CBA 469 - Test 3

National Competitive Advantage

A consideration of world leadership in specific industries

Holacracy

An organizational structure in which decision-making authority is distributed through loose collections or circles of self-organizing teams

Financial Structure

An organizational structure that groups employees into distinct functional areas based on domain expertise

Strategy Implementation

Concerns the organization, coordination, and integration of how work gets done

Co-Opetition

Cooperation by competitors to achieve a strategic advantage

Poison Pills

Defensive provisions to deter hostile takeovers by making the target firm less attractive

Acquisition

Describes the purchase or takeover of one company by another; Can be either friendly or unfriendly

Borrowed

In general, if a resource is highly tradable, then it should be _________ using a license or contractual agreement

Small; Low

Simple structures are generally used by _____ firms with ___ organizational complexity

-Wealth -Per Capita Income

Two important determinants of economic distance:

Managers are unable to make the necessary changes due to the effects on resource allocation and power distribution within an organization

Why does strategy implementation often fail?

The benefits outweigh the costs

A company should only expand abroad if:

Multinational Enterprise (MNE)

A company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries

Foreign Direct Investment (FDI)

A firm's investments in value chain activities abroad

Loss of Reputation

A firm's reputation can have several dimensions, including a reputation for innovation, customer service, or brand reputation

Large

A multidomestic strategy is frequently used when entering host countries with ________ domestic markets

Obligate the firm to do so

A real option gives a firm the right to continue making investments, but does not:

They prioritize financial performance over all else

According to Michael Porter, what is a major drawback of public stock companies?

Levitt's Globalization Hypothesis

According to this, consumer needs and preferences throughout the world are converging and becoming increasingly homogenous

Strong ties, trust, and commitment that can result between the partners

Advantage of joint ventures:

-Non-Equity Alliances -Equity Alliances -Joint Ventures

Alliances can be governed by three mechanisms:

Business Ethics

An agreed-upon code of conduct in business, based on societal norms

Location Economies

Benefits from locating value chain activities in optimal geographies fora specific activity, wherever that may be

Matrix Structure

Combines the functional structure with the M-form

Multidivisional Structure

Consists of several distinct strategic business units, each with its own profit-and-loss responsibility

Licensing Agreements

Contractual alliances in which the participants regularly exchange codified knowledge

Network Structure

Enables a firm to connect its centers of excellence independent of where they are located in the world

-Be audited by certified public accountants -Adhere to GAAP

Financial statements by public companies must do two things:

-Strengthen Competitive Position -Enter New Markets -Hedge Against Uncertainty -Access Critical Complementary Assets -Learn New Capabilities

Firms enter into strategic alliances for five reasons:

Global Matrix Structure

Firms tend to use a _______________ to pursue a transnational strategy, in which the firm combines the benefits of a multidomestic strategy with those of a global-standardization strategy

Functional

Firms that follow a single-business or dominant-business strategy at the corporate level generally employ a ___________ structure

Complementors

Firms that provide a good or service that leads customers to value the focal firm's offering more when the two are combined

-Specialization -Formalization -Centralization -Hierarchy

Four key building blocks of an organizational structure:

Through repeated experiences over time

How can firms build alliance management capability?

Filling the empty spaces in a firm's offerings

How can horizontal integration increase product differentiation?

Local Responsiveness

Increases the differentiation of products and services, reinforcing a differentiation strategy at the business level

Strategic Control-and-Reward Systems

Internal-governance mechanisms put in place to align the incentives of principals and agents

-Cost Reductions -Local Responsiveness

MNEs face two opposing forces when competing around the globe:

Codified

Mechanistic organizations tend to have _______ operating procedures

-Expand the customer base to bring in nonconsumers -Expand traditional internal firm value chains to include more nontraditional partners -Focus on creating new regional clusters

Michael Porter recommends that managers focus on three things within the shared value creation framework to ensure that managers can reconnect economic and societal needs:

Black Swan

Narrowly defining public stock companies in terms of financial performance can lead to ______________ events

Programming of the Mind

National culture, according to Geert Hofstede, can be defined as different groups' distinctive ______________

Outside Directors

Not employees of the firm, but are senior executives from other firms or full-time professionals

Winner's Curse

Occurs when a company wins a bidding war but overpaid for the acquisition

Hostile Takeover

Occurs when a target firm does not want to be acquired

Communities of Learning

Often contained in specific geographic regions

Destroy

On average, mergers and acquisitions __________ shareholder value

Entrepreneurial Behaviors and Innovation

Organic organizations typically exhibit a higher rate of:

Peter's Pans is trying to overcome competitive disadvantage

Peter's Pans makes cast-iron cookware. It decides to acquire another similar-sized cast-iron cookware company in the hope that its larger size will enable it to snag some market share away from Iron Maiden, the industry leader. What best describes Peter's Pans strategy?

