BA 453 Exam 2

Problems with Blue Ocean

"Stuck in the Middle" Fail to choose and implement a coherent strategy consistent with resources, capabilities, competencies No competitive advantage, low profits Environment changed-did not respond Wrong choices Competitors entered Red oceans the rivalry among existing firms is cut-throat b/c the market space is crowded and competition is a zero-sum game. Product become commodities, and competition is focused mainly on price. Any market share gain comes at the expense of other competitors in the same industry, turning the oceans bloody red.

Resource Immobility

1 of 2 critical assumptions behind the resource-based view. Assumption in the resource-based view that a firm has resources that tend to be "sticky" and that do not move easily from firm to firm. The resource differences that exist between firms are difficult to replicate and, therefore can last for a long time. EX: South West enjoyed sustained competitive advantage. Delta tried to imitate and was unsuccessful

Resource Heterogeneity

1 of 2 critical assumptions behind the resource-based view. bundles of resources, capabilities, and competencies differ across firms. EX: South West vs Alaska; both compete in low-cost, point-to-point airlines, but use different resource bundles. SWA offers different human resources so employee productivity is higher and airplane turnaround is faster.

Conditions make a firm able to sustain its competitive advantage

1) Better expectations of future resource value: buy something cheap now and in the future it is worth more than you got it for 2) Path dependence: situation in which the options one faces in the current situation are limited by decisions made in the past. 3) Causal ambiguity: a situation in which the cause and effect of a phenomenon are not readily apparent. 4) Social complexity: a situation in which different social and business systems interact with one another. 5) Intellectual property protection: a critical intangible resource that can provide a strong isolating mechanism, and thus help to sustain a competitive advantage.

Four Options to Formulate Corporate Strategy via Core Competencies

1. Leverage existing core competencies to improve current market position. 2. Build new core competencies to protect and extend current market position. 3. Redeploy and recombine existing core competencies to compete in markets of the future. 4. Build new core competencies to create and compete in markets of the future. High and low levels of diversification are generally associated with lower overall performance, while moderate levels of diversification are associated with higher firm performance. This implies that companies that focus on a single business, as well as companies that pursue unrelated diversification, often fail to achieve additional value creation. Firms that compete in single markets could potentially benefit from economies of scope by leveraging their core competencies into adjacent markets.

The four main types of business diversification

1.Single business: derives more than 95 percent of its revenues from one business. The remainder of less than 5 percent of revenue is not (yet) significant to the success of the firm. 2.Dominant business: derives between 70 and 95 percent of its revenues from a single business, but it pursues at least one other business activity that accounts for the remainder of revenue. 3.Related diversification: when it derives less than 70 percent of its revenues from a single business activity and obtains revenues from other lines of business linked to the primary business activity. The rationale behind related diversification is to benefit from economies of scale and scope: These multi-business firms can pool and share resources as well as leverage competencies across different business lines. 4.Unrelated diversification: the conglomerate- not similar lines of business. Financially managed and motivated.

conglomerate

A company that combines two or more strategic business units under one overarching corporation; follows an unrelated diversification strategy.

Alliance Management Capability

A firm's ability to effectively manage three alliance-related tasks concurrently: (1) partner selection and alliance formation(expected benefits exceed costs, partner compatibility and commitment), (2) alliance design and governance(choose a governance structure, non-equity, joint venture, equity alliance), and (3) post-formation alliance management (make relation specific investments, build inter firm trust).

Licensing

A form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property such as a patent.

Franchising

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

Transaction Cost Economics

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. Insights gained from transaction cost economics help managers decide what activities to do in-house versus what services and products to obtain from the external market. The key insight of transaction cost economics is that different institutional arrangements—markets versus firms—have different costs attached.

strategic alliance

A voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services. As the speed of technological change and innovation has increased, firms have responded by entering more alliances. Globalization has also contributed to an increase in cross- border strategic alliances. Motivation for alliances: pool resources= scale economies, hedge risks, diversify, expand into new markets, shape industry competition, gain complementary assets, technological exchange. Alliances are a key way that firms can modify their business portfolio over the short term. Contracts, Alliances, and Acquisitions are how firms modify their portfolio over the longer term.

