MGT 472 GR #2

If we assume GM was pursuing a multi-domestic strategy in Europe (to compete with large and/or lucrative but idiosyncratic domestic markets), what primary business-level strategy does this correspond with? What are some of the benefits and risks (at least 3 in total) of pursuing this type of global strategy?

- Main business-level strategy is differentiation. The multi-national enterprise (MNE) wants to be perceived as local company. -Benefits: highest-possible local responsiveness, increased differentiation, reduced exchange-rate exposure. -Risks: Duplication of key business functions in multiple countries leads to high cost of implementation, little or no economies of scale, little or no learning across different regions, higher risk of IP expropriation.

What is Business Level strategy?

-Details goal-directed actions managers take to: *achieve competitive advantage *in a single industry or product market -It answers the "HOW will we compete to gain and sustain competitive advantage?" Who, what, why how

Given the fact that costs and risks involved in expanding beyond the domestic market are created by distance, explain why economic distance is important to consider for auto manufacturers. How does this relate to GM's strategy in Europe?

-economic distance most affects industries or products for which demand varies by income (as is the case with cars) and in which labor and other cost differences matter (as is the case for auto manufacturers pursuing a multi-domestic global strategy. Companies from wealthy countries (like U.S. and Germany) benefit in cross-border trade with other wealthy countries when their competitive advantage is based on economies of experience, scale, scope, and standardization. This is because replication of an existing business model is much easier in a country where the incomes are relatively similar and resources, complements, and infrastructure are of roughly equal quality.

Platform business

-enables interaction between producers and consumers -enable matches among users -provides infrastructure and governance -goal is to create frictionless economic transactions

why do firms merge?

-horizontal integration: *the process of merging with competitors *leads to industry consolidation - 3 main benefits 1. reduction in competitive intensity : changes underlying industry structure in favor of surviving firms 2. lower costs: economies of scale 3. increased differentiation: fills product gaps Sources of costs -integration failure -reduced flexibility -increased potential for legal repercussions

pipeline business

-linear transformation through the firm value chain -R&D, then design, then manufacture, then sell

strategic entrepreneurship

-pursuit of innovation using strategic tools and concepts -combining entrepreneurial actions in pursuit of competitive advantage

why do firms enter strategic alliances?

-strengthen competitive position -enter new markets -hedge against uncertainty -access critical complementary assets -learn new capabilities

social entrepreneurship

-the pursuit of social goals while creating profitable business -use triple-bottom line approach to assess performance

why do firms acquire other firms?

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

what are the two key variables to determine level of diversification?

1. Percentage of revenue from the dominant or primary business 2. Relationship of the core competencies across the business units (e.g., what makes diversification related)

4 types of corporate diversification

1. single business 2. dominant business 3. related diversification 4. unrelated diversification

3M's Seven pillars of innovation

1.Commitment to Innovation 2.Actively Maintain Innovative Culture 3.Maintain Technology Base 4.Talk, Communicate, Network 5.Set Individual Expectations and Provide Rewards 6.Quantify Efforts and Results 7.Link Research to the Customer

What is a core competency for 3M?

3M prioritizes innovation as a key pillar in driving its businesses, where they have expertise in applying chemistry/science to make 2-dimensional products.

There are several mechanisms in which strategic alliances can be governed. Which of the following below is not one of those ways? a.acquisitions b.nonequity alliances that contain contractual agreements c.equity alliances d.joint ventures ●

A

Which of the following is not true about the decline stage of an industry life cycle? A) Firms that consolidate by purchasing their rivals will find themselves at a disadvantage B) There is generally excess industry capacity during the decline stage C) The last consumer segment called "laggards" will finally enter the market. D) Inefficient firms will usually exit the industry.

A

A software firm is interested in acquiring an app development company that is small but highly profitable. The app developer also has a widely admired management structure and much lower attrition rates than are common in the industry. Which of these problems should the software firm anticipate? A.A rival software firm may imitate this approach by acquiring a similar app developer. B.The software firm may overpay for the app developer, poorly serving the software firm's shareholders. C.Because most acquisitions are profitable, there is little to worry about in this scenario. D.The software firm may underpay for the app developer, cheating the app developer's shareholders of profit.

B

Which of the following scenarios best exemplifies a platform business? A) Jill purchases electronic parts from a variety of vendors and assembles them into inexpensive MP3 players that he sells to consumers B) Samantha operates an industrial test kitchen in which local growers bring their produce to local chefs, who use the kitchen to try new recipes and determine which produce to buy C) Tony operates a consulting firm in which businesses hire him to assess deficiencies in their organizational culture D) Allison founded a bike-based transportation company that offers environmentally-friendly rides to customers within a 25-mile radius.

