5560 test 2

M&A and competitive advantage

On average they destroy rather than create shareholder value. most times they do not provide a competitive advantage, many mergers destroy shareholder value b/c synergies never materialize. If shareholder value is created it generally accrues to the shareholders of the firm that was taken over(the acquiree) because acquirers often pay a premium when buying the target company. They may fall a victim to the winner's curse. Despite this, M&As are common b/c: 1. the principal agent problem(personal gains, power, prestige, pay, managerial hubris/self delusion) 2. The desire to overcome competitive disadvantage 3. Superior acquisition and integration capability(can be a comp adv if your good at it)

types of innovation

one way to categorize innovations is to measure their degree of newness in terms of technology and markets, technology refers to the methods and materials used to achieve a commercial objective. We also need to understand the market for innovation. this markets-and-tech framework asks on the vertical axis whether the innovation is targeted toward existing or new markets. 4 types of innovation are incremental, radical, architectural, and disruptive.

4 I's

1. Idea = innovation process begins here, this is presented in terms of abstract concepts or research based findings, this may be done to enhance understanding w/o benefit in mind 2. Invention = the transformation of an idea into a new product or process, or modification/recombination of existing ones. Must useful, novel and non-obvious 3. Innovation = the commercialization of an invention, allows firms to extract temporary monopoly profits. Must continuously innovate to maintain comp. adv, successful innovators benefit from first mover advantages like econs of scale and experience/learning curves. Key benefit is from network effects. It does not need to be high tech but needs to be novel, useful and successfully implemented 4. Imitation = where the innovation process ends, success attracts imitation.

Why do firms acquire other firms

1. access to new markets and distribution channels= need to overcome entry barriers 2. Access to a new capability or competency 3. Strategic preemption= concerns the integration of potential competitors through acquisitions(removes competitor, prevents existing comp. from buying startup)

questions(of build, borrow, buy)

1. how relevant are firm's existing internal resources to solving gap(if high = internal develop/build, you know if they are similar and superior) 2. How tradable are targeted resources that may be available externally(tradable means able to source through a contract like licensing. if easily tradable, use contract alliance) 3. How close do you need to be to external resource partner(if dont need to be close, use equity investment/JV, if need to be close then pursue buy through M&A) 4. How well can you integrate the targeted firm, do you need to acquire(only if low relevancy, low tradability and high need for closeness should M&A be considered.) Borrowing should always be considered B4 buying

alternatives to vertical integration

1. taper integration=orchestrates value activities to where a firm is backwardly integrated but relies on outside market firms for supplies and is forwardly integrated but relies on outside market firms for dist. Benefits are that it exposes in house suppliers to market competition and allows a firm to retain and fine tune competencies. Enhances flexibility, combines internal and external knowledge 2. strategic outsourcing = involves moving one or more internal value chain activities outside firm boundaries to other firms. Outsource noncore activities

Alliance Management capability

30-70% of all alliances are failures, this is a firm's ability to effectively manage three alliance related tasks concurrently, often across a portfolio of many different alliances. 1. Partner selection and alliance formation(benefits > costs. partner compatibility and commitment are critical) 2. Alliance design and governance(inter-organizational trust crucial) 3. Post-formation alliance mgmt(ongoing mgmt of alliance. make relation-specific investments, establish knowledge sharing routines, and build interfirm trust) differences in alliance mgmt capability can be source of comp. adv. and can be built through learning by doing. Dedicated alliance functions should be created.

Advantages/disadvantages of make

Advantages of make= command and control decision, coordination of complex tasks, transaction specific investments that are valuable within the firm, creation of a community of knowledge. Disadv = administrative costs, low powered incentives, principal agent problem(when an agent such as a mgr performing activities on behalf of the owner pursues his own interests.)

Incremental vs radical innovation

Incremental builds on an established knowledge base and steadily improves an existing product or service, targeting existing markets w/ existing tech. Radical draws on novel methods is derived from an entirely different knowledge base or from a recombination of existing knowledge bases with a new stream of knowledge, it targets new markets by using new tech. Many firms get their start by commercializing radical innovations. Firms use radical innovation to create a temporary comp adv, then follow up with a string of incremental innovations to sustain that initial lead. Once firms have achieved market acceptance of a breakthrough innovation they tend to follow up with incremental rather than radical. Future radical innovations are introduced by new ventures b/c of economic incentives, organizational inertia, and firm's embeddedness in an innovation ecosystem.