Transaction Costs

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

Dynamic Capabilities

Allow a firm to create, deploy, modify, reconfigure, or upgrade its resource base to gain and sustain competitive advantage in a constantly changing environment. The essence of this perspective is that competitive advantage is not derived from static resource or market advantages, but from a dynamic reconfiguration of a firm's resource base. An intangible asset.

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 involve moving ownership of activities upstream to the originating (inputs) point of the value chain. Backward vertical integration is often undertaken to overcome the threat of opportunism and to secure key raw materials. Opportunism: self-interest seeking slyly.

Competitive Scope/Focus

Concentrate on a specific market and use either a cost leadership or differentiation strategy • Geography, customer type, etc. • Use either cost leadership (low scale economies) or differentiation (exploit distinct knowledge, specialization) • Innovation, speed • Implementation: • Find a group of underserved customers • Discover opportunities to do a narrow task well and cheaply • Fill gaps left by established firms

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).

Business Strategy

Concerns the question of how to compete in a single product market.

tapered vertical integration

Contractual agreement between franchisor (owns the brand) and franchisee (independent business person or firm) to do business under trademarks for a given period of time. Franchisor gets up front fee, royalty (% of sales), advertising fee (% of sales) and gains local market knowledge. Franchisee gets use of trademarks, access to managerial expertise/systems, training, monitoring and (maybe) a lower risk way of starting a business. Combines local flexibility and global brands/systems

Drivers of Corporate Strategy Decisions

Core Competencies: Unique strength embedded within the firm. Ex. Google developing proprietary search algorithms. Economies of scale: Average per-unit cost decreases as its output increases. Economies of scope: Savings that come from producing more outputs or providing different services at less cost. Ex: Amazon range of products & services Transaction cost: The cost associated with economic exchange. "Make or buy"decision

internal transaction costs

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

Do mergers and acquisitions create competitive advantage?

Despite their popularity, the answer, surprisingly, is that in most cases they do not. Indeed, sometimes companies get involved in a bidding war for an acquisition; the winner may end up with the prize but may have overpaid for the acquisition—thus falling victim to the winner's curse.

strategy options

Have complementary assets, high imitation barriers, and few capable competitors- go it alone. Don't have complementary assets, high imitation barriers, moderate number of competitors- form alliance. Don't have complementary assets, low imitation barriers, and many competitors- license.

Value Curve

Horizontal connection of the points of each value on the strategy canvas that helps strategists diagnose and determine courses of action. Being operationally efficient is necessary but not sufficient; always need to be cognizant of costs and customers

Make or Buy

If Cost of in house is less than cost of market, then you should vertically integrate. In house advantages: command and control, coordination, transaction specific investments, community of knowledge. Cons: admin costs, low powered incentives, principal agent problem. Pros of Market: high powered incentives, flexibility. Cons of Market: search costs, opportunism, incomplete contracting, enforcement of contracts.

projections

Income Statements: Sales, Cost of goods sold, Operating(SG&A)expenses-often use standard %, but these could change depending upon plans. Depreciation-use schedules Balance Sheets: Could use percentage of sales to get new levels for assets and liabilities. Calculate equity by adding projected net income. Determine new level of total liabilities and equity = total assets. Get total liabilities, current liabilities, then use notes payable as the "plug" Cash Flow Statement: use figures from other two statements.

Minimum Efficient Scale (MES)

It is the output range needed to bring the cost per unit down as much as possible, allowing a firm to stake out the lowest-cost position achievable through economies of scale.

Value Innovation- Lower Costs

Makes competition irrelevant by providing a leap in value creation, thereby opening new and uncontested market spaces. Eliminate. Which of the factors that the industry takes for granted should be eliminated? (EX: IKEA eliminated several taken- for-granted competitive elements: salespeople, expensive but small retail outlets in prime urban locations and shopping malls, long wait after ordering furniture, after-sales service, and other factors.) Reduce. Which of the factors should be reduced well below the industry's standard? (EX: Because of its do-it-yourself business model from furniture selection, transporting it home, and assembly, IKEA drastically reduced the need for staff in its mega-stores.)