-Factor Conditions -Demand Conditions -Competitive Intensity in Focal Industry -Related and Supporting Industries and Complementors

Porter's diamond of national competitive advantage consists of four interrelated factors:

Input Controls

Seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures

Output Controls

Seek to guide employee behavior by defining expected results, but leave the means to those results open to individual employees, groups, or SBUs

Alliance Manager

Serves as an alliance process resource and business integrator between the two alliance partners and provides alliance training and development

Global-Standardization

Since expanding internationally, IKEA has shifted focus, concentrating on effectively managing a global supply chain in order to achieve economies of scale. This is reflective of a ____________ strategy.

Learning Races

Situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which firms learn may vary

-Power Distance -Individualism -Masculinity-Femininity -Uncertainty Avoidance -Long-Term Orientation -Indulgence

Six main dimensions of culture:

Externalities

Social consequences of business activities, including pollution, energy loss, and dangerous accidents

Benefiting from Location Economies

Spex is a leading manufacturer of eyeglasses. Spex is based in the United States but opens a facility in a Japanese city known for cutting-edge eyeglass innovations. What is Spex counting on?

-Globalization 1.0: 1900-1941 -Globalization 2.0: 1945-2000 -Globalization 3.0: 21st Century -Globalization 3.1: Retrenchment?

Stages of globalization:

Globalization Hypothesis

States that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous

-Enable firms to achieve goals faster and at lower costs than going in alone -Allow firms to circumvent potential legal repercussions -Has the potential to help a firm gain and sustain a competitive advantage

Strategic alliances are attractive for three reasons:

Ecomagination

Strategic initiative to provide cleaner and more efficient sources of energy, provide abundant sources of clean water anywhere in the world, and reduce emissions

Global-Standardization Strategy

Strategy attempting to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost

Transnational Strategy

Strategy that attempts to combine the benefits of a localization strategy with those of a global-standardization strategy

It should use the shared value creation framework

Svanhildur's company is committed to corporate social responsibility but also understands that growth and profit are imperative for survival. What should Svanhildur's company do to achieve this balance?

Death-of-Distance Hypothesis

The 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

Board of Directors

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

National Culture

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

Cultural Distance

The cultural disparity between an internationally expanding firm's home country and its targeted host country

Internal Capital Market

The goal of this is to allocate capital more efficiently than would happen in an external capital market

Non-Equity Alliances

The most common type of alliance; It's a partnership based on contracts between firms

Span of Control

The number of employees who directly report to a manager

Demand Conditions

The specific characteristics of demand in a firm's domestic market

Identification of a strategic resource gap that will impede future growth

The starting point of the build-borrow-or-buy framework is the firm's:

Cost Reduction

The strategic foundations of the globalization hypothesis are primarily based on:

Multi-Divisional Structure

This structure is divided into several distinct business units, each of which has its own profit-and-loss center

Tradable

This term implies that the firm is able to source the resource externally through a contract that allows for the transfer of ownership or use of the resource

-Liability of foreignness -Loss of Reputation -Loss of Intellectual Property

Three disadvantages of going global:

-It promotes global learning and the diffusion of best practices and innovations -It harnesses economies of scale

Two benefits of a transnational strategy:

-Amount of investment that can be involved -Possible lack of flexibility and speed in putting together and reaping the benefits from the partnership

Two downsides to equity alliances:

-Causal Ambiguity -Social Complexity

Two reasons why it is difficult to imitate the cultures of successful firms:

A principal-agent problem

Vasily is a manager at a large snack foods company. Vasily believes his company would benefit from being larger and thinks the shareholders would support such growth. The company is doing relatively well but needs to focus on stabilizing profits and expenditures. Vasily pushes for an acquisition anyway. The reason for this acquisition is:

Agency Theory

Views the firm as a connection of legal contracts

Strategic Alliances

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

A relational compatibility

What allows firms to manage both strategic alliances and mergers and acquisitions?