B

________Blank is best described as the changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain

Backward vertical integration

What factors may have been a major contributor to the decision to merge Kraft and Heinz (i.e., what are the three main benefits of horizontal integration)?

Because of a cost leadership strategy, the major contributor to the merge decision was to reduce costs via economies of scale and zero-based budgeting (a Warren Buffett favorite). The three main benefits are to reduce competitive intensity, lower costs, and increase differentiation. The new Kraft Heinz Company became the world's fifth-largest food and beverage company and the third-largest in the United States.

What is the overall business-level strategy at IKEA? Which parts of the company's value chain seem to be most important in implementing this strategy? What role does food service play as part of the company's business strategy?

Blue Ocean strategy, combining differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs (need to align innovation with total perceived consumer benefits, price, and cost). Most important activities in the value chain seem to be innovation associated with furniture design, engineering, and store design, thus R&D and marketing & sales. Food service (e.g. delicious Swedish delicatessen such as smoked salmon at low prices) serves to reinforce their value innovation strategy (high quality at low cost) by maintaining an innovative relationship with its customers; thus, food further enhances the customer's retail experience. - Cost-Leadership Strategy now??

How does 3M use the build-borrow-buy framework to fuel corporate growth?

Build: internal innovation as a mechanism for growth...serving new products/markets or a difference. Borrow: Cooperative strategies like licensing, strategic alliances, and joint ventures Acquire: Another alternative is to acquire companies that have an entrepreneurial/innovative spirit. That's what usually happens...firms get acquired and it's better for them. Is their money better spent on an acquisition or capital invested in the firm? You're paying a lot or targets often times...advantage is you get the capability quicker, could be more expensive or harder to integrate; M&A is the link between strategy and finance.

What level of diversification does 3M appear to use with its corporate strategy?

Businesses generally share competencies and revenues from primary business are less than 70%. Does that translate into medical gowns? Could call it related-constrained vs. related-linked...on a continuum where you can make an argument for either, depending on how much the different businesses share competencies.

Soylent Corporation is a major nutritional supplement chain. Its managers are motivated to grow the firm in order to increase their market power and change the industry structure in their favor. Which of the following strategies is most associated with their motive for growth? a)Employing celebrity spokespeople b)Implementing automated soy-making machinery c)Purchasing competitors d)Increasing executive salaries

C

Which strategic levers does IKEA employ, related to its business-level cost strategy

Cost Drivers: Cost of input factors, economies of scale, economies of scope, employing specialized systems and equipment, minimum efficient scale of physical properties (cube-square rule) learning-curve effects (cumulative output increases, technology remains constant, with timing and complexity considerations), experience-curve effects (underlying technology changes, cumulative output remains constant). - Eliminate & Reduce (lower costs: 1) eliminate factors industry takes for granted; 2) reduce factors well below the industry's standard - IKEA eliminates their salespeople and the need to have small, expensive retail outlets in prime urban locations and shopping malls; they also eliminate the long wait customers normally experience after ordering furniture an display products in a warehouse-like setting, thus reducing inventory cost; Customers serve themselves and then transport the furniture to their homes in IKEA's signature flat-packs for assembly, thus reducing costs related to operations, outbound logistics, and after-sales service; use big-box concept of locating supersized stores near major metropolitan areas, taking advantage of the cube-square rule and economies of scale; IKEA's DIY business model regarding furniture selection, delivery, and assembly reduces need for mega-store staffing; IKEA also reduces their use of expensive materials for furniture, does not offer the normal 25-year warranties on high-end custom furniture, doesn't offer high degree of customization in selection of options such as different fabrics and patterns, and doesn't use expensive materials such as leather or hardwoods, thus reducing their supply chain costs; rather than sourcing its furniture from wholesalers or other furniture makers, IKEA manufactures all of its furniture at fully dedicated suppliers, thus tightly controlling the design, quality, functionality, and cost of each product

Drivers that keep costs low

Cost of input factors: •Raw materials, capital, labor, and IT services. Economies of scale: •Decreases in cost per unit as output increases. Learning-curve effects: •Less time to produce output with experience. Experience-curve effects: Improvements to technology and production processes.

Using the CAGE model to organize your analysis, explain why GM left Europe.