Ratio Analysis: Liquidity / Stability.

Measures the extent to which a company can quickly liquidate assets to cover short-term liabilities 1. Current Ratio: Current Assets / Current Liabilities 2. Working Capital: Current Assets - Current Liabilities. Measures overall financial stability of the firm 3. Debt to Equity: Debt / Equity

non equity alliances

Most common. Partnership based on contracts between firms. The most frequent forms of non-equity alliances are supply agreements, distribution agreements, and licensing agreements. Firms tend to share explicit knowledge—knowledge that can be codified. Patents, user manuals, fact sheets, and scientific publications are all ways to capture explicit knowledge, which concerns the notion of knowing about a certain process or product. Non-equity alliances are flexible and easy to initiate and terminate. However, because they can be temporary in nature, they also sometimes produce weak ties between the alliance partners, which can result in a lack of trust and commitment.

factors that influence where to invest

National institutions(formal institutions are the political and legal factors that can be analyzed and informal institutions are the social factors), national culture (Hofstede, the mental and emotional programming of the mind that differentiates human groups).

the balanced scorecard

Objectives, measure, target, initiatives. Financials, customers, internal processes, innovation/learning. Using it strategically: translating the vision, communicating and linking, business planning, feedback and learning.

equity alliances

Partnership in which at least one partner takes partial ownership in the other. Less common than contractual, non-equity alliances because they often require larger investments. Because they are based on partial ownership rather than contracts, equity alliances are used to signal stronger commitments. Allow for the sharing of tacit knowledge: cannot be codified; concerns knowing how to do a certain task and can be acquired only through active participation in that task. a partnership in which at least one partner takes partial ownership in the other partner.

Financial Statements

Preparation of historical financial statements: income statement, balance sheet, cash flows. Preparation of forecasts: income, expenses, expenditures Pro Forma Financial Statements: pro forma income statement, balance sheet and cash flows Ongoing analysis of financial results: ratio analysis(The most practical way to interpret or make sense of a firm's historical financial statements is through this), measuring results versus plans, measuring results versus industry norms.

why we see mergers

Principal-agent problems: Managers, as agents, are supposed to act in the best interest of the principals, the shareholders. However, managers may have incentives to grow their firms through acquisitions—not for anticipated shareholder value appreciation, but to build a larger empire, which is positively correlated with prestige, power, and pay. The desire to overcome competitive disadvantage: In some instances, mergers are not motivated by gaining competitive advantage, but by the attempt to overcome a competitive disadvantage. For example, to compete more successfully with Nike, adidas acquired Reebok. This acquisition allows the now-larger adidas group to benefit from economies of scale and scope that were unachievable when adidas and Reebok operated independently. The hope was that this would help in overcoming adidas' competitive disadvantage vis-a`-vis Nike. Superior acquisition and integration capability: Since it is valuable, rare, and difficult to imitate, a superior acquisition and integration capability, together with past experience, can lead to competitive advantage. Disney managed its new subsidiaries more like alliances rather than attempting full integration, which could have destroyed the unique value of the acquisitions. 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.

Differentiation

Product features, customer service, customization and complements. Pros: Insulate from rivalry, Consumers are less price sensitive, Can increase market share; create markets, Loyalty barriers develop, Advantageous if valuable resource is intangible. Cons: May be hard to sustain price premium - switching, Threat of products becoming commodities, Customer tastes can change.

Value Innovation- Increase Consumer benefit

Raise. Which of factors should be raised well above the industry's standard? (EX: IKEA raised several competitive elements: It offers tens of thousands of home furnishing items in each of its big-box stores versus a few hundred at best in traditional furniture stores; it also offers more than furniture, including a range of accessories such as place mats, laptop stands, and much more. IKEA also manufactures all its furniture at fully dedicated suppliers, thus tightly controlling the design, quality, functionality, and cost of each product.). Create. Which factors should be created that the industry has never offered? (EX: IKEA created a new way for people to shop for furniture.

