BUSA 4900 Exam 2 Study Guide Questions

What is organizational inertia and how is it related to the failure of established firms?

is the organization's ability to make internal changes in the face of significant external changes. When inertia gradually occurs in the organization's actions, the organization automatically reacts based on past experiences and strongly resists against changing. -Organizational inertia can lead to the failure of established firms when a tightly coupled system of strategy and structure experiences internal or external shifts. Firm failure happens through a dynamic, four-step process

Industry Life Cycle Stages

--Introduction-The emphasis is on uniqueness and performance in this stage. The initial market size is small, growth is slow, and barriers to entry are high. -Core competency: research and development. •Necessary to create a product category that will attract customers. •Can be very capital-intensive (high costs). Barriers to entry are high. Strategic objective: market acceptance & future growth. --Growth-Demand increases rapidly. •First-time buyers rush to purchase. •Proof of concept has been demonstrated. Product / service standards emerge. •A common set of features and design choices. •Can emerge from competition or imposed by government or agencies. Product innovation: •New / recombined aspects of a product. Process innovation: •New ways to produce a product. -Core competencies of focus during this stage are in manufacturing and marketing. --Shakeout-The rate of growth declines. Firms begin to intensely compete. •Weaker firms forced out. •Industry consolidation. •Only the strongest competitors survive. Price is an important competitive weapon. -The winners in this increasingly competitive environment are often firms that stake out a strong position as cost leaders. Key success factors at this stage are the manufacturing and process engineering capabilities that can be used to drive costs down. The importance of process innovation further increases (albeit at diminishing marginal returns), while the importance of product innovation further declines. --Maturity-demand and supply are balanced Only a few large firms remain. •They enjoy economies of scale. •Process innovation has reached a maximum. Demand: replacement or repeat purchases. Market has reached maximum size. •Industry growth is zero or negative. -The domestic airline industry has been in the maturity stage for a long time. The large number of bankruptcies as well as the wave of mega-mergers, such as those of Delta and Northwest, United and Continental, and American Airlines and US Airways, are a consequence of low or zero growth in a mature market characterized by significant excess capacity. --Decline-supply overwhelms the demand -Demand falls rapidly. •Innovation efforts cease. •If a breakthrough emerges, it leads to a new industry or resets the life cycle. •Strong pressure on prices. -Four strategic options to pursue: 1.Exit: bankruptcy / liquidation. 2.Harvest: reduce further investments. 3.Maintain: support at a given level. 4.Consolidate: buy rivals. -Exit. Some firms are forced to exit the industry by bankruptcy or liquidation. -Harvest. In pursuing a harvest strategy, the firm reduces investments in product support and allocates only a minimum of human and other resources. -Maintain. Philip Morris, on the other hand, is following a maintain strategy with its Marlboro brand, continuing to support marketing efforts at a given level despite the fact that U.S. cigarette consumption has been declining. -Consolidate. Although market size shrinks in a declining industry, some firms may choose to consolidate the industry by buying rivals.

What are the four main benefits that may be attained by pursuing a horizontal integration strategy?

*********Relevancy: •How relevant are the firm's existing internal resources to solving the resource gap? -Internal resources are relevant if: •They are similar to those the firm needs to develop. •They are superior to those of competitors in the targeted area. -Are the firm's internal resources highly relevant? •If so, the firm should develop internally. **********Tradability: •How tradable are the targeted resources that may be available externally? -The firm creates a contract to: •Transfer ownership. •Allow use of the resource. Contracts support borrowing resources: •Ex. Licensing and franchising, or contracts. -If a resource is highly tradable, then the resource should be borrowed via a licensing agreement or other contractual agreement. If the resource in question is not easily tradable, then the firm needs to consider either a deeper strategic alliance through an equity alliance or a joint venture, or an outright acquisition. ********Closeness: •How close do you need to be to your external resource partner? -Closeness can be achieved through alliances •Equity alliances •Joint ventures •This enables resource borrowing -M&As are complex and costly •Used only when extreme closeness is needed -Mergers and acquisitions are the most costly, complex, and difficult to reverse strategic option. This implies that only if extreme closeness to the resource partner is necessary to understand and obtain its underlying knowledge should M&A be considered the buy option. Regardless, the firm should always first consider borrowing the necessary resources through integrated strategic alliances before looking at M&A. *********Integration: •How well can you integrate the targeted firm should you determine to acquire? -Conditions for integrating the target firm: •Low relevancy. •Low tradability. •High need for closeness. -Consider other options first. •Examples of post integration failures abound.

