Strategic Management Test 3

The Market for Corporate Control

External governance mechanism - Hostile takeover - Corporate raiders and hedge funds

Greenfield Investment

Form of foreign direct investment in which a firm starts a new foreign business from the ground up

Traditional View: (Friedman)- Shareholder Capitalism

Shareholders- the providers of the necessary risk capital and the legal owners of public companies- have the most legitimate claim on profits

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

Core Rigidity

A former core competency that turned into a liability because the firm failed to hone, refine, and upgrade the competency as the environment changed.

Founder Imprinting

A process by which the founder defines and shapes an organization's culture, which can persist for decades after his/her departure

Groupthink

A situation in which opinions coalesce around a leader without individuals critically evaluating and challenging that leader's opinions and assumptions.

Corporate governance

A system of mechanisms to direct and control a firm in order to ensure that it pursues its strategic goals successfully and legally. Owners control its company's affairs - Address the Principal-Agent Problem

Geographic distance

Actual distance. Costs rise as geographic distance increases

Liability of foreignness

Additional cost of doing business in an unfamiliar cultural and economic environment and of coordinating across geographic distances

Location Economics

Benefits from locating value chain activities in the world's optimal geographies for a specific activity, wherever that may be.

Business ethics

Agreed-upon explicit code of conduct in business, based on societal norms

Hierarchy

An element of organizational structure that determines the formal, position-based reporting lines and thus stipulates whom reports to whom

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.

Norms

Appropriate employee behaviors and attitudes

Globalization hypothesis

Assumption that consumer needs and preferences throughout the world are converting and thus becoming increasingly homogenous

Administrative and political distance

Captured in factors such as the absence or presence of shared monetary or political associations, political hostilities, and weak legal and financial institutions

Board of directors (inside/outside)

Centerpiece of corporate governance, composed of inside and outside directors who are elected by the shareholders

Formalization

Codified rules and formal procedures; detailed written rules and policies

Organizational culture

Collectively Shared values and norms

Culture

Collectively shared values and norms of an organization's members; a key building block of organizational design

Transnational Strategy

Combination of Localization strategy (High responsiveness) with global standardization strategy (lowest cost position attainable); think globally but act locally. Tries to capitalize in both local responsiveness and global efficiency. - High pressure for local responsiveness, High pressure for cost reduction

Cultural distance

Cultural gap between an internationally expanding firm's home country and its targeted host country

CAGE distance framework

Decision framework based on the relative distance between home and a foreign target country along 4 dimensions:

Specialization

Degree to which a task is divided; (i.e. division of labor)

Centralization

Degree to which decision-making is concentrated at the top of the organization; centralized decision-making has slow response time and reduced customer satisfaction

Structure

Determines how the work efforts of individuals and teams are orchestrated and how resources are distributed

Global Standardization Strategy

Economies of scale and location economies; Pursuing a global division of labor based on best of class capabilities reside at the lower cost (ex. Selling things in the U.S. and producing them in China) - Low pressure for local responsiveness, High pressure for cost reduction

Artifacts

Expression of culture in items such as physical designs, stories, and celebrations

Inside

Generally part of the company's senior management team. Appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance

Death-of-Distance

Geographic location alone should not lead to firm-level competitive advantage because firms are now able to source inputs globally.

Mechanistic organization

High degree of specialization and formalization - Tall hierarchy - Centralized decision-making

Control

Internal governance mechanisms to align the incentives of principals (shareholders) and agents (employees)

Strategic control and reward systems

Internal-governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees)

Socialization

Internalize organization's values and norms through interactions

Organizational structure

Key building block of organizational design that determines how the work efforts of individuals and teams are orchestrated and how resources are distributed; Relatively stable arrangements of responsibilities, tasks, and people within an organization

International Strategy

Leveraging home-based core competencies; Selling the same product or services in both domestic and foreign markets. Process by which a firm approaches its cross boarder activities; - Low pressure for local responsiveness, Low pressure for cost reduction

