CH. 7 QUIZ

Is vertical growth better than horizontal growth?

-Growth into related areas is generally more successful than unrelated areas

Is concentration better than diversification?

-Research suggests diversification appear stronger than those with a pure concentration strategy -Studies also show that with regard to diversification relatedness and performance follows an inverted U-shaped curve

Merger

-a transaction involving two or more corporations in which both companies exchange stock in order to create one new corporation

Vertical Growth

-achieved by taking over a function previously provided by a supplier or distributor -Results in vertical integration (backward or forward) ▪Logical when company has strong competitive position

Pause/Proceed with Caution Strategy

-an opportunity to rest before continuing a growth or retrenchment strategy

Corporate Strategy

-choice of direction for the firm and the management of its business or product portfolio and concerns

Captive Company Strategy

-company gives up independence in exchange for security

Bankruptcy

-company gives up management of the firm to the courts in return for some settlement of the corporation's obligations

Horizontal Strategy

-cuts across business unit boundaries to build synergy across business units and to improve competitive position in one of more business units

Profit Strategy

-decision to do nothing new in a worsening situation but instead to act as though the company's problems are only temporary

No-Change Strategy

-decision to do nothing new—a choice to continue current operations and policies for the foreseeable future.

Conglomerate (unrelated) Diversification

-diversifying into an industry unrelated to its current one -management realizes that the current industry is unattractive -firm lacks outstanding abilities or skills that it could easily transfer to related products or services in other industries

Contraction

-effort to quickly "stop the bleeding" across the board but in size and costs

Turnaround Strategy

-emphasizes the improvement of operational efficiency when the corporation's problems are pervasive but not critical

Horizontal Growth

-expansion of operations into other geographic locations and/or increasing the range of products and services offered to current markets

Directional Strategy

-firm's overall orientation toward growth, stability, or retrenchment

Concentric (related) Diversification

-growth into a related industry when a firm has a strong competitive position, but industry attractiveness is low

Portfolio Analysis

-industries or markets the firm competes through its products and business unites

Multipoint Competition

-large multi-business corporations compete against other large multi-business firms in a number of markets

Sell-out Strategy

-management can still obtain a good price for its shareholders and the employees can keep their jobs by selling the company to another firm

Liquidation

-management terminates the firm

Portfolio Analysis (definition)

-management views its product lines and business units as a series of investments from which it expects a profitable return

Parenting Strategy

-manner in which management coordinates activities, transfers resources, and cultivates capabilities among product lines and business units

Stars

-market leaders typically at or nearing the peak of their product life cycle; generate enough cash to maintain high share of the market and usually contribute to the company's profits

Question Marks

-new products with potential for success but need a lot of cash for development

Cash Cows

-products that bring in more money than needed to maintain their market share

Dogs

-products with low market share and do not have the potential to bring in much cash

Divestment

-sale of a division with low growth potential

Consolidation

-stabilization of the new leaner corporation

Horizontal Integration

-the degree to which a firm operates in multiple geographic locations at the same point in an industry's value chain

Retrenchment Strategies

-used when the firm has a weak competitive position in some or all of its product lines from poor performance

Corporate Parenting

-views a corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units •Generates corporate strategy by focusing on the core competencies of the parent corporation and the value created from the relationship between the parent and its businesses.

Tasks Necessary for Managing a Strategic Alliance Portfolio:

1.Developing and implementing a portfolio strategy for each business unit and a corporate policy for managing all the alliances of the entire company. 2.Monitoring the alliance portfolio in terms of implementing business unit strategies and corporate strategy and policies. 3.Coordinating the portfolio to obtain synergies and avoid conflicts among alliances. 4.Establishing an alliance management system to support other tasks of multi-alliance management.

Developing a Corporate Parenting Strategy:

1.Examine each business unit in terms of its strategic factors. 2.Examine each business unit in terms of areas in which performance can be improved. 3.Analyze how well the parent corporation fits with the business unit.

Taper Integration (concurrent sourcing)

a firm internally produces less than half of its own requirements and buys the rest from outside suppliers (backward taper integration)

Quasi-integration

a company does not make any of its key supplies but purchases most of its requirements from outside suppliers that are under its partial control

Full Integration

firm internally makes 100% of its key supplies and completely controls its distributors

Corporate Directional Strategies

growth, stability, retrenchment

Long-term Contracts

may not be exclusive and not technically vertical integration

Transaction Cost Economics

proposes that vertical integration is more efficient than contracting for goods and services in the marketplace when the transaction costs of buying goods on the open market become too great. Options include full/taper/quasi integration

Aquisition

purchase of another company •Attractive for 2 reasons: -Growth to due market demand may mask flaws in the company Offers opportunities for advancement

Limitiations of Portfolio Analysis:

•Defining product/market segments is difficult. •Suggest the use of standard strategies that can miss opportunities or be impractical. •Provides illusion of scientific rigor. •Value-laden terms such as cash cow and dog can lead to self-fulfilling prophecies •No clear what makes an industry attractive or where a product is in its life cycle. •Naively following prescriptions of model may reduce corporate profits if used inappropriately.

Advantages of Portfolio Analysis:

•Encourages top management to evaluate each of the corporation's businesses individually and to set objectives and allocate resources for each •Stimulates the use of externally oriented data to supplement management's judgment. •Raises the issue of cash flow availability to use in expansion and growth. •Graphic depiction facilitates communication.

BCG Growth-Share Matrix Limitations:

•Use of highs and lows to form categories is too simplistic. •Link between market share and profitability is questionable. •Growth rate is only one aspect of industry attractiveness. •Product lines or business units are considered only in relation to one competitor. •Market share is only one aspect of overall competitive position.

Growth Strategies

•expand the company's activities​

Stability Strategies

•make no change to the company's current activities

Retrenchment Strategy

•reduce the company's level of activities