MGMT 352 Exam 2

How do firms build alliance management capability?

The answer is to build capability through repeated experiences over time

Board of directors:

The centerpiece of corporate governance, composed of inside and outside directors who are elected by the shareholders that represent shareholders of public stock's interests

industry lifecycle

The five different stages—introduction, growth, shakeout, maturity, and decline—that occur in the evolution of an industry over time.

idea (1)

The idea is often presented in terms of abstract concepts or as findings derived from basic research

tradeable

The implication is that if a resource is highly tradable, then the resource should be borrowed via a licensing agreement or other contractual agreement.

Economic Distance

The wealth and per capita income of consumers is the most important determinant rich-rich trade rich-poor trade (economic arbitrage)

laggards

These are customers who adopt a new product only if it is absolutely necessary, such as first-time cell phone adopters in the United States today

late majority

They prefer to wait until standards have emerged and are firmly entrenched, so that uncertainty is much reduced. The late majority also prefers to buy from well-established firms with a strong brand image rather than from unknown new ventures.

closeness

This implies that only if extreme closeness to the resource partner is necessary to understand and obtain its underlying knowledge should M&A be considered the buy option.

globaliyation 1.0

1900-1941 In some instances, firms procured raw materials from overseas. Strategy formulation and implementation, as well as knowledge flows, followed a one-way path—from domestic headquarters to international outposts. This time period saw the blossoming of the idea of MNEs. It ended with the U.S. entry into World War II.

single business

95% or more of revenue comes from a single business

conglomerate

A company that combines two or more strategic business units under one overarching corporation and follows an unrelated diversification strategy

Markets-and-technology framework

A conceptual model to categorize INNOVATIONS along the market (existing/new) and technology (existing/new) dimensions.

CAGE distance framework:

A decision framework based on the relative distance between home and a foreign target country along four dimensions: Cultural distance Administrative and political distance Geographic distance Economic distance.

Mechanistic organizations are characterized by

a high degree of specialization and formalization and by a tall hierarchy that relies on centralized decision making. (McDonald's)

In addition to general strategic oversight and guidance, the board of directors has other, more specific functions, including:

Selecting, evaluating, and compensating the CEO Conducting a thorough risk assessment and proposing options to mitigate risk. Ensuring that the firm's audited financial statements represent a true and accurate picture of the firm. Ensuring the firm's compliance with laws and regulations

Principal-agent problem

Situation in which an agent performing activities on behalf of a principal pursues his or her own interests. Fixed by giving managers stock ownership of company.

exit (decline stage)

Some firms are forced to exit the industry by bankruptcy or liquidation. The U.S. textile industry has experienced a large number of exits over the last few decades, mainly due to low-cost foreign competition.

globalization

a process of closer integration and exchange between different countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs

industry value chain

depiction of the transformation of raw materials into finished goods and services along distinct vertical stages, each of which typically represents a distinct industry in which a number of different firms are competing

Factor conditions:

describe a country's endowments in terms of natural, human, and other resources Other important factors include capital markets, a supportive institutional framework, research universities, and public infrastructure

Ambidexterity

describes a firm's ability to address trade-offs not only at one point but also over time balances expolitation (applying current knowledge to enhance firm performance in the short term) and exploration

moral hazard

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

Organizational culture

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

The public stock company enjoys four characteristics that make it an attractive corporate form:

limited liability for investors Transferability of investor ownership Legal personality Separation of legal ownership and management control

In a global matrix structure, the geographic divisions are charged with ____ . At the same time, each SBU is charged with _____

local responsiveness and learning driving down costs through economies of scale and other efficiencies.

Organic organizations have a

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

early majority

main consideration in deciding whether or not to adopt a new technological innovation is a strong sense of practicality

Cost-leadership strategy functional structure

mechanistic organization centralized command and control core competencies in manufacturing and logistics process innovation focus on economies of scale

Alliances can be governed by the following mechanisms:

non-equity alliance equity alliance joint venture

adverse selection

occurs when information asymmetry increases the likelihood of selecting inferior alternatives. (hiree says they know more than they actually do during recruiting process)

ambidextrous organization

one that enables managers to balance and harness different activities in trade-off situations

Firms that pursue a differentiation strategy at the business level frequently have an _______ structure.

organic

Corporate executives have three options at their disposal to drive firm growth:

organic growth through internal development, external growth through alliances, or external growth through acquisitions.

