MGMT 495 Final WWU Nordin (Ch. 6-10)

what does globalization allow? what can it lead to

Allows (1) Combined these factors reduce the costs of doing business around the world (2) Companies to source supplies at lower costs (3) Learn new competencies (4) Further differentiate products Can lead to a significant increases in living standards in many economies around the world

what is a platform business? EX? also called?

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 More profitable than pipeline EX: Credit cards, internet, cloud computing, Uber Also called multi-sided markets (have been around for millennia)

Define diversification

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

Define the real option perspective. what does it allow the firm to do? advantage? drawbacks?

Approach to strategic decisions making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time Allows the firm to (1) obtain additional information at predetermined stages (2) At each stage, after new information is revealed, the firm evaluates whether or not to make further investments A real option is a right, but not the obligation Can be expensive if they wait until it is successful Often seen in dynamic markets (pharma)

define transaction costs

Are all costs associated with economies exchange Enables managers to answer the question of whether it is cost-effective for their firm to expand its boundaries through vertical integration or diversification

What does demand conditions describe as it relates to Porter's diamond framework? EX:

Are the specific characteristics of demand in a firm's domestic market Customers that hold companies to standards of value creation and cost containment contributes to national competitive advantage. In addition customers may also clue firms into the latest developments in specific fields and may push firms to move to research from basic findings to commercial applications for the market place EX: Japanese customers demand small, quiet, and energy0efficient air conditioners

What are strategic alliances? Where are they common? What can they facilitate? types?

Are voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services Common in high-tech industries Can facilitate investments in transaction-specific assets without encountering the internal transaction costs involved in owning firms in various stages of the industry value chain An umbrella term for different hybrid organizational forms: long term contracts, equity alliances, and joint ventures

Define learning curve and what it is driven by

As cumulative output increases, managers learn how to optimize the process, and workers improve their performance through repetition Driven by increasing cumulative output within EXISTING TECHNOLOGY over time (A)Implies that the only difference between same learning curve is the size of cumulative output

what is the globalization hypothesis?

Assumption that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous (A) Food, music, movies, clothing Based primarily on cost reduction

What is the death-to-distance hypothesis? is it accurate?

Assumption that geographic location alone should not lead to firm-level competitive advantage because firms are now, more than ever, able to source inputs globally Wrong

What is a multidomestic Strategy in relation to the integration-responsiveness framework doing? when was it pursues? what business strategy

Attempt to maximize local responsiveness, hoping that Local consumers ideally perceive products as local Low cost reductions / high local responsiveness Pursued in Globalization 2.0 stage differentiation business level strategy

what are the benefits of the Transnational strategy as it relates to the integration-responsiveness framework doing?

Attempts to combine benefits of localization and standardization strategies simultaneously by creating a global matrix structure Economies of scale, location, experience, and learning

What are different across each stage of the life cycle?

# and size of competitors change over the life cycle Different types of consumers enter the market at each stage Supply and demand change Different competencies are needed tor preform well in each stage

Dimension: Administrative and Political When does the distance between two countries increase with... What industries or product does it affect?

(1) (A) Absence of trading bloc (B) Absence of shared currency, monetary or political association (C) Absence of colonialities (D) Political hostilities (E) Weak legal and financial institutions (2) That a foreign government views as staples (electricity), as building national reputations (aerospace), or as vital to national security (telecommunications)

Dimension: Economical (1) When does the distance between two countries increase? (2) What industries or product does it affect?

(1) (A) Different consumer incomes (B) Different costs and quality of natural, financial, and human resources (C) Different information or knowledge (2) (A) For which demand varies by income (cars) (B) In which labor and other cost differences matter (textiles)

Dimension: Cultural When does the distance between two countries increase with... What industries or product does it affect?

(1) (A) Different languages, ethnicities, religions, social norms, and dispositions (B) Lack of connective ethnic or social networks (C) Lack of trust and mutual respect (2) (A) With high linguistic content (TV) (B) Related to national and/or religious identity (foods) (C) Carrying country-specific quality associations (wines)

Dimension: Geographical When does the distance between two countries increase with... What industries or product does it affect?

(1) (A) Lack of common border, waterway access, adequate transportation, or communication links (B) Physical remoteness (C) Different climates and time zones (2) (A) With low value to-weight ratio (cement) (B) That are fragile or perishable (glass, meats) (C) In which communications are vital (financial services)

What are the disadvantages of making things in-house?

(1) Administrative costs (A) Because of necessary bureaucracy (2) Low-powered incentives (A) Such as hourly wages and salaries (B) These are less attractive motivators than the entrepreneurial opportunities and rewards that can be obtained in the open market (3) The principal-agent problem (A) Situation in which an agent performing activities on behalf of a principal pursues his or her own interests (B) One way to avoid this is to provide stock options

What are the underlying strategic Management concepts of vertical integration, diversification, and geographic competition?

(1) Core Competencies (2) Economies of Scale (3) Economies of Scope (4) Transaction Costs

what are the two opposing forces in global competition:

(1) Cost reductions (A) Key competitive weapon (2) Local responsiveness (A) Tailoring to specific preferences (higher costs usually)

Alliance type: Joint Venture (1) Governance Mechanism (2) Frequency (3) Type of knowledge exchanged (4) Pros (5) Cons (6) Examples

(1) Creation of new entity by two or more parent firms (2) Least Common (3) Both tacit and explicit knowledge exchanged (4) (A) Strongest tie (B) Trust and commitment likely to emerge (C) May be required by institutional setting (5) (A) Can entail long negotiations and significant investments (B) Long-term solution (C) JV managers have double reporting lines (2 bosses) (6) (A) Hulu, owned by NBC, Fox, and Disney-ABC (B) Dow Corning, owned by Dow Chemical and Corning

What are the 4 strategic options for firms in the decline stage? define each

(1) Exit (A) Firms forced to exit by bankruptcy or liquidation (2) Harvest (A) Firm reduces investments in product support and allocates only a minimum of human and other resources (3) Maintain (A) Continuing to support marketing efforts at a given level (4) Consolidate (A) Buy rivals

What are the advantages of buying?

(1) High-Powered incentives (A) Include the entrepreneur's ability to capture the venture's profit, to take a new venture through an initial public offering, or to be acquired by an existing firm (B) In these so-called liquidity events, a successful entrepreneur can make potentially enough money to provide financial security for life (C) EX: Salaried engineer or start own business (2) Increased Flexibility (A) Transacting in markets enables those who wish to purchase goods to compare prices and services among many different providers

How does horizontal integration reduce the competitive intensity? what is the effect on 5 forces?

(1) Horizontal integration changes industry structure in firms favor (2) Excess capacity is taken out of the market Effects on 5 forces, it reduces: (1) bargaining power of buyers/suppliers (2) threat of new entrants (3) rivalry among existing firms

How can globalization result in a loss of intellectual property?

(1) It can be difficult to protect IP in foreign markets. (A) Particularly software, movies, and music (B) Copyright infringements can occur (2) Some countries are known for partnering initially, but then reverse-engineering capabilities. (A) EX: Chinese and high speed trains

What are the 4 options to formulate corporate strategy via core competencies?

(1) Leverage existing core competencies to improve current market position (2) Build new core competencies to protect and extend current market position (3) Redeploy and recombine existing core competencies to compete in markets of the future (4) Build new core competencies to create an compete in markets of the future

what is the principal agent problem as it relates to mergers?

(1) Managers incentives to acquire: (A) To build a larger empire (B) To receive prestige, power, and pay (2) Managerial hubris: (A) A form of self-delusion (B) Managers convince themselves of their superior skills (C) They see themselves as exceptions to the rule

what are the necessary conditions for a good partner in an alliance?

(1) Partner compatibility (A) Captures aspects of cultural fit between different firms (2) Partner commitment (A) Concerns the willingness to make available necessary resources and to accept short-term sacrifices to ensure long-term rewards

What are the measurements of geographical distances? what are they particularly relevant to?

(1) Physical size (Canada versus Singapore) (2) Within-country distances to its borders (3) Topography (4) Time zones (5) Whether the countries are contiguous (6) Access to waterways and the ocean (7) Infrastructure (A) Roads, power, and telecommunications Particularly relevant when trading products with low value-to-weight ratios

Why do mergers take place? EX?

(1) Principal-agent problems (2) The desire to overcome competitive disadvantage (A) EX: Adidas acquired Reebok (economies of scale and scope) (3) Superior acquisition and integration capability (A) EX: Disney

What the various general diversification strategies? define each

(1) Product Diversification Strategy (A) A firm that is active in several different product markets (2) Geographic Diversification strategy (A) A firm that is active in several different countries (3) Product-market diversification strategy (A) A firm that pursues both a product and a geographic diversification strategy simultaneously

what are the 3 main benefits (source of value creation) for horizontal integration?

