BUS 444 (FINAL, CSUSM, Antoniou)
Why do firms use cross-border strategic alliances?
-Leverage core competencies that are the foundation of its domestic success to expand into international markets -can be done domestically or internationally
What incentives influence firms to use international strategies?
-New market expansion extends product lifecycle -Gain access to materials & resources -Integration of operations on global scale -Better use of rapidly developing technologies -International markets yield potential new opportunities
What factors account for the considerable amount of attention corporate governance receives from several parties, including shareholder activists, business press writers, and academic scholars? Why is governance necessary to control managers' decisions?
-concerned with identifying ways to ensure strategic decisions are made more effectively -used in corporations to establish harmony between firm's owners & top level managers whose interests may be in conflict
As a strategic leader, what actions could you take to establish and emphasize ethical practices in your firm?
-establishing and communication of specific goals to describe firm's ethical standards -continuously revising and updating code of conduct -disseminating code of conduct to all stakeholders to inform them of the ethical standards and practices
What trends exist regarding executive compensation? What is the effect of the increased use of long-term incentives on top- level managers' strategic decisions?
-factors complicating: strategic decisions by top-level managers complex and non-routine -limits on effectiveness: unintended consequences of stock options, balance sheet not showing executive wealth, options not expensed
What must strategic leaders do to develop and sustain an effective organizational culture?
-have distinct culture -changing a firm's organizational culture is more difficult than maintaining it -shaping it requires: effective communication, problem solving skills, selection of the right people, effective performance appraisals, appropriate reward systems
What risks are firms likely to experience as they use coopera- tive strategies?
-partners may act opportunistically -may misinterpret competencies brought to the partnership -fail to make committed resources and capabilities available to other partners -partner may make investments that are specific to the alliance while partner does not Competitive Risks-->Asset Management Approaches--> Desired Outcome
What assumptions do owners of corporations make about managers as agents?
-principal and agent have divergent interests and goals -shareholders lack control or large, publicly-traded corporations -agent makes decisions that result in the pursuit of goals that conflict with those of principal -difficult or expensive for principal to verify that agent has behaved appropriately -agent falls prey to managerial opportunism -principals don't know beforehand which agents will/won't act opportunistically -principals establish governance and control mechanisms to prevent managerial opportunism
Multi Domestic Strategy. What are the advantages and disadvantages associated with this strategy?
-strategy & operating decisions decentralized to SBU in each country -products and services tailored to local markets -business units in 1 country independent of each other -focus on competition in each market ex: clothing, consumer goods, the fashion industry
How does a firm acquire other companies to increase the number of innovations it produces and improve its capability to innovate?
-substitute ability to buy innovations for ability to produce innovations internally -Venture capital firms: help apply whatever else to firm to make it work -Initial Public Offerings (IPOs): new stock prices to reflect firm's high potential, go public to raise money -Reverse Merger: buy company on stock market, and have financials and option to take public (takes less than $250k, 6-8 months, faster)
How do you exercise effective strategic leadership? 5 steps
1. Develop firm's strategic direction 2. Manage firm's resource portfolio 3. Sustain effective organization culture 4. Emphasize ethical practices 5. Establish balanced organizational controls
Managerial Opportunism
the seeking of self-interest with guile (i.e., cunning or deceit) -attitude (inclination) -set of behaviors (specified acts of self-interest) -prevents maximization of shareholder wealth (primary goal of owner/principals)
Corporate Governance
the set of mechanisms used to manage the relationships among stakeholders and to determine and control the strategic direction and performance of organizations
Agency Costs
the sum of incentive costs, monitoring costs, enforcement costs, and individual financial losses incurred by principals because governance mechanisms cannot guarantee total compliance by the agent
Institutional Owners
financial institutions such as mutual funds and pension funds that control large-block shareholder positions
What is strategic leadership?
the ability to anticipate, envision, maintain flexibility, think strategically, and work with others to initiate changes that will create a positive future for an organization
Large-block shareholders
typically own at least 5% of a company's issued shares
How does strategic entrepreneurship help firms create value?