Differentiation strategy functional structure

organic organization decentralized flexibility core competencies in R&D and marketing focus on economies of scope

non-equity alliance

partnership based on contracts between firms most frequent forms of non-equity alliances are supply agreements, distribution agreements, and licensing agreements. sharing of explicit knowledge

equity alliance

partnership in which at least one partner takes partial ownership in the other (monster and coke)

two key variables of diversification

percentage of revenue, relationship of the core competencies

The alliance manager

positioned within the Office of Alliance Management, serves as an alliance process resource and business integrator between the two alliance partners and provides alliance training and development, as well as diagnostic tools.

Build-borrow-or-buy framework

provides a conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual arrangement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy). Question of resource relevancy, tradability, closeness, and integration.

shared value creation framework

provides guidance to managers about how to reconcile the economic imperative of gaining and sustaining competitive advantage with corporate social responsibility

A transnational strategy is generally used by MNEs that

pursue a blue ocean strategy at the business level by attempting to reconcile product and/or service differentiations at low cost. (difficult to implement due to organizational complexities)

Centralization:

refers to the degree to which decision making is concentrated at the top of the organization. Top-down strategy = highly centralized Planned emergence = decentralized

An international strategy is often used successfully by MNEs with

relatively large domestic markets and with strong reputations and brand names.

Organizational inertia

resistance to changes in the status quo

Input controls

seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures. ensure a predicable outcome

Output controls

seek to guide employee behavior by defining expected results (outputs), but leave the means to those results open to individual employees, groups, or SBUs. specific sales target or return on invested capital

The alliance champion is a

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

Shareholder Capitalism:

shareholders—the providers of the necessary risk capital and the legal owners of public companies—have the most legitimate claim on profits

the four main types of business diversification are

single, dominant, related, unrelated

Centralized decision making often correlates with

slow response time and reduced customer satisfaction.

Simple Structures generally used by

small firms with low organizational complexity.

consolidate (decline stage)

some firms may choose to consolidate the industry by buying rivals. This allows the consolidating firm to stake out a strong position—possibly approaching monopolistic market power, albeit in a declining industry.

The key building blocks of an organizational structure are:

specialization formalization centralization hierarchy

Relational view of competitive advantage

strategic management framework that proposes critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries

value chain

this traditional system of horizontal business organization has been described as a pipeline, because it captures a linear transformation with producers at one end and consumers at the other.

Firms tend to use a global matrix structure to pursue a

transnational strategy, in which the firm combines the benefits of a multidomestic strategy (high local responsiveness) with those of a global-standardization strategy (lowest-cost position attainable).

joint venture

two or more partners create and jointly own a new organization

Corporate strategy determines the boundaries of the firm along three dimensions:

vertical integration diversification geographic scope

values

what is considered important.

related diversification

when it derives less than 70 percent of its revenues from a single business activity and obtains revenues from other lines of business linked to the primary business activity related-constrained if less than 70% from primary

Other Governance Mechanisms

-Executive compensation -The market for corporate control -Financial statement auditors, government regulators, and industry analysis

unrelated diversification

A firm follows an unrelated diversification strategy when less than 70 percent of its revenues comes from a single business and there are few, if any, linkages among its businesses.

Core competence-market matrix:

A framework to guide corporate diversification strategy by analyzing possible combinations of existing/new core competencies and existing/new markets.

growth stage

After the initial innovation has gained some market acceptance, demand increases rapidly as first-time buyers rush to enter the market, convinced by the proof of concept demonstrated in the introductory stage.

Financial statement auditors, government regulators, and industry analysts.

All public companies listed on the U.S. stock exchanges must file a number of financial statements with the Securities and Exchange Commission (SEC), a federal regulatory agency whose task it is to oversee stock trading and enforce federal securities laws.

platform business

An enterprise that creates value by matching external producers and consumers in a way that creates value for all participants, and that depends on the infrastructure or platform that the enterprise manages. (Apple Alphabet, Microsoft, Amazon, and Facebook)

diversification

An increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes.

reverse innovation

An innovation that was developed for emerging economies before being introduced in developed economies. Sometimes also called frugal innovation.

