4490 Exam 2

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what is an example of a strategic alliance?

Jupiter Pharma Inc. teaming up with a research company to invent and market breakthrough vaccines

GE's decision to let a GE team in China develop an inexpensive and portable ultrasound machine for developing markets is an example of _________

a bottom-up innovation strategy

product diversification strategy

corporate strategy in which a firm is active in several different product markets

product-market diversification strategy

corporate strategy in which a firm is active in several different product markets and several different countries

what are firm cost drivers

cost of input factors economies of scale learning curve effects experience curve effects

external transaction costs

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

differentiation strategy

generic business strategy that seeks to create higher value for customers than the value that competitors create

strategy for dog

harvest/divest

what is the framework that states that important resources and capabilities are commonly embedded in strategic alliances that cross firm boundaries?

the relational view of competitive advantage

value innovation

the simultaneous pursuit of differentiation and low cost in a way that creates a leap in value for both the firm and the consumers; considered a cornerstone of blue ocean strategy

what are some advantages of joint ventures?

trust, commitment, strong ties

specialized assets

unique assets with high opportunity cost: they have significantly more value in their intended use than in their next best use; they come in 3 types - site specificity, physical asset specificity, human asset specificity

what key question does corporate strategy answer?

where to compete

what is an example of horizontal integration?

B9 Electronics Inc. acquires its competitor, Virtue Electronics Inc., to gain access to its core competencies

horizontal integration

the process of merging with competitors leading to industry consolidation

strategic entrepreneurship

the pursuit of innovation using tools and concepts from strategic management

social entrepreneurship

the pursuit of social goals while creating a profitable business

scope of competition

the size - narrow or broad - of the market in which a firm chooses to compete

invention

the transformation of an idea into a new product/process, or the modification and recombination of existing ones

a firm's transition between different parts of the industry life cycle is difficult because...

there is a big gulf separating the early adopters from customer segments that make up the mass market

what is a disadvantage faced by first movers in an industry?

they will have to find distribution channels and complementary assets

how can firms build alliance management capability?

through repeated experiences over time

what are some of the reasons why firms enter into strategic alliances?

to enter new markets, to learn new capabilities, to strengthen their competitive position

why might a firm want to enter into an equity alliance instead of a short- or long-term contract?

to facilitate transaction-specific investments, to get insider info about the partner's business, and to make a credible commitment

what are the three main reasons why firms make acquisitions?

to gain access to a new capability or competency, to gain access to new distribution channels and markets, to preempt rivals

what is the main goal of corporate venture capital investments?

to gain access to new technologies

what are the three choices in the build-borrow-or-buy framework?

acquisition of new resources, strategic alliances, or internal development

what are the three options used by executives to drive firm growth?

acquisitions, alliances, or organic growth

during the shakeout stage of the industry life cycle, profits degrade for....

all but the most efficient firms

what is the term that refers to a company's ability to handle three tasks related to an alliance concurrently and effectively?

alliance management capability

what is an example of related-constrained diversification?

an automobile company that manufactures petrol cars expanding into the diesel car industry

highly diversified firms experience a diversification discount in the stock market because they...

are unable to create additional value

blue ocean strategy

business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs

a firm might want to use a strategic alliance to...

change the industry structure

strategic trade-offs

choices between a cost or value position - such choices are necessary because higher value creation tends to generate higher cost

what are the forms of agreement that non-equity alliances typically take?

distribution, licensing, and supply agreements

what refers to an increase in the variety of products/services a firm offers or markets and the geographic region in which it competes?

diversification

________ is best described as the process by which people undertake economic risk to innovate - to create new products, processes, and sometimes new organizations

entrepreneurship

what are partnerships in which at least one partner takes partial ownership of the other partner?

equity alliances

strategy scholars believe that firms should create a dedicated alliance function with what features?

it should have its own resources and support staff; it should be led by a vice president or director

what are the phases of alliance management

partner selection and alliance formation, alliance design and governance, post-formation alliance management

there exists important trade-offs between value creation and low cost because value creation and cost tend to be...