Product/Process innovations

Product = new or recombined knowledge embodied in new products Process = innovations are new ways to produce existing products or to deliver existing services. Made possible through advances such as AI, lean mfg, 6 sigma etc.. Process innovations dont need to be high tech to be impactful. In the introductory stage product innovation is at a max b/c new features are critical to gaining traction and process innovation is at a minimum b/c companies produce only a small number of products. The importance reverses over time as most of the uncertainties wash away.

build-borrow-or-buy framework

Relates to HOW firms grow, 3 options include organic growth through internal development, external growth through alliances, or external growth through acquisitions. This framework provides a conceptual model that aids strategic leaders in deciding whether to pursue internal development(build), enter a contractual arrangement or strategic alliance(borrow), or acquire new resources, capabilities and competencies(buy). Firms able to select the right path are more likely to gain and sustain a comp. adv. Determining which option to use begins with identifying a strategic resource gap that will impede future growth, and options to close the gap are to build(internal development), borrow(strategic alliances), and buy(acquiring).

blue ocean strategy

a business level strategy that successfully combines differentiation and cost leadership activities using value innovation to reconcile the inherent trade offs in those two distinct positions. This is a very risky strategy and managers should normnally not pursue this. Blue oceans represent untapped market space, the creation of additional demand and teh resulting opportunities for highly profitable growth. When a blue ocean strategy is successfully formulated and implemented, investments in differentiation and low cost are not substitutes but are complements, providing important positive spill over effects. When a blue ocean strategy is successful, investments in differentiation and low cost are not substitutes but are complements, providing important positive spill over effects. A successfully implemented blue ocean strategy allows firms two pricing options: firms can charge a higher price than the cost leader and can lower its price below that of the differentiator, allowing it to gain market share and make up the loss in margin through increased sales.

platform businesses

a firm that creates value by matching external producers and consumers in a way that creates value for all participants and depends on the infrastructure or platform that the enterprise manages. Platforms are business model innovations that use technology to connect organizations, resources, information and people in an interactive ecosystem where value generating transactions can be created and exchanged. Producers in the platform ecosystem create a product that the consumers use, the owner of the platform controls the IP ddress and who may participate. The providers offer the interfaces. Advantages are that platforms scale quicker by eliminating gatekeepers, they unlock new sources of value creation/supply, and benefit from community feedback, and network effects. In order for platforms to succeed they must manage positive network effects. Negative network effects describe the situation where more and more users exit a platform and the value that remaining users receive declines.

core competence market matrix

a framework to guide corporate diversification strategy by analyzing possible combinations of existing/new core competencies and existing/new markets. Managers must identify core comps and understand market situation. Lower left quadrant combines existing comps with existing markets and leaders must come up with ideas of how to leverage existing comps to improve current market position. Lower right quadrant combines existing comps with new markets and leaders must redeploy and recombine existing comps for future markets. Upper left quad combines new core comps with existing markets, must come up with strategy to build new comps to protect and extend current market position. Upper right quad is new comps w/ new markets(mega-opportunities) most challenging.

Transaction Cost economics

a theoretical framework in strategic mgmt to explain and predict the boundaries of the firm, which is central to formulating a corporate strategy that is more likely to lead to competitive advantage. It helps leaders decide what activities to do in house vs what services to obtain from external market. Different institutional arrangements have different costs attached. Transaction costs are all internal and external costs associated with an economic exchange. External = when companies transact in open market(negotiating, enforcing), internal = occur within the firm(recruiting, salaries, materials). Internal tends to increase with org size and complexity

differentiation benefits and risks

a well executed differentiation strategy reduces rivalry among competitors. A successful strategy is likely to be based on unique or specialized features, intangible resources or an effective marketing campaign. Competitors will find such intangible advantages time consuming and costly. If differentiator is able to create difference b/t perceived value and current market prices, they will not be threatened by input prices from suppliers and can likely pass on input increases to customers. Strong differentiation also eliminates threat of subs. The viability of this strategy is undermined when focus of competition shifts to price rather than value creating features which happens when products become commoditized. Differentiators must be careful not to overshoot appeal by adding features that raise costs but not perceived value and they need to be vigilant that its costs of providing uniqueness don't rise above customers willingness to pay.