Benefits of horizontal integration

Reduction in competitive intensity: Excess capacity is taken out of the market, and competition tends to decrease as a consequence of horizontal integration, assuming no new entrants. As a whole, the industry structure becomes more consolidated and potentially more profitable. Horizontal integration can favorably affect several of Porter's five forces for the surviving firms: strengthening bargaining power vis-a`-vis suppliers and buyers, reducing the threat of entry, and reducing rivalry among existing firms. Lower costs: Firms use horizontal integration to lower costs through economies of scale and to enhance their economic value creation. Increased differentiation: Horizontal integration through M&A can help firms strengthen their competitive positions by increasing the differentiation of their product and service offerings. Horizontal integration can do this by filling gaps in a firm's product offering, allowing the combined entity to offer a complete suite of products and services.

Resource Based View (RBV)

Resources: assets that a firm can draw on when formulating and implementing a strategy. Cash, buildings, machinery or intellectual property. Firm resources are distinctive and can be the basis for competitive advantage, especially if combined and leveraged. Capabilities: Companies structure, routines, and culture. Ability to deploy, leverage, integrate or manage resources - skills of the firm Activities: distinct and fine-grained business processes that enable firms to add incremental value by transforming inputs into goods/services

forecasts

Sales Forecast: projection of a firm's sales for a specified period (such as a year). Based on a good-faith estimate of prior sales and on industry averages or the experiences of similar firms (i.e. strategic group, direct rivals). Forecast of Costs of Sales and Other Items: Once a firm has completed its sales forecast, it must forecast its cost of sales (or COGS) and the other items on its income statement. The most common way to do this is to use the percentage-of-sales method, which is a method for expressing each expense item as a percentage of sales.

Information Asymmetry

Situation in which one party is more informed than another because of the possession of private information.

diversification discount

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

performance indicators

Solvency: The ability to meet debt obligations as they become due. Activity: Performance of specific elements of the company, e.g. inventory turnover, receivables management, days sales outstanding. Profitability: The ability to earn income. Market: Performance of company relative to industry in terms of price/earnings, shareholder value.

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.Over 80 percent of Fortune 1000 CEOs indicated in a recent survey that more than one-quarter of their firm's revenues were derived from strategic alliances.

why firms enter strategic alliances

Strengthen competitive position. Enter new markets. Hedge against uncertainty. 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. Access critical complementary assets. Learn new capabilities. Co-opetition: Cooperation by competitors to achieve a strategic objective. Learning Races: Situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which the firms learn may vary.

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. To gain and sustain competitive advantage, therefore, any corporate strategy must align with and strengthen a firm's business strategy, whether it is a differentiation, cost-leadership, or blue ocean strategy. Corporate strategy determines the boundaries of the firm along three dimensions: vertical integration (along the industry value chain), horizontal integration or diversification (of products and services), and geographic scope (regional, national, or global markets).

Resource Flows

The firm's level of investments to maintain or build a resource.

Vertical Integration

The firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs. Vertical integration allows firms to increase operational efficiencies through improved coordination and the fine-tuning of adjacent value chain activities. Pros: Lowering costs, Improving quality, Facilitating scheduling and planning, Facilitating investments in specialized assets, Securing critical supplies and distribution channels. when firms are more efficient in organizing economic activity than are markets, which rely on contracts among many independent actors. Risks: Increasing costs. Reducing quality. Reducing flexibility. Increasing the potential for legal repercussions.

Merger

The joining of two independent companies to form a combined entity.

Horizontal Integration

The process of merging with competitors, leading to industry consolidation. Should do this if the target firm is more valuable inside the acquiring firm than as a continued standalone company. This implies that the net value creation of a horizontal acquisition must be positive to aid in gaining and sustaining a competitive advantage. Pros: economies of scale, reduce duplication, bundle products, reduce industry rivalry, replicate a successful business model. Cons: coordination and cooperation between units can be hard, competition is intra firm instead of inter firm.

