MGT 400 Final Exam Guide

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Cost Drivers

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

CAGE Distance Framework

-Cultural Distance: Cultural disparity between an internationally expanding firm's home country and its targeted host country -Administrative and Political Distance -Geographic Distance -Economic Distance Refer to Figure 10.3 pg 319

Value Drivers

-Products -Customer Service -Complements

Conglomerate

A company that combines two or more strategic business units under one overarching corporation; follows unrelated diversification strategy (Refer to exhibit 8.7 pg 258)

Multinational Enterprise (MNE)

A company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries

Absorptive capacity

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

Foreign Direct Investment (FDI)

A firm's investments in value chain activities abroad

Organizational Inertia

A firm's resistance to changes in the status quo

Patent

A form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of underlying idea

Licensing

A form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property

Open Innovation

A framework for R&D that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and inventions, but also from external ones. The sharing goes both ways: some external ideas and inventions are in-sourced while others are spun-out

Core Competence-market matrix

A framework to guide corporate diversification strategy by analyzing possible combinations of existing/new core competencies and existing/new markets (Refer to exhibit 8.8 Pg. 261)

Franchising

A long-term contract in which a franchisor grants a franchisee the right to use the franchisor's trademark and business processes to offer goods and services that carry the franchisor's brand name; t he franchisee in turn pays an up-front buy-in lump sum and a percentage of revenues

credible commitment

A long-term strategic decision that is both difficult and costly to reverse

Transaction cost economics

A theoretical framework in strategic management to explain and predict the boundaries of the firm, which is central to formulating a corporate strategy that is more likely to lead to competitive strategy

Taper Integration

A way of orchestrating value activities in which a firm is backwardly integrated but also relies on outside-market firms for some of its supplies, and/or is forwardly integrated but also relies on outside-market firms for some of its distribution

Liability of Foreignness

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

Transaction Costs

All internal and external costs associated with an economic exchange, whether within a firm or in markets

Standard

An agreed-upon solution about a common set of engineering features and design choces

Diversification

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

Radical Innovation

An innovation that draws on novel methods or materials, is derived either from an entirely different knowledge base or from a recombination of existing knowledge bases with new stream of knowledge, or targets new markets by using new technologies

Incremental Innovation

An innovation that squarely builds on an established knowledge base, and steadily improves an existing product or service offering; targets existing markets by using existing technology

Ambidextrous Organization

An organization able to balance and harness different activities in trade-off situations

Globalization Hypothesis

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

death-of-distance Hypothesis

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

Location Economies

Benefits from locating value chain activities in the world's optimal geographies for specific activity, wherever that may be

Long tail

Business model which companies can obtain a large part of their revenues by selling a small number of units from among almost unlimited choices

Integration Strategy

Business-level Strategy that successfully combines differentiation and cost-leadership activities

Forward Vertical integration

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

Backward Vertical Integration

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

Strategic Trade-offs

Choices between a cost or value position. Such choices are necessary because higher value tends to require higher cost

First-movers advantages

Competitive benefits that accrue to the successful innovator

Unrelated diversification Strategy

Corporate strategy in which a firm derives less than 70% of its revenues from a simple business activity and there are few, if any, linkages among its businesses (Refer to exhibit 8.7 pg 258)

Related Diversification Strategy

Corporate strategy in which a firm derives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity Related-constrained: All businesses share competencies in products, services, technology, or distribution Related Linked-Only some businesses share competencies in products, services, technology, or distribution (Refer to exhibit 8.7 pg 258)

Geographic Diversification Strategy

Corporate strategy in which a firm is active in several different countries

Product diversification strategy

Corporate strategy in which a firm is active in several different product markets

Product-Market Diversification Strategy

Corporate strategy in which a firm is active in several different product markets and several different countries (Refer to exhibit 8.7 pg 258)

Internal Transaction costs

Costs pertaining to organizing an economic exchange within a hierarchy; also called administrative costs

Economies of Scale

Decreases in cost per unit as output increases

Differentiation Strategy

Generic business strategy that seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping the firm's cost structure at the same or similar levels

Cost-leadership Strategy

Generic business strategy that seeks to create same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to it customers.