positively correlated

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/technology

in which stage of the industry life cycle does competition become more intense, forcing weaker firms out of the industry?

shakeout

what are the main types of business diversification?

single business, dominant business, unrelated diversification, related diversification

economies of scale allow firms to...

spread their fixed costs over a larger output, employ specialized systems and equipment, take advantage of certain physical properties

when a blue ocean strategy is successfully formulated and implemented, investments in differentiation and low costs aren't...

substitutes but complements

knowledge that involves knowing how to do a certain task and that can't be codified is _______ knowledge

tacit

what is a fact about the real-options perspective?

the approach allows the incumbent firm to obtain additional info at predetermined stages

innovation

the commercialization of any new product or process, or the modification and recombination of existing ones

network effects

the positive effect (externality) that one user of a product or service has on the value of that product for other users

what is true of the growth stage in the industry life cycle?

the prices begin to fall during this stage when compared to the intro stage

what is a major disadvantage of organizing economic activity within firms?

the principal-agent problem

entrepreneurship

the process by which people undertake economic risk to innovate - to create new products, processes, and sometimes new organizations

what is an example of human-asset specificity?

training employees on how to operate a customized furnace

To formulate an appropriate business-level strategy, managers must answer the __________ questions of competition

who, what, why, how

when companies get involved in a bidding war and the winner overpays for the acquisition, the acquiring company has fallen victim to the...

winner's curse

credible commitment

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

advantages of firms

command and control hierarchial lines of authority coordination transaction-specific investments community of knowledge

first-mover advantage

competitive benefits that accrue to the successful innovator

5 aspects of maturity stage

few firms remain industry structure morphs into an oligopoly with only a few large firms process innovation reaches its maximum level of product innovation sinks to minimum remaining firms tend to enjoy economies of scale

cash cow

low market growth, high market share

dog

low market growth, low market share

benefits of vertical integration

lowering costs, improving quality, facilitating scheduling and planning, facilitating investments in specialized assets, securing critical suppliers and distribution channels

one way to overcome the principal-agent problem is to...

make managers owners through stock options

winner-take-all markets

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

a ________ describes the process of joining two independent companies with their consent to form a combined entity on a permanent basis

merger

parent subsidiary relationship

most integrated alternative to performing an activitiy with one's own corporate family - corporate parent owns the subsidiary and can direct it via command and control

strategic outsourcing

moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain

product innovation

new or recombined knowledge embodied in new products

closed innovation

new products discovered, developed, and commercialized internally

process innovation

new ways to produce existing products or deliver existing services

what are the three mechanisms that alliances can be governed by?

non-equity alliances, equity alliances, joint ventures

a disadvantage associated with obtaining goods/services externally is...

nontrivial search costs to be borne by the firm

a blue ocean strategy typically allows a firm to...

offer a differentiated product/service at low cost

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

in the taper integration system, a firm has __________ reliance on outside markets

partial

what are the two necessary conditions for successful alliance formation?

partner commitment and partner compatibility

a firm with alliance management capability is able to effectively manage what?

partner selection and alliance formation, alliance design and governance, and post-formation alliance management

non-equity alliance

partnerships based on contracts between firms

equity alliance

partnerships in which at least one partner takes partial ownership in the other

what are the primary reasons why a firm might pursue a merger?

principal-agent problems, the desire to overcome competitive advantage, superior acquisition and integration capability

two important features that managers can adjust in an effort to improve the firm's strategic position are _________

product features and customer service

what are value drivers?

product features, customer service, complements

industry life cycle

the five different stages - introduction, growth, shakeout, maturity, and decline - that occur in the evolution of an industry over time

related-linked diversification strategy

a kind of related diversification strategy in which executives pursue various businesses opportunities that share only a limited number of linkages

franchising

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

what is an example of backward vertical integration?

a chocolate manufacturing company setting up its own cocoa plantations

conglomerate

a company that combines two or more strategic business units under one overarching corporation: follows an unrelated diversification strategy

markets-and-technology framework

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

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 and speed of market growth - SBUs are plotted into 4 categories, each of which warrants a different investment strategy

absorptive capacity

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

innovation ecosystem

a firm's embeddedness in a complex network of suppliers, buyers, and complementors, which requires interdependent strategic marketing decisions

patent

a form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specified period of time in exchange for public disclosure of the underlying idea

