diversification strategy by analysing possible combinations of existing/new core competencies and existing/new markets.

Related constrained diversification strategy

A kind of related diversification strategy in which executives pursue only business where they can apply the resources and core competencies already available in the primary business. (Fed-Ex)

Related linked diversification strategy

A kind of related diversification strategy in which executives pursue various business opportunities that share only a limited number of linkages. (Darden restaurants)

Franchising

A long term contract in which a franchiser 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.

Joint venture

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

Forward vertical integration

Changes in an industry value chain that involve moving ownership of activities closer to the end (customers) point of the value chain. (Braum's dairy owning outlets)

Backward vertical integration

Changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain. (Dairies making plastic bottles)

Related diversification strategy

Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity. (Kellogg's)

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. (Caterpillar)

Product diversification strategy

Corporate strategy in which a firm is active in several different product markets. (Proctor and Gamble)

External transaction costs

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

Internal transactions costs

Costs pertaining to organising an economic exchange within a hierarchy, also called administrative costs. (Recruiting employees)

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. (Usually within an industry)

Principal-agent problem

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

Information asymmetry

Situation in which one party is more informed than another because of the possession of private information. (Having competitors marketing plan)

Corporate strategy

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