Intrinsic motivation in a task is highest when an employee has:

Autonomy (what to do) Mastery (how to do it) Purpose (why to do it)

Existing Market/New Core Competence

Build new core competencies to protect and extend current market position.

Death-of-distance hypothesis

Because firms can now, more than ever, source inputs globally, many believe that location must be diminishing in importance as an explanation of firm-level competitive advantage

New Market/New Core Competence

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

Disadvantages of the Functional Structure

Difficult for departments to communicate with others. Preoccupation with own department and losing sight of organizational goals.

Administrative and political distance

Captured in factors such as: -Shared monetary or political associations -Political hostilities -Weak or strong legal and financial institutions Political and administrative barriers include: -Tariffs -Trade quotas -FDI restrictions

forward vertical innovation

Changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain.

A related-diversification strategy entails two types of costs

Coordination costs are a function of the number, size, and types of businesses that are linked. Influence costs occur due to political maneuvering by managers to influence capital and resource allocation and the resulting inefficiencies stemming from suboptimal allocation of scarce resources.

Formalization:

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

maturity stage

During the fourth stage of the industry life cycle, the industry structure morphs into an oligopoly with only a few large firms. Most of the demand was largely satisfied in the shakeout stage. Any additional market demand in the maturity stage is limited. level of process innovation reaches its maximum market has reached its maximum size

disruptive innovation

Existing Market/ New Technologies An innovation that leverages new technologies to attack existing markets from the bottom up.

Incremental innovation

Existing Market/Existing Technologies An innovation that squarely builds on an established knowledge base and steadily improves an existing product or service.

Michael Porter recommends that managers focus on three things within the shared value creation framework:

Expand the customer base to bring in nonconsumers such as those at the bottom of the pyramid Expand traditional internal firm value chains to include more nontraditional partners such as nongovernmental organizations (NGOs) Focus on creating new regional clusters such as Silicon Valley

Porter's Diamond Framework of National Competitive Advantage

Factor Conditions Demand Conditions Competive Intensity in Focal Industry Related and Supporting Industries/Complementors

Globalization 2.0: 1945-2000

MNEs began to create smaller, self-contained copies of themselves, with all business functions intact, in a few key countries; notably, Western European countries, Japan, and Australia.

Alliance design and governance.

Interorganizational trust is a critical dimension of alliance success

Tacit knowledge:

Knowledge that cannot be codified; concerns knowing how to do a certain task and can be acquired only through active participation in that task.

Related and supporting industries/complementors

Leadership in related and supporting industries can also foster world-class competitors in downstream industries. (Switzerland, for example, leveraged its early lead in industrial chemicals into pharmaceuticals)

Existing Market/Existing Core Competence

Leverage existing core competencies to improve current market position.

For firms that pursue either related or unrelated diversification, the______ is the preferred organizational structure.

M-form

Globalization 3.0: 21st Century

MNEs that had been the vanguard of globalization have since become global collaboration networks. The MNE reorganizes from a multinational company with self-contained operations in a few selected countries to a more seamless global enterprise with centers of expertise. One watershed event was China's entry into the World Trade Organization in the same year.

Winner-take-all markets

Markets where the market leader captures almost all of the market share and is able to extract a significant amount of the value created.

architectural innovation

New Market/ Existing Technologies is a new product in which known components, based on existing technologies, are reconfigured in a novel way to create new markets.

Radical innovation:

New Market/ NewTechnologies

product innovation

New or recombined knowledge embodied in new products. (jet airplane, smartphone, electric vehicle)

process innovation

New ways to produce existing products or deliver existing services.

shakeout stage

Only the strongest competitors survive increasing rivalry as firms begin to cut prices and offer more services, all in an attempt to gain more of a market that grows slowly, if at all.

Partner selection and alliance formation.

Partner compatibility captures aspects of cultural fit between different firms. Partner commitment concerns the willingness to make available necessary resources and to accept short-term sacrifices to ensure long-term rewards.

advantages of a platform business model

Platforms scale more efficiently than pipelines by eliminating gatekeepers. Platforms unlock new sources of value creation and supply. Platforms benefit from community feedback.

reasons to merge

Principal-agent problems. The desire to overcome competitive disadvantage. Superior acquisition and integration capability.

