CBA 469 - Test 3
National Competitive Advantage
A consideration of world leadership in specific industries
Holacracy
An organizational structure in which decision-making authority is distributed through loose collections or circles of self-organizing teams
Financial Structure
An organizational structure that groups employees into distinct functional areas based on domain expertise
Strategy Implementation
Concerns the organization, coordination, and integration of how work gets done
Co-Opetition
Cooperation by competitors to achieve a strategic advantage
Poison Pills
Defensive provisions to deter hostile takeovers by making the target firm less attractive
Acquisition
Describes the purchase or takeover of one company by another; Can be either friendly or unfriendly
Borrowed
In general, if a resource is highly tradable, then it should be _________ using a license or contractual agreement
Small; Low
Simple structures are generally used by _____ firms with ___ organizational complexity
-Wealth -Per Capita Income
Two important determinants of economic distance:
Managers are unable to make the necessary changes due to the effects on resource allocation and power distribution within an organization
Why does strategy implementation often fail?
The benefits outweigh the costs
A company should only expand abroad if:
Multinational Enterprise (MNE)
A company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries
Foreign Direct Investment (FDI)
A firm's investments in value chain activities abroad
Loss of Reputation
A firm's reputation can have several dimensions, including a reputation for innovation, customer service, or brand reputation
Large
A multidomestic strategy is frequently used when entering host countries with ________ domestic markets
Obligate the firm to do so
A real option gives a firm the right to continue making investments, but does not:
They prioritize financial performance over all else
According to Michael Porter, what is a major drawback of public stock companies?
Levitt's Globalization Hypothesis
According to this, consumer needs and preferences throughout the world are converging and becoming increasingly homogenous
Strong ties, trust, and commitment that can result between the partners
Advantage of joint ventures:
-Non-Equity Alliances -Equity Alliances -Joint Ventures
Alliances can be governed by three mechanisms:
Business Ethics
An agreed-upon code of conduct in business, based on societal norms
Location Economies
Benefits from locating value chain activities in optimal geographies fora specific activity, wherever that may be
Matrix Structure
Combines the functional structure with the M-form
Multidivisional Structure
Consists of several distinct strategic business units, each with its own profit-and-loss responsibility
Licensing Agreements
Contractual alliances in which the participants regularly exchange codified knowledge
Network Structure
Enables a firm to connect its centers of excellence independent of where they are located in the world
-Be audited by certified public accountants -Adhere to GAAP
Financial statements by public companies must do two things:
-Strengthen Competitive Position -Enter New Markets -Hedge Against Uncertainty -Access Critical Complementary Assets -Learn New Capabilities
Firms enter into strategic alliances for five reasons:
Global Matrix Structure
Firms tend to use a _______________ to pursue a transnational strategy, in which the firm combines the benefits of a multidomestic strategy with those of a global-standardization strategy
Functional
Firms that follow a single-business or dominant-business strategy at the corporate level generally employ a ___________ structure
Complementors
Firms that provide a good or service that leads customers to value the focal firm's offering more when the two are combined
-Specialization -Formalization -Centralization -Hierarchy
Four key building blocks of an organizational structure:
Through repeated experiences over time
How can firms build alliance management capability?
Filling the empty spaces in a firm's offerings
How can horizontal integration increase product differentiation?
Local Responsiveness
Increases the differentiation of products and services, reinforcing a differentiation strategy at the business level
Strategic Control-and-Reward Systems
Internal-governance mechanisms put in place to align the incentives of principals and agents
-Cost Reductions -Local Responsiveness
MNEs face two opposing forces when competing around the globe:
Codified
Mechanistic organizations tend to have _______ operating procedures
-Expand the customer base to bring in nonconsumers -Expand traditional internal firm value chains to include more nontraditional partners -Focus on creating new regional clusters
Michael Porter recommends that managers focus on three things within the shared value creation framework to ensure that managers can reconnect economic and societal needs:
Black Swan
Narrowly defining public stock companies in terms of financial performance can lead to ______________ events
Programming of the Mind
National culture, according to Geert Hofstede, can be defined as different groups' distinctive ______________
Outside Directors
Not employees of the firm, but are senior executives from other firms or full-time professionals
Winner's Curse
Occurs when a company wins a bidding war but overpaid for the acquisition
Hostile Takeover
Occurs when a target firm does not want to be acquired
Communities of Learning
Often contained in specific geographic regions
Destroy
On average, mergers and acquisitions __________ shareholder value
Entrepreneurial Behaviors and Innovation
Organic organizations typically exhibit a higher rate of:
Peter's Pans is trying to overcome competitive disadvantage
Peter's Pans makes cast-iron cookware. It decides to acquire another similar-sized cast-iron cookware company in the hope that its larger size will enable it to snag some market share away from Iron Maiden, the industry leader. What best describes Peter's Pans strategy?