-Post-Formation Alliance Management -Partner Selection and Alliance Formation -Alliance Design and Governance

What are the three phases of alliance management?

Has the potential to affect a firm's competitive advantage

An alliance qualifies as strategic only if it:

Market for Corporate Control

An extern governance mechanism that makes a poorly managed company vulnerable to takeover by outside investors

Stock Options

An incentive mechanism to align the interests of shareholders and managers by giving the recipient the right to buy a company's stock at a predetermined price sometime in the future

Equity Alliances

At least one partner takes partial ownership in the other partner

Investments

Because equity alliances often require larger _________, they are less common than non-equity alliances

Flexible and easy to terminate

Because non-equity alliances have a contractual nature, they are:

Real-Options Perspective

Breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time

Administrative and Political Distance

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

Partner Compatibility

Captures aspects of cultural fit between different firms

Formalization

Captures the extent to which employee behavior is steered by explicit and codified rules and procedures

Corporate Venture Capital (CVC)

Equity investments by established firms in entrepreneurial ventures

Threat of Entry

Horizontal integration can reduce:

Not expand internationally

If the economic value creation of international expansion is negative, a firm should ___________.

Flat; Wide

If there are few levels of hierarchy, it has a ____ structure and a ____ span of control

Masculine

In _______ societies, competitiveness, assertiveness, and the exercise of power are considered ideal

-Alliances -Acquisitions

In addition internal organic growth, firms have two critical strategic options to execute corporate strategy:

Take a wait-and-see approach

In many fast-moving markets, strategic alliances allow firms to ________ to hedge against uncertainty

Global Strategy

MNEs need an effective ______________ that enables them to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world

Adverse Selection

Occurs when information asymmetry increases the likelihood of selecting inferior alternatives

Unicorns

Private start-up companies valued at a billion dollars or more are called __________, because at one time they seemed as rare as the creature

Exporting

Producing goods in one country to sell in another; One of the oldest forms of internationalization

Shared Value Creation Framework

Proposes that managers maintain a dual focus on shareholder value creation and value creation for society

Build-Borrow-or-Buy Framework

Provides a 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

Public Stock Company

Provides goods and services as well as employment, pays taxes, and increases the standard of living

-Gain access to new markets or distribution channels -Gain access to new capabilities and competencies -Preempt rivals

Reasons firms choose to acquire:

Centralization

Refers to the degree to which decision making is concentrated at the top of the organization

Boundaryless

The organizational structure at Gore, in which everyone is encouraged to speak to anyone they wish to within the organization, is called an _______ organizational form

Exploitation

The process of applying current knowledge to enhance firm performance in the short term

Organizational Design

The process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization

Horizontal Inegration

The process of merging with a competitor at the same stage of the industry value chain

Exploration

The process of searching for new knowledge that may enhance a firm's future performance

-Private Offices -Dress Code -Formal Vocabulary

Three examples of artifacts:

-The sale of teriyaki burgers in Japan -The sale of toads for preparation in China -The sale of metal chopsticks in South Korea

Three examples of local responsiveness for a US company doing business internationally:

-Political Hostilities -Shared Monetary Associations -The Strength of Financial Institutions

Three factors help define administrative and political distance:

-Government Corruption -MNE's Search for Low-Cost Labor -Failure to Enforce Safety Standards

Three factors which often combine to lead to tragic outcomes for domestic workers of MNEs:

-Gain access to a larger market -Gain access to low-cost input factors -Develop new competencies

Three main reasons that firms expand abroad:

-Supply Agreements -Distribution Agreements -Licensing Agreements

Three most frequent forms of non-equity alliances:

The use of strategic alliances

What does the term "borrow" refer to in the build-borrow-or-buy framework?

-Establish Knowledge-Sharing Routines -Make Relation-Specific Investments -Build Inter-Firm Trust

What three things should partners do in order to make a strategic alliance work?