New Market/Existing Core Competence

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

There are three main benefits to a horizontal integration strategy:

Reduction in competitive intensity. Lower Costs Increased Differentiation

early adopters

demand is fueled more by intuition and vision rather than technology concerns.

Post-formation alliance management.

To be a source of competitive advantage, the partnership needs to create resource combinations that obey the VRIO criteria. This can most likely be accomplished if the alliance partners make relation-specific investments, establish knowledge-sharing routines, and build interfirm trust.

specialized assets

Unique assets with high opportunity cost: They have significantly more value in their intended use than in their next best use. They come in three types: site specificity, physical asset specificity, and human-asset specificity.

Short-Term Contracts

When engaging in short-term contracting, a firm sends out requests for proposals (RFPs) to several companies, which initiates competitive bidding for contracts to be awarded with a short duration, generally less than one year. The drawback, however, is that firms responding to the RFP have no incentive to make any transaction-specific investments (ex: buy new machinery to improve product quality)

diversification discount

When firms that pursue unrelated diversification are often unable to create additional value. The stock price of such highly diversified firms is valued at less than the sum of their individual business units (GE)

Multinational enterprise (MNE)

a company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries (the engine behind globalization)

absorptive capacity

a company's ability to understand external technology developments, evaluate them, and integrate them into current products or create new ones

A functional structure is recommended when a firm has

a fairly narrow focus in terms of product/service offerings (i.e., low level of diversification) combined with a small geographic footprint.

legal personality

legal identity separate from that of its owners; the company itself can be taken to court, not the owners.

Leveraged Buyout (LBO)

a single investor or group of investors buys, with the help of borrowed money (leveraged against the company's assets), the outstanding shares of a publicly traded company in order to take it private.

Information asymmetry

a situation in which one party is more informed than another, because of the possession of private information.

joint ventures

a standalone organization created and jointly owned by two or more parent companies Exchange of both explicit and tacit knowledge through interaction of personnel is typical. Joint ventures are also frequently used to enter foreign markets where the host country requires such a partnership to gain access to the market in exchange for advanced technology and know-how.

Transaction cost economics

a theoretical framework in strategic management 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 Insights gained from transaction cost economics help strategic leaders decide what activities to do in-house versus what services and products to obtain from the external market

agency theory

a theory that views the firm as a nexus of legal contracts

taper integration

a way of orchestrating value activities in which a firm is backwardly integrated but 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

Liability of foreignness

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

Governance mechanisms need to be designed in such a fashion as to overcome two specific agency problems:

adverse selection moral hazard

blue ocean strategy functional structure

ambidextrous organization balancing centralization and dectralization multiple core competencies process and product innovation focus on economies of scale and scope

standard

an agreed-upon solution about a common set of engineering features and design choices. (can emerge from bottom up or imposed top down by the government)

the market for corporate control

an external governance mechanism that is active when a firm's internal governance mechanisms fail hostile takeover corporate raiders leveraged buyout poison pill

Holacracy

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

real-options perspective

approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time

norms

appropriate employee attitudes and behaviors

Business ethics

are an agreed-upon code of conduct in business, based on societal norms (NOT LAW)

Licensing agreements

are contractual alliances in which the participants regularly exchange codified knowledge

Inside directors

are generally part of the company's senior management team, such as the chief financial officer (CFO) and the chief operating officer (COO). They are appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance.

Strategic control-and-reward systems

are internal-governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees).

Outside directors

are not employees of the firm. They frequently are senior executives from other firms or full-time professionals, who are appointed to a board and who serve on several boards simultaneously. Given their independence, they are more likely to watch out for the interests of shareholders.

