CH8

Long-Term Contracts typically last

1 year or more

When one firm buys or takes over another firm

Acquisition

New Core Competence, New Market

Building new core competencies to create and compete in markets of the future

New Core-Competence, Existing Market

Building new core competencies to protect and extend current market position

Term is used to describe cooperation by competitors

Co-Opetition

Unrelated Diversification

Conglomerate fits which type of corporate diversification model

In most cases, mergers and acquisitions

Do not create competitive advantage

Alliance Management Capability

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

Tata Group, owns Land Rover and Jaguar, is pursuing

Focused Differentiation Strategy

One way to overcome the principal-agent problem is to

Give stock options to managers, thus making them owners

Some foreign countries require companies to be structured as

Joint Ventures

Addition to having the lowest cost, a low-cost leader is likely to have

Large Market Share

In order to build alliance management capabilities in small companies, it is recommended that firms take the

Learning-by-Doing

In Taper Integration Systems, a firm has

Partial reliance on outside markets

Because the size of organizations is typically correlated with prestige, power, and pay

Principal-agent problems might be a reason to pursue Managers as agents

Purpose of the Core Competence-Market Matrix

Provides guidance regarding how to diversify in order to grow the company

Principal-Agent Problem

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

The Lemons problem suggests that information asymmetries can cause

Superior goods to be replaced by inferior ones

Disadvantage of a Short-Term Contract as an Alternative on the Make-or-Buy continuum is that

Supplying firms responding to the request for proposal have no incentive to make any transaction-specific investments due to the short duration of the contract

Horizontal Integration can reduce

The threat of entry

IKEA used the value innovation framework of

eliminate-reduce-raise-create to successfully implement a blue ocean strategy

To figure out if a firm's type of diversification is

related or unrelated, one can ask questions about the degree to which the corporation's business units share core competencies

Three of the following are Advantages of Equity Alliances

- Window into new technology - Possible emergence of trust and commitment - Stronger ties

Four underlying strategic management concepts that determine the scope of a firm

Core Competencies - Unique strengths embedded deep within a firm Economies of Scale - When a firm's average cost per unit decreases as its output increases Economies of Scope - Savings that come from producing two (or more) outputs or providing different services at less cost than producing each individually, through using the same resources and technology Transaction Costs - All costs associated with an economic exchange

When an established firm makes an equity investment in an entrepreneurial venture it is known as

Corporate Venture Capital Investment

Boston Consulting Group Growth-Share Matrix

Locates a firm's individual SBU (Strategic Business Unit) in Speed of Market Growth and Relative Market Share

Two alternatives to vertical integration are

Tapper Integration - Way of orchestrating value activities in which a firm is backwardly integrated, but it also relies on outside-market firms for some of its supplies, and/or is forwardly integrated but also relies on outside-market firms for some of its distribution Strategic Outsourcing - Involves moving one or more internal value chain a firm's boundaries to other firms in the industry value chain

True about Alliance Management Capability

- Involves partner selection and alliance formation - A firm may need to employ it with several different alliances

Partnership in which at least one partner takes partial ownership in the other is an

Equity Alliance

Best option if a company wants to show commitment to a partner firm without acquiring that firm

Equity alliance

Existing Core Competence, Existing Market

Leveraging core competencies to improve current market position

Existing Core Competencies, New Market

Redeploying and recombining core competencies to compete in markets of the future

Benefits of a horizontal Integration

Reduction in competitive intensity Lower Costs Increased Differentiation

Strategic Outsourcing

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

When a multi-business firm pools and shares resources and leverages competencies across different business lines, it is following a

Related diversification strategy

Which of the following are alternatives on the make-or-buy continuum?

Short-term Contracts Long-term Contracts Equity Alliances Joint Ventures Parent-Subsidiary Relationships

Types of diversification that tend to have the lowest performance

Single Business and Unrelated Diversification

Why did Coca-Cola enter into a strategic alliance with Monster?

So it could gain private information

Joint Venture

Two or more partners create and jointly own a new organization

A company known for its Alliance Management, Manages its alliances using three-person team consisting of

- Alliance Champion - Alliance Leader - Alliance Manager

Advantages of Strategic Alliances

- Help Firms achieve goals faster than they would alone - Might give companies a competitive advantage

Why firms need to grow

- Increase Profits - Motivate Management - Lower Costs - Increase Market Power - Reduce Risk

Types of Strategic Alliances

- Joint Venture - Equity Alliances - Long-Term Contracts

Three Mechanisms that Alliances can be Governed by

- Non-Equity Alliances - Equity Alliances - Joint Ventures

Three Options used by Executives to drive firm growth

- Organic Growth Through Alliances - External Growth Through Alliances - External Growth through Acquisitions

Two Necessary Conditions for Successful Alliance Formation

- Partner Compatibility - Partner Commitment

Primary reasons a firm might pursue a merger

- Principal-agent problems - Desire to overcome competitive disadvantage - Superior acquisition and integration capability

Three Choices in the Build-Burrow-or-Buy Framework

- Pursue Internal Development - Enter a Strategic Alliance - Acquire New Resources, Capabilities, and Competencies

Three of the Following are the Primary Benefits of Horizontal Integration

- Reduction in Competitive Intensity - Lower Costs - Increased Differentiation

Main Types of Diversification

- Single Business - Dominant Business - Related Diversification - Unrelated Diversification: The Conglomerate

One reason why a firm might enter into a strategic alliance is to

- Strengthen Competitive Position - Enter New Markets - Hedge against uncertainty - Access critical complementary assets - Learn new capabilities

Horizontal Integration Affect on Porter's Five Focus for the surviving firms

- Strengthening bargaining power vis-a-vis suppliers and buyers - Reducing the threat of entry - Reducing rivalry among existing firms

Forms of Agreement do Non-Equity Alliances Typically Take

- Supply Agreements - Distribution Agreements - Licensing Agreements

Questions that managers must answer when pursuing value innovation

- Which product factors to eliminate - Which product factors to reduce below the industry standards - Which product factors to raise above the industry standard - Which new product factors to create

Gaining new capabilities or competencies is on of three main reasons companies

Make acquisitions

When two firms agree to join and create a combined entity

Merger

Forward Vertical Integration

Moving ownership of activities closer to the end customer

Backward Vertical Integration

Moving ownership of activities upstream to the originating inputs of the value chain

Most integrated Alternative to Vertical Integration is

Parent-Subsidiary Relationship

Beneficial Effect of a Differentiation Strategy on the Power of Suppliers in an Industry is

Protection against increase in input prices, which can be passed on to customers

Approach to Strategic Decision making takes a larger investment decision and divides it into multiple decisions that happen over time

Real-Options Perspective

Forms of specialized assets include

Site Specificity - Assets required to be co-located, such as the equipment necessary for mining bauxite and aluminum smelting Physical-Asset Specificity - Assets whose physical and engineering properties are designed to satisfy a particular customer Human-Asset Specificity - Investments made in human capital to acquire unique knowledge and skills

Diversification Discount

Situation in which the stock price of a highly diversified firm is valued as less than the sum of their individual business units

Which has significantly more value in their intended use than in their next-best use

Specialized Assets

Relational View of Competitive Advantage

States that important resources are commonly embedded in strategic alliances that cross firm boundaries

Licensing is

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

Horizontal Integration can

Help a firm improve its strategic position in an industry

Occurs when a Targeted Firm is Unwillingly Acquired

Hostile Takeover