Acquisition

The purchase or takeover of one company by another; can be friendly or unfriendly.

diversification premium

The stock price of related-diversification firms is valued at greater than the sum of their individual business units.

why firms make acquisitions

To gain access to new markets and distribution channels. Firms may resort to acquisitions when they need to overcome entry barriers into markets they are currently not competing in or to access new distribution channels. To gain access to a new capability or competency. To preempt rivals. Sometimes firms may acquire promising startups not only to gain access to a new capability or competency, but also to preempt rivals from doing so.

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 three types: site specificity: assets required to be co-located, such as the equipment necessary for mining bauxite and aluminum smelting. physical- asset specificity: assets whose physical and engineering properties are designed to satisfy a particular customer, such as bottling machinery for Coca-Cola and PepsiCo. Since the bottles have different and often trademarked shapes, they require unique molds. Cans, in contrast, do not require physical-asset specificity because they are generic. human-asset specificity: investments made in human capital to acquire unique knowledge and skills, such as mastering the routines and procedures of a specific organization, which are not transferable to a different employer.

VRIO attributes

Valuable: it allows the firm to take advantage of an external opportunity and/or neutralize an external threat. Revenue rises if a firm can increase the perceived value of its product. Production costs fall if firm is able to put efficient manufacturing process in place and tighten supply chain management. Attractive features, Lower costs (& price) Higher profits. E.g. Honda - design & build engines Rare: only a few firms possess. EX: Toyota, lean manufacturing. Temporary competitive advantage. Costly to Imitate: firms that do not possess the resource are unable to develop or buy the resource at a comparable cost. EX: Apple. Not an example: Crocs. Organize: capture the value of the resource if it has an effective organizational structure, processes and systems in place to fully exploit the competitive potential. EX: Enterprise.

strategic alliances

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

short term contracts

When engaging in short-term contracting, a firm sends out requests for proposals (RFPs) to several companies, which initiates competitive bidding for contracts to be awarded with a short duration, generally less than one year. no incentive to make transaction-specific investments.

international strategy

a company sells the same products or services in both domestic and foreign markets. MNEs can leverage their home based core competencies in foreign markets. Good option when face low pressures for local responsiveness and cost reductions.

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.

global strategy

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

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.

economic value added

a residual income measure that subtracts the cost of capital from the operating profits generated in the business

focused cost-leadership strategy and focused differentiation strategy

are essentially the same as the broad generic strategies except that the competitive scope is narrower. Being stuck in the middle of different strategic positions is a recipe for inferior performance and competitive disadvantage.

globalization hypothesis

assumption that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogeneous. Based primarily on cost reduction. Do this by leveraging economies of scale and managing global supply chains to access the lowest-cost input factors.

death of distance hypothesis

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.

transnational strategy

attempt to combine the benefits of localization strategy(high local responsiveness) with those of global standardization strategy (lowest cost).

localization strategy

attempt to maximize local responsiveness, hoping that local consumers will perceive them to be domestic companies. Comes from high pressure for local responsiveness and low pressure for cost reduction.

global-standardization strategy

attempt to reap significant economies of scale and location economies by pursuing division of labor based on wherever best of class capabilities reside at the lowest cost. Comes from high pressure for cost reduction and low pressure for local responsiveness. Manufacturers of commodity products like computer hardware take on this.

Isolating Mechanisms

barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy.

location economies

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

Blue Ocean Strategy

business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs Blue oceans represent untapped market space, the creation of additional demand, and the resulting opportunities for highly profitable growth. Can go bad b/c company can end up stuck in the middle. EX: Trader Joe's has much lower costs than Whole Foods for the same market of patrons desiring high value and health-conscious foods, and the chain scores exceptionally well in customer service and other areas. Two pricing options: First, the firm can charge a higher price than the cost leader, reflecting its higher value creation and thus generating greater profit margins. Second, the firm can lower its price below that of the differentiator because of its lower-cost structure. If the firm offers lower prices than the differentiator, it can gain market share and make up the loss in margin through increased sales.

formalization

captures the extent to which employee behavior is controlled by explicit and codified rules and procedures. McDonald's for example, is formalized because they use detailed standard operating procedures throughout the world. A high degree of formalization can slow decision making, reduce creativity and innovation.

mechanistic organizations

characterized by a high degree of specialization and formalization and a tall hierarchy that relies on centralized decision making.