What are the various benefits and risks associated with vertical integration?

---Benefits: Lowering costs. Improving quality. Facilitating scheduling and planning. Facilitating investments in specialized assets: •Co-located assets, unique equipment, human capital. Securing critical supplies and distribution channels. Specialized assets have a high opportunity cost: They have significantly more value in their intended use than in their next-best use. They can come in several forms: ▪ 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. Examples include the bottling machinery for E&J Gallo. Given the many brands of wine offered by E&J Gallo, unique equipment, such as molds and a specific production process, is required to produce the different and trademarked bottle shapes. ▪ 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. Risks-Increasing costs. Reducing quality. Reducing flexibility. Increasing the potential for legal repercussions.

Four types of innovation

--Architectural-•Existing technology leveraged into a new market. •Known components, existing technology, used in a novel way. --Radical-•Novel methods & materials. •Entirely new knowledge base or recombination of existing knowledge. •Targets new markets and technology. --Incremental-•Builds on established knowledge. •Results from steady improvement. -Why Incumbent Firms Tend to Focus on Incremental Innovation: Economic Incentives: •They must defend their position. Organizational Inertia: •They have formalized processes and structures. Innovation Ecosystem: •They rely on certain suppliers, buyers, complementors. --Disruptive-•Leverages new technologies in existing markets. •New product / process meets existing customer needs. -Examples of Disruptive Innovation include digital photography (which has improved over time to result in higher definition pictures, and has largely replaced film photography) and laptops, (which disrupted desktops...although now tablets and large screen phones are disrupting laptops).

Difference between innovation and invention

--Innovation- is the practical implementation of ideas that result in the introduction of new goods or services or improvement in offering goods or services. *can create or destroy value *commercialization of an invention *examples-cable providers vs streaming services --Invention- is a process within an overall engineering and product development process. It may be an improvement upon a machine or product or a new process for creating an object or a result. *transformation of an idea into a product *the modification and recombination of products

how to respond to disruptive innovation

-Continue to innovate to stay ahead of the competition -Guard against disruptive innovation by protecting the low end of the market -Disrupt yourself rather than wait for others to disrupt you -Called reverse innovation: An innovation that was developed for emerging economies before being introduced in developed economies. Sometimes also called frugal innovation.

What are regional cluster's benefits (like knowledge spillover)?

-If an industry is located close to its suppliers, it will enjoy better communication and the exchange of cost-saving ideas and inventions with those suppliers. This is mainly a result of geographical proximity, which enables close working relationships. -Increased performance: Multiple machines provide greater processing power. Greater scalability: As your user base grows and report complexity increases, your resources can grow. Simplified management: Clustering simplifies the management of large or rapidly growing systems. -knowledge spillover: non-rival knowledge market costs incurred by a party not agreeing to assume the costs that has a spillover effect of stimulating technological improvements in a neighbor through one's own innovation.

What is a location economy and how is it related to the goal of developing new competencies? What risks may they face?

-In economics, the economics of location is the study of strategies used by firms in a monopolistically competitive environment in determining where to locate. -by gaining new competencies, businesses will have more access to location economies. -AstraZeneca, a Swiss-based pharmaceutical company, relocated its research facility to Cambridge, Massachusetts, to be part of the Boston biotech cluster, in hopes of developing new R&D competencies in biotechnology. Cisco invested more than $1.6 billion to create an Asian headquarters in Bangalore and support other locations in India, in order to be in the middle of India's top IT location. Unilever's new-concept center is located in downtown Shanghai, China, attracting hundreds of eager volunteers to test the firm's latest product innovations on-site, while Unilever researchers monitor consumer reactions. Many MNEs now are replacing the one-way innovation flow from Western economies to developing markets with a polycentric innovation strategy—a strategy in which MNEs now draw on multiple, equally important innovation hubs throughout the world characteristic of Globalization 3.0; see Exhibit 10.3.