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

open innovation

a framework for R&D that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and inventions, but also from external ones - the sharing goes both ways; some external ideas and inventions are insourced while others are spun out

core competence-market matrix

a framework to guide corporate diversification strategy by analyzing possible combinations of existing/new core competencies and existing/new markets

what occurs when the targeted firm is unwillingly acquired?

a hostile takeover

a country may require a company to form ________ and provide knowledge and advanced technology in exchange for access to the market

a joint venture

related-constricted diversification strategy

a kind of related diversification strategy in which executives pursue only businesses where they can apply the resources and core competencies already available in the primary business

how do mergers and acquisitions differ?

a merger describes the joining of two independent companies, while an acquisition describes the purchase or takeover of a firm

architectural innovation

a new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets

what approach to strategic decision making take a larger investment decision and divides it into multiple smaller decisions that happen over time?

a real-options perspective

a non-diversified company focuses on what?

a single market

what would most likely limit a firm's growth?

a social entrepreneur makes conservation of the environment the primary goal of their firm

joint venture

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

transaction cost economies

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

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 forwardly integrated but also relies on outside-market firms for some of its distribution

what did Kraft see as an advantage of integration with Cadbury?

access to new markets

hostile takeover

acquisition in which the target company doesn't wish to be acquired

disadvantages of firms

administrative costs low-powered incentives principal-agent problem

transaction costs

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

standard

an agreed-upon solution about a common set of engineering features and design choices

diversification

an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes

radical innovation

an innovation that draws on novel methods or materials, is derived either from an entirely different knowledge base or form a recombination of the existing knowledge bases with a new stream of knowledge

disruptive innovation

an innovation that leverages new technologies to attack existing markets from the bottom up

incremental innovation

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

reverse innovation

an innovation that was developed for emerging economies before being introduced in developed economies - also called frugal innovation

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

4 categories of BCG growth-share matrix

cash cow, dog, question mark, star

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

backward vertical integration

changes in an industry value chain that involves moving ownership of activities upstream to the originating (inputs) point of the value chain

5 aspects of shakeout stage

competitive intensity increases and weaker firms forced out firms begin to cut prices and offer more services consolidations and acquisitions occur, weaker firms exit through bankruptcy winners often stake out a strong position as cost leaders few may implement blue ocean strategy, combining differentiation and low cost

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)

crossing-the-chasm framework

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

co-opetition

cooperation by competitors to achieve a strategic goal

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

unrelated diversification strategy

corporate strategy in which a firm derives less than 70 percent of its revenues from a single business and there are few, if any, linkages among its businesses

geographic diversification strategy

corporate strategy in which a firm is active in several different countries

internal transaction costs

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

early majority

customer coming into the market in the shakeout stage

technology enthusiasts

customer segment entering in the intro stage

laggards

customer segment entering the market at the decline stage

late majority

customer segment entering the market during the maturity stage

early adopters

customers entering the market in the growth stage

economies of scale

decreases in cost per unit as output increases

firms pursuing cost-leadership strategy seek to...

deliver products or services at a lower cost than competitors

in a focused differentiation strategy, a firm seeks to...

deliver products/services with unique features to a specific, narrow part of the market

4 aspects of growth stage of industry life cycle

demand increases competitive rivalry muted standard emerges product/process innovations made

industry value chain

depiction of the transformation of raw materials into finished goods/services along distinct vertical stages, each of which typically represents a distinct industry in which a number of different firms are competing

the viability of a differentiation strategy is severely undermined when the...

differentiated products become commoditized throughout the industry

a firm experiences _________ when an increase in output results in an increase in cost

diseconomies of scale

what can incumbent firms do to counter disruptive innovation?

disrupt themselves, protect the low end of the market, continue to innovate

3 reasons why incumbent firms focus on incremental innovation

economic incentives, organizational inertia, innovation ecosystem

corporate venture capital (CVC)