advantages/disadvantages of buy

adv = high powered incentives, increased flexibility(can compare prices) disadv = search costs, opportunism by other parties, incomplete contracting, information asymmetry(sellers often have better info than buyers), enforcement of contracts, legal exposure

value innovation

aligning value with total perceived consumer benefits, price and cost, critical for a blue ocean strategy to succeed. Instead of attempting to out compete rivals by offering better features or lower costs, successful value innovation makes competition irrelevant by providing a leap in value creation, thereby opening new and uncontested market spaces. Successful value innovation requires that a firm's strategic moves lower its costs and also increase the perceived value for buyers. 4 key questions must be answered when formulating a blue ocean strategy the first 2 relate to lowering costs: 1. which factors that industry takes for granted can be eliminated? 2. Which factors should be reduced? The other 2 questions related to increasing perceived benefits: 1. Which factors should be raised above industry standard? Which factors should be created that the industry has never offered?

3 dimensions of corporate strategy

all companies must navigate these: 1. vertical integration, 2. diversification, 3. geographic scope, reponsibility rests with CEO. Must be able to answer: 1. In what stages of the industry value chain should we participate? 2. What range of products and services should we offer and not offer? 3. Where should we compete geographically? The underlying strategic mgmt concepts that guide the discussion of vertical integration, diversification, and geographic competition are core competencies, economies of scale, economies of scope, and transaction costs. Critical challenge of corp strategy is determining the boundaries of the firm

Innovation

allows firms to redefine the marketplace in their favor and achieve a competitive advantage, continued innovation enables a firm to sustain a competitive advantage over time. Competition is a process driven by continuous innovation and firms must be able to innovate and fend off competitors imitation attempts. The rate of technological change has accelerated and have spawned new industries. Innovation describes the discovery, development and transformation of new knowledge in a 4 step process captured in the 4 I's: Idea, invention, innovation and imitation. Innovations frequently lead to the birth of new industries

architectural vs disruptive innovation

architectural is a new product in which known components, based on existing tech are reconfigured in a novel way to create new markets. A disruptive innovation leverages new tech to attack existing markets, it invades an existing market from the bottom up. This process begins when a firm introduces a new product or process based on a new tech to meet existing customer needs, to be a disruptive force, this tech has to begin as a low cost solution to an existing problem, and have a faster rate of technological improvement than the rate of performance increases required by the market. Disruptive innovation relies on a stealth attack and invades from the bottom up, and the fact that incumbent firms are slow to change and mainly focus on incremental changes. To protect against disruptive innovation, firms must continue to invest to stay ahead, protect low end of market, and disrupt yourself/reverse innovation

Crossing the chasm framework

argues that each stage of the industry life cycle is dominated by a different customer group. The differences b/t early customer groups and later customer groups make for a difficult transition b/t different parts of life cycle, leading to a big gulf/chasm which companies frequently fall into. 1. tech enthusiasts = introductory stage, smallest segment 2. early adopters = enter in growth stage, 13.5% of market, demand is driven by imagination and creativity rather than solely on tech 3. early majority = come in shakeout stage, judge based on practicality, wait and see, make up 1/3 so they are critical 4. late majority = maturity stage, large segment(34%), drive most growth and profit. Wait until standards emerge to reduce uncertainty. 5. laggards = enter in decline stage, adopt only if necessary, not worth pursuing(16%)

industry life cycle

as an industry evolves over time we can identify five distinct stages, introduction, growth, shakeout, maturity, and decline. The type of innovation and resulting strategic implications change at each stage of the life cycle, and innovation can initiate and drive a new life cycle. The number and size of competitors change as life cycle unfolds and different types of consumers enter market at each stage. Development of most industries follows an S-curve where initial demand is slow then accelerates before decelerating and turning to zero. The life cycle is a useful framework, but industries dont necessarily evolve through these stages and innovations can emerge at any stage and industries can be rejuvenated in the decline stage. Some may never go through the life cycle