Cultural: GM cars were "just not European". They were sensible but not up to the quality/performance level/luxury that some other European car makers had. Administrative: Tightening emission standards and regulations with different rules in different parts/countries of Europe Geographic: Based on the narrow roads, GM's small Opel and Vauxhall brand of cars made sense; however, distance of getting parts in supply chain (from US) and/or utilizing supply chain partners (from Europe) made it more costly to acquire. Economic: Great recession didn't help with the lower pressure to reduce costs based on a multi-domestic strategy of tailoring your product to specific markets. Also, hard to achieve economies of scale if each of their factories had to get different materials based on the differing vehicle parts and reqts for each country. Because of the higher cost of gas in Europe, they didn't introduce their higher-margin SUVs to the market (instead, it was their small passenger cars, which also had smaller margins).

Mary has been named CEO of an office furniture manufacturing company. As CEO, she is tasked with setting the firm's corporate strategy. Which of the following decisions is Mary most likely to make? a)Whether to pursue a differentiation or cost-leadership strategy b)Which customer segments to target c)How to achieve the highest levels of customer satisfaction d)What range of products the firm should offer

D

Which of the following are sources of competitive advantage with regard to alliance governance? a.Relationship-specific investments b.Inter-firm trust c.Knowledge-sharing routines d.All of the above

D

Which of the following scenarios best illustrates horizontal integration? A.Silis Inc. enters into a licensing contract with a distributor in a new international market. B.Silis Inc. acquires a component parts manufacturer who previously supplied to Silis' competitor. C.Silis Inc. sets up its own distribution channel and retail stores. D.Silis Inc. joins with Cancity Inc., one of its direct competitors.

D

Describe 3M's corporate culture. What effect does this have on their business-level strategy? What type(s) of entrepreneurship seem to be at play?

Encouraged to take risk; "bootlegging" - encouraged to use company resources (15% of their time) for their own disposal/ideas...to carve out your own time to do what you want/feel passionate about; putting your career on the line by becoming a product champion. According to the textbook, you develop innovation by inducing it through structures and systems; allowing for autonomous behavior; championing it through supporting new projects They have internal succession of corporate leaders to try to maintain their "leaderless" culture. Strategic entrepreneurship (how to combine entrepreneurial actions, create new opportunities, or exploit existing opportunities with strategic actions taken in pursuit of competitive advantage) & corporate entrepreneurship (innovating within existing companies)

Looking at the diversification-performance relationship (depicted in Exhibit 8.13 in Chapter 8), why was GE able to buck this trend for a long time before economic realities caught up with it?

Exhibit 8.13 in Chapter 8 (below) shows the inverted U-shaped relationship between diversification levels and performance. Specifically, high and low levels of diversification in terms of relatedness are related to low performance (e.g., single business and unrelated) while moderate levels of diversification are related to high performance (e.g., dominant and related). Research shows that unrelated diversification is likely to lead to low performance because of the firm's inability to leverage its core competences in other (unrelated) businesses and a diversification discount (the market valuation of the diversified company is lower than the total market valuation of its business units). The case illustrates that GE has been experiencing a diversification discount as the diversification discount dropped GE's stock price significantly. When then-CEO Jeffrey Immelt announced the spinout of GE Capital in 2015, GE's stock price went up by 11 percent on that day, and this example shows how the diversification discount can lower the performance of a conglomerate. GE was able to resist this general performance indication of unrelated diversification for a long period of time under Jack Welch's leadership because of its high capital rating and accordingly low financing costs. The efficient internal capital market was the source of value creation for GE pursuing the unrelated diversification strategy, and GE was able to access capital at lower costs than outside capital markets and offered the financing service to its customers who wanted to build power plants or acquire GE's products. With efficient internal capital market and its ability to allocate capital through its budgeting process, GE was able to buck this diversification-performance relationship pattern until it lost its AAA debt rating in 2009

Why did GE lose $530 billion or almost 90% of its valuation since its peak? (i.e., What internal and external factors contributed to this decline?)

Exhibit MC 8.1 displays that GE once reached $594 billion in market value in 2000 but dropped to $69.93 billion valuation in 2022. External environmental changes, GE's slow response to the external changes, and its inability to restructure and use internal capital market inefficiently explain why GE lost almost 90% of its valuation in 2022. At the beginning of the 2000s things changed; With regard to external PESTEL factors, globalization and several black swan external events occurred and destroyed the effectiveness of GE's unrelated diversification strategy. POLITICAL/ECONOMIC: In 2001, China joined the World Trade Organization (WTO) and became the second largest economy with the world's largest population. GE's domestic-focused diversification led the company to miss significant growth opportunities in China and other BRIC economies (Brazil, Russia, and India). Additionally, black swan events such as the 9/11 terrorist attacks and the ECONOMIC: 2008-2009 financial crisis hit the company hard because GE's unrelated diversification and its over-reliance of GE Capital created significant cost and financial loss to the company. GE Capital accounted for more than half of the company's profits due to its high credit rating but the company lost its AAA credit rating and its favorable access to financing terms. As a result, bundling its products to discounted financing, the practice that GE had been using in its unrelated diversification, caused high capital costs and economic loss to the company. With regard to internal factors... After the financial crisis, as Mr. Immelt was refocusing the firm, he engaged in several major sales and business purchases for alignment with the new strategy. Eventually, GE sold GE Capital in 2015. In hindsight, it appears he not only overpaid for most of the acquisitions, but he also sold off the GE business units at too low a price (poor execution). In order to respond to the external environments, Immelt pursued restructuring and sold or spun out some of its business units at lower prices than their market value. Many people believed that Immelt's restructuring efforts were "too little, too late" and increased debts and costs to GE as Immelt overpaid on some high