Strategy Follows Structure

When "__________", managers limit themselves to strategies that maintain the status quo

CAGE Distance Framework

A decision framework based on the relative distance between home and a foreign target country along four dimensions

Critical Complementary Assets

A firm has a core competency in R&D but little else, so it enters into a strategic alliance with a larger firm to gain distribution channels and marketing expertise. In this case, distribution channels and marketing expertise would be examples of:

It is important for the firm to be extremely close to the resource partner in order to understand underlying information

A firm should only consider using mergers and acquisitions when:

Multidivisional; Decentralized

A firm using a multidomestic strategy is likely to have a ______________ structure with the multiple divisions representing different geographic areas and ____________ decision making

Alliance Management Capability

A firm's ability to effectively manage three alliance-related tasks concurrently, often across a portfolio of many different alliances

Absorptive Capacity

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

Inertia

A firm's resistance to changes in the status quo, which can set the stage for the firm's subsequent failure

-Low Relevancy -Low Tradability -High Need for Closeness

A firm's strategic leaders should only consider mergers and acquisitions if the following three conditions are met:

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 ideas and innovation from external sources

Narrow; Small

A functional structure is recommended when a firm has a fairly ______ focus in terms of product or service offerings combined with a _______ geographic footprint

World Trade Organization (WTO)

A global organization overseeing and administering the rules of trade between nations

Cost-Leadership

A global-standardization strategy tends to follow a ___________ strategy

Fiduciary Responsibility

A legal duty to act solely in another party's interests

Founder Imprinting

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

Globalization

A process of closer integration and exchange between different countries and people worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transport costs

Alliance Champion

A senior, corporate-level executive responsible for high-level support and oversight

Leveraged Buyout (LBO)

A single investor or group of investors buys, with the help of borrowed money, the outstanding shares of a publicly traded company in order to take it private

Groupthink

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

CEO/Chairperson Duality

A situation where the CEO of a publicly traded company is also the chairperson of the board of directors

Joint Ventures

A standalone organization created and jointly owned by two or more parent companies; The least common type of strategic alliances

Polycentric Innovation Strategy

A strategy in which MNEs draw on multiple, equally important innovation hubs throughout the world characteristic

International Strategy

A strategy in which a company sells the same products or services in both domestic and foreign markets

Multidomestic Strategy

A strategy pursued by MNEs that attempts to maximize local responsiveness, with the intent that local consumers will perceive them to be domestic companies

Shareholder Capitalism Perspective

According to this, shareholders--the providers of the necessary risk capital and the legal owners of public companies--have the most legitimate claim on profits

Large; Strong

An international strategy is often used successfully in MNEs with relatively __________ domestic markets and with __________ reputations and brand names

Simple Structure

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

-Slow Response Time -Reduced Customer Satisfaction

Centralization often correlates with two things:

Mechanistic Organizations

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

Greenfield Operations

Companies build new, fully owned plants and facilities from scratch

Economic Arbitrage

Companies from wealthy countries trade with companies from poor companies to benefit from ___________

Increasing Their Economic Value Creation

Companies seek to access international markets as a means of:

Economies of Scale and Economies of Scope

Companies that base their competitive advantage on ______________ and ________________ have an incentive to gain access to larger markets because this can reinforce the basis of their competitive advantage

Corporate Governance

Concerns the mechanisms to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally

Partner Commitment

Concerns the willingness to make available necessary resources and to accept short-term sacrifices to ensure long-term rewards

Liability of Foreignness

Consists of the additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances

Norms

Define appropriate employee attitudes and behaviors

Value

Define what is considered important

Factor Conditions

Describe a country's endowments in terms of natural, human, and other resources

Ambidexterity

Describes a firm's ability to address trade-offs not only at one point but also over time

Moral Hazard

Describes a situation in which information asymmetry increases the incentive of one party to take undue risks or shirk other responsibilities because the costs accrue to the other party

Organizational Culture

Describes the collectively shared values and norms of an organization's members

Specialization

Describes the degree to which a task is divided into separate jobs

Merger

Describes the joining of two independent companies to form a combined entity; Tend to be friendly

Hierarchy

Determines the formal, position-based reporting lines and thus stipulates who reports to whom

Matrix

Disadvantages of the _______ structure include organizational complexity, increased administrative costs, slow decision making, and difficulty in implementation

Strong Culture

Emerges when the company's core values are widely shared among the firm's employees and when the norms have been internalized

Positive Culture

Employees are motivated by ______________ because it appeals to their higher ideals

Ambidextrous Organization

Enables managers to balance and harness different activities in trade-off situations

Tacit Knowledge

Equity alliances allow for the sharing of ____________, which is knowledge that cannot be codified

Porter's Diamond of National Competitive Advantage

Explains why some nations outperform others in specific industries

-Limited Liability for Investors -Transferability of Investor Ownership -Legal Personality -Separation of Legal Ownership and Management Control