-Be effective in identifying opportunities -be flexible and willing to take risks -have sufficient resources and capabilities to exploit opportunities -sustain competitive advantage while identifying and exploiting opportunities -develop an entrepreneurial mind-set among managers and employees -seek to enter and compete in international markets
Why is Cooperative Strategy important to firms competing in the twenty-first-century competitive landscape?
-Creates value for the customer -Exceeds the cost of constructing customer value in other ways -Establishes a favorable position relative to competitors
What are the strategic competitiveness outcomes firms can reach through international strategies, and particularly through an international diversification strategy?
-Increase firm's returns -Achieve economies of scale -Yield higher returns -Generate additional resources -Provide exposure to new products
How many deals are unsuccessful due to cultural differences?
70%
Strategic Alliance
A primary type of cooperative strategy in which firms combine some of their resources and capabilities to create a mutual competitive advantage -have a beginning and an end -involves the exchange and sharing of resources to co-develop and distribute goods and services -requires cooperative behavior from all partners
Cooperative Strategy
A strategy in which firms work together to achieve a shared objective.
An illegal strategic alliance is called:
Collusive *illegal but not in all places
What are the four business-level cooperative strategies? What are the key differences among them?
Complementary Strategic Alliances: -combine partner firm's assets in complementary ways to create new value -include distribution, supplier or outsourcing alliances -combine resources ex: airlines partnering up to help speed up wait times --> Vertical Complementary Strategic Alliance: use their skills to create different stages in value chain to create value for both firms ex: outsourcing --> Horizontal: partners combine resources to create value in the same stage of the value chain ex: long term focus on product development and partners may become competitors requiring trust Competition Response Alliances: -firm's join forces to respond to strategic action of competitor -difficult to reverse and expensive to operate -primarily formed to respond rather than a tactical action Uncertainty Reducing Alliances: -hedge against uncertainty -most noticed in fast cycle markets -alliance formed to reduce uncertainty associated with developing new product technology standards -making things quickly Competition Reducing Alliances: -avoid destructive or excessive competition -Explicit Collusion (Illegal): firms directly negotiate production output and pricing agreements to reduce competition -Tacit Collusion (Legal): firms indirectly coordinate production and pricing decisions by observing other firms actions and responses ex: airlines copying each other's luggage charging strategy
What are the differences among the three versions of the multidivisional (M-form) organizational structures that are used to implement the related constrained, the related linked, and the unrelated corporate-level diversification strategies?
Cooperative Form (Related Constrained Strategies) -horizontal integration used to bring out interdivisional cooperation -sharing divisional competencies facilitates development of economies of scope -office emphasizes centralization of planning, HR and mktg -R&D centralized -frequent direct contact between division managers -use liaison roles reward subjective SBU Form (Related Linked Strategy) -corporate headquarters -SBUs -SBU divisions -divisions share products, services or both -develop economies of scope/scale by sharing product or market competencies -profit centers and controlled by headquarters -used by large firms Competitive Form (unrelated diversification strategy) -complete interdependence among firm divisions -don't share common strengths -integrating devices not developed -organizational arrangements emphasize competition rather than cooperation -3 benefits: flexibility, challenges status quo, and inertia, motivates effort -creates specific profit performance expectations for each division to promote internal competition for resources *each business is a stand-alone
What are the differences between the cost-minimization approach and the opportunity-maximization approach to managing cooperative strategies?
Cost-Minimization Approach: -have formal contracts with partners -specify strategy to be monitored -specify how partner behavior is to be controlled -set goals that minimize costs to prevent opportunistic behavior by partners Opportunity-Optimization Approach: -maximize partnership's value-creation opportunities -learn from each other -explore additional marketplace possibilities -maintain less formal contracts, fewer constraints
What are the three corporate-level cooperative strategies? How do firms use each of these strategies for the purpose of creating a competitive advantage?