-Factor Conditions -Demand Conditions -Competitive Intensity in Focal Industry -Related and Supporting Industries and Complementors
Porter's diamond of national competitive advantage consists of four interrelated factors:
Input Controls
Seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures
Output Controls
Seek to guide employee behavior by defining expected results, but leave the means to those results open to individual employees, groups, or SBUs
Alliance Manager
Serves as an alliance process resource and business integrator between the two alliance partners and provides alliance training and development
Global-Standardization
Since expanding internationally, IKEA has shifted focus, concentrating on effectively managing a global supply chain in order to achieve economies of scale. This is reflective of a ____________ strategy.
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
-Power Distance -Individualism -Masculinity-Femininity -Uncertainty Avoidance -Long-Term Orientation -Indulgence
Six main dimensions of culture:
Externalities
Social consequences of business activities, including pollution, energy loss, and dangerous accidents
Benefiting from Location Economies
Spex is a leading manufacturer of eyeglasses. Spex is based in the United States but opens a facility in a Japanese city known for cutting-edge eyeglass innovations. What is Spex counting on?
-Globalization 1.0: 1900-1941 -Globalization 2.0: 1945-2000 -Globalization 3.0: 21st Century -Globalization 3.1: Retrenchment?
Stages of globalization:
Globalization Hypothesis
States that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous
-Enable firms to achieve goals faster and at lower costs than going in alone -Allow firms to circumvent potential legal repercussions -Has the potential to help a firm gain and sustain a competitive advantage
Strategic alliances are attractive for three reasons:
Ecomagination
Strategic initiative to provide cleaner and more efficient sources of energy, provide abundant sources of clean water anywhere in the world, and reduce emissions
Global-Standardization Strategy
Strategy attempting to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost
Transnational Strategy
Strategy that attempts to combine the benefits of a localization strategy with those of a global-standardization strategy
It should use the shared value creation framework
Svanhildur's company is committed to corporate social responsibility but also understands that growth and profit are imperative for survival. What should Svanhildur's company do to achieve this balance?
Death-of-Distance Hypothesis
The assumption that geographic location alone should not lead to firm-level competitive advantage because firms are now, more than ever, able to source inputs globally
Board of Directors
The centerpiece of corporate governance, composed of inside and outside directors who are elected by the shareholders
National Culture
The collective mental and emotional "programming of the mind" that differentiates human groups
Cultural Distance
The cultural disparity between an internationally expanding firm's home country and its targeted host country
Internal Capital Market
The goal of this is to allocate capital more efficiently than would happen in an external capital market
Non-Equity Alliances
The most common type of alliance; It's a partnership based on contracts between firms
Span of Control
The number of employees who directly report to a manager
Demand Conditions
The specific characteristics of demand in a firm's domestic market
Identification of a strategic resource gap that will impede future growth
The starting point of the build-borrow-or-buy framework is the firm's:
Cost Reduction
The strategic foundations of the globalization hypothesis are primarily based on:
Multi-Divisional Structure
This structure is divided into several distinct business units, each of which has its own profit-and-loss center
Tradable
This term implies that the firm is able to source the resource externally through a contract that allows for the transfer of ownership or use of the resource
-Liability of foreignness -Loss of Reputation -Loss of Intellectual Property
Three disadvantages of going global:
-It promotes global learning and the diffusion of best practices and innovations -It harnesses economies of scale
Two benefits of a transnational strategy:
-Amount of investment that can be involved -Possible lack of flexibility and speed in putting together and reaping the benefits from the partnership
Two downsides to equity alliances:
-Causal Ambiguity -Social Complexity
Two reasons why it is difficult to imitate the cultures of successful firms:
A principal-agent problem
Vasily is a manager at a large snack foods company. Vasily believes his company would benefit from being larger and thinks the shareholders would support such growth. The company is doing relatively well but needs to focus on stabilizing profits and expenditures. Vasily pushes for an acquisition anyway. The reason for this acquisition is:
Agency Theory
Views the firm as a connection of legal contracts
Strategic Alliances
Voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services
A relational compatibility
What allows firms to manage both strategic alliances and mergers and acquisitions?
-Post-Formation Alliance Management -Partner Selection and Alliance Formation -Alliance Design and Governance
What are the three phases of alliance management?