Diseconomies of Scale

Increases in cost per unit when output increases

Strategic Outsourcing

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

Product Innovations

New or recommended knowledge embodied in new products

Process Innovations

New ways to produce existing products or deliver existing services

Joint Venture

Organizational form in which two or more partners create and jointly own a new organization

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

Global Strategy

Part of a firm's corporate strategy to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world

Productivity Frontier

Relationship that captures the result of performing best practices at any given time; the function is concave (bulging outward) to capture the trade-off between value creation and production cost

Focused Cost-Leadership Strategy

Same as the cost-leadership strategy except with a narrow focus on a niche market

Focused Differentiation Strategy

Same as the differentiation strategy except with a narrow focus on a niche market

Economies of Scope

Saving that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology

Diversification Discount

Situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units

Diversification Premium

Situation in which the stock price of related-diversification firms is valued at greater than the sum of their individual business units

Information Asymmetrics

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

Global-standardization strategy

Strategy attempting to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost (Refer to exhibit 10.5 pg. 324)

Integration-responsiveness Framework

Strategy framework that juxtaposes the pressures an MNE faces for cost reductions and local responsiveness to derive four different strategies to gain and sustain competitive advantage when competing globally: international strategy, multidomestic strategy, global-standardization strategy, and transnational strategy

Multidomestic Strategy

Strategy pursued by MNEs that attempts to maximize local responsiveness, with the intent that local consumers will perceive them to be domestic companies; the strategy arises out of the combination of high pressure for local responsiveness and low pressure for cost reductions (Refer to exhibit 10.5 pg. 324)

Transnational Strategy

Strategy that attempts to combine the benefits of a localization strategy (high local responsiveness) with those of a global-standardization strategy (lowest cost position attainable) (Refer to exhibit 10.5 pg. 324)

International Strategy

Strategy that involves leveraging home-based core competencies by selling the same products or services in both domestic and foreign markets; advantageous when MNE faces low pressures for both local responsiveness and cost reductions (Refer to exhibit 10.5 pg. 324)

Entrepreneurs

The agents that introduce change into the competitive system. They do this not only by introducing new products or services, new production processes and new forms of organization

National Culture

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

Innovation

The commercialization of any new product or process, or the modification and recombination of existing ones. To drive growth, innovation also needs to be useful and successfully implemented

Corporate Strategy

The decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industries and markets simultaneously; addresses where to compete along three dimensions: products and services, industry value chain, and geography (regional, national, global markets)

Vertical Integration

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

Industry Life Cycle

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

Business-Level Strategy

The goal-directed actions managers take in their quest for competitive advantage when competing in a single product market. -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?

mass customization

The manufacture of a large variety of customized products or services at a relatively low unit cost

Local Responsiveness

The need to tailor product and service offerings to fit local consumer preferences and host-country requirements; generally entails higher costs

Network effects

The positive effect (externality) that one user of a product or service has on the value of that product for other users

Entrepreneurship

The process by which people undertake economic risk to innovate-to create new products,processes, and sometimes new organizations

Globalization

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

strategic entrepreneurship

The pursuit of innovation using tools and concepts from strategic management

Social Entrepreneurship

The pursuit of social goals by using entrepreneurship

Invention

The transformation of an idea into anew product or process, or the modification and recommendation of existing ones

Specialized Assets

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

Scope of Competition

Whether to pursue a specific, narrow part of the market to go after the broader market

National Competitive Advantage

World leadership in specific industries

Pareto Principle

`Roughly 80% of effects come from 20% of the causes

Thin Markets

a situation in which transactions are likely not to take place because there are only a few buyers and sellers who have difficulty finding each other

External Transaction Costs

costs of searching for a firm or an individual with to contract, and then negotiating, monitoring and enforcing the contract

Industry Value Chain

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

BCG Growth-share maxtrix

refer to figure 8.11 pg 265

Strategic Alliances

voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage


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