Diversifying Strategic Alliance: -allows firm to expand into different product or market area w/o completing a merger/acquisition -provides some of potential synergistic benefits of merger/acquisition w/ less risk and high flexibility -permits test of future merger would be beneficial Synergistic Strategic Alliance: -joint economies of scope between 2+ firms -creates synergy across multiple functions or businesses between partnered firms Franchising: -spreads risk equally & uses resources, capabilities and competencies w/o merger/acquisition -contractual relationship developed between 2 parties (franchisor and franchisee) -alternative to pursuing growth through merger/acquisition -faster entry to market ex: McDonald's
How is a strategic center firm used in business-level, corporate-level, and international cooperative strategies?
Engage in 4 primary tasks: strategic outsourcing, competencies, technology, race to learn -vertical complimentary alliances (different competencies in value chain) -horizontal complementary alliances (same stage in value chain)
What is an entrepreneur, and what is an entrepreneurial mind-set?
Entrepreneur: individuals acting independently or as part of an organization, who create new venture or develop innovation, take risks entering into marketplace -can be managers or employees in organization Entrepreneurial Mind-Set: see and envision opportunities, values what opportunities are available due to market opportunities they move into
What is entrepreneurship, and what are entrepreneurial opportunities? Why are the important aspects of the strategic management process?
Entrepreneurship: process by which individuals, teams, or organizations identify and pursue entrepreneurial opportunities without being immediately constrained by resources they currently control Entrepreneurial Opportunities: conditions in which new products or services can satisfy a need in the market *identify opportunities not perceived by others, take actions to exploit the opportunities, establish competitive advantage
What five entry modes do firms consider as paths to use to enter international markets? What is the typical sequence in which firms use these entry modes?
Exporting--> high cost, low control -firm has no foreign manufacturing expertise -requires investment in distribution Licensing --> low cost, low risk, low returns, little control -firm needs to facilitate product improvements necessary to enter foreign markets Strategic Alliance--> shared costs, resources and risks, problems of integration -firm needs to connect with experienced partner already in target market to reduce risk through sharing costs -facing uncertainty (economy) Acquisitions --> quick access to new market, high cost, complex negotiations , problems with merging domestic operations -firm needs rapid cross-border access to new international markets Wholly-Owned Subsidiary--> complex, costly, time consuming, high risk, max control, above average returns, control over everything in firm -firm's intellectual property rights in emerging economy not well protected, number of firms growing fast, need for global integration high
What four factors are determinants of national advantage and serve as a basis for international business-level strategies?
Factors of production (inputs necessary to compete in any industry) -labor, land, capital, infrastructure, natural resources -basic (natural and labor sources) and advanced factors (digital, educated workforce) Demand Conditions (characterized by size and need of buyers in home market for industry goods/services) -size of market, efficiency, specialized demand Firm Strategy, Structure and Rivalry (pattern among firms) -what expectations & rules come from company -common technology training -methodical product/process improvement -Cooperative & competitive systems Related and Supporting Industries (supporting services, facilities, suppliers, etc.) -can you find the raw materials and supplies -related industries as buyers and suppliers
What is the nature of corporate governance in Germany, Japan, and China?
Germany: -owner and manager same in private firms -public firms often have dominant shareholder, frequently a bank -frequently is less emphasis on shareholder value in U.S. firms -German firms shifting to U.S. governance mechanisms *2 Groups in BOD Union members shareholders--> aufsichtsrat (senior board) --> Vorstand (Jr. Members) Japan: -important governance factors: obligation, family, consensus -keiretsus: strongly interrelated groups of firms toed together by cross-shareholdings -banks are highly influential with firm managers -powerful government intervention -close relationship between firms and government -passive shareholders -virtual absence of external market for corporate control China: -corporate governance practices have been changing and evolving w/ increasing privatization of businesses -development of internal equity markets -equity held in state-owned enterprises decreasing -state relies on direct economic controls -what government says goes
What is meant by the statement that ownership is separated from managerial control in the corporation? Why does this separation exist?
Governance mechanisms are set in place to split up control -separations exist so no one person has ultimate power
How do strategic leaders effectively manage their firm's resource portfolio to exploit its core competencies and leverage the human capital and social capital to achieve a competitive advantage?
