Chapter 8
Taper Integration
(Alternative to Vertical Integration) A way of orchestrating value activities in which a firm is backwardly integrated, but it also relies on outside-market firms for some of its distribution.
Industry Value Chain
(AKA Vertical Value Chains) They depict the transformation of raw materials into finished goods and services along distinct vertical stages.
Strategic Outsourcing
(Alternative to Vertical Integration & reduces its level) Involves moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain.
Conglomerate
A company that combines 2 or more strategic business units (SBU's) under one overarching corporation and follows an unrelated diversification strategy.
Specialized assets
Assets required to be co-located.
Related Diversification Strategy
A firm derives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business related to the primary activity.
Product-market Diversification Strategy
A firm is active in several different markets and several different countries.
Product Diversification Strategy
A firm is active in several different product markets.
Licensing
A form of long-term contacting in the manufacturing sector that enable firms to commercialize intellectual property such as a patent.
Franchising
A long-term contract in which a franchisor grants a franchisee the right to use the franchisor's trademark and business processes to offer goods and services that cary the franchisor's brand name.
Credible Commitment
A long-term strategic decision that is both difficult and costly to reverse. Ex: CocaCola & Monster
Joint Venture
A stand-alone organization created & jointly owned by two or more parent companies.
Transaction Costs
All internal and external costs associated with an economic exchange, whether within a firm or in markets.
Diversification
An increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes.
Core Competence-market Matrix
Combines existing core competencies with new market opportunities.
Corporate Strategy
Comprises the decisions that senior management and the goal directed actions it takes in the quest for competitive advantage in several industries and markets simultaneously.
Internal Transaction Costs
Costs pertaining to organizing an economic exchange within a hierarchy. (AKA Administrative Costs) Ex: costs of recruiting and retaining employees, salaries and benefits, shop floor.
Related-Constrained Diversification Strategy
Executives pursue only businesses where they can apply the resources and core competencies already available in the primary business.
Related-Linked Diversification Strategy
Executives pursue various businesses opportunities that share only a limited # of linkages.
Geographic Diversification Strategy
Firm is active in several different countries.
Human Asset Specificity
Investments made in human capital to acquire unique knowledge and skills, which are NOT transferable to a different employer.
Boston Consulting Group growth-share matrix
Locates the firm's individual SBU's in two dimensions: 1) Relative Market Share (Horizontal Axis) 2) Speed of Market Growth (Vertical Axis) 4 different categories: Dog, Cash Cow, Star, and ?
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.
Principal-agent problem
Situation in which an agent performing activities on behalf of a principal pursues his or her own interests.
Info. Asymmetry
Situation in which one party is more informed than another because of the possession of private info.
External Transaction Costs
The costs of searching for a firm or an individual with whom to contract, and then negotiation, monitoring, and enforcing the contract.
Vertical Integration
The firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.
Diversification Premium
The stock price of related-diversification firms is valued at greater than the sum of their individual business units.
Diversification Discount
The stock price of such highly diversified firm is valued at less than the sum of their individual business unites.
Transaction cost economics
Theoretical framework in strategic management that helps managers decide what activities to do in house vs what services and products to obtain from the external market.
Strategic Alliances
Voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.
Unrelated Diversification Strategy
When less than 70% of its revenues comes from a single business and there are few, if any, linkages among its businesses.
Vertical Market Failure
When the markets along the industry value chain are too risky, and alternatives too costly in time or money.
Physical-asset specialized
assets whose physical and engineering properties are designed to satisfy a particular customer.