Hofstede's dimensions of international culture and key characteristics

-Power Distance Index (high versus low).- the degree people are comfortable with influencing upwards -Individualism Versus Collectivism.: how personal needs and goals are prioritized vs the needs and goals of the group/organization -Masculinity Versus Femininity.- masculine societies have different rules and procedures for men and women, less so in feminine societies -Uncertainty Avoidance Index (high versus low).-how comfortable are people with changing the way they work or live -Long- Versus Short-Term Orientation. -Indulgence Versus Restraints

porter's diamond of national competitive advantage

-factor conditions *A country's endowments: •Natural, human, and other resources. •Resource-rich: focus on commerce. •Resource-lacking: focus on human capital. -related and supporting industries/complementors *Leadership in related and supporting industries fosters complementors in downstream industries: •Firms that provide an additional good or service. •Combined with the primary product. •Leads customers to value the firm's offering more. •Further strengthens national competitive advantage. -competitive intensity in focal industry *Competitive environments lead to better performance. -Example: German car industry: •Fierce domestic competition, •Demanding customers, •Results in top-notch engineering. -demand conditions *Characteristics of demand in a firm's domestic market. Customers hold companies to standards of value creation: •Developments in research. •Cost containment. •New commercial applications for the market.

Entrepreneurs

-people who risk their time, money, and other resources to start and manage a business -The process by which change agents undertake economic risk to innovate. •Create new products, processes, and organizations. •Create value for society. •Commercialize ideas and inventions.

Industry life cycle

-the stages of introduction, growth, maturity, and decline that typically occur over the life of an industry -Over time: •The number and size of competitors change. •Different types of consumers enter the market. •The supply and demand sides of the market change. •Different competencies are needed for the firm to perform well.

Three stages of alliance management capability and key tasks associated with each stage

1) Partner selection and alliance formation: Expected benefits must exceed the costs. Five reasons for alliance formation: 1.Strengthen competitive position. 2.Enter new markets. 3.Hedge against uncertainty. 4.Access critical complementary resources. 5.Learn new capabilities. 6)Partners must be compatible and committed. -Partner compatibility captures aspects of cultural fit between different firms. Partner commitment concerns the willingness to make available necessary resources and to accept short-term sacrifices to ensure long-term rewards. 2)Alliance Design and Governance: Governance mechanisms: •Contractual agreement. •Equity alliances. •Joint venture. -Inter-organizational trust is a critical dimension of alliance success. 3)Post formation alliance management: To be a source of competitive advantage, the partnership has to create VRIO resource combinations: •Make relation-specific investments. •Establish knowledge-sharing routines. •Build interfirm trust. Build capability through repeated experiences over time.

What are the key dimensions that determine the scope of a firm?

1) Vertical Integration:•In what stages of the industry value chain should the company participate? The industry value chain describes the transformation of raw materials into finished goods and services along distinct vertical stages. 2)Diversification: •What range of products and services should the company offer? 3)Geographic Scope: Where should the company compete geographically in terms of regional, national, or international markets?

Disadvantages of Globalization

1) liability of foreignness -Unfamiliar cultural environment. Unfamiliar economic environment. Coordinating across geographic distances. Can result in additional costs. 2) loss of reputation -Reputation is one of the most valuable resources. •Reputation dimensions can include innovation, customer service, brand reputation. Loss of reputation can diminish competitiveness. •Low wages, long hours, and poor conditions. •Local government may be corrupt. •Safety standards may not be enforceable. This challenge concerns corporate social responsibility (Chapter 1). 3) loss of intellectual property -It can be difficult to protect IP in foreign markets. •Particularly software, movies, and music. •Copyright infringements can occur. -Some countries are known for partnering initially, but then reverse-engineering capabilities. •Intellectual property exposure.

Primary goals of globalization

1)Gain access to a larger market. -Helps multinational enterprises with economies of scale and scope. •Participating in a much larger market. Opportunities to outcompete local rivals. Helps firms in smaller economies: •Achieve growth. •Gain and sustain competitive advantage. 2)Gain access to low-cost input factors. -Helps multinational enterprises that pursue a low-cost leadership strategy. Examples of low-cost raw materials: lumber, iron ore, oil, and coal. Has been a key driver of globalization: •Lower labor costs is the main focus now. •India provides well-educated English-speaking young people. •China provides low labor costs and an efficient infrastructure. 3)Develop new competencies. -Helps multinational enterprises that pursue a differentiation strategy. Access to: •Communities of learning. •Specific geographic regions. •Location economies. •Locating value chain activities in optimal geographies.

What are the key dimensions of the Integration-Responsiveness Framework?