(1) Reduction in competitive intensity (2) Lower costs (3) Increased differentiation

What are the 4 questions to sequentially ask when deciding to build, borrow or buy?

(1) Relevancy: How relevant are the firm's existing internal resources to solving the resource gap? (2) Tradability: How tradable are the targeted resources that may be available externally? (3) Closeness: How close do you need to be to your external resource partner? (4) Integration: How well can you integrate the targeted firm, should you determine you need to acquire the resources partner?

What are disadvantages of buying things on the market?

(1) Search Costs (A) Biggest disadvantage (B) A firm faces search costs when it must scour the market to find reliable suppliers from among the many firms competing to offer similar products and services (C) Or when they need to find suppliers for specific products and services needed that are not offered by firms currently in the market i. Requires transaction-specific investments (2) Opportunism by other parties (A) Behavior characterizes by self-interest seeking with guile (3) Incomplete contracting (A) Not all future contingencies can be anticipated at the time of contraction (B) Difficult to specify expectations (C) Information asymmetry i. Situation in which one party is more informed than another because of the possession of private information ii. Lemons problem iii. Important take away: CAVEAT EMPTOR- BUYER BEWARE (4) Enforcement of Contracts (A) Difficult, costly, and time-consuming (B) Major hazards in using markets rather than integrating an activity within a firm's hierarchy

What are the 3 types of specialized assets? define each?

(1) Site specificity (A) Assets required to be co-located, such as the equipment necessary for mining bauxite and aluminum smelting (2) Physical-asset specificity (A) Assets whose physical and engineering properties are designed to satisfy a particular customer (B) EX: Bottle shapes and customers (3) Human-asset specificity (A) Investments made in human capital to acquire unique knowledge and skills, such as mastering the routines and procedures to a specific organization, which are not transferable to a different employer

What does economies of scale allow a firm to do? (3)

(1) Spread their fixed costs over a larger output (A) Occurs a lot in high-tech industries (2) Employ specialized systems and equipment (A) EX: ERP, robots (3) Take advantage of certain physical properties (A) One Property is the Cube-Square Rule 1. The volume of a body such as a pipe or a tank increases disproportionately more than its surface. 2. Have more sqft to offer more products (Walmart)

What are the 6 reasons for why firms enter strategic alliances?

(1) Strengthen competitive position (2) Enter new markets (3) Hedge against uncertainty (4) Access critical complementary assets (5) Learn new capabilities (6) In sum alliances are formed motivated by leveraging economies of scale, scope, specialization, and learning

What are the advantages of making things in-house?

(1) The ability to make command-and- control decisions (A) by fiat along clear hierarchical lines of authority (2) Coordination (A) of highly complex tasks to allow for specialized divisions of labor (3) Transaction-specific investments (A) such as specialized robotics equipment that is highly valuable within the firm, but of little or no use in the external market (4) Creation of community of knowledge (A) Meaning employees within firms have ongoing relationships, exchanging ideas and working closely together to solve problems (B) Facilitates the development of a deep knowledge repertoire and ecosystem within firms

What are the two key variable to determine 4 types of business diversification?

(1) The percentage of revenue from the dominant or primary business (A) Lets us identify the first 2 types of diversification: i. Single business and dominant business (2) The relationship of the core competencies across the business units (A) Lets us identify the other 2 types of diversification i. Related diversification and and unrelated diversification: the conglomerate

why do firms acquire other firms? ex?

(1) To access new markets & distribution channels (A) To overcome entry barriers (B) To access new capabilities or competencies (2) To preempt rivals (A) EX: Facebook (bought Instagram) and Google (bought YouTube) are famous for this

What countries have specific advantages for certain industries?

(1) United States: biotechnology, software, internet (2) China and Taiwan: computer manufacturing (3) South Korea and Japan: consumer electronics (4) Australia: mining (5) India: business process outsourcing (6) Germany: engineering and cars (7) Italy: fashion (8) France: wine

What dimensions is corporate strategy determined along? Whats underlying them?

(1) Vertical Integration (along the industry value chain) (A) In what stages of the industry value chain should the company participate (B) The industry value chain describes the transformation to raw materials into finished goods and services along distinct vertical stages (2) Diversification (of products and services) (A) What range of products and services should the company offer? (3) Geographic Scope (regional, national, or global markets (A) Where should the company compete geographically in terms of regional, national, or international markets? Underlying 3 dimensions is desire for growth

What are the factors to consider with economic distance?

(1) Wealth and per capita income of consumers (A) Wealthy countries engage in more cross-border trade. (B) Most important determinant of economic distance (2) Wealthy countries trade with wealthy countries. (A) Benefit from Economies of experience, scale, scope, and standardization (B) Similar infrastructure & resources (C) Easier to replicate (3) Wealthy countries trade with poor countries. (A) Benefit from economic arbitrage (B) Access to low-cost input factors

when was globalization 3.0? what happened during this period?

(2001-) WTO helped companies conduct their business across borders based on multinational treaties that are negotiated and signed by its 164 member nations Business function locations are based on costs, capabilities, and PESTEL factors Companies can operate 24/7, 365 days a year (due to fiberoptic cable networks reducing communication distances) MNEs are replacing the one-way innovation flow from Western economic to developing markets with a polycentric innovation strategy:

Where do cultural differences find their expression in? what does it directly affect? What disadvantage does it lead to?

(directly affect customer preferences) Language Ethnicity Religion Social norms Greater cultural distances increases the liability of foreignness

Alliance type: Equity (1) Governance Mechanism (2) Frequency (3) Type of knowledge exchanged (4) Pros (5) Cons (6) Examples

(purchase of an equity stake or corporate venture capital, CVC investment) (1) Equity Investment (2) Less common than non-equity alliances, but more common than joint ventures (3) Explicit; exchange of tacit knowledge possible (4) (A) Stronger tie (B) Trust and commitment can emerge (C) Window into new technology (option value) (5) (A) Less flexible (B) Slower (C) Can entail significant investments (6) (A) Renault-Nissan alliance based on cross equity holdings, with Renault owning 44.4% in Nissan; and Nissan owning 15% in Renault (B)Roche's equity investment in Genentech (prior to full integration)

Non-equity alliance: (1) Governance Mechanism (2) Frequency (3) Type of knowledge exchanged (4) Pros (5) Cons (6) Examples

(supply, licensing, and distribution agreements) (1) Contract (2) Most Common (3) Explicit (4) (A) Flexible (B) Fast (C) Easy to initiate and terminate (5) (A)Weak tie (B) Lack of trust and commitment (6) (A) Genentech-Lilly (exclusive) licensing agreement for Humulin (B) Microsoft-IBM (nonexclusive) licensing agreement for MS-DOS

How to respond to disruptive innovation?

1. Continue to innovate in order to stay ahead of the competition 2. Guard against disruptive innovation by protecting the low end of the market a. By introducing low-cost innovations to preempt stealth competitors 3. Disrupt yourself, rather than wait for others to disrupt you a. Reverse innovation: an innovation that was developed for emerging economies before being introduced in developed economies. Sometimes called frugal innovation

What are the benefits of vertical integration

1. Lowering costs 2. Improving quality 3. Facilitating scheduling and planning 4. Facilitating investments in specialized assets 5. Securing critical supplies and distribution channels

Life Cycle Stage: Maturity Different factors: (1) Core competency (2)Type and Level of Innovation (3) Market Growth (4) Market Size (5) Price (6) # of competitors (7) Mode of competition (8) Type of Buyers (9) Business Level Strategy (10)Strategic Objective

1. Manufacturing Process engineering, marketing 2. Product innovation at a min; process innovation at a max 3. None to moderate 4. Largest 5. Low 6. Moderate, but large 7. Price 8. Late majority 9. Cost-leadership or integration strategy 10. Maintaining strong strategic position

Life Cycle Stage: Decline Different factors: (1) Core competency (2)Type and Level of Innovation (3) Market Growth (4) Market Size (5) Price (6) # of competitors (7) Mode of competition (8) Type of Buyers (9) Business Level Strategy (10)Strategic Objective

1. Manufacturing Process engineering, marketing, service 2. Product & Process innovation ceased 3. Negative 4. Small to moderate 5. Low to high 6. Few, if any 7. Price or non-price competition 8. Laggards 9.Cost-leadership, differentiation, or integration strategy 10. Exit, harvest, maintain, or consolidate

Life Cycle Stage: shakeout Different factors: (1) Core competency (2)Type and Level of Innovation (3) Market Growth (4) Market Size (5) Price (6) # of competitors (7) Mode of competition (8) Type of Buyers (9) Business Level Strategy (10)Strategic Objective

1. Manufacturing, Process engineering 2. After emergence of standard: product innovation decreasing rapidly; process innovation increasing rapidly 3. Moderate and slowing down 4. Large 5. Moderate 6. Fewer 7. Shifting from Non-price to price competition 8. Early majority 9. Differentiation, or integration strategy 10.Surviving by drawing on "deep pockets"

Why are platform businesses better than pipeline businesses?