Strategic Trade Offs

choices between a cost or value position. Such choices are necessary b/c higher value creation tends to generate higher cost EX: JetBlue had competitive disadvantage b/c it was unable to effectively address the strategic trade-offs inherent in pursuing a cost-leadership and differentiation advantage. A business strategy is more likely to lead to a competitive advantage if a firm has a clear strategic profile, either as differentiator or a low-cost leader.

Cost leadership factors

cost of inputs economies of scale learning curve effects experience curve effects

specialization

describes the degree to which a task is divided into separate jobs- the division of labor. Bigger firms have a high degree of specialization compared to smaller firms.

Value Chain

describes the internal activities a firm engages in when transforming inputs into outputs. Each activity the firm performs along the value chain also adds incremental costs. Each activity the firm performs along the horizontal chain adds incremental value and incremental costs. Careful analysis allows managers to obtain a more detailed and fine-grained understanding of how the firm's economic value creation breaks down into a distinct set of activities that helps determine perceived value and the costs to create

Business Level Strategy

details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market. Increased (Value-Cost) yields stronger competitive advantage. Who - which customer segments will we serve? What customer needs, wishes, and desires will we satisfy? Why do we want to satisfy them? How will we satisfy our customers' needs?

hierarchy

determines the formal, position-based reporting lines and stipulates who reports who. It is a tall structure if there are many levels of hierarchy existing between the front-line employee and the CEO. If there are few levels of hierarchy then it has a flat structure.

how to globally expand

exporting, acquisition, strategic alliance, greenfield operation(building infrastructure from scratch).

Primary Activities

firm activities that add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along the internal value chain. Contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale. Specifically: inbound logistics, operations, outbound logistics, marketing and sales, and service

Support Activities

firm activities that add value indirectly, but are necessary. Activities of the value chain that either add value by themselves or add value through important relationships with both primary activities and other support activities. Specifically: R&D, Information systems, human resources, accounting and finance, firm infrastructure including processes, policies and procedures.

uncertainty avoidance

focuses on societal differences in tolerance toward ambiguity and uncertainty. Extent to which members of certain culture feel anxious when faced with uncertain or unknown situations. High uncertainty avoidance value clear rules and regulations and structure

masculinity-femininity

focuses on the relationship between genders and its relation to an individuals role at work and in society. In more "masculine" cultures, gender roles are clearly defined and differentiated. Values like competitiveness, assertiveness and power are seen more.

individualism

focuses on the relationship between individuals in a culture, particularly relationships between individuals and collective groups. In high individualistic cultures, individual freedom and achievements are highly valued. Low culture, the collective good is emphasized over the individual.

Advantages of going global

gain access to a larger market, gain access to low-cost input factors, develop new competencies(unique locational advantages).

Intangible Resources

have no physical attributes and are invisible. Competitive advantage more likely to come from this. EX: culture, knowledge, brand equity, reputation, intellectual property

Tangible Resources

have physical attributes and are visible EX: labor, capital, land, buildings, plant, equipment, supplies

power distance

how society in a certain culture deals with inequality among people in terms of physical and intellectual capabilities and how those methods translated into power distributions. High power distance tend to allow inequalities among people to translate into inequalities in opportunity, power, status and wealth.

strategic control and reward system

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

Foreign Direct Investment (FDI)

investments in value chain activities abroad.

joint venture

is a standalone organization created and jointly owned by two or more parent companies. Advantages include strong ties, trust, and commitment that can result between the partners. However, they can entail long negotiations and significant investments. If the alliance doesn't work out as expected, undoing the JV can take some time and involve considerable cost. A further risk is that knowledge shared with the new partner could be misappropriated by opportunistic behavior. Finally, any rewards from the collaboration must be shared between the partners. Least common. A stand-alone organization created and jointly owned by two or more parent companies.