Discuss changes in GE's product and geographic scope (depicted in above exhibits). Describe the most important trends. What stands out?

Exhibit MC 8.2 shows that in 2001, GE had a wide range of unrelated businesses (including capital, power systems, industrial products, aircraft engines, technical products, materials, appliances, and NBC) and around 45% of its revenues came from GE Capital. The 2001 GE product portfolio fits the definition of unrelated diversification strategy (a firm generates less than 70 percent of its revenues from a single business unit and has other businesses which share few linkages with each other). In 2001, Jack Welch stepped down and Jeffrey Immelt became the CEO. Immelt attempted to reduce the company's product scope by selling off and spinning out some of its business units. For instance, Immelt spun out GE Capital in 2015, sold NBC Universal to Comcast, and sold GE Appliance to Haier. Jeffrey Immelt was replaced by John Flannery in 2017, followed by Lawrence Culp in 2018, and these successors continued to reduce GE's product scope. Exhibit MC 8.2 show that in 2022, GE's product scope shrunk to four business units including aviation, health care, power, and renewables, and GE Aviation accounted for $21 billion in revenue (29 percent of the company's $74 billion in revenue), which was far below the company's $250 billion revenue in 2008. Exhibit MC 8.3 shows that GE was a domestic-focused company under Jack Welch's leadership, and the 66% of its revenues came from the U.S. market. In 2001, Immelt became CEO of GE and conducted restructuring to expand GE's geographic market scope. By 2009, more than 50% of GE's revenues came from outside the U.S. market. As of 2021, the U.S. accounted for the 44 percent of GE's revenues; Asia and Europe each accounted for about 20% of its revenues (Exhibit MC 8.3). Although GE has been reorganizing its business units and diversifying its geographic markets over the last two decades, what stands out is that GE is still a conglomerate pursuing an unrelated diversification strategy with limited geographic scope.

Innovation that targets new markets with existing technologies is known as disruptive innovation

False

What kind of diversification was GE pursuing (in 2001)? What are the sources of value creation with this type of diversification?

GE was pursuing the unrelated diversification strategy (e.g. NBC Universal, airplane engines, and commercial financing). According to the text (p.301), diversification strategies can be categorized into four types depending upon two criteria: 1) the percentage of revenue from a dominant business unit and 2) the relationship of the core competencies across a firm's business units. In 2001, GE was generating around 45% of its revenues from GE Capital and had other business units that shared few linkages, and as such, GE's corporate strategy is characterized as unrelated diversification. According to the text, two sources of value in unrelated diversification include restructuring and internal capital markets (p.309). Restructuring refers to the process of reorganizing and divesting business units in order to develop/leverage a firm's core competencies. For instance, strategic leaders can use the Boston Consulting Group Growth-Share Matrix to create a restructuring map in order to maximize returns from "Star" business units. Another source of value creation in unrelated diversification is internal capital markets. If a firm is more efficient in allocating capital resources than markets, bundling a product unit with a financial service business can offer advantages to the firm. The case describes that under Jack Welch's leadership, GE was able to enjoy its AAA credit rating and low finance costs and generated more than 50% of its revenues and profits from GE Capital.

Why was Yahoo's cofounder and CEO Jerry Yang forced out in 2008?

He failed to implement necessary strategic changes after Yahoo lost its competitive advantage.

________Blank determines the formal, position-based reporting lines and thus stipulates who reports to whom.

Hierarchy

Judging from the Disney-Pixar merger, which of these is an effective way to create shareholder value from a merger?

If the acquired company creates high-quality products or services, don't force it to mirror the management style of the acquiring company.

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.

Which of the following is an advantage of using a functional structure when pursuing a cost-leadership strategy?

It allows a cost-leader to upgrade core competencies in manufacturing and logistics.