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

4 options at the final stage of the industry life cycle

exit, harvest, maintain, consolidate

cost-leaderships strategy

generic business strategy that seeks to create the same or similar value for customers at a lower cost

business-level strategy

goal-directed actions managers take in their quest for competitive advantage when competing in a single product market

strategy canvas

graphical depiction of a company's relative performance vis-a-vis its competitors across the industry's key success factors

horizontal integration can...

help a firm improve its strategic position in an industry

star

high market growth, high market share

question mark

high market growth, low market share

advantages of markets

high-power incentives flexibility

strategy for cash cow

hold

strategy for star

hold or invest for growth

value curve

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

________ is best described as the process of merging with a competitor at the same stage of the value chain

horizontal integration

when two competitors merge, leading to industry consolidation, they are engaging in...

horizontal integration

strategy for question mark

increase market share or harvest/divest

reasons why firms need to grow

increase profits, lower costs, increase market power, reduce risk, motivate management

firms often consolidate through horizontal mergers and acquisitions to...

increase their market power

what are some managerial advantages of building a firm into a large organization?

increased power, greater prestige, more job security

diseconomies of scale

increases in cost per unit when output increases

risks of vertical integration

increasing costs reducing quality reducing flexibility increasing the potential for legal reprecussions

factors that led to a shift in the knowledge landscape from closed to open innovation

increasing supply and mobility of skilled workers, the exponential growth of venture capital, the increasing availability of external options (such as spinning out new ventures) to commercialize ideas that were previously shelved or insource promising ideas and inventions, the increasing capabilities of external suppliers globally

what allows a firm to redefine a market in its favor?

innovation

experience curve

inverse relationship between the total value-added costs of a product and the company experience in manufacturing and marketing it

explicit knowledge

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

tacit knowledge

knowledge that can't be codified; concerns knowing how to do a certain task and can be acquired only through active participation in the task

cost-leadership strategy is focused on...

low cost

for diversification to enhance the performance of a firm, it has to do at least one of the following:

provide economies of scale, exploit economies of scope, reduce costs and increase value

acquisition

purchase or takeover of one company by another, can be friendly or unfriendly

as differentiation and cost leadership are distinct strategic positions that require trade-offs, it's...

quite difficult to translate a blue ocean strategy into reality

if a pharmaceutical company develops a first-of-its-kind vaccine to prevent HIV AIDS and thus creates a whole new market for the product (noninfected civilians), it would be a(n)...

radical innovation

what are some of the advantages of vertical integration?

reducing costs, facilitating scheduling, bettering quality

what are sources of value creation in a horizontal integration strategy?

reduction in competitive intensity, lower costs, increased differentiation

to figure out if a firm's type of diversification is ______ or ________, one can ask questions about the degree to which the corporation's business units share core competencies

related; unrelated

focused cost-leadership strategy

same as the cost-leadership strategy except with a narrow focus on a niche market

focused differentiation strategy

same as the differentiation strategy except with a narrow focus on a niche market

disadvantages of markets

search costs opportunism incomplete contracting enforcement of contracts

principal-agent problem

situation in which an agent performing activities on behalf of a principal pursues their own interests

informative asymmetry

situation in which one party is more informed than another because of the possession of private info

diversification premium

situation in which the stock price of highly diversified firms is valued at higher than the sum of its individual business units

diversification discount

situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units

learning races

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

3 aspects of decline stage

size of market contracts further as demand falls innovation efforts cease managers have 4 strat options : exit, harvest, maintain, consolidate

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

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

executives make important choices along 3 dimensions that determine the boundaries of a firm

the degree of vertical integration, the type of diversification, the geographic scope

vertical integration

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

true or false: because of the size of organizations is typically positively correlated with prestige, power, and pay, principal-agent problems might be a reason to pursue M&As

true

trade secret

valuable proprietary info that isn't in the public domain and where the firm make every effort to maintain its secrecy

an advantage of ______ is that it helps ensure that needed materials and distribution channels are available when needed

vertical integration

strategic alliances

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

vertical market failure

when the markets along the industry value chain are too risky and alternatives too costly in time or money


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