1. Platforms scale more efficiently than pipelines by eliminating gatekeepers a. Creates value by orchestrating resources that reside in the system b.They do not own or control the resources c. Pipelines tend to be inefficient in managing the flow of information from producer to consumer i. Have to buy bundle of professional services 2. Platforms unlock new sources of value creation and supply a. Hotel vs. Airbnb ( have to add additional hotels vs additional users) 3. Platforms benefit from community feedback

Life Cycle Stage: Growth Different factors: (1) Core competency (2)Type and Level of Innovation (3) Market Growth (4) Market Size (5) Price (6) # of competitors (7) Mode of competition (8) Type of Buyers (9) Business Level Strategy (10)Strategic Objective

1. R&D, some manufacturing, Marketing 2. Product innovation decreasing; process innovation increasing 3. High 4. Moderate 5. Falling 6. Many 7. Non-price competition 8. Early adopters 9. Differentiation 10. Staking out a strong strategic position; generating "deep pockets"

Life Cycle Stage: Introduction Different factors: (1) Core competency (2)Type and Level of Innovation (3) Market Growth (4) Market Size (5) Price (6) # of competitors (7) Mode of competition (8) Type of Buyers (9) Business Level Strategy (10)Strategic Objective

1. R&D, some marketing 2. Product innovation at max; process innovation at a min 3. Slow 4. Small 5. High 6. Few, if any 7. Non-price competition 8. Technology enthusiasts 9. Differentiation 10. Achieving market acceptance

when was globalization 1.0? what happened during this period?

1900-1941 Sales, operations, and some procurement oversees (essentially exporting goods to other markets) Strategy formulation and implementation, as well as knowledge flowed from HQ to international sites Ended with US entry into WW2

when was globalization 2.0? what happened during this period?

1945-2000 To reconstruct damage from the war MNE began to create smaller, self-contained copies of themselves, with all business functions intact: (A) Focus on European countries, Japan, and Australia Required significant amounts of foreign direct investment Allowed for greater local-responsiveness to country-specific circumstances HQ set goals, international sites influenced tactics Knowledge flows back to US headquarters remained limited

Define Joint venture. What does it facilitate?

2 or more partners create an jointly own a new organization They make a long-term commitment, which in turn facilitates transaction-specific investments

what is the evidence that the world is only semi-globalized?

2% of all voice-calling minutes are cross-border. 3% of world's population are immigrants. 9% of investments are foreign direct investments. 15% of patents list at least one foreign inventor. 18% of Internet traffic crosses national borders.

Define a blue ocean strategy.

A business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs

Define a multi-national enterprise. (MNE) what does it need? what does it engage in? What is it good for?

A company that deploys resources and capabilities in two countries or more Engine behind globalization Needs and effective global strategy MNEs engage in FDIs Really good for the US economy

define innovation ecosystem. how does it prevent radical innovation for existing firms?

A firm's embeddedness in a complex network of suppliers, buyers, complementors, and so on that requires interdependent strategic decision making Radical innovation would disrupt it

define foreign direct investment

A firm's investments in value chain activities abroad

Define Related-Constrained Diversification. EX

A kind of related diversification strategy in which executives pursue only businesses where they can apply the resources and core competencies already available in the primary business Constrained by the fact that they need to be related through common resources, capabilities, and competencies

Define Related Linked Diversification. EX?

A kind of related diversification strategy in which executives pursue various businesses opportunities that share only a limited number of linkages EX: Amazon: Books to CDs to etc

define architectural innovation. EX?

A new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets EX: Can produced printers for small-mid size business that were user friendly that Xerox ignored

Define equity alliances. What does it signal? Benefit? Drawback?

A partnership in which at least one partner takes a partial ownership in the other partner Through stock or asset purchases (in private companies) Tends to signal greater commitment to the partnership Benefit: (1) Helps decide if they want to buy in future (2) Can't hold up one another by demanding lower price or threatening to walk away from the agreement Is a credible commitment- a long-term strategic decision that is both difficult and costly to reverse

What 3 dimensions is the platform defined along?

A platform is a business that enables value creating interactions between external producers and consumers The platform's overarching purpose is to consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value creation for all participants The platform provides an infrastructure for these interactions and sets governance conditions for them

Define Transaction Cost Economics. What is a key insight?

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 Helps to decide In-house or outsource Key insight: different institutional arrangements- markets versus firms - have different costs attached

Why would there be zig-zags in value curve?

A value curve that zigzags across the strategy canvas indicates a lack of effectiveness in its strategic profile

What are the alternatives to the make-or-buy continuum?

BUY: (least integration) (1) short-term contracts (least integration) Strategic Alliances: (1) Long-term contracts (A) Licensing or franchising (2) Equity Alliances (3) Joint ventures (1) Parent-subsidiary relationship Make: (most integration)

types of vertical integration?

Backward Vertical integration (1) Moving ownership activities upstream to the originating inputs of the value chain Forward Vertical Integration (1)Moving ownership of activities closer to the end customer

What are the benefits and risk of differentiation among rivalry among existing customers?

Benefits: (1) Protection against competitors if product or service has enough differential appeal to command premium price Risks: (1) Focus of competition shifts to price (2) Increasing differentiation of product features that don't create value but raise costs (3) Increasing differentiation to raise cost above acceptable threshold

What are the benefits and risk of cost-leadership among Power of buyers?

Benefits: (1) Protection against decrease in sales prices, which can be absorbed Risks: (1) Erosion of Margins

What are the benefits and risk of differentiation among Power of buyers?

Benefits: (1) Protection against decreases in sales prices, because well-differentiated products or services are not perfect imitations Risks: (1) Erosion of margins

What are the benefits and risk of Cost-leadership among the threat of new entry?

Benefits: (1) Protection against entry due to economies of scale Risks: (1) Erosion of margins (2) replacement

What are the benefits and risk of differentiation among the threat of new entry?

Benefits: (1) Protection against entry due to intangible resources such as reputation for innovation, quality, or customer service Risks: (1) Erosion of margins (2) replacement

What are the benefits and risk of differentiation among Power of suppliers?

Benefits: (1) Protection against increase in input prices, which can be passed on to customers Risks: (1) Erosion of margins

What are the benefits and risk of cost-leadership among Power of suppliers?

Benefits: (1) Protection against increases in input prices which can be absorbed Risks: (1) Erosion of Margins

What are the benefits and risk of differentiation among threat of substitutes?

Benefits: (1) Protection against substitute products due to differential appeal Risks: (1) Replacement, especially when faced with innovation

What are the benefits and risk of cost-leadership among threat of substitutes?

Benefits: (1) Protection against substitute products through further lowering of prices Risks: (1) Replacement, especially when faced with innovation

What are the benefits and risk of cost leadership among rivalry among existing customers?

Benefits: (1)Protection against price wars because lowest-cost firm will win Risks: (1) Focus of competition shifts to non-price attributes (2) Lowering costs to drive value creation below acceptable threshold

How is a blue ocean strategy successful ?

Blue Ocean strategy is only successful, in contrast, of the firm can implement some type of value innovation that reconciles the inherent trade-off between value creation and underlying costs

What is an example of when you try to do both business strategies? What is it called? EX?

Blue ocean strategy Jet blue example: stuck in the middle leads to inferior performance

Define Greenfield operations. provide an example

Building new, fully owned plants and facilities from scratch EX: Motorola in China in 1990s

describe internal capital markets in relation to value creation in a diversification strategy

Can be a source of value creation in a diversification strategy if the conglomerate's headquarters does a more efficient job of allocation capital through it budgeting process than what could be achieved in external capital markets Based on private information, corporate managers are in a position to discover which of their strategic business units will provide the highest return on invested capital Possible lower cost of capital Strategy of related-constrained or related-linked diversification is more likely to enhance corporate performance than either a single or dominant level of diversification or an unrelated level of diversification (1) Because of potential benefits of economies of scope and scale on top of restructuring (2) Must out way costs (Coordination and Influence Costs)

What are the factors of administrate and political distance? what type of relationship affects it? what are barriers?

Captured in factors such as: (1) Shared monetary or political associations (2) Political hostilities (3) Weak or strong legal and financial institutions Colony-colonizer relationships have a strong positive effect on bilateral trade between companies (A) EX: Spanish companies trade heavily with Latin America Political and administrative barriers include: (A) Tariffs, quotas and FDI restrictions

Define experience curve. what does process innovation do to learning curve?

Change underlying technology, while holding output constant Process innovation- a new method or technology to produce an existing product (A) May initiate a new and steeper curve (B)Allows a firm to leapfrog to a steeper learning curve rather than moving down it

What takes an industry into decline?