In the bestseller Good to Great, Jim Collins advances the hypothesis that the greatness of a leader is known only after the leader has departed. The business press has celebrated Jack Welch as the greatest CEO of the last century. After this video case, do you agree with Collins' strategic leadership hypothesis? Why or why not? Note: When interviewed in 2018 about the GE situation, Jack Welch had this to say: "I give myself an A for the operation of GE, but an F for my choice of successor."

Iti is undeniable that Jack Welch was viewed as a brilliant business leader who brought tremendous value to GE shareholders during his nearly 20 years of running the firm at the time of his retirement in 2001. Today, there is much more discussion about how much of his success was skill and how much of it was being at the right place at the right time (i.e., luck). We can evaluate Welch's leadership effectiveness based on two time frameworks: during his tenure as CEO (1981-2001) and after his departure. AGREE with Jim Collins: Mr. Welch is a prime example of why we should wait to evaluate CEO performance for some period after they have left the post. He was probably the most widely-praised CEO of the 20th century and now, just 20 years later, there seems to be a consensus that he left many problems in the organization that Mr. Immelt inherited. Welch's leadership also left many problems, which led to GE's ongoing struggles over the following two decades after his departure. Welch's leadership and the culture he created led to low morale among the employees, its domestic-focused diversification prevented GE from capitalizing on global opportunities in emerging economies, the heavy reliance on GE Capital created a fatal weakness to GE when the financial crisis occurred, and the internal hiring practices that the company used prevented GE from hiring an outside CEO until Larry Culp was appointed as CEO in 2018. All these factors, rooted in Welch's leadership, contributed to GE's current struggles. DISAGREE with Jim Collins: Mr. Welch was compared to other firms, stock indexes, leadership measures, and many other benchmarks--all contemporaneously while he was CEO of GE. It is not fair to discount all those measures of his success based on the performance of the person who replaced him. No leader is perfect, but each leader should be measured on what is accomplished and what is not while they were in charge. Welch's hard-charging leadership was effective during his tenure at GE to break GE's bureaucracy and inefficiency. He fired the company's bottom 10% ranked workforce to enhance its products' market rankings and focus on stock market valuation. Given that Welch was able to maintain the compan

Which of the following is a shortcoming of the matrix structure?

Its implementation is difficult due to significant organizational complexity and increased administrative costs.

Shiny Kitchen Inc. and Juicello Corp. are two competitors in the electric juicer market. The cost incurred by each company to manufacture juicers is $75 per unit. Although both the companies sell their juicers at the same price, Juicello has a larger market share in the electric juicer industry. What does this imply?

Juicello offers more perceived value than Shiny Kitchen

How large is the company...and their stores? Is the company growing or consolidating? IKEA

Largest furniture retailer in the world and growing! $40B in 2017 sales, with retail sales growing by 6.5% in FY19; 403 stores, opening 14 new stores in 2017 alone. Average store is 300K sqft, often multiple levels/floors! Update: 460 stores in 62 markets across the world with FY22 retail sales reaching EUR 44.6 billion.

Using the Market & Technology framework below, please categorize (with justification) the innovation type of one of 3M's products. Describe the strategic implications of using this type of innovation.

Laser discs à Radical innovation: They were the first to bring products to markets using new technologies. Post-it Notes à Architectural innovation: Existing technology with adhesive and serving new markets (paper/office supplies) rather than tape; - Could make an argument its incremental (new technology with adhesive to existing tape markets) - Could make an argument it's disruptive (new tech with how they broke the barrier in stickiness (hard goal to achieve) but to an existing market) Masking tape & Sandpaper à Incremental innovation: existing technologies applied to existing markets What about scotchguard and Velcro?? BLUF: model is used to sort out the different ideas...could really make an argument for any of them. If we had more info about the markets they were serving and downstream customer, it could make for a different conversation. Each one of these, if so successful could drive strategy along those lines, though only resulting in temporary monopoly unless they continually innovate.

Lauren is the CEO of TimeEx Inc. and is competing in an industry that is shifting due to disruptive innovation. Which of the following strategies should she consider to most appropriately respond to this disruptive innovation?

Lauren should guard against the disruptive innovation by protecting the low end of the market

What type of corporate strategy had Kraft Foods Group been pursuing and along which dimension(s)/scope?

More of related-constrained diversification...via product and product-market diversification in the development and selling of packed food and beverages (consumer packaged goods (CPGs))....pursued geographic diversification in the food and beverage industry, with operations in the competitive North American, European, Asian Pacific, and Latin American markets. The new Kraft Heinz Company became the world's fifth-largest food and beverage company and the third-largest in the United States. It can also be argued to be related-linked or unrelated when they bought (Dart...drug, Tupperware), Hobart (KitchenAid appliances) and the Duracell battery company...

