Capstone Quiz 2

blue ocean strategy

Business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile inherent trade-offs.

principal-agent problem

Situation in which and agent performing activities on behalf of a principal pursues his or her own interests

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

diversification premium

Situation in which the stock price of related diversification firms is valued at greater than the sum of their individual business units

equity alliance

Yet another form of strategic alliance is an __________—a partnership in which at least one partner takes partial ownership in the other partner

experience curve

a cost driver that is the inverse relationship between the total value-added costs of a product and the company experience in manufacturing and marketing it

joint venture

A stand-alone organization created and jointly owned by two or more parent companies

product features

A value driver that: Increases perceived value Turns commodity products into differentiated products Strong R&D capabilities are often needed

complements

A value driver that: •Increases perceived value •Consumed in tandem

taper integration

A way of orchestrating value activities in which a firm is backwardly integrated but also relies on outside-market firms for some of its supplies and/or is forwardly integrated but also relies on outside market firms for some of its distribution

hostile takeover

Acquisition in which the target company does not wish to be acquired

maturity stage

After the shakeout is completed and a few firms remain Industry structure morphs into an oligopoly with only a few large firms Process innovation reaches its maximum as firms attempt to lower cost Level of product innovation sinks to its minimum Remaining firms tend to enjoy economies of scale

credible commitment

Along-term strategic decision that is both difficult and costly to reverse

standard

An agreed-upon solution about a common set of engineering features and design choices

franchising

An example of long-term contracting. The franchisor such as McDonald's, Burger King, 7-Eleven, H&R Block, or Subway grants a __________ (usually an entrepreneur owning no more than a few outlets) the right to use the franchisor's trademark and business processes to offer goods and services that carry the franchisor's brand name

scope of competition

The size—narrow or broad—of the market which a firm chooses to compete

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, physical asset specificity, and human-asset specificity

trade secrets

Valuable proprietary information that is not in the public domain and where the firm makes every effort to maintain its secrecy.

strategic alliances

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

markets and technology framework

A conceptual model to categorize innovations along the market (existing/new) and technology (existing/new) dimensions.

product-market diversification strategy

A company that pursues both a product and a geographic diversification strategy simultaneously follows a ______________________

economies of scale

A cost driver that decreases in cost per unit as output increases. _________________ allow firms to: 1.Spread their fixed costs over a larger output. 2.Employ specialized systems and equipment. 3.Take advantage of certain physical properties.

cost of input factors

A cost driver that includes: Raw materials Capital Labor IT services

learning curve

A cost driver that states: •Rate of improvement in performing a task is a function of time. •Rate of change in average cost (in hours or dollars) is also a function of cumulative output.

geographic diversification strategy

A firm that is active in several different countries is pursuing a _____________

product diversification strategy

A firm that is active in several different product markets is pursuing a _______________

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

absorbative capacity

A firm's ability to understand external technology developments, evaluate them, and integrate them into current products or create new ones.

patent

A form of intellectual property, and gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea

licensing

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

managerial hubris

A form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary

open innovation

A framework for R&D that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and inventions, but also from external ones. The sharing goes both ways: some external ideas and inventions are insourced while others are spun out

architectual innovation

A new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets.

diversification

An increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes

radical innovation

An innovation that draws on novel methods or materials, is derived from an entirely different knowledge base or from a recombination of existing knowledge bases with a new stream of knowledge

disruptive innovation

An innovation that leverages new technologies to attack existing markets from the bottom up

incremental innovation

An innovation that squarely builds on an established knowledge base and steadily improves an existing product or service

reverse innovation

An innovation that was developed for emerging economies before being introduced in developed economies. Sometimes called frugal innovation

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

decline stage

Changes in the external environment often take industries from maturity to __________. The size of the market contracts further as demand falls, often rapidly .Innovation efforts along both product and process dimensions cease. Managers have four strategic options: exit, harvest, maintain, or consolidate.

forward vertical integration

Changes in the industry value chain that involve moving ownership of activities closer to the end (consumer) point of the value chain

introduction stage

Characterized by the innovator's core competency in R&D Barriers to entry tend to be high Innovators may also encounter first-mover-disadvantages Strategic objective: achieve market acceptance and seed future growth

strategic trade offs

Choices between a cost or value position. Such choices are necessary because higher value creation tends to generate higher cost

shakeout stage

Competitive intensity increases and weaker firms are forced out Firms begin to cut prices and offer more services Consolidations and acquisitions occur, weaker firms exit through bankruptcy Winners often stake out a strong position as cost leaders Few may implement a blue ocean strategy, combining differentiation and low cost

build borrow or buy framework

Conceptual model that aids firms in deciding whether to pursue internal development (________), enter a contractual arrangement or strategic alliance (___________), or acquire new resources, capabilities, and competencies (____)

crossing the chasm framework

Conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group

corporate strategy

Decisions that senior management makes and the goal-directed actions taken in the quest for competitive advantage in several industries and markets simultaneously. Answers key question of where to compete.