Changes in the external environment often take industries from maturity to decline

pricing options of a sucessful blue ocean strategy? EX:

Charge higher price reflecting additional value and have greater profit margins Charge lower price and make up for decreased GP Margin with increase sales EX: Trader Joe's

Can firms that pursue related diversification strategies create a competitive advantage?

Companies that pursue related diversification are more likely to improve their performance. They create a diversification premium: Situation in which the stock price of related-diversification firms is valued at greater than the sum of their individual business units Why is that? (1) For diversification to enhance firm performance it must do at least one of the following: (A) Provide economies of scale, which reduces cost (B) Exploit economies of scope, which increases value (C) Reduce costs and increase value

What do competitive intensity in a focal industry describe as it relates to Porter's diamond framework? EX:

Competitive environments lead to better performance. Example: German car industry (A) Fierce domestic competition (B) Demanding customers (C) Results in top-notch engineering

define the build-borrow-buy framework. what will firms be able to do if they choose the right model? What is the starting point?

Conceptual model that aids firms in deciding whether to pursue: (1) Internal development (build) (2) Enter a contractual arrangement or strategic alliance (borrow) or (3) Acquire new resources, capabilities and competencies (buy) Firms who are able to select the right option are more likely to gain and sustain a competitive advantage Starting point is to identify strategic resource gap (1) Strategic because closing the gap is likely to lead to a competitive advantage

What does corporate strategy concern?

Concerned with answering the question where to compete

What is tacit knowledge?

Concerns knowing how to do a certain task Cannot be codified Can only be acquired through active participation in that task

What does the Innovation stage of the innovation process concern? provide? benefit from? how to gain and sustain a competitive advantage?

Concerns the commercialization of an invention Allows temporary monopoly profits Benefit from First mover advantages (1) Economies of scale (2) Experience curve (3) Learning curve (4) Network effects (5) Intellectual property (6) Increased switching costs Doesn't need to be high-tech To gain and sustain a competitive advantage, it needs to be: (1) Novel (2) Useful (3) And successfully implemented (4) Continuously Innovate to sustain competitive advantage

What are the factors of Porter's diamond framework?

Consists of four interrelated factors: (1) Factor conditions (2) Demand Conditions (3) Competitive intensity in focal industry (4) Related and supporting industries/complementors

What is liability of foreignness? EX?

Consists of the additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances EX: Walmart failed in Germany because of cultural value differences (didn't want to greet people), increased labor prices, and serious competition

What is the source of cost creation for related diversification?

Coordination Costs (a) Are a function of the number, size, and types of businesses that are linked Influence Costs (A) Occur due to political maneuvering by managers to influence capital and resource allocation and the resulting inefficiencies stemming from suboptimal allocation of scarce resources

How to leverage core competencies for corporate diversification

Core competence-market matrix is used as a way to guide managerial decisions in regard to diversification of strategy First task is to identify their existing core competencies and understand the firm's current market situation When applying an existing or new dimension to core competencies and markets, 4 quadrants emerge, each with distinct strategic implications

Define unrelated diversification EX. advantage?

Corporate strategy in which a firm derives less than 70 % of its revenues from a single business and there are few, if any, linkages among its businesses Conglomerate: (A) A company that combines 2 or more SBUs under one overarching corporation and follows an unrelated diversification strategy Some research suggests that this strategy is advantageous in emerging economies (1) It allows the conglomerate to overcome institutional weaknesses in emerging economies, such as a lack of capital markets an well defined legal systems and property rights EX: Samsung, Warren Buffet's Berkshire Hathaway

what must corporate strategy align with?

Corporate strategy must align with firm's business strategy to gain/sustain competitive advantage

Generic business strategies

Cost leadership Differentiation

What are the cost drivers for a cost-leadership strategy?

Cost of input factors Economies of Scale Learning-curve effects Experience-curve effects

Define economies of scale

Decrease in cost per unit as output increases

what are the most common form of non-equity alliance? Definition? What type of strategic alliance is it? What does it do?

Definition: Partnership based on contracts between firms Most common forms of non-equity alliances are (A) Supply agreements (B) Distribution agreements (C) Licensing agreements (participants regularly exchange codified knowledge) Vertical strategic alliance Connects different parts of the industry value chain

How do we categorize innovations? What is the framework called/do?

Degree of newness in terms of technology and markets Gives us markets-and-technology framework A conceptual model to categorize innovations along the market (existing/new) and technology (existing/new) dimensions Along the horizontal access we ask whether the innovation builds on existing tech or creates new ones On the vertical axis, we ask whether the innovation is targeted toward existing or new markets

what are decisions that strategic leaders need to decide on a corporate level

Degree of vertical integration Level of diversification If and how the firm should compete beyond its home market

Define dominant business as it relates to the types of the business diversification. ex.

Derives between 70-95% of its revenues from a single business, but it pursues at least on other business activity that accounts for the remainder of revenue Shares competencies in products, services, technology, or distribution Remaining revenue is generally obtained from other strategic business unit within the firm

What does factor conditions describe as it relates to Porter's diamond framework?

Describes a country's endowments in terms of: (1) Natural (not often needed), human, and other resources (2) Resource-rich: focus on commerce (3) Resource-lacking: focus on human capital Other important factors: (A) Capital markets, institutional frameworks, research universities, public infrastructure i. Airports, roads, schools, health care system, etc.

define the innovation process. What is it captured by?

Describes the discovery, development, and transformation of new knowledge in a four-step process captured in the four I's 4 I's Idea Invention Innovation Imitation

what does the parent-subsidiary relationship describe? where do transaction cost arise from? drawbacks?

Describes the most-integrated alternative to performing an activity within one's own corporate family Parent company can direct via command and control Transaction costs that arise are frequently due to political turf battles, which may include the capital budgeting process and transfer prices, among other areas Other potential conflict arise out of how centralizes or decentralized a subsidiary unit should be run

Describe entrepreneurship

Describes the process by which change agents (entrepreneurs) undertake economic risk to innovate- to create new products, processes and sometimes new organizations. Innovate by commercializing ideas and inventions (A)Used to exploit opportunities

describe restructuring. what is a helpful model?

Describes the process of reorganizing and divesting business units and activities to refocus a company to leverage its core competencies more fully Boston Consulting Group (BCG) growth-share matrix

Describe Strategic entrepreneurship. fundamental questions

Describes the pursuit of innovation using tools and concepts from strategic management Leverage innovation for competitive advantage by applying a strategic management lens to entrepreneurship Fundamental Question (1) How to combine entrepreneurial actions, creating new opportunities or exploiting existing ones with strategic actions taken in the pursuit of competitive advantage (2) New and established firms

Describe social entrepreneurship

Describes the pursuit of social goals while creating profitable businesses Evaluate the performance of their new ventures not only by financial metrics but also by ecological and social contribution Use a triple-bottom-line approach to assess performance

What does the invention stage of the innovation process describe? What is it? and how is it protected?

Describes: (1) The transformation of an idea into a new product or process, or (2) The modification and recombination of existing ones The practical application of basic knowledge in a particular area frequently results in new technology protected by patents and trade secrets

Define business level strategy. What does it concern? What do managers need to keep in mind?

Details goal-directed actions managers take in their quest for competitive advantage when competing in a single product market Concerns "How should we compete?" Managers need to keep in mind that competitive advantage is determined jointly by industry and firm effects. (A) 5 Forces Analysis (B) Strategic Group Analysis (C) Effects are interdependent

What is the CAGE Framework? what are the dimensions? what does it guide?

Distance (among the four listed below) is the main cost and risk of expansion. CAGE is a decision framework based on the relative distance between home and a foreign target country along four dimensions: (1) Cultural (2) Administrative and political (3) Geographic (4) Economic CAGE Guides MNE decisions on which countries to enter.

In most cases mergers and acquisitions what happens?

Do not create competitive advantage Do not realize anticipated synergies

Define radical innovation EX? targets?

Draws on novel methods or materials, is derived either from an entirely different knowledge base or from a recombination of existing knowledge bases with a new stream of knowledge targets new markets by using new technologies EX: Ford Model T, X-ray, airplane

what are the risks of the multidomestic strategy as it relates to the integration-responsiveness framework doing?

Duplication of key business functions in multiple countries leads to high cost of implementation Little or no economies of scale Little or no learning across different regions Higher risk of IP expropriation

What is Eli Lilly's approach to post formation alliance management?

Each alliance has an: (1) Alliance Champion (A) Responsible for high-level support and oversight (B) Makes sure that alliance fits within the firm's existing alliance portfolio and corporate-level strategy (2) Alliance Leader (A) Technical expertise and knowledge (B) Day-to-Day management (3) Alliance Manager (A) 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

What does each different stage of vertical integration face? differences?