Equity alliance

at least one partner takes ownership in the other partner, less common than contractual non-equity b/c they require larger investments. B/c they are based on partial ownership rather than contracts, equity alliances are used to signal stronger commitments and they allow for the sharing of tacit knowledge(cannot be codified) which concerns knowing HOW to do a certain task and can only be gained through actively participating. Partners frequently exchange personnel to make gain of tacit knowledge possible. Equity alliances tend to produce stronger ties and greater trust b/t partners than non-equity, also offer a window into new tech that can be exercised if successful or abandoned if not promising. They are stepping stones toward full integration through M&A, used as a "try before you buy" option. Downside = large investment, lack of flexibility and slow to put together and benefit

backwards vs forward vertical integration

back= moving ownership upstream to originating inputs of the value chain forward = moving downstream into sales and increasing branding activities. OEMs most commonly forwardly integrate

types of diversification

based on the % of revenues from dominant or primary business and the relationship of core competencies across business units. 1. single business = low diversification, derives more than 95% of rev from one business 2. Dominant business = 70-95% of rev from single business but pursues at least one other, shares competencies in products 3. Related diversification = derives less than 70% of rev from single business activity and the rest from other lines of business linked to primary, benefit from econ of scale and scope 4. Unrelated divers = less than 70% of rev comes from single business and few linkages among businesses, conglomerate, can be advantageous

benefits/risks of vertical integration

benefits = lowering costs, improving quality, facilitating scheduling and planning, facilitating investments in specialized assets(high opportunity cost, can be site specificity, physical asset specificity, human asset specificity), securing critical supplies and dist channels. risks = increasing costs, reducing quality, reducing flexibility, increasing potential for legal repercussions. The main reasons to vertically integreate is the failure of vertical markets which occurs when transactions within the industry value chain are too risky and alternatives are too costly

internal capital markets

can be a source of value creation in a diversification strategy if the conglomerate's headquarters does a more efficient job of allocating capital through its budgeting process than what could be achieved in external capital markets. Internal capital markets may allow the company to access capital at a lower cost

Decline stage

changes in external environment take industries from maturity to decline, market size contracts further as demand falls. In this stage both product and process innovations cease. If there is any remaining excess industry capacity in the decline stage, this puts strong pressure on prices and can further increase competitive intensity, there are 4 strategic options at this stage: 1. Exit = bankruptcy or liquidation 2. Harvest = reduce investments in product support and allocate a minimum of human/other resources 3. Maintain = continue marketing efforts, do nothing 4. Consolidate = buying rivals, allows firm to take a strong position and approach monopolistic power

Economies of scope

describe the savings that come from producing two or more outputs at less cost than producing each output individually, even though using the same resources and technology.

entrepreneurship

describes the process by which change agents(entrepreneurs) undertake economic risk to create new products, processes and organizations. They innovate by commercializing ideas and inventions, they seek to create new business opportunities and then assemble the resources necessary to exploit them. Innovation is the competitive weapon used by entrepreneurs. If successful, entrepreneurship not only drives the competitive process, but also creates value for individual entrepreneurs and society at large. Entrepreneurs are the agents who introduce change into the competition system by figuring out how to use inventions and introducing new products/services, or processes. Intrapreneurs = innovating within existing companies.

Business level strategy

details the goal directed actions managers take in their quest for competitive advantage when competing in a single product market. It may involve a single product group of similar products that use the same dist channel. Concerns the broad question "How should we compete", to formulate a successful strategy managers must answer who, what, why and how, mgrs must keep in mind that comp advantage is determined by btoh industry and firm effects, these are interdependent. Two options are cost leadership and differentiation and you are more likely to have competitive advantage if focusing on just one instead of being stuck in the middle of both. To determine the business level strategy question of how to copmete, mgrs have two levers: value and cost

diversification and performance

determine whether individual businesses are worth more under company's management than if each were managed individually. The diversification-performance relationship is a function of underlying type of diversification. High and low levels of divers are associated w/ lower performance while moderate levels lead to higher performance. Companies that focus on a single business or pursue unrelated divers fail to achieve additional value creation. Firms in single market could leverage economies of scope to expand, and firms in unrelated divers experience a diversification discount where stock prices are less than sum of ind business units. Related diversification is more likely to improve performance. For diversification to enhance performance it must provide economies of scale, exploit economies of scope, reduce costs and increase value. Other benefits from diversification are financial economies from restructuring and internal capital markets.