growth stage

Demand increases after introduction Competitive rivalry muted Standard emerges Product/ process innovations made

industry value chain

Depiction of the transformation of raw materials into finished goods and services along distinct vertical stages, each of which typically represents a distinct industry in which a number of different firms are competing.

economic incentives

Established companies are focused on defending their position

innovation ecosystem

Established companies are part of an ecosystem: suppliers, buyers, complementors

organizational inertia

Established companies rely on formalized business processes and structures

differentiation strategy

Generic business strategy that seeks to create higher value for customers than the value that competitors create

cost leadership strategy

Generic business strategy that seeks to create the same or similar value for customers at a lower cost.

strategy canvas

Graphical depiction of a company's relative performance vis-à-vis its competitors across the industry's key success factors.

value curve

Horizontal connection of the points of each value on the strategy canvas that helps strategists diagnose and determine courses of action

invention

In a next step of innovation, ___________ describes the transformation of an idea into a new product or process, or the modification and recombination of existing ones

explicit knowledge

Knowledge that can be codified; concerns knowing about a process or product

tacit knowledge

Knowledge that cannot be codified; concerns knowing how to do a certain task and can be acquired only through active participation in the task

strategic outsourcing

Moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain

product innovation

New or recombined knowledge embedded in new products

process innovation

New ways to produce existing products or deliver existing services

minimum efficient scale

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

non equity alliance

Partnership based on contracts between firms

focused cost leadership strategy

Same as the cost-leadership strategy except with a narrow focus on the niche market

focused differentiation strategy

Same as the differentiation strategy except with a narrow focus on the niche market

economies of scope

Savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology

innovation

The commercialization of any new product or process, or the modification and recombination of existing ones

vertical integration

The firm's ownership of its production of needed inputs or the channels by which it distributes it outputs.

business level strategy

The goal-directed actions managers take in their quest for competitive advantage when competing in a single product market

idea

The innovation process begins with an _________.The __________ is often presented in terms of abstract concepts or as findings derived from basic research

merger

The joining of two independent companies to form a combined entity

network effects

The positive effect (externality) that one user of a product or service has on the value of that product for other users.

acquisition

The purchase or takeover of one company by another (friendly/ unfriendly)

value innovation

The simultaneous pursuit of differentiation and low cost in a way that creates a leap in value for both the firm and the consumers; considered a cornerstone of blue ocean strategy.

customer service

a value driver that is the process of ensuring customer satisfaction with a product or service.

entrepreneurship

describes the process by which change agents undertake economic risk to innovate—to create new products, processes, and sometimes new organizations.

strategic entrepreneurship

describes the pursuit of innovation using tools and concepts from strategic management.

social entrepreneurship

describes the pursuit of social goals while creating profitable businesses

corporate strategy

determines the boundaries of the firm along three dimensions: vertical integration (along the industry value chain), diversification (of products and services), and geographic scope (regional, national, or global markets).

transaction cost economics

explains and predicts the boundaries of the firm. Insights gained from ________________ help managers decide what activities to do in-house versus what services and products to obtain from the external market. This is accomplished through the analysis of the firm's external and internal environments

vertical market failure

occurs when transactions within the industry value chain are too risky, and alternatives to integration are too costly or difficult to administer

entrepreneurs

the agents who introduce change into the competitive system. They do this not only by figuring out how to use inventions, but also by introducing new products or services, new production processes, and new forms of organization

introduction, growth, shakeout, maturity, and decline

what are the 5 stages in an industry life cycle?

strengthen competitive position, enter new markets, hedge against uncertainty, complementary assets, and learn new capabilities

what are the five reasons a firm may enter into a strategic alliance?

relevancy, tradability, closeness, and integration

what are the four main issues in the build-borrow or buy framework?

competition reduction, lower costs, and increased differentiation

what are the three main benefits of a horizontal integration strategy?

product features, customer service, and complements

what are the three value drivers?

real options perspective

•Breaks down a larger investment decision into a set of smaller decisions •Staged sequentially over time and allows firms to obtain information in stages

alliance design and government

•Managers design the alliance and choose an appropriate governance mechanism from among the three options: non-equity contractual agreement, equity alliances, or joint venture. •In addition to the formal governance mechanisms, interorganizational trust is a critical dimension of alliance success.

horizontal integration

•Process of merging with a competitor at the same stage of the industry value chain •Corporate strategy that can improve a firm's strategic position in a single industry

parent subsidiary relationship

•The most-integrated alternative to performing an activity within one's own corporate family. •The corporate parent owns the subsidiary and can direct it via command and control.