Demand conditions

are the specific characteristics of demand in a firm's domestic market

strategic alliances

are voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services. long term contracts, equiy alliances, joint ventures

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

globalization hypothesis

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

equity alliance

at least one partner takes partial ownership in the other partner stronger commitments sharing of tactic knowledge

Transnational strategy

attempt to combine the benefits of a localization strategy (high local responsiveness) with those of a global-standardization strategy (lowest-cost position attainable) high pressure for local responsivenesss/ high pressure for cost reductions

multidomestic strategy

attempt to maximize local responsiveness, hoping that local consumers will perceive their products or services as local ones. high pressure for local responsivenesss/ low pressure for cost reductions

global-standardization strategy

attempt to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost. low pressure for local responsivenesss/ high pressure for cost reductions

dominant business

between 70% and 95% of revenue comes from a single business

backward vertical integration

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

During the 20th century, the _________ approach was the dominant research and development (R&D) approach for most firms

closed innovation

matrix structure.

combines functional and M-form approaches to emphasize project or program teams

Competitive intensity in focal industry.

companies that face a highly competitive environment at home tend to outperform global competitors that lack such intense domestic competition

in most cases mergers and acquisitions do not create

competitive advantage on average, they destroy rather than create shareholder value

corporate strategy

comprises the decisions that leaders make and the goal-directed actions they take in the quest for competitive advantage in several industries and markets simultaneously. where to compete

crossing the chasm framework

conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group early adopters, early majority, late majority, laggards

Corporate governance

concerns the mechanisms to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally. addresses the principal-agent problem

multidivisional structure (or M-form)

consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility. Each SBU is operated more or less independently from one another, and each is led by a CEO (or equivalent general manager) who is responsible for the unit's business strategy and its day-to-day operations.

maintain (decline stage)

continuing to support marketing efforts at a given level despite the fact that consumption has been declining. (Marlboro)

artifacts

corporate culture is expressed include elements such as the design and layout of physical space (e.g., cubicles or private offices), symbols (e.g., the type of clothing worn by employees), vocabulary, what stories are told (see the Zappos pizza-ordering example that follows), what events are celebrated and highlighted, and how they are celebrated (e.g., a formal dinner versus a casual barbecue when the firm reaches its sales target).

Disadvantages of Multidomestic Strategy

costly and inefficient because it requires the duplication of key business functions across multiple countries. Each country unit tends to be highly autonomous the MNE is unable to reap economies of scale or learning across regions The risk of IP appropriation increases when companies follow a multidomestic strategy.

Cultural distance

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

Firms using the M-form structure to support an unrelated-diversification strategy often _____ decision making.

decentralize

To accomplish effective alliance management, strategy scholars suggest that firms create a

dedicated alliance function The dedicated alliance function should be given the tasks of coordinating all alliance-related activity in the entire organization, taking a corporate-level perspective

Poison Pill

defensive provisions that kick in should a buyer reach a certain level of share ownership without top management approval. For example, a poison pill could allow existing shareholders to buy additional shares at a steep discount

Specialization:

describes the degree to which a task is divided into separate jobs—that is, the division of labor. Larger firms, such as Fortune 100 companies, tend to have a high degree of specialization; smaller entrepreneurial ventures tend to have a low degree of specialization

parent-subsidiary relationship

describes the most-integrated alternative to performing an activity within one's own corporate family. The corporate parent owns the subsidiary and can direct it via command and control. transaction costs and political conflict

invention (2)

describes the transformation of an idea into a new product or process, or the modification and recombination of existing ones (patents in this step)

Organizational structure

determines how the work efforts of individuals and teams are orchestrated and how resources are distributed

Hierarchy:

determines the formal, position-based reporting lines and thus stipulates who reports to whom If many levels of hierarchy exist between the frontline employee and the CEO, the firm has a tall structure. In contrast, if there are few levels of hierarchy, it has a flat structure.

A functional structure allows for an

efficient top-down and bottom-up communication chain between the CEO and the functional departments, and thus relies on a relatively flat structure. High degree of specialization.

Corporate venture capital (CVC) investments:

equity investments by established firms in entrepreneurial venture

At the decline stage of the industry life cycle, managers generally have four strategic options:

exit, harvest, maintain, consolidate

Each director on the board of director's has

fiduciary responsibility—a legal duty to act solely in another party's interests—toward the shareholders because of the trust placed in him or her

As sales increase, firms generally adopt a

functional structure, which groups employees into distinct functional areas based on domain expertise. These functional areas often correspond to distinct stages in the value chain such as R&D, engineering and manufacturing...