How do IKEA's internal distinctive competencies contribute to this strategy?

One of IKEA's core competencies is its unique design capabilities. IKEA leverages its deep design and engineering expertise to offer furniture that is stylish and functional and that can be easily assembled by the consumer. This capability results in offering customers great value for money. It is very hard for competitors to compete with great design at a very low cost. - "Designing beautiful-but-expensive products is easy. Designing beautiful products that are inexpensive and functional is a huge challenge."

Given the Boston Consulting Group (BCG) matrix and the Core Competence-Market matrix, use the build-borrow-or-buy framework, to recommend an opportunity to close a strategic resource gap that you think Kraft-Heinz should pursue?

Opportunity? Alt-Meat market? Kraft Heinz is looking to expand further into the plant-based market, according to recent comments made by the company's international ESG director, David Shaw. "Most of our plant-based replacements so far are predominantly from a beans base." Kraft Heinz said (22 February 2022) the two businesses (Not Co) are to form The Kraft Heinz Not Company, a venture to develop co-branded, plant-based products.

principle agent problem

Principal - the owner of the firm •Goal: create shareholder value Agent - manager or employee •Should act on behalf of the principal Problem: •Agents pursue their own interests •Corporate jets, golf outings, expensive hotels One Solution: •Stock options to make agents owners

Plexzap Sodas has been a market leader in the soft drink industry for several decades. However, its market research shows that consumer tastes have begun to shift to sugar-free flavored seltzer waters, a product that Plexzap is capable of producing with minimal changes to its facilities and production processes. Based on your knowledge of the core competence-market matrix, which diversification strategy should Plexzap pursue?

Redeploy and recombine existing core competencies to compete in markets of the future.

What PESTLE factors may have contributed to the decline in sales/value post Kraft-Heinz merger?

Sociocultural trends toward consumer health and awareness, technological trends changing the retail landscape and driving more customers to e-commerce websites and platforms, economic/legal/political trends in the global marketplace. They did not change the Kraft Heinz legacy brands quickly enough to meet consumer demand for healthier, fresher and, in some cases, cheaper private-label products

What is the "IKEA Effect"?

The IKEA effect is a cognitive bias that helps explain why people place disproportionately higher value (63% more) on things they helped to build or create - "labor alone can be sufficient to induce greater liking for the fruits of one's labor: even constructing a standardized bureau, an arduous, solitary tasks, can lead people to overvalue their (often poorly constructed) creations"

Corporate strategy

The decisions & goal-directed actions taken to gain & sustain competitive advantage in several industries & markets simultaneously. boundaries of the firm - addresses where to compete along three dimensions 1. vertical integration 2. diversification 3. geographic scope

Identify pressing PESTEL factors that may require modifications to their strategy?

The price of metal, glass, wood and plastic have spiraled up, as have shipping costs. Inflation has squeezed consumers' wallets. Managers at IKEA knew that something had to change to keep prices down and profits up, so in the past couple of years they have taken some of their products back to the drawing board. (from below article) IKEA Redesigns Its Bestsellers, Starting With the Billy Bookcase By Trefor Moss | April 25, 2023 Topics: Generic Strategies, Cost Leadership Summary: IKEA grew into a furniture behemoth with a relentless focus on keeping costs low. This goal has become more challenging as the prices of materials and shipping have spiraled up. So managers at IKEA have taken some of their products back to the drawing board. A number of cost-cutting redesigns are reviewed in the article. Designers experimented especially with ways to reduce IKEA's reliance on wood. Classroom Application: IKEA exemplifies the cost leadership strategy, especially with the Billy bookcase highlighted in the article. One pedagogical takeaway is that cost leadership requires constant effort and reinvention as new technical options open up. Another is that not all cost increases can necessarily be passed on to the consumer, as we learn from IKEA's experience: sometimes IKEA lives with lower margins to avoid price increases.

Mergers & acquisitions sometimes have difficulty creating enhanced competitive advantage. Additionally, Kraft is prone to using hostile takeovers, with acquisitions completed despite objections of the acquired firm. What additional burdens must hostile takeovers overcome? How can positive advantages for the acquiring company be achieved? In wat ways is a hostile takeover more difficult than an M&A?

The textbook notes many issues around softer skill issues such as corporate culture and alignment of corporate goals. While some firms can develop superior acquisition capabilities, with hostile takeovers these important integration issues tend to be major hurdles for the acquiring firm to overcome. The failed acquisition of the Hershey company is a clear example of Mondelez failing to understand the "meta-goals" of Hershey. The company is owned by a trust created by Milton Hershey to support a school for underprivileged and "at risk" children more than a century ago. While a sale would have given a one time boost the trust's endowment, it would not provide the level of confidence in the support of the Hershey School in perpetuity.