1)Global Standardization -High-cost reductions / low-local responsiveness: •Economies of scale and location economies. •Achieved through global division of labor. •Based on wherever capabilities have lowest cost. Price, the main competitive weapon: •Minimal local adaptation. 2)Transnational -High-cost reductions / high-local responsiveness: •"Think globally, act locally." •Best practices, ideas, and innovations used everywhere. Used by multinational enterprises that pursue a blue ocean strategy. Difficult to implement: •Duplication of efforts. •Organizational complexity. 3)International -When a company sells the same products or services in both domestic and foreign markets. Low cost reductions / low local responsiveness: •Leverages home-based core competencies. •Sells the same products domestically and abroad. -A strength of the international strategy—its limited local responsiveness—is also a weakness in many industries. For example, when an MNE sells its products in foreign markets with little or no change, it leaves itself open to the expropriation of intellectual property (IP). Looking at the MNE's products and services, pirates can reverse-engineer the products to discover the intellectual property embedded in them. 4)Multidomestic -Low-cost reductions / high-local responsiveness: •Local consumers ideally perceive products as local. Can be costly and inefficient: •Duplication of business functions across countries. Common in: •Consumer products industry. •Food industry.

Various organizational structures

1)Simple Structure: Used by small firms with low organizational complexity. The founders usually: •Make all the strategic decisions. •Run day-to-day operations. Professional managers and sophisticated systems are not usually in place. Low degree of formalization and specialization. 2) Functional Structure: Employees are grouped into functional areas: •Based on domain expertise. •Often correspond to distinct stages in the value chain. Leaders of functional areas report to the CEO. •The CEO coordinates and integrates the work of each function. 3) Multidivisional Structure: Used as a firm diversifies products and geography. Each strategic business unit (SBU): •Has profit-and-loss (P&L) responsibility. •Operated independently. •Led by a unique CEO who is responsible for SBU strategy and operations. Widely adopted organizational structure. 4)Matrix Structure: Leverages SBU (M-form) benefits: •Domain expertise. •Economies of scale. •Efficient processing of information. -Also leverages organizational structure benefits: •Responsiveness. Decentralized focus

Key Elements of Organizational Structure

1)Specialization: Describes the degree to which a task is divided into separate jobs. Larger firms: high degree of specialization. Smaller ventures: low degree of specialization. Requires a tradeoff between depth and breadth of knowledge. 2) Formalization: The extent to which employee behavior is guided by rules and procedures. Pros: •Ensures consistent and predictable results. •Safety and reliability. Cons: •Slower decision making. •Reduced innovation. •Hindered customer service. 3) Centralization: The degree to which decision making is concentrated at the top of the organization. •Correlates to slow response time and reduced customer satisfaction. Affects strategic planning: •Top-down strategic planning takes place in highly centralized organizations. •Planned emergence is found in more decentralized organizations. 4)Hierarchy: The formal, position-based reporting lines: Who reports to whom. Span of control: •The number of employees who directly report to a manager. -In tall organizational structures, the span of control is narrow. In flat structures, the span of control is wide, meaning one manager supervises many employees. In recent years, firms have de-layered by reducing the headcount (often middle managers), making the organizations flatter and more nimble.

Disadvantages of functional structure

Suboptimal communication across departments. •Solution: cross-functional teams. Cannot effectively address greater diversification. •This is needed to ensure firm growth. •Firms encountering this adopt a different structure.

What are the four characteristics of the publicly traded stock company that make it such an appealing form of company ownership?

1.Limited liability for investors. 2.Transferability of investor ownership through stock. 3.Legal personality, with rights and obligations. 4.Separation of legal ownership and management control.

What are the various types of corporate diversification and the characteristics of each type?

1.Single business: low level of diversification. 2.Dominant business: additional business activity pursued. 3.Related diversification: •Constrained: all businesses share competencies. •Linked: some businesses share competencies. 4.Unrelated diversification (conglomerate): no businesses share competencies. Examples of the four main types of diversification: 1.Single business - Coca-Cola, Google, Facebook 2.Dominant business - Harley Davidson, Nestle, UPS 3.Related diversification - Related Constrained: ExxonMobile, Nike; Related Linked: Amazon, Disney 4.Unrelated diversification: (conglomerate) - Berkshire Hathaway A related-diversification strategy entails two types of costs: coordination and influence costs. Coordination costs are a function of the number, size, and types of businesses that are linked. Influence costs occur due to political maneuvering by managers to influence capital and resource allocation and the resulting inefficiencies stemming from suboptimal allocation of scarce resource.