strategic position

determined by a firm's business level strategy, this is a firm's strategic profile based on value creation and cost - in a specific product market. a firm attempts to stake out a valuable and unique position that meets customer needs while simultaneously creating as large a gap as possible between the value the firm's product creates and the cost required to produce it. Higher value creation means higher cost and strategic trade offs must be made(choices b/t a cost or value position).

generic business strategies

differentiation seeks to create higher value for customers than competitors by delivering products or services with unique features while keeping costs at the same or similar levels allowing the firm to charge higher prices. COST LEADERSHIP seeks to create the same or similar value by delivering products or services at a lower cost than competitors enabling the firm to offer lower prices to its customers. These are generic strategies b/c they can be used by any org. independent of industry context. Business strategies are more likely to lead to comp. adv if it allows a firm to either perform similar activities differently or perform different activities than rivals creating more value. Leaders must determine scope of competition, whether to pursue a specific narrow market or broader market. Their are two dimensions of strategic positions, broad and narrow(focused cost leadership, focused differentiation)

Maturity stage

during this stage the industry morphs into an oligopoly with only a few large firms. most demand is largely satisfied in shakeout stage and any additional demand is limited, demand now consists of replacement or repeat purchases and market has reached max size w/ negative or zero industry growth. This increases competitive intensity and process innovation is at a maximum in this stage as firms attempt to lower costs and product innovation is at a minimum. Generally firms in this stage are larger and enjoy economies of scale.

vertical integration

first question when formulating corporate strategy is figuring out which stages of the value chain should the firm participate. Vertical integration is the firms ownership of its production of needed inputs or of the channels by which it distributes its outputs. It can be measured by a firms value added, the degree of vertical integration corresponds to the number of industry value chain stages in which a firm directly participates. Industry(vertical) value chains depict the transformation of raw materials into finished goods and services along distinct vertical stages and each stage represents a distinct industry. Stage 1 = raw materials, stage 2 = intermediate goods and components, stage 3 = final assembly and mfg, stage 4&5 = marketing, sales, after sales service, support. Determined by its corporate strategy, each firm decides where in the industry value chain to participate, this defines the vertical boundaries of the firm. Not all industry value chain stages are equally profitable

Cost leadership cost drivers

goal of cost leadership is to reduce the firms cost below its competitors while offering adequate value. The cost leader focuses its attention and resources on reducing the cost to manufacture a product or on lowering operating cost to deliver a service in order to offer lower prices to its customers. Companies using this must excel at controlling costs but they can't neglect value creation, the most important cost drivers are 1. cost of input factors 2. economies of scale = decreases in cost per unit as output increases. this allows firms to spread fcs over a larger output, employ specialized systems/equipment, and take advantage of physical properties 3. learning curve effects = curve goes down, it takes less time to produce thae same output as we learn how to be more efficient. The more complex a process, the more learning effects can be expected. The steeper the learning curve, the more learning has occurred, learning curve effect is driven by increasing output within exisiting tech over time, tech remains the same. Learning effects occur over time, no diseconomies to learning 4. experience curve effects = now the technology is changed while output is constant, based on process innovation, these effects allow a firm to leapfrog to a steeper learning curve.

differentiation value drivers

goal of differentiation is to add unique features that will increase perceived value so customers will pay a higher price. Focus of competition in this strategy is on unique product features, service and new product launches, or on marketing and promotion. Although increased value creation is a defining feature, managers must also control costs. The most important VALUE drivers are product features, customer service, and complements. Value drivers only contribute to comp adv if their increase in value exceeds increase in costs. 1. Product features = adding unique attributes allows commodities to turn into differentiated products, need strong R&D 2. Customer service 3. Complements = add value when consumed in tandem

alternatives to make or buy

make and buy are two anchors on opposite ends of continuum such as: 1. short term contracts = requests for proposals, contracts less than a year, allows longer planning period than ind. market transactions, bad b/c firms have no incentive to make investments b/c of short duration 2. strategic alliances = voluntary arrangements involving sharing knowledge, resources and capabilities, can facilitate investments w/o internal transaction costs 3. long-term contracts = longer than. a year, facilitate transaction specific investments(licensing, franchising) 4. equity alliances = partnership where one partner takes partial ownership of another, taking of equity signals greater commitment, can help gain private information 5. joint venture = 2 or more partners create and jointly own an org, long term