Barriers to Imitation

isolating mechanisms b/c they prevent rivals from competing away the advantage a firm may enjoy

Disadvantages of going global

must overcome the liability of foreignness- additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances, greater cultural distance increases this. Economic development may increase the cost of doing business, challenge to protect IP.

organic organizations

organizational form characterized by a low degree of specialization and formalization, a flat organizational structure and decentralized decision making. Usually more innovative and entrepreneurial mindsets.

simple structure

organizational structure in which the founders tend to make all the important strategic decisions as well as run the day to day operations.

multidivisional structure

organizational structure that consists of several distinct strategic business units each with its own profit and loss responsibility. Related diversification: co-opetition, transfer core competencies, centralized decision making. Unrelated diversification: decentralized decision making, competing for resources.

functional structure

organizational structure that groups employees into distinct functional areas based on domain expertise. Allows for a higher degree of specialization and deeper expertise than a simple structure. Also allows for a greater division of labor which is linked to higher productivity.

Globalization

process of closer integration and exchange between countries and people worldwide, made possible by falling trade and investment barriers, tremendous advances in telecommunications, and drastic reductions in transportation costs. Combined, these factors reduce the costs of doing business around the world, opening the doors to a much larger market than any one home country.

Value Drivers

product features, customer service and complements. managers must remember that the different value drivers contribute to competitive advantage only if their increase in value creation (ΔV) exceeds the increase in costs (ΔC). The condition of ΔV > ΔC must be fulfilled if a differentiation strategy is to strengthen a firm's strategic position and thus enhance its competitive advantage.

centralization

refers to the degree to which decision making is concentrated at the top of the organization. Often correlates with slow response time and reduced customer satisfaction. In decentralized organizations, decisions are made and problems solved by empowered lower level employees who are closer to the issue.

input vs. output controls

rules and standard operating procedures, budgets, behavior guidelines. result oriented. When factors internal to the firm determine the relationship between effort and expected performance, outcome controls are effective.

Economies of Scope

savings that come from producing 2+ outputs at less cost than producing each output individually, despite using the same resources and technology

Differentiation Strategy

seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels, allowing the firm to charge higher prices to its customers. Functional. Organic organization, decentralized, flexibility and mutual adjustment, core competencies in R&D, innovation and marketing, product innovation, focus on economies of scope.

Cost leadership strategy

seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers. Input Factors: Access to lower-cost materials or labor. Economies of Scale: Increased output decreased cost per unit, Spread fixed costs. Learning Curves: "Learn by doing", Varies by industry. Experience Curves: Combine economy of scale & learning curves, Technology & process allows movement to steeper curve, Combination can leapfrog in competitive advantage. Pros: Convince competitors not to engage in price wars(game theory & oligopolies), Provides a barrier to entry. Cons: Requires large asset base and capital investment, Can create myopia to industry changes, Typically, only one player can do, May lose touch with customer needs. Functional. Mechanistic organization, centralized, command and control, core competencies in efficient manufacturing and logistics, process innovation to drive down cost, focus on economies of scale.

integration responsiveness framework

shows the opposing pressures for cost reductions and local responsiveness to derive four strategies to gain a competitive advantage. International strategy, localization strategy, global-standardization strategy and transnational strategy.

external transaction costs

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

Resource Stocks

the firm's current level of intangible resources

local responsiveness

the need to tailor product and service offerings to fit local consumer preferences.

Organizational Design

the process of creating, implementing, monitoring and modifying the structure, processes, and procedures of an organization. The key building blocks of an organizational structure are specialization, formalization, centralization and hierarchy.

Core Competencies

unique, deeply embedded, firm-specific strengths that allow companies to differentiate their products/services and thus create more value for customers than their rivals, or offer products/services of acceptable value at lower cost

Location quotient

valuable way of quantifying how a firm compares to an industry. (Xfirm/Yfirm)/(Xindustry/Yindustry). LQ > 1; leader of ratio LQ < 1; laggard of ratio

strategic outsourcing

which involves moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain. A firm that engages in this reduces its level of vertical integration.