Organic organization

Low degree of specialization and formalization, a flat organizational structure, and decentralized decision-making. - Flat Structure - Decentralized decision-making - Uses virtual teams due to information technologies

Multidomestic Strategy

Maximize local responsiveness; Consumers will perceive them to be domestic companies - High pressure for local responsiveness, Low pressure for cost reduction

Input controls

Mechanisms in a strategic control-and-reward system that seek to define and direct employee behavior through a set of explicit, codified rules and standard operation procedures that are considered prior to the value-creating activities. - Budgets, rules and standard operating procedures

Output controls

Mechanisms in a strategic control-and-reward system that seeks to guide employee behavior by defining expected results (outputs), but leave the means to those results open to individual employees, groups, or SBU's.

Adverse selection

Misrepresentation of a job; beyond his/her ability to do things. Situation that occurs when information asymmetry increases the likelihood of selecting inferior alternatives

Shared value creation framework

Model proposing that managers have a dual focus on shareholder value creation and value creation for society. - Guidance to managers on competitive advantage - Economic Imperative - Corporate social responsibility

Outside

Not an employee of the firm (Senior executives from other firms or full-time professionals). Given their independence, they are more likely to watch out for shareholders interests.

Shared Value View: (Porter)- Corporate Social Responsibility (CSR)

Obligations extend beyond the economic responsibility and include legal, ethical, and philanthropic societal expectations

Global strategy

Part of a firm's corporate strategy to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world

Agent

Party, such as a manager, who acts on behalf of another party

Decentralization

Planned emergence

Globalization

Process of closer integration and exchange between different countries and people worldwide Made Possible by: - Falling trade and investment barriers - Advanced telecommunications - Reducing transportation costs

Organizational Design

Process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization - Goal is to translate strategies into realized ones; Structure, processes, and procedures

Elements of the Triple Bottom Line

Profits, people, and planet

Stakeholder impact analysis

Provides a decision tool with which managers can recognize, prioritize, and address the needs of different stakeholders to gain a competitive advantage.

Organizational Inertia

Resistance to change

Executive Compensation

Salary, bonus, stock options

Leveraged Buyout

Single investor or group of investors buys, with the help of borrowed money (leveraged against the company's assets), the outstanding shares of a publicly traded company in order to take it private; the private owners often will restructure the company and eventually take it public again.

Moral hazard

Situation in which information asymmetry increases the incentive of one party to take undue risks or evade other responsibilities because the cost incur to the other party. Difficult to ascertain whether the agent gives his/her best.

Integration-responsiveness framework

Strategy framework that compares the pressure an MNE faces for cost reductions and local responsiveness to derive four different strategies to GAIN and SUSTAIN competitive advantage when competing globally

Simple structure

Structure in which the founders tend to make ALL the important decisions as well as run the day-to-day operations

Matrix structure

Structure that combines the Functional structure with the M-Form. Specialists from functional departments are assigned to work for one or more units. (Transnational Global Strategy)

Multidivisional structure (M-form)

Structure that consists of several distinct SBU's, each with its own Profit and Loss responsibility (Multidomestic and Global Standardization)

Functional structure

Structure that groups employees into distinct functional areas based on domain expertise (International Global Strategy). Form of organization revolving around specific value-chain activities

Local responsiveness

Tailor product and service offerings to fit local consumer preferences and host-country requirements; generally entails higher costs

Governance mechanisms

Techniques that a firm can use in order to be as productive as possible

National Culture

The collective mental and emotional "programming of the mind" that differentiates human groups

Span of control

The number of employees who directly report to a manager

Strategy implementation

The part of the strategic management process that concerns the organization, coordination, and integration of how work gets done. It's key to gaining and sustaining competitive advantage. Requires managers to design/shape structure, culture, and control mechanism

Agency theory

Views the firm as a nexus of legal contracts - Relationships among shareholders, managers, and hierarchies - Front line employees have an advantage over management - Firms need to design work tasks

Economic distance

Wealth per capita income of consumers

Values

What is considered important

National competitive advantage

World leadership in specific industries