BCG Growth-Share Matrix

A corporate planning tool in which the corporation is viewed as a portfolio of business units, which are represented graphically along relative market share (horizontal axis) and speed of market growth (vertical axis). SBUs are plotted into four categories (dog, cash cow, star, and question mark), each of which warrants a different investment strategy.

Functional Structure Benefits

A functional structure works when a firm has a narrow focus and small geographic footprint. Cost Leadership Strategy: •Nurturing and upgrading core competencies. Differentiation Strategy: •Incorporate decentralized decision making. •Foster innovation and creativity. Blue Ocean Strategy: •Firm should be efficient and flexible. •Focus is on controlling costs and fostering creativity.

How does the relationship between Product Innovation and Process Innovation change once an industry standard is set?

A product innovation is the introduction of a good or service that is new or has significantly improved characteristics or intended uses; a process innovation refers to the implementation of a new or significantly improved production or delivery method.

In agency theory, what is the difference between the problems of adverse selection and moral hazard?

A theory that views the firm as a nexus of legal contracts. •Conflicts that arise should be resolved legally. •The firm needs to design work tasks, incentives, and employment contracts... •To minimize opportunism by agents. -Adverse selection: Both caused by information asymmetry. Adverse Selection •An increased likelihood of selecting inferior alternatives. Moral hazard: •When one party is incentivized to take undue risks or shirk responsibilities, •The costs are incurred to the other party.

What is a strategic alliance, and what motives exist for entering into this type of corporate relationship?

A voluntary arrangement between firms that involves the sharing of: •Knowledge. •Resources. •Capabilities., To develop:•Processes, products, services. Motives: Strengthen competitive position., Enter new markets., Hedge against uncertainty., Access critical complementary assets., Learn new capabilities.

What is absorptive capacity and how is it crucial during periods of paradigm change and technological discontinuities?

Absorptive capacity, once recognized and established as a system, promotes the search for new knowledge that increases the ability to make the necessary new connections for innovation to happen. For this to happen, it does need continuous focus—a system designed to absorb

Types of Innovation: Combining markets and technologies

Along the horizontal axis, we ask whether the innovation builds on existing technologies or creates a new one. On the vertical axis, we ask whether the innovation is targeted toward existing or new markets. Four types of innovations emerge: incremental, radical, architectural, and disruptive. As indicated by the color coding in the exhibit, each diagonal forms a pair: incremental versus radical innovation and architectural versus disruptive innovation.

What are the fundamental premises of transaction cost economics?

Associated with an economic exchange. External transaction costs: •Searching for contractors. •Negotiating, monitoring, and enforcing contracts. Internal transaction costs: •Recruiting and retaining employees. •Setting up a shop floor. Internal transaction costs include costs pertaining to organizing an economic exchange within a firm—for example, the costs of recruiting and retaining employees; paying salaries and benefits; setting up a shop floor; providing office space and computers; and organizing, monitoring, and supervising work. Internal transaction costs also include administrative costs associated with coordinating economic activity between different business units of the same corporation such as transfer pricing for input factors, and between business units and corporate headquarters including important decisions pertaining to resource allocation, among others. Internal transaction costs tend to increase with organizational size and complexity.

Guiding Corporate Strategy: The Build-Borrow-or-Buy Framework

Build: •Internal organic growth through development. Borrow: •External growth through a contract / strategic alliance. Buy: •External growth through acquiring new resources, capabilities, and competencies. When acquiring a firm, you buy an entire "resource bundle," not just a specific resource. This resource bundle, if obeying VRIO principles and successfully integrated, can then form the basis of competitive advantage.

Other than the primary goals of globalization, what additional factors may influence a company's choice of international market (national institutions and culture)?