Human capital- knowledge of each person is a capital resource that requires investment in training and development Social capital- relationships inside/outside firm that help accomplish tasks and create values for customers/shareholders *people, technology, knowhow *hire people for what they can do
What are the three basic benefits firms can achieve by success- fully using an international strategy?
Increased market size -domestic market may lack size to support scale Economies of Scale (or Learning) -spread costs over larger sales base & increase profit per unit Location Advantages -access to RM, transportation, lower labor costs, key customers, energy)
What is international entrepreneurship? Why is it important?
International Entrepreneurship: fuel economic growth, create employment, generate prosperity for citizens *can identify and exploit opportunities outside the firm *firms who do this outperform others in domestic and international markets -must be a balance in culture between initiative and cooperation
What are invention, innovation, and imitation? How are these concepts interrelated?
Invention: act of creating or developing new products or process, brings something new into being, make something out of nothing Innovation: creating commercial product from an invention, brings something new into use, source of competitive success, take an idea and turn it into something else Imitation: adoption of an innovation by similar firms, leads to a product or process standardization, lowered prices but with fewer features -make it better, easier, stronger *cannot have one without the others
What are the three major types of strategic alliances that firms form for the purpose of developing a competitive advantage?
Joint Venture: -2+ firms create legally independent company by sharing some of their resources and capabilities -contractual agreement- once it ends you can renew or end -has a lifespan and specific purpose Equity Strategic Alliance: -partners own different % of equity in a separate company they have formed -co-equal owners Non-equity Strategic Alliance: -2+ firms develop contractual relationship to share some of their unique resources and capabilities -don't own % -work contractually together -handshake agreement ex: pepsi in Taco Bell, Disney toys in McDonald's happy meal *NO TRUST=WILL NOT WORK
What are some global environmental trends affecting the choice of international strategies, particularly international corporate-level strategies?
Liability of Foreignness -concerns over attractiveness of global strategies -not as prevalent as once thought -difficulty in implementing global strategies -you are a visitor in doing business overseas Regionalization -represent the country -focus on particular region rather than on global markets -Better understanding of cultures, legal and social norms
What are two important issues that can potentially affect a firm's ability to successfully use international strategies?
Management problems Not being accepted within the country (cultural barriers)
What is the managerial succession process? How important are the internal and external managerial labor markets to this process?
Managerial Succession Process: organizes select managers and strategic leaders from 2 types of managerial labor markets Internal managerial labor markets- advance opportunities related to managerial positions within firm External managerial labor markets- career opportunities for managers in organizations other than ones they currently work in
What is the market for corporate control? What conditions generally cause this external governance mechanism to become active? How does this mechanism constrain top-level managers' decisions and actions?
Market Corporate Control: -individuals and firms buy or take over undervalued firms -ineffective managers usually replaced in takeovers -threat of takeover may lead firm to operate more efficiently -changes in regulations have made hostile takeovers difficult -managerial defense tactics increase the costs of mounting a takeover -defense tactics: asset restructuring, changes in financial structure of firm, shareholder approval -market for corporate control lacks precision of internal governance mechanisms
What are the three international corporate-level strategies?
Multi Domestic Strategy Global Strategy Transnational Strategy
What organizational structures are used to implement the multidomestic, global, and transnational international strategies?
Multidomestic Strategy: specific markets designed for specific countries -product characteristics tailored to local preferences -counter global competition by establishing protected market positions Global/Worldwide Structure: standardized products across country markets w/o differentiation -centralizes decision making authority in worldwide division headquarters and product divisions Transnational Strategy: combines multidomestic strategy's local responsiveness to global efficiency -draws characteristics from both worldwide and product divisional structure -matrix structure/hybrid structure -groups of countries for products ex: mcdonalds changing up menu items depending on country
What is organizational structure and what are organizational controls?
Organizational Structure: skeleton of firms formal reporting relationships, procedures, controls and authority and decision making processes -how can the work be done/ how to do it, given firms strategy to do it -effective structure provides stability and flexibility **critical to match the org structure to the firm's strategy! Organizational Controls: guide the use of strategy, indicate how to compare actual results with expected results, suggest corrective actions to take when difference between the 2 is unacceptable -2 types: Strategic controls, Financial controls
How is each of the three internal governance mechanisms ownership concentration, boards of directors, and executive compensation used to align the interests of managerial agents with those of the firm's owners?