Has the potential to affect a firm's competitive advantage
An alliance qualifies as strategic only if it:
Market for Corporate Control
An extern governance mechanism that makes a poorly managed company vulnerable to takeover by outside investors
Stock Options
An incentive mechanism to align the interests of shareholders and managers by giving the recipient the right to buy a company's stock at a predetermined price sometime in the future
Equity Alliances
At least one partner takes partial ownership in the other partner
Investments
Because equity alliances often require larger _________, they are less common than non-equity alliances
Flexible and easy to terminate
Because non-equity alliances have a contractual nature, they are:
Real-Options Perspective
Breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time
Administrative and Political Distance
Captured in factors such as the absence or presence of shared monetary or political associations, political hostilities, and weak or strong legal and financial institutions
Partner Compatibility
Captures aspects of cultural fit between different firms
Formalization
Captures the extent to which employee behavior is steered by explicit and codified rules and procedures
Corporate Venture Capital (CVC)
Equity investments by established firms in entrepreneurial ventures
Threat of Entry
Horizontal integration can reduce:
Not expand internationally
If the economic value creation of international expansion is negative, a firm should ___________.
Flat; Wide
If there are few levels of hierarchy, it has a ____ structure and a ____ span of control
Masculine
In _______ societies, competitiveness, assertiveness, and the exercise of power are considered ideal
-Alliances -Acquisitions
In addition internal organic growth, firms have two critical strategic options to execute corporate strategy:
Take a wait-and-see approach
In many fast-moving markets, strategic alliances allow firms to ________ to hedge against uncertainty
Global Strategy
MNEs need an effective ______________ that enables them to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world
Adverse Selection
Occurs when information asymmetry increases the likelihood of selecting inferior alternatives
Unicorns
Private start-up companies valued at a billion dollars or more are called __________, because at one time they seemed as rare as the creature
Exporting
Producing goods in one country to sell in another; One of the oldest forms of internationalization
Shared Value Creation Framework
Proposes that managers maintain a dual focus on shareholder value creation and value creation for society
Build-Borrow-or-Buy Framework
Provides a conceptual model that aids firms in deciding whether to pursue internal development, enter a contractual arrangement or strategic alliance, or acquire new resources, capabilities, and competencies
Public Stock Company
Provides goods and services as well as employment, pays taxes, and increases the standard of living
-Gain access to new markets or distribution channels -Gain access to new capabilities and competencies -Preempt rivals
Reasons firms choose to acquire:
Centralization
Refers to the degree to which decision making is concentrated at the top of the organization
Boundaryless
The organizational structure at Gore, in which everyone is encouraged to speak to anyone they wish to within the organization, is called an _______ organizational form
Exploitation
The process of applying current knowledge to enhance firm performance in the short term
Organizational Design
The process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization
Horizontal Inegration
The process of merging with a competitor at the same stage of the industry value chain
Exploration
The process of searching for new knowledge that may enhance a firm's future performance
-Private Offices -Dress Code -Formal Vocabulary
Three examples of artifacts:
-The sale of teriyaki burgers in Japan -The sale of toads for preparation in China -The sale of metal chopsticks in South Korea
Three examples of local responsiveness for a US company doing business internationally:
-Political Hostilities -Shared Monetary Associations -The Strength of Financial Institutions
Three factors help define administrative and political distance:
-Government Corruption -MNE's Search for Low-Cost Labor -Failure to Enforce Safety Standards
Three factors which often combine to lead to tragic outcomes for domestic workers of MNEs:
-Gain access to a larger market -Gain access to low-cost input factors -Develop new competencies
Three main reasons that firms expand abroad:
-Supply Agreements -Distribution Agreements -Licensing Agreements
Three most frequent forms of non-equity alliances:
The use of strategic alliances
What does the term "borrow" refer to in the build-borrow-or-buy framework?
-Establish Knowledge-Sharing Routines -Make Relation-Specific Investments -Build Inter-Firm Trust
What three things should partners do in order to make a strategic alliance work?