Each stage faces different competitors Not all industry value chain stages are equally profitable

What does each stage represent in an industry value chain (vertical value chain)

Each stage represents a distinct industry in which a number of different firms are competing

what does the cash cow mean in the Boston Consulting Group (BCG) growth-share matrix? what strategy?

Earnings: High, stable Cash flow: High, stable Strategy: hold low market growth, high relative market share

what does the star mean in the Boston Consulting Group (BCG) growth-share matrix? what strategy?

Earnings: High, stable, or growing Cash flow: neutral Strategy: Hold or invest for growth high market growth, high relative market share

what does the dog mean in the Boston Consulting Group (BCG) growth-share matrix? what strategy?

Earnings: low, unstable Cash flow: neutral or negative Strategy: harvest/divest low market growth, low relative market share

what does the question mark mean in the Boston Consulting Group (BCG) growth-share matrix? what strategy?

Earnings: low, unstable, or growing Cash flow: negative Strategy: Increase market share or harvest/divest high market growth, low relative market share

What is the source of value creation for related diversification?

Economies of scope Economies of Scale Financial economies o Restructuring o Internal Capital Markets

Define economies of scope

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

What does an effective use of technology allow a platform business to do?

Effective use of technology allows platform firms to drastically reduce the barriers of time and space: (1) Information is available in real time across the globe (2)Market exchanges can take place effectively across vast distances (China to US) or small geographic spaces (Tinder)

Why are strategic alliances attractive?

Enables firms to achieve goals faster and at lower cost (1) Less complex (2) Complement or argument the value chain (3) Can help gain and sustain advantage (when obeying VRIO)

What is corporate venture capital? give an example

Equity investments by established firms in entrepreneurial ventures Create real options in terms of gaining access to new, and potentially disruptive technologies Route for venture capitalist EX: Google Ventures

How does vertical integration reduce the flexibility?

Especially when faced with changes in the external environment such as fluctuations in demand and technological changes They can't easily invest in new processes because all of it is tied up in the current one

What is the source of value creation for unrelated diversification?

Financial Economies o Restructuring o Internal Capital Markets

Why is it important for growth to lower costs?

Firms need to grow to achieve benefits from economies of scale

Can firms that pursue unrelated diversification strategy create a competitive advantage?

Firms that pursue unrelated diversification are often unable to create additional value. They experience a diversification discount: (1) Situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units (2) Depends on institutional context (better in emerging economies rather than developed ones)

What happens to firms who pursued tapper integration?

Firms that pursued taper integration achieved superior performance in both innovation and financial performance when compared with firms that relied more on vertical integration or strategic outsourcing

What is the platform ecosystem?

First step to formulate an effective platform strategy is to understand the roles of the players within any platform ecosystem Is the market environment in which all players participate relative to the platform From a value chain perspective, (1) Producers create or make available a product or service that consumers use The owner of the platform controls the platform IP address and controls who may participate and in what ways The providers offer the interfaces for the platform, enabling its accessibility online Players in the ecosystem typically fill one or more of the 4 roles but rapidly shift from one role to another

What does a strong value curve have?

Focus and divergence Can provide a kind of tagline as to what strategy is being undertaken or should be undertaken

Why is facilitating scheduling and planning benefit vertical integration?

Forward integration into distribution and sales allows companies to more effectively plan for and respond to changes in demand

What is the crossing-the-chasm frameworks main argument? What makes the differences? Main contribution of model? Define

Framework: Conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group Core Argument: each stage of the industry life cycle is dominated by a different consumer group Different customer groups with distinctly different preferences Each consumer group responds differently to a technological innovation, because of: (A) Psychological, demographic, and social attributes observed in each unique customer segments Main contribution: the differences between early and late customer groups make it hard to transition from different parts of life cycle (A) Such differences can lead to a big gulf or chasm (difference between early adopters & early majority) into which companies and their innovations frequently fall

moving from the traditional pipeline business to a platform business model implies 3 important shifts in strategy focus, what are they?

From resource control to resource orchestration From internal optimization to external interactions From customer value to ecosystem value

What are future radical innovations generally introduced by? because of?

Future radical innovations are generally introduced by new entrepreneurial ventures because of: Economic incentives Organizational inertia The firm's embedded in an innovation ecosystem

what are the advantages of global?

Gain access to a larger market. Gain access to low-cost input factors. Develop new competencies.

what are the risks of the Transnational strategy as it relates to the integration-responsiveness framework doing?

Global Matrix structure is costly and difficult to implement, leading to high failure rate Some exchange rate exposure Higher risk of IP expropriation

What are the 3 stages of globalization?

Globalization 1.0: 1900-1941 Globalization 2.0: 1945-2000 Globalization 3.0: 21st Century (2001-)

What is the goal of cost leadership? What does it attempt to do? What is the strategic objective

Goal: reduce the firm's cost below that of its competitors while offering adequate value. Attempts to: (1) Optimize all of its value chain activities to achieve a low-cost position Lowest cost in industry = strategic objective (A) Still needs to offer acceptable valued products/services

what is the goal of a differentiation strategy?

Goal: to add unique features that will increase the perceived value of goods and services in the minds of consumers so they are willing to pay a higher price

Define strategy canvas

Graphical depiction of a company's relative performance vis-à-vis its competitors across the industry's key success factors

Why is it important for growth to motivate management?

Growing firm provides career opportunities and professional development for employees Behavioral economics, suggests that firms may grow to achieve goals that benefit managers more than stockholders (1) Principal agent problem

what is the Boston Consulting Group (BCG) growth-share matrix?

Helpful too to guide corporate portfolio planning Firm's individual SBUs in 2 dimensions: (1) Relative market share (horizontal axis) (2) Speed of market growth (vertical axis) 4 categories: (1) Dog (2) Cash cow (3) Star (4) Question mark Each category warrants a different investment strategy Want to have manage SBU portfolio in a clockwise manner

how does globalization help develop new competencies?

Helps MNEs that pursue a differentiation strategy Make Foreign Direct investments to have access to (1) Communities of learning (A) Specific geographic regions (2) Location economies (A) Benefits from Locating value chain activities in optimal geographies for a specific activity

who is helped by gaining access to low-cost input factors in relation to globalization? types? Key drivers of what?

Helps MNEs that pursue a low-cost leadership strategy Examples of low-cost raw materials: (A) Lumber, iron ore, oil, and coal Was a key driver of Globalization 1.0 and 2.0 (A) Access to low cost raw materials such as Lumber, iron ore, oil, and coal Was a key driver of Globalization 3.0 (A) Lower labor costs is the main focus now

What does gaining access to a larger market in relation to globalization help? who does help?

Helps MNEs with economies of scale and scope reinforce the basis of their competitive advantage (A) This in turn allows MNEs opportunities to out compete local rivals Helps firms with low domestic demand (A) By Export-led growth (B) EX: China, Germany, South Korea, and Japan Helps firms in smaller economies (A) Achieve growth (B) Gain and sustain competitive advantage (C) Domestic markets are too small to reach significant economies of scale to compete effectively against other MNEs (D) EX: Samsung and IKEA

What do long term contracts help? types, common places for each type? length?

Helps overcome short-term contract drawback More than one year Help facilitate transaction-specific investments EX: (1) Licensing (manufacturing industries; enables firms to commercialize intellectual property) (2) Franchising (service industries; use of trademark and business processes to offer goods and services that carry the franchisor's brand name) (A) Pays Lump Sum Up front + % of revenues

"How RELEVANT Are The Firm's Existing Internal Resources To Solving The Resource Gap?" How do you test? what does it mean? why is one of the tests missleading?

High Internal Resource Relevance means your firm should opt to build the new resource itself Test to determine degree of relevancy (both conditions should be met to be considered high) (1) Resources are similar to those the firm needs to develop, AND (A) Often misleading because: i. things that might appear similar at the surface are actually quite different deep down ii. focus is on the known similarities rather than on unknown differences iii. strategic leaders often don't know how the resources needed for the existing and new businesses differ (2) Superior to those of competitors in the targeted areas (A) Best be assessed by applying the VRIO framework

When does a diversification strategy crate a competitive advantage, and when does it not?

High and low levels of diversification are generally associated with lower overall performance Implies too much or little diversification often fail to achieve additional value creation depends on the underlying diversification strategy

What is a transnational strategy Strategy in relation to the integration-responsiveness framework doing? business level strategy?

High cost reductions / high local responsiveness (A) "Think globally, act locally" (B) Best practices, ideas, and innovations used everywhere Used by MNEs that pursue a blue ocean strategy Difficult to implement: (A) Duplication of efforts (B) Organizational complexity

What is a global-standardization Strategy in relation to the integration-responsiveness framework doing? business-level strategy? organized as what? EX

High cost reductions / low local responsiveness Attempt to reap significant economies of scale & location economies (A) Achieved through global division of labor. Based on wherever capabilities have lowest cost Price, the main competitive weapon (A) Minimal local adaptation Often organized as networks Cost leadership strategy MNE must maintain minimum efficient scale EX: Lenovo

Why is it important for growth to increase market power?