Ownership Concentration: -large block shareholders have strong incentive to monitor management closely -financial institutions are legally forbidden from directly holding board seats -report intentions to company ownership concentration -increase influence of institutional owners (stock mutual funds and pension funds) -shareholder activism: shareholders can convene to discuss corporations direction, can vote to elect/block candidates of board, proxy fights, limits on shareholder activism Board of Directors: -monitor and control firm's top level executives -has power to: direct affairs of org., punish and reward managers, protect owners from managerial opportunism -compensation of boards: insiders, related outsiders, outsiders -enhancing effectiveness of BOD Executive Compensation: -forms of compensation (salaries, bonuses, long-term performance incentives, stock awards, stock options)
Separation of Ownerships and Managerial Control
Ownership Concentrations: -relative amounts of stock owned by individual shareholders and institutional investors Board of Directors (BOD): -individuals responsible for representing firm's owners by monitoring top-level managers' strategic decisions Executive Compensation: -use of salary, bonuses and long term incentives to align managers' interests with shareholders' interests Market for Corporate Control: -purchase of firm that's underperforming relative to industry rivals in order to improve strategic competitiveness
What are political risks and what are economic risks? How should firms approach dealing with these risks?
Political Risks -Instability in governments -War (civil or international) -potential nationalization of firm's resources Economic Risks -Differences and fluctuations in value of currencies -wage rates -difficulties in enforcing property rights -unemployment *Be careful of mistakes since they cause delays *Make sure funds that are promised by banks are guaranteed payments
How do firms develop innovations internally?
Product Champions ex: post it note creator Internal corporate Venturing -autonomous strategic behavior -induced strategic behavior -prime the whole organization
What does it mean to say that strategy and structure have a reciprocal relationship?
Structure flows from or follows the selection of the firms strategy -once in place, structure can influence current strategic actions as well as choices about future strategies *easier to change structure rather than strategy
Transnational Strategy. What are the advantages and disadvantages associated with this strategy?
Seeks to achieve both global efficiency and local responsiveness in regional basis difficult to achieve due to requirements for: - central control -decentralization to achieve local market responsiveness -pursuit of organizational learning to achieve competitive advantage ex: Caterpillar making different vehicles for the terrain
How can corporate governance foster ethical decisions and behaviors on the part of managers as agents?
Serve the interests of firm's multiple stakeholder groups -assure shareholder interest -product market stakeholders may withdraw support of firm if needs are not met -ethically responsible companies design and use mechanisms that serve stakeholders interests -importance of maintaining ethical behaviors
What are the characteristics of the different functional structures used to implement the cost leadership, differentiation, integrated cost leadership/differentiation, and focused business-level strategies?
Simple Structure (mom and pop store): -compete by offering single product line in single geographic market Owner/manager- makes all decisions directly & monitors activity Staff- serves as extension of managers supervisor authority (10-15 people) *matched with focused and business level strategies *growth creates complexity, managerial & structural challenges, become ineffective at managing specialized tasks Functional Structure (more locations & have professional team): CEO- limited corporate staff Staff- Functional line managers in dominant org areas (production, marketing, engineering, HR, ACCT, R&D) (100-120 employees) *supports business-level strategies and some corporate level strategies (single dominant businesses with low levels of diversification) *differences in orientation of org functions can impede communication, increased need of CEO, facilitate career paths (Functional to cost leadership strategy: Office of president --> Centralized staff --> engineering>marketing>operations>personnel>ACCT) (Functional for differentiation strategy: President & limited staff--> R&D + Marketing ---> New product R&D>operations>MKTG>HR>Finance) *each has own territory Multidivisional Structure (strategic control operating divisions function as separate business/profit centers) Top Corporate Officer- delegates responsibilities to division managers for day to day operations & business unit strategy (staff 200k) *good for diversification -diversification creates the need for multidivisional structure
Why are strategic controls and financial controls important aspects of strategic leadership and the firm's strategic management process?