From the video, what seems to have been the primary mode of Kraft's growth strategy

The video case and Strategy Highlight 9.2 discusses the history of using Mergers & Acquisitions (especially hostile takeovers) as a key strategy in growing the firm's business. Kraft completed a hostile takeover of Cadbury back in 2010 and has had several failed unsolicited acquisition attempts more recently. Hershey (2016) and Unilever (2017) both successfully fought against Kraft/Mondelez purchase offers....negative impact of ill-advised acquisitions or attempts and more importantly the potentially dangerous consequences of not addressing other strategic decisions. Overall, Kraft has pursued more horizontal integration (merging with competitors, leading to industry consolidation) than vertical integration. Though they have had licensing agreements with Mondelez International (following the spin-off of Kraft in 2012). For example, Kraft-Heinz currently sells certain products under brands they license from third parties (e.g. Capri Sun, TGIFridays, McCafe, Taco Bell Home Originals)

What are Kraft-Heinz's sources of competitive advantage? Which of their resources, capabilities, and core competencies do you believe are shared across its activities (to achieve economies of scale and/or scope)?

This business has many competitive advantages: iconic brands, high barriers to entry (manufacturing, distribution, limited shelf space capacity), low cyclicality, and stable cash flow. By combining Kraft Foods and H.J. Heinz, the operating models are able to further entrench these competitive advantages. Shared competencies may include: Assets, infrastructure, and knowledge related to sales and distribution channels; Marketing of its iconic, legacy brands and the existing sales and distribution channels can be leveraged to help with the newly acquired brands... Others may include Procurement teams of their raw materials; Places they've been criticized for in the past are proactive R&D related to: product innovations, packaging techniques, food safety/quality/consistency, and continuous process improvement in pursuit of cost reductions. They have NOT be known to possess a superior "relational capability" that would've helped them achieve competitive advantage with their M&A activity See below performance graph comparing Kraft-Heinz shareholder value performance with the S&P 500 and the industry average as well as the six platforms Kraft-Heinz argues is key to driving growth. This case dramatically shows that traditional methods of restructuring are increasingly risky. Any effort that slows down or curtails a company's ability to innovate can lead to disastrous results.

Perfect Paws Inc., a pet supply chain, is implementing a multidomestic strategy. Heartland Express, a company that manufactures small engines for the agricultural industry, is pursuing a global-standardization strategy. How will the two companies most likely differ from each other?

Unlike Heartland Express, Perfect Paws Inc. will be able to pursue a differentiation strategy at the business level.

Which strategic levers does IKEA employ, related to its business-level differentiation strategy?

Value Drivers: Product features/quality, customer service, complements, premium pricing, marketing/advertising, R&D - Raise & Create (increase perceived consumer benefits): 1) Raise factors well above the industry's standard; 2) Create factors the industry has never offered. - IKEA offers tens of thousands of home furnishing items as well as a range of accessories such as place mats, laptop stands, etc.; each store has hundreds of rooms fully decorated with all sorts of IKEA items, each with a detailed tag explaining the item; IKEA manufactures all of its furniture at fully dedicated suppliers, thus tightly controlling the design, quality, functionality, and cost of each product; raised the customer experience by laying out its stores in such a way that customers see and can touch basically all of IKEA's products, including dishware, bedding, and furniture; created a new way for people to shop for furniture (including 90 days to return items for full refund); created new approach to pricing its products (rather than "cost plus margin", they begin with retail price first then designers figure out how to meet that goal); provide on-site childcare; house a cafeteria serving delicious food options at low prices; offer convenient and ample parking with escalators bringing customers directly into showroom.

Diversification

What range of products and services should the company offer?

Geographic scope

Where should the company compete geographically in terms of regional, national, or international markets?

The management at Fast Autos Inc. and All Start Automobiles Inc. realized that, by combining the two entities, the stakeholders of both the companies would benefit. Their core competencies would act as complementary assets to each other. Consequently, All Start Automobiles joined with FastAutos to form a combined entity called Just All Start Inc. Which of the following does this scenario best illustrate?

a merger

strategic alliances

a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services

There are several benefits of horizontal integration. Which of the following below is not a benefit?

access to new marketing and sales divisions

When a firm reconfigures known components of an existing technology to create new markets, it is said to be employing

architectural innovation.

Entrepreneur

change agent who undertakes economic risks to innovate

The local real estate companies in a city have joined together and arranged a "Property Fair." The sponsors will equally share the expenses of the event. Although many companies compete against each other, they have joined together because the medium will help the companies market themselves through a dedicated forum at an extremely low cost. This arrangement is best referred to as

co-opetition.