Growth stage

market growth accelerates in this stage, after the initial innovation has gained some market acceptance, demand increases rapidly as first time buyers rush to enter the market convinced by proof of concept demonstrated in introductory stage. As size of the market expands, a standard signals market's agreement on a common set of engineering features and design choices. Demand is strong in this phase, allowing both efficient and inefficent firms to thrive and production costs begin to fall. After a standard is established, the basis of competition moves away from product innovations toward process innovations. Core competencies for comp advantage in this stage are mfg and marketing, competitive rivalry is muted in this phase as market is growing fast. More strategic variety occurs in this phase. Key objective in this phase is to stake out a strong strategic position not easily imitated by rivals

mergers and acquisitions

mergers describes the joining of two independent companies to form a combined entity, tend to be friendly where 2 firms agree to join. The combining of two firms of comparable size is a merger. Acquisition describes the purchase or takeover of one company by another, can be friendly or unfriendly. When a firm does not want to be acquired, the acquisition is a hostile takeover. When large incumbent firms buy start-ups, the transaction is an acquisition. Strategic alliances, mergers and acquisitions are the tools used to execute corporate strategy and the mgmt of these needs to be placed at the corporate level not at the level of the business unit.

Non-equity alliances

most common type based on contracts between firms examples are supply agreements, dist agreements, and licensing. These are vertical strategic alliances connecting different parts of the industry value chain. Firms share explicit knowledge(can be codified) like patents, user manuals, fact sheets, it is the notion of knowing about a certain process. These alliances are flexible and easy to initiate and terminate, but produce weak ties b/t alliance partners causing lack of trust and commitment

strategic alliance

only qualifies as strategic if it has the potential to affect a firm's competitive advantage through increasing value or lowering costs. These are voluntary arrangements between firms that involve the sharing of knowledge, resources and capabilities with the intent of developing processes, products or services. Use of alliances has grown over years, and they are attractive for many reasons such as they enable firms to achieve goals faster and at lower costs than alone. They may join complementary parts of a firm's value chain or may join the same value chain. In contrast to M&As, they also allow firms to circumvent legal repercussion like lawsuits from feds or EU. They have the potential to help firms gain comp adv when it joins resources and knowledge in a combo that obeys VRIO. Common reasons to enter include to strengthen comp position(reduce rivalry), enter new markets(products or geography), hedge against uncertainty(wait and see approach), access critical complementary assets, learn new capabilities(coopetition). Alliance formation frequently motivated by leveraging economies of scale, scope, specialization and learning.

diversification

product diversification =what range of products and services should the firm offer, geographic diversification = where should the firm compete in terms of national, or intl markets. A firm that engages in diversification increases the variety of products and services it offers or markets and the geographic regions in which it competes. Non diversified focuses on a single market while diversified competes in several markets simultaneously. Firm active in several markets = product div, active in several countries = geographic div, combination = product-market div strategy. Related constrained or related linked diversification are most beneficial and entail two types of costs = coordination costs(function of the number, size and types of businesses linked) and influence costs(occur due to political maneuvering by managers to influence capital and resource allocation.

Cost leadership benefits and risks

protected from competitors b/c of having lowest cost, if price war ensues, the low cost leader will be the last firm standing and others will be driven out, cost leaders likely to have large market share reducing threat of entry. Isolated from powerful suppliers b/c more able to absorb price increases through accepting lower profit margins, and can absorb price reductions more easily when demanded by powerful buyers. Risks include erosions of margins if a new entrant with relevant expertise enters the market. The risk of replacement is pertinent if a potent substitute emerges due to innovation. Low cost leader must remain vigilant to keep costs the lowest in the industry, but must also maintain an acceptable level of value. Low cost leaders face challenges when focus of competition shifts from price to non-price attributes. None of the business level strategies is inherently superior but depend on how well the strategy leverages internal strengths and mitigates weaknesses and how well it helps a firm exploit external opportunities.