Higher industry profitability More bargaining power with suppliers and buyers

what are the benefits of the multidomestic strategy as it relates to the integration-responsiveness framework doing?

Highest-possible local responsiveness Increased differentiation Reduced exchange-rate exposure

Define value curve

Horizontal connection of the points of each value on the strategy canvas that helps strategic leaders diagnose and determine courses of action

(1) Difference in timing: (A) Learning effects occur over time as output accumulates (B) Economies of scale are captured at one point in time when output increases (2) No diseconomies of learning (3) Difference in Complexity (A) In production process, effects from economies of scale are more substantial 1. Less worried about employee turnover, and more about drops in production (4) In some professions, learning effects can be more substantial (A) More worried about employee turnover because learning curve starts over

How do learning effects differ from economies of scale? (4)

The success of each strategy depends on context and relies on two factors:

How well the strategy leverages the firm's internal strengths while mitigating its weaknesses How well it helps the firm exploit external opportunities while avoiding external threats

What is an example of create as related to value innovation?

IKEA Can compare, test, and touch all the things in the showroom Customer notes the item number to buy

What is an example of reduce as related to value innovation?

IKEA: Staff, through build it yourself furniture High quality

What is an example of eliminate as related to value innovation?

IKEA: eliminated: salespeople, locations in prime urban locations and shopping malls, long wait after ordering furniture, after-sales service, etc

What is an example of raise as related to value innovation?

IKEA: Amount of products Size of stores

Describe the imitation stage of the innovation process

If innovation is successful in the marketplace, competitors will attempt to imitate it

What does the question "How close do you need to be to your external resource partner?" answer?

If not easily tradable but there is not a need to be extremely close to understand and obtain its underlying knowledge to the resource partner then the firm should form a strategic alliance through: (1) an equity alliance (2) joint venture Why? (1) M&A's are the most costly, complex, and hard to reverse of the strategic options

how do strategic alliances help enter new markets? give an example

In terms of products, services or geography EX: HP and DreamWorks (tech to help have productive meetings from different locations) EX: having a strategic partner to be able to do business in other country

What is the first question when formulating corporate strategy?

In what stage of the industry value chain should the firm participate

How does the vertical integration increase the costs?

In-house suppliers tend to have higher cost structures because: (1) They are not exposed to market competition (2) Reduced incentive to lower costs because there will always be a buyer (3) Won't achieve economies of scale because market is smaller Increased administrative costs because of organizational complexity due to higher levels of vertical integration. Admin costs are part of internal transaction costs an arise from: (1) The coordination of multiple divisions (2) Political maneuvering for resources (3) The consumption of company perks (4) Or from employees slacking off

What is the list of reasons for why a firm needs to grow? (5)

Increase profits Lower costs Increase market power Reduce risk Motivate management

Risks of vertical integration?

Increasing costs Reduce Quality Reducing Flexibility Increasing the potential for legal repricussions

What are the 4 types of innovation according to the Markets-and-technology framework?

Incremental Radical Architectural Disruptive

total costs of transacting consist of external and internal transactions, what are they?

Incur external transactions cost when transacting in the open market (1) The costs of searching for a firm or an individual with whom to contract, and then negotiating, monitoring, and enforcing the contract Internal transnational Costs (1) Costs pertaining to organizing an economic exchange within a firm (2) EX: recruiting and retaining employees; paying salaries and benefits; setting up a shop floor; providing office space and computers; and organizing, monitoring, and supervising work (3) Include administrative costs associated with coordinating economic activity between different business units of the same corporation such as transfer pricing for input factors, and between business units and corporate headquarters including important decisions pertaining to resource allocation, among others (4) Tend to increase with organizational size and complexity

how to achieve strategic objective during introduction stage

Initiate and leverage network effects

Define Intrapreneurs

Innovating within existing companies Pursuing corporate entrepreneurship

What are the sources of costs for horizontal integration

Integration failure Reduced flexibility Increased potential for legal repercussions

What are the 5 stages of the industry life cycle

Introduction Growth Shakeout Maturity Decline

what is alliance management capability?

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

define single business as it relates to the types of the business diversification. ex.

Is characterized by a low level of diversification, if any because: Derives more than 95% of its revenues from one business EX: Facebook

define organizational inertia. how does it favor incremental innovations?

Is resistance to changes in the status quo Therefore, tend to favor incremental innovations that reinforce the existing organizational structure and power distribution while avoiding radical innovation that could disturb existing power distribution

Define vertical integration

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

What are the benefits of the tapper integration

It exposes in-house suppliers and distribution to market competition so that performance comparisons are possible (1) Allows a firm to retain and fine-tune its competencies in upstream and downstream value chain activities Enhances a firm's flexibility Firms can combine internal and external knowledge, possibly paving the path for innovation

how do strategic alliances help access critical complementary assets?

It is expensive to develop (1) Marketing, manufacturing, after-sale service Strategic alliances helps complete the value chain for such activities Licensing agreements of this sort allow the partners to benefit from a division of labor, allowing each to efficiently focus on its core competency

describe laggards

Last consumer segment to enter the market Enters at declining stage Only adopt if absolutely necessary Usually for personal or economic reasons Not general worth pursuing because of their reluctance to new tech 16% of total market potential Demand is far to low to compensate for lost early and late majority

What does related and supporting industries/ complementors describe as it relates to Porter's diamond framework?

Leadership in related and supporting industries fosters complementors in downstream industries. Firms that provide an additional good or service (A) Combined with the primary product (B) Leads customers to value the firm's offering more Further strengthens national competitive advantage

define disruptive innovation. characteristics?

Leverages new technologies to attack existing markets It invades an existing market from the bottom up New technology has a few characteristics: (1) It begins as a low-cost solution to an existing problem (2) Initially, its performance is inferior to the existing technology, but its rate of technological improvement over time is faster than the rate of performance increases required by different market segments

what are the benefits of the international strategy as it relates to the integration-responsiveness framework doing?

Leveraging core competencies Economies of scale Low-cost implementation through: (A) Exporting or licensing (for products) (B) Franchising (for services) (C) Licensing (for trade marks)

What are the disadvantages of going global?

Liability of foreignness Loss of reputation Loss of intellectual property

how do strategic alliances help hedge against uncertainty? what is the perspective that comes from this?

Limits exposure to uncertainty in the market Real-options perspective:

what are the benefits of the global-standardization strategy as it relates to the integration-responsiveness framework doing?

Location Economies: global division of labor based on wherever best-of-class capabilities reside at lowest cost Economies of scale and standardization

What is an International Strategy in relation to the integration-responsiveness framework doing?

Low cost reductions / low local responsiveness Leverages home-based core competencies Sells the same products domestically and abroad

How does value innovation normally lower cost and increase perceived value?

Lowering costs is primarily achieved by (A) Eliminating and reducing the taken-for-granted factors that the firm's industry rivals compete on Perceived buyer value is increased by raising existing key success factors and by creating new elements that the industry has not offered previously

When does Vertical Integration Make sense? fail rate?

Main reason to vertically integrate: Failure of vertical markets When a company vertically integrates two or more steps away from its core competency, it fails 2/3 of the time

Describe Late Majority

Make up about 34% if the total market potential The combination of early and late majority drives the most industry growth and firm profitability Share same concerns as early majority Differences between early and late majority 1. Late: not confident in their ability to master new technology 2. Late: prefer to wait until standards have emerged and are firmly entrenched, so that uncertainty is reduced 3. Late: prefers to buy from well established firms with a strong bran image rather than from unknown new ventures

What does value innovation do to competition?

Makes competition irrelevant by providing a leap in value creation, thereby opening new and uncontested market spaces

how do firms get there start? what is the predictable pattern after this

Many firms get there start by commercializing radical innovations Predictable pattern is to start with radical innovation to get a temporary advantage then use incremental innovation to sustain the initial lead

Define horizontal integration. What does it improve? What is the rule of thumb?

Merging with a competitor at the same stage of the value chain Improves strategic position in a single industry 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

how do strategic alliances help firms learn new capabilities? give an example

Motivated by their desire to learn new capabilities from their partner Co-opetition: cooperation among competitors Learning races:

Define strategic outsourcing. EX?

Moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain Reduces their level of vertical integration EX: outsource HR

Why are certain industries more competitive in some countries than in others?

National competitive advantage which in turn has a direct effect on firm-level competitive advantage

What factors explain increasingly rapid technological diffusion and adoption?

Necessary infrastructure is built New business models that make innovation more accessible Internet

What must you do in post-formation alliance management? what is it built by? what level is it best managed at?