Four characteristics that make the public stock company an attractive corporate form:

-Can entail long negotiations and significant investments -If the alliance doesn't work out, undoing it can take time and involve considerable cost -Knowledge shared with the new partner could be misappropriated by opportunistic behavior -Any rewards from the collaboration must be shared between the partners

Four disadvantages of joint ventures:

-Single Business -Dominant Business -Related Diversification -Unrelated Diversification

Four types of corporate diversification:

Make Acquisitions

Gaining new capabilities or competencies is one of the main reasons that companies ____________

Inside Directors

Generally part of the company's senior management team, such as the CFO and COO

-Capabilities -Costs -PESTEL Factors

Global-collaboration networks freely locate business functions anywhere in the world based on an optimal mix of three factors:

-Reduce the cost of doing business around the world -Source supplies at lower costs -Learn new competencies -Further differentiate products

Globalization allows firms to do four things:

Peer Control

Has a particularly high influence on employee conformity and performance when the compensation of each member of a group depends in part on the group's overall productivity

Alliance Leader

Has the technical expertise and knowledge needed for the specific technical area and is responsible for the day-to-day management of the alliance

Learning-by-Doing Approach

Has value for small ventures in which a few key people coordinate most of the firms' activities

Organic Organizations

Have a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making

-It reduces rivalry among existing firms -It reduces the threat of entry

How does horizontal integration affect Porter's Five Forces for the surviving firms? (2)

Tall; Narrow

If many levels of hierarchy exist between the frontline employee and the CEO, it has a ____ structure and a _______ span of control

In more than one country

In order for a company to be considered a multinational enterprise, it must operate __________

Structure; Strategy

In order for firms to achieve superior performance, _________ must follow ___________

Resources

In the build-borrow-or-buy framework, this term is defined broadly to include capabilities and competencies

Artifacts

Include elements such as the design and layout of physical space, symbols, vocabulary, what stories are told, what events are celebrated and highlighted, and how they are celebrated

Integration-Responsiveness Framework

Juxtaposes the pressures an MNE faces for cost reductions and local responsiveness to derive four different strategies to gain and sustain competitive advantage when competing globally

Explicit Knowledge

Knowledge that can be codified; Concerns the notion of knowing about a certain process or product

Socialization

The process whereby employees internalize an organization's values and norms through immersion in its day-to-day operations

-Structure -Culture -Control

Three key components of organizational design:

-Reduction in Competitive Intensity -Lower Costs -Increased Differentiation

Three main benefits of horizontal integration:

-Build -Borrow -Buy

Three options to close the strategic resource gap:

-Principal-Agent Problems -Desire to Overcome Competitive Disadvantage -Superior Acquisition and Integration Capability

Three reasons there are so many mergers:

-Swifter Decision Making -Greater Employee Creativity -Greater Employee Satisfaction

Three things are frequently associated with organic organizations:

-Lower Costs -Reduction in Competitive Intensity

What are two sources of value creation in a horizontal integration strategy?

Internal Development

What does the term "build" refer to in the build-borrow-or-buy framework?

Acquiring a Firm

What does the term "buy" refer to in the build-borrow-or-buy framework?

At least one person in the alliance considers the venture to be a failure

What is a major problem for between 30% and 70% of all strategic alliances?

To enable managers to translate their chosen strategy into a realized one

What is the goal of organizational design?

Ineffective Strategy Implementation

What is the main reason why board of directors fire CEOs?

Lower Costs

When Pfizer and Wyeth merged, they reduced the size of their combined sales force while also increasing the number of drugs they could promote. This is an example of which source of value creation for M&A's?

The liability of foreignness

When a company has difficulty coordinating operations across geographic distance and between distinct culture environments, it experiences:

Outperform global competition that lacks such intense domestic competition

When companies face a highly competitive environment at home, they are more likely to ____________

Many

When the span of control within an organization is wide, one manager supervises _______ employees

VRIO Framework

Which framework can companies use to assess whether their internal resources are superior to those of competitors in the targeted area?

-Licensing -Distribution -Supply

Which three forms of agreement do non-equity alliances typically take?

Organization Complexities

Why are transnational strategies difficult to implement?

To hedge against uncertainty

Why do incumbent companies enter into strategic alliances with startups?

Closing the gap is likely to lead to a competitive advantage

Why is the resource gap strategic?