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

functional structure.

Disadvantages of going global

liability of foreignness, loss of reputation, loss of IP

long term contracts

have a duration greater than one year Licensing, for example, is a form of long-term contracting in the manufacturing sector that enables 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 carry the franchisor's brand name. (BK, greeks)

Boston Consulting Group (BCG) growth-share matrix

helpful tool to guide corporate portfolio planning This matrix locates the firm's individual SBUs in two dimensions: Relative market share (horizontal axis) Speed of market growth (vertical axis).

Local responsiveness generally entails

higher cost, and sometimes even outweighs cost advantages from economies of scale and lower-cost input factors.

The number of levels of hierarchy, in turn, determines the managers' span of control:

how many employees directly report to a manager

4 steps of innovation

idea, invention, innovation, imitation

As a rule of thumb, firms should go ahead with horizontal integration

if the target firm is more valuable inside the acquiring firm than as a continued standalone company

introduction stage

innovator's core competency is R&D, capital-intensive process, The initial market size is small, and growth is slow.

Human-asset specificity

investments made in human capital to acquire unique knowledge and skills, such as mastering the routines and procedures of a specific organization, which are not transferable to a different employer.

Alliance management capability

is a firm's ability to effectively manage three alliance-related tasks concurrently, often across a portfolio of many different alliances. These are: Partner selection and alliance formation. Alliance design and governance. Post-formation alliance management.

Open innovation

is a framework for R&D that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and inventions, but also from ideas and innovation from external sources

executive compensation

is a governance mechanism that seeks to align the interests of managers and owners through salaries, bonuses, and long-term incentives such as stock awards and options.

international strategy

is essentially a strategy in which a company sells the same products or services in both domestic and foreign markets low pressure for local responsivenesss/ low pressure for cost reductions

Vertical integration

is the firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.

Organizational design

is the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization. key components: structure, culture, and control

Horizontal integration

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

Integration-responsiveness framework

juxtaposes the opposing pressures for cost reductions and local responsiveness to derive four different strategic positions to gain and sustain competitive advantage when competing globally: international multidomestic global-standardiyation transnational

explicit knowledge:

knowledge that can be codified concerning the notion of knowing about a certain process or product

MNEs frequently use a multidomestic strategy when entering host countries with

large and/or idiosyncratic domestic markets, such as Japan or Saudi Arabia.

Firms enter a strategic alliance to:

strengthen competitive position, enter new markets, hedge against uncertainty, access critical complementary assessts, learn new capabilities

Horizontal integration can favorably affect several of Porter's five forces for the surviving firms:

strengthening bargaining power vis-à-vis suppliers and buyers, reducing the threat of entry, and reducing rivalry among existing firms.

Alfred Chandler, "Structure can be defined as the design of organization through which the enterprise is administered...

structure follows strategy."

externalities

such as pollution, wasted energy, and costly accidents actually create internal costs, at least in lost reputation if not directly on the bottom line.

innovation (3)

the commercialization of an invention.

harvest (decline stage)

the firm reduces investments in product support and allocates only a minimum of human and other resources (IBM and their typewriter line)

Simple structure:

the founders tend to make all the important strategic decisions and run the day-to-day operations Simple structures are flat hierarchies operated in a decentralized fashion. They exhibit a low degree of formalization and specialization

merger

the joining of two independent companies to form a combined entity

local responsiveness

the need to tailor product and service offerings to fit local consumer preferences and host-country requirements.

acquisition

the purchase or takeover of one company by another.

strategic entrepreneurship

the pursuit of innovation using tools and concepts from strategic management (Apple)

social entrepreneurship

the pursuit of social goals while creating a profitable business (TOMS, Wikipedia)

innovation

the successful introduction of a new product, process, or business model—is a powerful driver in the competitive process.

The alliance leader has

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

Firms using the M-form organizational structure to support a related-diversification strategy tend to concentrate decision making at

the top of the organization.

Firms evaluate the relevance of internal resources in two ways:

they test whether resources are (1) similar to those the firm needs to develop and (2) superior to those of competitors in the targeted area (VRIO framework). If both conditions are met, then the firm's internal resources are relevant and the firm should pursue internal development.