Necessary to obey VRIO framework To create VRIO resource combinations: (1) Make relation-specific investments. (2) Establish knowledge-sharing routines. (3) Build interfirm trust. (A) Entails the expectation that each alliance partner will behave in good faith and develop norms of reciprocity and fairness Build alliance management capability through repeated experiences over time Best managed at corporate level Suggested that larger firms have specific units to manage

what are the risks of the global-standardization strategy as it relates to the integration-responsiveness framework doing?

No local responsiveness Little or no product differentiation Some exchange-rate exposure "Race to the bottom" as wages increase Some risk of IP expropriation

what are the risks of the international strategy as it relates to the integration-responsiveness framework doing?

No or limited local responsiveness Highly affected by exchange-rate fluctuations IP embedded in product or service could be expropriated

what are the 3 governing strategic alliances?

Non-Equity Alliances Equity Alliances Joint Ventures

What are OEMs, why are they able to vertically integrate?

OEM (original equipment manufacturer) are able to vertically integrate because they acquire the skills needed to compete in adjacent industry value chain activities from their alliance partners, which need to share the technology behind their proprietary phone to enable large-scale manufacturing

What is vertical market failure?

Occurs when transactions within the industry value chain are too risky, and alternatives to integration are too costly or difficult to administer Derived from transaction cost economics Risk of relying on suppliers is usually less than risk of producing the supplies

What is the characteristics of the international strategy as a part of the integration-responsiveness framework?

Often the first step in internationalizing Used by MNEs with relatively large domestic markets or strong exporters (e.g. MNEs from US, Germany, Japan, South Korea) Well suited products with for high-end products with high value-to-weight ratios such as machine tools and luxury goods that can be shipped across the globe Products and services tend to have strong brands Main business level strategy trends to be differentiation because exporting, licensing, and franchising add additional costs

What is happening in the maturity stage?

Oligopoly Demand now consists of replacement or repeat purchases Market has reached max size Growth is 0 and negative going forward

What are the economic incentives for an existing firm to not create radical innovations? what are the incentives for a new firm to create radical innovations?

Once an innovator has become an established incumbent firm it has strong incentives to defend its strategic position and market power Incremental innovations strengthens the incumbent firm's position and thus maintains high entry barriers Incremental innovation is particularly attractive once an industry standard has emerged and technological uncertainty is reduced Network Effects turn into winner-take- all markets, where (1) The market leader captures almost all of the market share (2) Near monopolist Incentives for entrepreneurial ventures are the opposite (1) Successfully commercializing a radical innovation is frequently the only option to enter an industry protected by high entry barriers

What do you do after you select a partner in an alliance arrangement?

Once partner is chosen managers must decide the appropriate governance mechanisms (A) Non-equity contractual agreement (B) Equity alliances (C) Joint ventures Interorganizational trust is a critical dimension of alliance success

What is happening during the 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 Industry consolidates Often cost leaders Key success factors are the manufacturing and process engineering capabilities Price is more important Any firm that does not have a clear strategic profile is likely to not survive this phase

how do firms achieve growth?

Organic growth through internal development External growth through alliances External growth through acquisitions

What are the three alliance related tasks of management

Partner Selection And Alliance Formation Alliance Design and Governance Post-formation Alliance Management

Business Strategy is more likely to lead a competitive advantage if it allows firms to___?

Perform similar activities differently or perform different activities than their rivals

How does vertical integration increase the risk of legal repercussions?

Potential monopoly issues (Department of Justice)

What is cultural distance made up of?

Power distance Individualism Masculinity-femininity Uncertainty avoidance Long-term orientation Indulgence

What does the idea stage of the innovation process do/present?

Presented in terms of abstract concepts or as findings derived from basic research Basic research (1) Purpose is to discover new knowledge (2) Published in academic journals (3)Usually transformed into applied research with commercial applications

what type of general diversification strategy do companies pursue?

Public companies generally pursue geographical locations

Define acquisition. what can it be?

Purchase of one company by another Can be hostile (1) When the target firm does not wish to be acquired

Why is it important for growth to reduce risk?

Rationale behind these diversification moves is that falling sales and lower performance in one sector might be compensated by higher performance in another Attempt to achieve economies of scope

How does vertical integration reduce the quality?

Reduced incentive to increase quality or come up with innovative new products due to lack of competition Reduced chance of reaping benefits from learning and experience effects and so develop unique capabilities or quality improvements

What are the value drivers for differentiation strategy? What are they related to?

Related to a firm's expertise in, and organization of, different internal value chain activities Levers: Product Features (apple) Customer Service (zappos) Complements (Apple and AT&T)

How can globalization result in a loss of reputation? EX?

Reputation: one of the most valuable resources, their dimensions include: (A) Innovation, customer service, brand Loss of reputation can diminish competitiveness (A) Low wages, long hours, and poor conditions (B) Local government may be corrupt (C) Safety standards may not be enforceable i. Directly concerns corporate social responsibility EX: Walmart banned suppliers EX: Apple and factory condition

What does value innovation require?

Requires lower costs and increase perceived value

why is blue ocean strategy difficult to implement

Requires reconciliation of fundamentally different strategic positions Which in turn require distinct internal value chain activities They end up stuck in the middle, meaning they don't have a clear profile which results in inferior performance

What is globalization 3.1?

Retrenchment may occur in the future. There has been a rise of nationalism

What are the consequences of continued economic development across the globe?

Rising wages and other costs are likely to negate any benefit of access to low-cost input factors As standard of living rises in emerging economies, MNEs are hoping that increased purchasing power will enable workers to purchase the products they used to make for export only

what is the industry life cycle look like? A tendency of the model? Assumption

S-curve Developed economies moved through industry life cycle earlier than Emerging economies (China v Canada) Model Assumes a more or less smooth transition from one stage to another

When considering different business strategies, managers must define

Scope of competition- whether to pursue a specific, narrow part of the market or go after the broader market

What are the 4 main types of business diversification?

Single Business Dominant Business Related Diversification (A) Related-Constrained Diversification (B) Related Linked Diversification Unrelated Diversification: the conglomerate

when can single businesses diversification strategy have a competitive adv.?

Single business can potentially benefit from economies of scope by leveraging their core competencies into adjacent markets

what are learning races? give an example

Situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which the firms learn may vary Can result from co-opetition The firm that learns faster have an incentive to exit the alliance quickly Can have a positive effect on the winning firm's competitive position EX: Toyota and GM (Joint venture; GM wanted to learn lean manufacturing, Toyota wanted to learn how to manage US workers Toyota won)

Describe technological enthusiasts

Smallest market segment (2.5 % of total market potential) Tend to have engineering mind-set and pursue new technology proactively Seek new products before officially released Enjoy 1. beta versions 2. tinkering with the product's imperfections and 3. providing (free) feedback and suggestions to the companies often will pay a premium price the endorsement by technology enthusiasts validates the fact that the new product works

What is the disparity between a firm's home and host country for culture?

Social norms and morals, beliefs, and values

What are specialized assets?

Specialized Assets are unique assets with high opportunity cost: They have significantly more value in their intended use than in their next-best use

Define Incremental innovation

Squarely builds on an established knowledge base and steadily improves an existing product or service offering Targets existing markets using existing technology

What is happening during the growth stage? who can survive? standards? what is obtained?

Standard signals the market's agreement on a common set of engineering features and design choices, can come from: (1) Bottom up through competition in the marketplace or (2) Be imposed from the top down by government or other standard-setting agencies such as the Institute of Electrical and Electronic Engineers (IEEE) Both efficient and inefficient firms thrive Economies of scale are obtained Learning curve Distribution channels and complementary assets are widely available Most technological and commercial uncertainties about the new product are gone

Why is it important for growth to increase profits?

Stock market valuation of a firm is determined to some extent by expected future revenues and profit streams If they fail achieve their growth target --> stock price falls --> possible hostile takeover and or it will be more costly to raise the required capital to fuel future growth by issuing stock

What is the relational view of competitive advantage?

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

What is the integration-responsiveness framework? What are the 4 strategic positions?

Strategy framework that juxtaposes the pressures an MNE faces for cost reduction and local responsiveness to derive four different strategies to gain and sustain competitive advantage when competing globally. The four strategic positions are 1) International 2) Multidomestic 3) Global-standardization 4) Transnational

draw back of specialized assets?

Tend to incur high opportunity costs because making specialized investments opens up the threat of opportunism by one of the partners i. Opportunism is defined as self-interest seeking with guile ii. Backward vertical integration is often undertaken to overcome the threat of opportunism and to secure key raw materials

define national culture

The collective mental and emotional "programming of the mind" that differentiates human groups

define a merger. what is it usually?

The joining of two independent companies Forms a combined entity Usually friendly

what is the level of globalization?