Strategy Follows Structure
When "__________", managers limit themselves to strategies that maintain the status quo
CAGE Distance Framework
A decision framework based on the relative distance between home and a foreign target country along four dimensions
Critical Complementary Assets
A firm has a core competency in R&D but little else, so it enters into a strategic alliance with a larger firm to gain distribution channels and marketing expertise. In this case, distribution channels and marketing expertise would be examples of:
It is important for the firm to be extremely close to the resource partner in order to understand underlying information
A firm should only consider using mergers and acquisitions when:
Multidivisional; Decentralized
A firm using a multidomestic strategy is likely to have a ______________ structure with the multiple divisions representing different geographic areas and ____________ decision making
Alliance Management Capability
A firm's ability to effectively manage three alliance-related tasks concurrently, often across a portfolio of many different alliances
Absorptive Capacity
A firm's ability to understand external technology developments, evaluate them, and integrate them into current products or create new ideas
Inertia
A firm's resistance to changes in the status quo, which can set the stage for the firm's subsequent failure
-Low Relevancy -Low Tradability -High Need for Closeness
A firm's strategic leaders should only consider mergers and acquisitions if the following three conditions are met:
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 ideas and innovation from external sources
Narrow; Small
A functional structure is recommended when a firm has a fairly ______ focus in terms of product or service offerings combined with a _______ geographic footprint
World Trade Organization (WTO)
A global organization overseeing and administering the rules of trade between nations
Cost-Leadership
A global-standardization strategy tends to follow a ___________ strategy
Fiduciary Responsibility
A legal duty to act solely in another party's interests
Founder Imprinting
A process by which the founder defines and shapes an organization's culture, which can persist for decades after his or her departure
Globalization
A process of closer integration and exchange between different countries and people worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transport costs
Alliance Champion
A senior, corporate-level executive responsible for high-level support and oversight
Leveraged Buyout (LBO)
A single investor or group of investors buys, with the help of borrowed money, the outstanding shares of a publicly traded company in order to take it private
Groupthink
A situation in which opinions coalesce around a leader without individuals critically evaluating or challenging that leader's opinions and assumptions
CEO/Chairperson Duality
A situation where the CEO of a publicly traded company is also the chairperson of the board of directors
Joint Ventures
A standalone organization created and jointly owned by two or more parent companies; The least common type of strategic alliances
Polycentric Innovation Strategy
A strategy in which MNEs draw on multiple, equally important innovation hubs throughout the world characteristic
International Strategy
A strategy in which a company sells the same products or services in both domestic and foreign markets
Multidomestic Strategy
A strategy pursued by MNEs that attempts to maximize local responsiveness, with the intent that local consumers will perceive them to be domestic companies
Shareholder Capitalism Perspective
According to this, shareholders--the providers of the necessary risk capital and the legal owners of public companies--have the most legitimate claim on profits
Large; Strong
An international strategy is often used successfully in MNEs with relatively __________ domestic markets and with __________ reputations and brand names
Simple Structure
An organizational structure in which the founders tend to make all the important strategic decisions as well as run the day-to-day operations
-Slow Response Time -Reduced Customer Satisfaction
Centralization often correlates with two things:
Mechanistic Organizations
Characterized by a high degree of specialization and formalization and by a tall hierarchy that relies on centralized decision making
Greenfield Operations
Companies build new, fully owned plants and facilities from scratch
Economic Arbitrage
Companies from wealthy countries trade with companies from poor companies to benefit from ___________
Increasing Their Economic Value Creation
Companies seek to access international markets as a means of:
Economies of Scale and Economies of Scope
Companies that base their competitive advantage on ______________ and ________________ have an incentive to gain access to larger markets because this can reinforce the basis of their competitive advantage
Corporate Governance
Concerns the mechanisms to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally
Partner Commitment
Concerns the willingness to make available necessary resources and to accept short-term sacrifices to ensure long-term rewards
Liability of Foreignness
Consists of the additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances
Norms
Define appropriate employee attitudes and behaviors
Value
Define what is considered important
Factor Conditions
Describe a country's endowments in terms of natural, human, and other resources
Ambidexterity
Describes a firm's ability to address trade-offs not only at one point but also over time
Moral Hazard
Describes a situation in which information asymmetry increases the incentive of one party to take undue risks or shirk other responsibilities because the costs accrue to the other party
Organizational Culture
Describes the collectively shared values and norms of an organization's members
Specialization
Describes the degree to which a task is divided into separate jobs
Merger
Describes the joining of two independent companies to form a combined entity; Tend to be friendly
Hierarchy
Determines the formal, position-based reporting lines and thus stipulates who reports to whom
Matrix