Shakeout stage

rate of growth declines in this stage, firms begin to compete directly against one another for market share, rather than trying to capture a share of an increasing pie. As competitive intensity increases, the weaker firms are forced out of the industry and only the strong survive as firms cut prices and offer more services in attempts to gain more of a market that grows slowly. This erodes profitability of all but the most efficient firms, causing the industry to consolidate. Cost leaders are often the most successful in this stage and key success factors are the mfg and engineering capabilities that can be used to drive costs down. Price becomes more of a competitive weapon b/c feautures are now well established, firms w/o clear strategic profiles are not likely to survive this phase

Joint Ventures

standalone org created and jointly owned by 2 or more parent companies. Partners contribute equity to a jv so they are making a long term commitment. Exchange of both explicit and tacit knowledge and are frequently used to enter foreign markets where the host country requires such a partnership to gain access to the market in exchange for advanced tech and know-how. Least common of the 3 types of strategic alliances. Advantages are strong ties, trust, and commitment that can result b/t partners but they can entail long negotiations and large investments. If alliance doesn't work out, they can take hella time and money to undo and knowledge shared with new partner could be misappropriated by opportunistic behavior and rewards must be shared.

Strategic vs social entrepreneurship

strategic = describes the pursuit of innovation using tools and concepts from strategic mgmt, can help leverage innovation for comp adv. Fundamental question of this type is how to combine entrepreneurial actions with strategic actions taken in pursuit of comp adv. Social = the pursuit of social goals while creating profitable businesses, they evaluate the performance of their ventures by financial metrics but also ecological and social contribution and use a triple bottom line.

Corporate strategy

strategic leaders must formulate this strategy to guide continued growth, to gain and sustain comp adv. any corporate strategy must align with and strengthen a firm's business strategy(diff, cost lead, blue ocean). Corporate strategy comprises the decisions that leaders make and the goal directed actinos that they take in the quest for comp adv in several industries/markets SIMULTANEOUSLY, answers the questions where to compete. It determines the boundaries of the firm along 3 dimensions, vertical integration along value chain, diversification of products, and geographic scope(regional, national, global). Corporate strategy is designed to aid growth and growth is necessary because it 1. increases profitability(stock market), 2. lowers costs, 3. increase market power, 4. reduces risk, 5. motivates mgmt. Must be dynamic over time

parent-subsidiary relationship

the most integrated alternative to performing an activity within one's own firm boundaries and anchors make or buy continuum on make side. The corporate parent owns the subsidiary and can direct it via command and control. Arising transaction costs are typically due to turf battles like capital budgeting. Other areas of concern involve how profitable a strategic business unit is, how centralized or decentralized a subsidiary ujnit should be, which type of products launched.

Horizontal integration

the process of merging with a competitor at the same stage of the industry value chain. Type of corporate strategy that can improve a firm's strategic position in a single industry. As a rule, firms should go ahead with horizontal integ(acquiring a competitor) if the target firm is more valuable inside the acquiring firm than as a continued standalone company. Net value creation must be positive. Industry wide trend towards horizontal integration leads to industry consolidation. 3 benefits to horizontal integration = reduction in competitive intensity, lower costs(economies of scale), increased differentiation. Sources of costs from horizontal integration include integration failure, reduced flexibility, increased potential for legal repercussions.

Restructuring

the process of reorganizing and divesting business unites and activities to refocus a company to leverage its core comps more fully. BCG growth matrix divides SBUs in two dimensions relative market share(horizontal) and speed of market growth(vertical). 1. Dogs = underperforming, small market share in low growth market, unstable earnings negative cash flow, should divest or harvest 2. cash cows = low growth market but hella market share, high cash flows, keep investing, can turn into dogs 3. Star = high market share, fast growing market, high earnings, invest sufficiently to maintain position or increase can turn into cash cows 4. question marks = can turn into dogs or stars, low earnings but might be growing, ivnest to increase market share

firms vs markets(make or buy)

this decision helps to determine the boundaries of a firm. When the cost of pursing an activity in house are less than cost of transacting for that activity in the market, the the firm should vertically integrate by owning production of the needed inputs or the channels for distribution of outputs.

Introduction stage

when an individual or company launches a successful innovation and a new industry emerges, in this stage the innovator's core competency is R&D necessary to creating a product category that will attract customers. Very capital intensive process, high barriers to entry and competition is based on emphasizing unique product features and performance rather than price. There can be first mover disadvantages and strengths in marketing are helpful. Strategic objective in this stage is to achieve market acceptance and seed future growth, network effects can help with this, occurring when the value of a product increases with the number of users.