Generic business strategies

competitive scope vs strategic position The focused versions of the two business strategies—focused cost-leadership strategy and focused differentiation strategy—are essentially the same as the broad generic strategies except that the competitive scope is narrower. For example, the manufacturing company BIC pursues a focused cost-leadership strategy, designing and producing disposable pens and cigarette lighters at a low cost, while Mont Blanc pursues a focused differentiation strategy, offering exquisite pens—what it calls "writing instruments"—frequently priced at several hundred dollars.

Three key levers that managers have at their disposal when designing their organizations for competitive advantage are structure, culture, and

control

The strategic foundations of the globalization hypothesis are based primarily on

cost reduction.

transaction costs

costs associated with an economic exchange can be internal or external

When two neighboring democratic countries that are part of a trading bloc follow different religions and social norms, they most likely have high ________

cultural

Cost drivers

drivers that help keep costs low -cost of input factors -economies of scale/scope -learning curve effects -experience curve effects

In the ________Blank, firms change the underlying technology while holding cumulative output constant.

experience curve

Whole Foods focuses on a small market segment, affluent consumers who want to buy high-end, organic groceries. What is the appropriate name for Whole Foods's scope of competition?

focused

The four step innovation process ends with

imitation

corporate intrapreneurship

innovating within existing companies

A patent is a form of

intellectual property.

Relaxicab Inc. is a 100-year-old, multinational enterprise (MNE). Which of the following activities would the company most likely have been involved in during the stage of Globalization 2.0?

it would have increased its local responsiveness to country-specific circumstances by duplicating business functions overseas

Merger

joining of two independent companies to form a combined entity

While the personal computer industry is flooded and growing with laptops and tablets, Javier recently bought a desktop, his first personal computer. He realized that a computer at home would be helpful for his children for their school projects, and he could use it to maintain the simple accounts of his plumbing business. Which of the following customer segments does Javier best represent?

laggards

Value Drivers

levers that can increase value Drivers of Trust: •Brand strength (advertisement, word-of-mouth, offline contracts) •Privacy (disclosure, reputation, guarantees) •Security (disclosure, reputation, guarantees) •Navigation and presentation (usability, accessibility, persuasion) •Advice (detailed information, buyer's guide) •Community (reviews, ratings, forum posts) •Order fulfillment (customer promise, experience) Absence of errors (experience, independent ratings)

Spotless Inc. outsources its production to contract manufacturers located in underdeveloped nations where unskilled labor is at very low wages is plentiful. This has helped the company become a price leader in the chemicals industry. Which of the following is the key driver behind Spotless Inc.'s strategic position?

low-cost input factors

There exist important trade-offs between value creation and low cost because value creation and cost tend to be

positively correlated

Acquisition

purchase of one company by another

Since Coca-Cola focuses on selling only non-alcoholic beverages, a low degree of product diversification, we would conclude that it competes in a(n) ________Blank market versus its main competitor PepsiCo, which sells a wide variety of products.

single product

LMP Automotive Holdings Inc., a large multinational conglomerate, has hired an external consultant to process and audit its payroll. This allows the company to focus on manufacturing and marketing activities rather than developing and maintaining its own human resource management systems. Which of the following alternatives to vertical integration has LMP Automotive Holdings Inc. adopted?

strategic outsourcing

Which of the following factors best helps capture administrative and political distances?

the absence or presence of weak legal and financial institutions

Which of the following is a disadvantage faced by first movers in an industry?

they will have to find distribution channels and complementary assets

Describe how 3M maintains such a high level of product innovation?

top-down commitment to innovation, actively maintains innovative corporate culture, maintains technology base, networking, sets individual expectations and provides aligned incentives/rewards, quantifies efforts and results, links research to the customer

When does a merger between companies typically occur?

when two firms of comparable size join to form a combined entity

Strategy formulation centers around the key questions of ________

where

economies of scale

•Decreases in cost per unit. •Achieved as output increases.

Given that mergers & acquisitions, on average, destroy rather than create shareholder value, what are some of the reasons why we see so many M&As?

•Desire to overcome competitive disadvantage •Superior acquisition & integration capability •Principal-Agent problems a)Job security b)Higher pay c)Managerial hubris & illusion of control ●

internal transaction costs

•Recruiting and retaining employees •Paying salaries and benefits •Setting up a shop floor •Providing office space and computers, etc. •Organizing/monitoring/supervising work

economies of scope

•Savings that come from producing two outputs at less cost. •Shares the same resources or technology.

external transaction costs

•Searching for a firm/individual to contract with •Negotiating, monitoring, & enforcing the contract