CAGE Distance-Cultural, Administrative and Political, Geographic, and Economic. *Cultural-Disparity between a firm's home and host country, specifically social norms and morals, beliefs, and values. Made up of: •Power distance. •Individualism. •Masculinity-femininity. •Uncertainty avoidance. •Long-term orientation. •Indulgence. *Administrative and Political -Captured in factors such as: •Shared monetary or political associations. •Political hostilities. •Weak or strong legal and financial institutions. Political and administrative barriers include: •Tariffs, quotas and restrictions. *Geographic Distance -More than just physical distance. Measured by: •Physical size (Canada versus Singapore). •Within-country distances to its borders. •Topography. •Time zones. •Whether the countries are contiguous. •Access to waterways and the ocean. •Infrastructure. Roads, power, and telecommunications *Economic Distance -Wealth and per capita income of consumers. •Wealthy countries engage in more cross-border trade. Wealthy countries trade with wealthy countries. •Economies of experience, scale, scope, and standardization •Similar infrastructure and resources. Wealthy countries trade with poor countries. •Access to low-cost input factors (economic arbitrage).

What is the role of the board of directors in a corporate governance structure?

Centerpiece of corporate governance. •Represent the interests of shareholders. •Tasked with providing oversight. Consist of inside and outside directors. •Inside directors: usually consist of CEO, COO, CFO. •Outside directors: senior execs from other firms. Are elected by the shareholders. •Shareholders vote to determine who is elected. -Strategic oversight and guidance. CEO selection, evaluation, compensation, succession. Guide executive compensation. Review, monitor, evaluate, and approve strategic initiatives. Risk assessment and mitigation. Ensuring financial statements are accurate. Ensuring compliance with laws and regulations.

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).

Restructuring the corporate portfolio

Corporate executives can restructure the portfolio of their firm's businesses, much like an investor can change a portfolio of stocks. One helpful tool to guide corporate portfolio planning is the Boston Consulting Group (BCG) growth-share matrix. This matrix locates the firm's individual SBUs in two dimensions: Relative market share (horizontal axis). Speed of market growth (vertical axis). The firm plots its SBUs into one of four categories in the matrix: dog, cash cow, star, and question mark. Each category warrants a different investment strategy. All four categories shape the firm's corporate strategy.

What is the process of creative destruction and how does it work to create change in an industry?

Creative destruction is a theory about what drives economic innovation and the business cycle in a capitalist economy. The word 'creative' refers to the new innovations brought to market and 'destruction' to the fate of those antiquated products and processes that are replaced by the new innovation.

What is the relationship between culture and competitive advantage?

Culture can help a firm's competitive advantage if it: It makes a positive contribution to economic value creation. It passes the VRIO principles: •Valuable, rare, difficult to imitate, the firm must be organized to capture value. It can adapt as the business evolves.

What is the difference between economies of scale and economies of scope?

Economies of scale-are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced. A decrease in cost per unit of output enables an increase in scale. Economies of scope-means that the production of one good reduces the cost of producing another related good. Economies of scope occur when producing a wider variety of goods or services in tandem is more cost effective for a firm than producing less of a variety, or producing each good independently.

core competence-market matrix

a framework to guide corporate diversification strategy by analyzing possible combinations of existing/new core competencies and existing/new markets

What are the types of vertical integration along an industry value chain?

Forward integration is a strategy where a firm gains ownership or increased control over its previous customers (distributors or retailers). Backward integration is a strategy where a firm gains ownership or increased control over its previous suppliers.and balanced (both upstream and downstream) vertical integration.

Milton Friedman's concept of shareholder capitalism

Friedman felt that a private-sector focus on shareholder value maximization was the key to creating social wealth and general prosperity.

The diversification-performance relationship

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.

What are the primary reasons behind Merger decisions?

Horizontal integration: •The process of merging with a competitor. •Occurs at the same stage of the value chain. Three main benefits: 1.Reduction in competitive intensity. 2.Lower costs. 3.Increased differentiation. -In particular, competitors in the same industry such as airlines, banking, telecommunications, pharmaceuticals, or health insurance frequently merge to respond to changes in their external environment and to change the underlying industry structure in their favor.

Idea vs imitation

Idea-abstract concepts or research findings Imitation-copying a successful innovation

What is the difference between input and output controls and how do they work together to align and govern an organization as it pursues its strategies?

Input: Seeks to define and direct employee behavior through: •Explicit, codified rules. •Standard operating procedures. -The use of budgets is key to input controls. Managers set budgets before employees define and undertake the actual business activities. For example, managers decide how much money to allocate to a certain R&D project before the project begins. In diversified companies using the M-form, corporate headquarters determines the budgets for each division. Public institutions, like some universities, also operate on budgets that must be balanced each year. Their funding often depends to a large extent on state appropriations and thus fluctuates depending on the economic cycle. During recessions, budgets tend to be cut, and they expand during boom periods. Output: Guide employee behavior by: •Defining expected results (outputs), but: •Leaving the means to those results open to individual employees, groups, or SBUs. -Intrinsic motivation is highest when an employee has: •Autonomy (about what to do). •Mastery (how to do it). •Purpose (why to do it).