The level of globalization is at 10-25% total. (semi globalized)

What is a red ocean?

The rivalry among existing firms is cut-throat because the market space is crowded and competition is a zero-sum game Products become commodities Competition is mainly focused on price Any market share gain is at the expense of others

How are differences in learning curves created? what happens on an 80%, 90% learning curve?

The steeper the learning curve, the faster the learning has occurred As you move down, per-unit costs decreases In an 80% learning curve, per-unit costs drop 20% every time output is doubled In a 90% learning curve, per-unit costs drop 10% every time output is doubled Economies of learning allow movement down a given learning curve based on current production technology

"How tradable are the targeted resources that may be available externally?": what does the term tradable imply? when is the resource easily tradable? what should the firm consider when it is not?

The term tradable implies that the firm is able to source the resource externally through a contract that allows for the transfer of ownership or use of the resource Licensing or Franchising are both commonly used ways to borrow resources If the resource is highly tradable then it should be borrowed via a licensing agreement or other contractual agreement If the resource is not easily tradable, then the firm should consider deeper strategic alliances through: an equity alliance joint venture outright acquisition

When do you know internal resources are relevant?

They are similar to those the firm needs. They are superior to those of competitors. They pass the VRIO Framework.

how do strategic alliances strengthen competitive position? give an example

To change industry structure in their favor When competing in setting an industry standard (Tesla and they type of batteries used)

What is a successful differentiation strategy is likely to be based on?

Unique or specialized features of the product Effective marketing campaign Intangible resources such as reputation for innovation, quality, and customer service

What is the focus of a differentiation strategy?

Unique product features Service New product launches Marketing and promotion

How do you decide where in the world to compete?

Use the CAGE Distance Framework

What are the characteristics of the Global-Standardization strategy as a part of the integration-responsiveness framework?

Used by MNEs that are offering standardized products and services (e.g. computer hardware or business process outsourcing) Main business-level strategy is cost leadership

What are the characteristics of the transnational strategy as a part of the integration-responsiveness framework?

Used by MNEs that pursue a blue ocean strategy at the business level by simultaneously focusing on product differentiation and low cost Mantra: Think globally, act locally

What is the characteristics of the multidomestic strategy as a part of the integration-responsiveness framework?

Used by MNEs to compete in host countries with large and/or lucrative but idiosyncratic domestic markets (e.g. Germany, Japan, Saudi Arabia) Often used in consumer products and food industries Main business-level strategy is differentiation MNE wants to be perceived as local company

when are joint ventures frequently used?

Used frequently 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

What is Porter's diamond framework used for?

Used to explain national competitive advantage- why some nations outperform others in specific industries

what is exporting used for?

Used to test whether a foreign market is ready for a firm's product

What are trade secrets? ex?

Valuable proprietary information that is not in the public domain and where the firm makes every effort to maintain its secrecy EX: Coca-Cola

What are the 4 questions that one would need to answer to create value innovation?

Value Innovation-Lower Costs (1) Eliminate. Which of the factors that the industry takes for granted should be eliminated? (2) Reduce. Which of the factors should be reduced well below the industry's standard? Value Innovation- Increase Perceived Customer Benefits (3) Raise. Which of the factors should be raised well above the industry's standard? (4) Create. Which factors should be created that the industry has never offered?

what are you buying when you are acquiring a firm?

When acquiring a firm you buy an entire resource bundle

What is done when a firm wants to do a short term contract? Benefits? Drawback?

When done, 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 Benefit: (1) Lies in the fact that it allows a somewhat longer planning period than individual market transaction (2) Buying firm can often demand lower prices due to the competitive bidding process Drawback (1) The firms responding to the RFP have no incentive to make any transaction-specific investments due to the short duration of the contract

define related diversification as it relates to the types of the business diversification. types?

When it derives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business linked to the primary business activity Rationale is to benefit form economies of scale and scope: These multi-business firms can pool and share resources as well as leverage competencies across different business lines Types: (A) Related-Constrained Diversification (B) Related Linked Diversification

What does the question "How well can you integrate the targeted firm, should you determine you need to acquire the resources partner?" answer?

Whether to acquire a firm (1) Last question to ask is whether the firms will be able to work together Failure often due to cultural differences Only if there is low relevancy, low tradability, and high need for closeness should the firm's strategic leaders consider M&A (1) Insufficient resources to build (2) the resources needed to fill the strategic gap cannot be borrowed through a strategic alliance (3) closeness to the resource partner is needed

In the crossing the chasm framework you formulate strategy for each segment based on? What is different about each?

Who to serve? What needs to satisfy? Why and how to satisfy them? core competencies

What questions do business level strategy address?

Who-which customer segments will we serve? What- customer needs, wishes, and desires will we satisfy? Why- do we want to satisfy them? How- will we satisfy our customers' needs?

what is a polycentric innovation strategy?

a strategy in which MNEs now draw on multiple, equally important innovation hubs throughout the worked characteristics (creates low-cost innovation)

when does alliance qualify as a strategic one?

an alliance only qualifies as a strategic one if it has the potential to affect a firm's competitive advantage

Define Entrepreneurs

are the agents who introduce change into the competitive system

whats happening during the introduction stage?

barriers to entry are high Emphasis on unique product features first mover disadvantage (1) educate customer (2) find distribution channels and complementary assets (3)continue to perfect the fledging product

What does innovation frequently lead to?

birth of new industries

How can a firms vertical integration be measured?

can be measured by a firm's value added: What percentage of a firm's sales is generated within the firm's boundaries (1) The degree of vertical integration tends to correspond to the number of industry value chain stages in which a firm directly participates

What does ocean represent?

denotes market space

describe early majority

depends on practicality what can the new technology due for them they weigh the cost and benefits carefully aware that many hyped product introductions will fade away, so they prefer to wait like to observe early adopters using it rely on endorsements by others seek out reputable references such as Consumer reports Once they achieve Early majority, herding effects are frequently observed (early majority enters in large numbers) The differences between early majority and adopters is the chasm Without adequate demand from early majority the product will not be able to survive

define value chain

described as a pipeline because it captures a linear transformation with producers at one end and consumers at the other

What do predictions derived from transaction cost economics do?

economics guide strategic leaders in deciding to make it or buy it Help determine boundaries of the firm

who gets a patent and what does it provide? drawback?

if an invention is useful, novel, and non-obvious 20 years from filing date Temporary monopoly Have to detail the technology which is accessible to public, tech prefers trade secrets

Define diseconomies of scale

increases in cost as output increases

define global strategy

is a part of a firm's corporate strategy to gain and sustain a competitive advantage to Compete against foreign and domestic companies

what is globalization? what makes it possible

is a process of closer integration and exchange between countries and peoples worldwide made possible by: (A) Falling trade and investment barriers (B) Advances in telecommunications (C) Reductions in transportation costs

what are the modes by which MNEs enter foreign markets? (least to most control/investment) What is this?

it is a stage model (1) Exporting (2) Strategic Alliances (A) Long-term contracts i. Licensing ii. Franchising (B) Equity Alliance (C) Joint ventures (3) Subsidiary (reduces risk for loss of reputation and loss of intellectual property) (A) Acquisition (B) Greenfield

What is tapper integration

it is an alternative to vertical integration A way of orchestrating value chain 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

Why do disruptive innovations succeed?

it relies on stealth attack by invading from the bottom and incumbent firms fail to defend because of the low margins incumbent firms often are slow to change (A) they listen closely to existing customers (B) customer oriented visions aren't 100% effective against this

what is explicit knowledge?

knowledge that can be codified; concerns knowing about a process or product

Describe Early Adopters

make up about 13.5 % of the total market potential eager to buy early into a new technology or concept driven by imagination and creativity rather than by the technology (tech enthusiasts) per say recognize and appreciate the possibilities that the product can provide demand fueled more by intuition and vision rather than technology concerns need to communicate the product's potential application in a more direct way

what is necessary for a platform business to succeed?

network effects

what are the benefits of being fully integration?

o Economies of scale o Quality control o Economies of scope

define minimum efficient scale

output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest cost position that is achievable through economies of scale Depends on specific industry

Blue Oceans represent

represent untapped market space, the creation for additional demand, and the resulting opportunities for highly profitable growth differentiated product at low cost differentiation and low cost become complements

How are trade-offs resolved?

through value innovation Aligning innovation with total perceived customer benefits, price, and cost

What are the 2 primary competitive levers? determined by what?

value and cost determined by business level strategy

What is the source of cost for vertical integration?

• Can increase costs • Can reduce quality • Can reduce flexibility • Increasing potential for legal repercussions

what is the source of value creation for vertical integration?

• Can lower costs • Can improve quality • Can Facilitate Scheduling and planning • Facilitating investments in specialize assets • Securing critical supplies and distribution channels

What is the source of cost creation for unrelated diversification?

• Influence Costs