Disadvantages of the _______ structure include organizational complexity, increased administrative costs, slow decision making, and difficulty in implementation
Strong Culture
Emerges when the company's core values are widely shared among the firm's employees and when the norms have been internalized
Positive Culture
Employees are motivated by ______________ because it appeals to their higher ideals
Ambidextrous Organization
Enables managers to balance and harness different activities in trade-off situations
Tacit Knowledge
Equity alliances allow for the sharing of ____________, which is knowledge that cannot be codified
Porter's Diamond of National Competitive Advantage
Explains why some nations outperform others in specific industries
-Limited Liability for Investors -Transferability of Investor Ownership -Legal Personality -Separation of Legal Ownership and Management Control
Four characteristics that make the public stock company an attractive corporate form:
-Can entail long negotiations and significant investments -If the alliance doesn't work out, undoing it can take time and involve considerable cost -Knowledge shared with the new partner could be misappropriated by opportunistic behavior -Any rewards from the collaboration must be shared between the partners
Four disadvantages of joint ventures:
-Single Business -Dominant Business -Related Diversification -Unrelated Diversification
Four types of corporate diversification:
Make Acquisitions
Gaining new capabilities or competencies is one of the main reasons that companies ____________
Inside Directors
Generally part of the company's senior management team, such as the CFO and COO
-Capabilities -Costs -PESTEL Factors
Global-collaboration networks freely locate business functions anywhere in the world based on an optimal mix of three factors:
-Reduce the cost of doing business around the world -Source supplies at lower costs -Learn new competencies -Further differentiate products
Globalization allows firms to do four things:
Peer Control
Has a particularly high influence on employee conformity and performance when the compensation of each member of a group depends in part on the group's overall productivity
Alliance Leader
Has the technical expertise and knowledge needed for the specific technical area and is responsible for the day-to-day management of the alliance
Learning-by-Doing Approach
Has value for small ventures in which a few key people coordinate most of the firms' activities
Organic Organizations
Have a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making
-It reduces rivalry among existing firms -It reduces the threat of entry
How does horizontal integration affect Porter's Five Forces for the surviving firms? (2)
Tall; Narrow
If many levels of hierarchy exist between the frontline employee and the CEO, it has a ____ structure and a _______ span of control
In more than one country
In order for a company to be considered a multinational enterprise, it must operate __________
Structure; Strategy
In order for firms to achieve superior performance, _________ must follow ___________
Resources
In the build-borrow-or-buy framework, this term is defined broadly to include capabilities and competencies
Artifacts
Include elements such as the design and layout of physical space, symbols, vocabulary, what stories are told, what events are celebrated and highlighted, and how they are celebrated
Integration-Responsiveness Framework
Juxtaposes the pressures an MNE faces for cost reductions and local responsiveness to derive four different strategies to gain and sustain competitive advantage when competing globally
Explicit Knowledge
Knowledge that can be codified; Concerns the notion of knowing about a certain process or product
Socialization
The process whereby employees internalize an organization's values and norms through immersion in its day-to-day operations
-Structure -Culture -Control
Three key components of organizational design:
-Reduction in Competitive Intensity -Lower Costs -Increased Differentiation
Three main benefits of horizontal integration:
-Build -Borrow -Buy
Three options to close the strategic resource gap:
-Principal-Agent Problems -Desire to Overcome Competitive Disadvantage -Superior Acquisition and Integration Capability
Three reasons there are so many mergers:
-Swifter Decision Making -Greater Employee Creativity -Greater Employee Satisfaction
Three things are frequently associated with organic organizations:
-Lower Costs -Reduction in Competitive Intensity
What are two sources of value creation in a horizontal integration strategy?
Internal Development
What does the term "build" refer to in the build-borrow-or-buy framework?
Acquiring a Firm
What does the term "buy" refer to in the build-borrow-or-buy framework?
At least one person in the alliance considers the venture to be a failure
What is a major problem for between 30% and 70% of all strategic alliances?
To enable managers to translate their chosen strategy into a realized one
What is the goal of organizational design?
Ineffective Strategy Implementation
What is the main reason why board of directors fire CEOs?
Lower Costs
When Pfizer and Wyeth merged, they reduced the size of their combined sales force while also increasing the number of drugs they could promote. This is an example of which source of value creation for M&A's?
The liability of foreignness
When a company has difficulty coordinating operations across geographic distance and between distinct culture environments, it experiences:
Outperform global competition that lacks such intense domestic competition
When companies face a highly competitive environment at home, they are more likely to ____________
Many
When the span of control within an organization is wide, one manager supervises _______ employees
VRIO Framework
Which framework can companies use to assess whether their internal resources are superior to those of competitors in the targeted area?
-Licensing -Distribution -Supply
Which three forms of agreement do non-equity alliances typically take?
Organization Complexities
Why are transnational strategies difficult to implement?
To hedge against uncertainty
Why do incumbent companies enter into strategic alliances with startups?
Closing the gap is likely to lead to a competitive advantage
Why is the resource gap strategic?