What are the differences between an organic and a mechanistic organization?

Mechanistic Organization: •Much specialization and formalization. •Tall hierarchies. •Centralized decision making. Organic Organization: •Little specialization and formalization. •Flat organizational structure. •Decentralized decision making.

What is the difference between a merger and an alliance?

Merger-is an agreement that unites two existing companies into one new company. Alliance-is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations

Michael Porter's shared value creation framework

Provides guidance to managers. Helps reconcile gaining and sustaining competitive advantage with corporate social responsibility. Creates a larger "pie" to benefit shareholders and stakeholders.

What is the relationship between an organization's strategy and its structure?

Structure supports strategy. If an organization changes its strategy, it must change its structure to support the new strategy. When it doesn't, the structure acts like a bungee cord and pulls the organization back to its old strategy. Strategy follows structure.

What are the different types of alliances and what are the key characteristics of each type?

Non-Equity Alliances: •Partnerships based on contracts. -a relationship between two or more companies, aimed at achieving a common objective by coordinating efforts, while each party retains its organizational independence and no new equity entity or corporation is created. -Examples of non-equity alliances: supply agreements, distribution agreements, and licensing agreements, contracts Equity Alliances: •One partner takes partial ownership in the other. -occurs when one company purchases equity in another business (partial acquisition), or each business purchases equity in each other (cross-equity transactions). An example of an equity strategic alliance is Tesla's relationship with Panasonic. Joint Ventures: •A standalone organization. •Jointly owned by two or more companies. -A joint venture is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance

What factors make an organizations culture hard to imitate?

Organization cultures are created by a variety of factors, including founders' values and preferences, industry demands, and early values, goals, and assumptions. Culture is maintained through attraction-selection-attrition, new employee onboarding, leadership, and organizational reward systems.

What goals may a company try to accomplish by globalization?

Part of a firm's corporate strategy to: •Gain and sustain a competitive advantage. •Compete against foreign and domestic companies. Foreign direct investment: •Investments in value chain activities abroad. Multinational enterprise: •Deploys resources and capabilities in two countries or more. (MNE's make up less than 1 percent of the number of total U.S. companies, but they: Account for 11 percent of private-sector employment growth since 1990. Employ 19 percent of the work force. Pay 25 percent of the wages. Provide for 31 percent of the U.S. gross domestic product (GDP). Make up 74 percent of private-sector R&D spending.)

Platform vs Pipeline Businesses

Platform: •Enables interaction between producers and consumers. •Its overarching purpose is to enable matches among users. •Provides infrastructure and sets governance conditions. Pipeline: •Linear transformation through the value chain. •Research and development, then design, then manufacture, then sell.

How is corporate performance related to these diversification strategies?

Provides economies of scale (reduces costs). Exploits economies of scope (increases value). Reduces costs and increase value.

Organizational culture

Shared values and norms of an organization's members. •Values: what is considered important. •Norms: appropriate attitudes and behaviors in day-to-day work and interactions. -Expressed through artifacts: •Physical space (cubicles). •Symbols (clothing). •Events (celebrations). Vocabulary (stories that are told

Strategic and social entrepreneurship

Strategic Entrepreneurship: •Pursuit of innovation using strategic tools and concepts. •Combining entrepreneurial actions. •Creating new opportunities. •Exploiting existing opportunities. Social Entrepreneurship: •The pursuit of social goals while creating profitable businesses. Evaluate performance by financial, ecological and social contribution metrics

What alternatives does a firm have to this type of expansion?

Taper Integration: •Backward or forward integrated. •Plus reliance on outside firms such as suppliers or distributors. Taper integration has several benefits: ▪ It exposes in-house suppliers and distributors to market competition so that performance comparisons are possible. Rather than hollowing out its competencies by relying too much on outsourcing, taper integration allows a firm to retain and fine-tune its competencies in upstream and downstream value chain activities. ▪ Taper integration also enhances a firm's flexibility. For example, when adjusting to fluctuations in demand, a firm could cut back on the finished goods it delivers to external retailers while continuing to stock its own stores. ▪ Using taper integration, firms can combine internal and external knowledge, possibly paving the path for innovation. Strategic Outsourcing: •Moving internal value chain activities. •To other firms. •Example: HR management system.