Strategic Controls: formal information based procedures used by managers to maintain/alter patterns in organizational activities -collect the right information -balanced scorecard: ensures firm has both strategic and financial controls to assess performance -more than enough to see how the company is doing *both assess performance and prevent overemphasis of financial controls at the expense of strategic controls
What are the differences between strategic controls and financial controls? What is the importance of these differences?
Strategic Controls: subjective criteria that are concerned with examining the fit between what the firm might do (opportunities in external environment) and what the firm can do (competitive advantages) -evaluate the degree to which firm focuses on the requirements to implement its strategy Financial Controls: objective criteria that are accounting-based measures (ROI, ROA) -market-based measures (Economic Value Added EVA) ex: large diversified firms using cost leadership strategy --> financial controls firms and business units using differentiation strategy --> strategic controls
What is strategic entrepreneurship? What is corporate entrepreneurship?
Strategic Entrepreneurship: taking entrepreneurial actions using strategic perspective -engaging in simultaneous opportunity seeking and competitive advantage seeking behaviors -designing and implementing entrepreneurial strategies to create wealth Corporate Entrepreneurship: use of application of entrepreneurship within an established firm -more efficient but you lose people *if you don't do it first the competition will!
What is a strategic network? What is a strategic center firm?
Strategic Network: group of firms formed to create value by participating in multiple cooperative arrangements such as alliances and joint ventures -used to implement business level strategies, corporate level strategies, international cooperative strategies -implement international cooperative strategies for competing in several countries Strategic Center Firm: firm which network cooperative relationship revolve -concerned with aspects of organizational structure like formal reporting relationships -manages complex cooperative interactions among partners
What is a top management team, and how does it affect a firm's performance and its abilities to innovate and design and bring about effective strategic change?
Top Management Team: composed of key managers who are responsible for selecting and implementing firms strategies -have varied expertise and knowledge, draw from multiple perspectives, dont have same mentality -may force team to think outside the box and be creative, have greater capacity to provide effective strategic leadership in forming strategy
Greenfield Venture
a foreign subsidiary that the owning organization has built from scratch
Cross-Border Strategic Alliance
a strategy in which firms with headquarters in different countries decide to combine some of their resources to create a competitive advantage
International Diversification strategy
a strategy through which a firm expands the sales of its goods or services across the borders of global regions and countries into a potentially large number of geographic locations or markets
International Strategy
a strategy through which the firm sells its goods or services outside its domestic market -low cost with a focus of differentiation
Network Cooperative Strategy
a strategy where several firms agree to form multiple partnerships to achieve shared objectives -Stable alliance network -Dynamic alliance network *effective social relationships and interactions among partners are keys to successful network cooperative strategy
How do firms use cooperative strategies to innovate and to have access to innovative capabilities?
cooperative and integration of knowledge and resources required to successfully commercialize inventions -acquisitions -venture capital firms -initial public offerings (IPOs)
Corporate-Level Cooperative Strategy
help firms diversify in terms of products offered to the market in the market it serves -requires fewer resource commitments -permit greater flexibility in terms of efforts to diversify partners' operations
Why are top-level managers considered to be important resources for an organization?
manage the firms operations effectively, sustain high performance over time, make better decisions compared to competition, understand how decisions affect the entire firm, solicit feedback from everyone -cross functional teams *CEO is responsible for everything!
Agency Relationship
risk baring specialist (principal) paying compensation to a managerial decision making socialist (agent)
Global Strategy. What are the advantages and disadvantages associated with this strategy?
selling the same standardized product and using the same basic marketing approach in each national market *1 market, 1 approach *no difference where you sell -products standardized across national markets -Business level strategic decisions centralized in home office -SBU's interdependent -Emphasize economies of scale -lacks responsiveness to the local market -requires resource sharing and coordination across borders ex: oil, water, gold, silver
What is the effect of strategic leadership on determining the firm's strategic direction?
stable strategy ambiguous possible change in top management team and strategy (bring outsider in) stable strategy with innovation strategic change (bring outsider in)- scapegoat