What are the internal and external mechanisms of corporate governance?

The internal governance mechanisms primarily focus on boards of directors, ownership and control, and managerial incentive mechanisms, whereas the external governance mechanisms cover issues related to the external market and laws and regulations (e.g., the legal system).

What is corporate governance and how does it address the principal-agent problem?

The mechanisms to: •Direct and control an enterprise. •Ensure that it pursues strategic goals successfully and legally. Offers checks and balances. Attempts to address the principal-agent problem. -The principal-agent problem is a conflict in priorities between the owner of an asset and the person to whom control of the asset has been delegated. The problem can occur in many situations, from the relationship between a client and a lawyer to the relationship between stockholders and a CEO.

What is organizational design?

The process of: •Creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization. -Key components: •Structure. •Culture. Control

What is a regional cluster?

a geographically proximate group of interconnected companies, suppliers, service providers and associated institutions in a particular field, linked by externalities of various types"

What are the primary reasons behind acquisition decisions?

To access new markets & distribution channels. •To overcome entry barriers. •To access new capabilities or competencies. Access to a new capability or competency. To preempt rivals. •Facebook and Google are famous for this. -Example: Facebook acquired: Instagram (photo & video sharing), WhatsApp (text messaging service), Oculus (virtual reality headsets). Example: Google acquired: YouTube (video sharing), Motorola (mobile technology), Waze (interactive mobile maps).

What are the key dimensions of the Core competence-market matrix? What are the characteristics of each quadrant in this matrix?

To survive and prosper, companies need to grow. This mantra holds especially true for publicly owned companies because they create shareholder value through profitable growth. Strategic leaders respond to this relentless growth imperative by leveraging their existing core competencies to find future growth opportunities. Gary Hamel and C.K. Prahalad advanced the core competence-market matrix, depicted in Exhibit 8.9, as a way to guide managerial decisions in regard to diversification strategies. The first task for managers is to identify their existing core competencies and understand the firm's current market situation. When applying an existing or new dimension to core competencies and markets, four quadrants emerge, each with distinct strategic implications.

Know the various types of specialized assets that often result from vertical integration.

Vertical integration helps a company to reduce costs across different parts of its production process. It also creates tighter quality control and guarantees a better flow and control of information across the supply chain. Further benefits of vertical integration include increasing sales and improving profits.

alliance management capability

a firm's ability to effectively manage three alliance-related tasks concurrently: 1) partner selection and alliance formation, 2) alliance design and governance, and 3) post-formation alliance management

Chasm Framework

conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group -Technology Enthusiasts: Enter the market during the introductory stage. •Smallest market segment, 2.5% of the total market potential. Have an engineering mind. Proactively pursue new technology. Enjoy using beta versions. Tinker with product imperfections. Provide free feedback and suggestions. -Early Adopters:Enter the market during the growth stage. •13.5% of the total market potential. Demand is driven by imagination and creativity. •Ask themselves, "What can this new product do for me or my business?" To capture these customers: •Directly communicate the product's potential. -Early Majority: Enter the market during the shakeout stage. •34% of the total market potential. •Decision criteria, a strong sense of practicality. "What Can This Do For Me?" •Weigh the benefits and costs carefully. •Rely on endorsements of others. This group is key to catching the growth wave. -Late Majority: Enter the market during the maturity stage. •34% of the total market potential. Not as confident in their ability to master the technology: •Wait until standards have emerged. •Do not like uncertainty. Represent the majority of the market. Buy from well-established firms with a strong brand. -Laggards: Enter the market during the decline stage. •16% of total market potential. Adopt a new product only if necessary (reluctant). Generally don't want new technology. Typically not pursued as future customers. •Demand is small. •Early and late majority are at this time moving on to different products and services.

What is globalization?

the process by which businesses or other organizations develop international influence or start operating on an international scale. A process: •Closer integration and exchange. •Between countries and peoples worldwide. Made possible by: •Falling trade and investment barriers. •Advances in telecommunications. •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. Globalization also allows companies to source supplies at lower costs, to learn new competencies, and to further differentiate products. Consequently, the world's market economies are becoming more integrated and interdependent.

What is strategic entrepreneurship?

the pursuit of innovation using tools and concepts from strategic management