Strategic Mgmt Final
Which of the following reasons can make a diversification strategy an unwise course of action for a company to pursue?
-Changing industry conditions -Changing firm-specific conditions -Diversification for the wrong reasons -Increasing bureaucratic costs of diversification
Role of Board in Strategic Management
-Monitor developments inside and outside the corporation -evaluate and influence management proposals, decision and actions -Influence and approve the corporation's mission and strategies
Technological Paradigm Shifts- More likely to occur with:
-Natural limits to technology- established technology is mature and approaching natural limit -New disruptive technology- entered marketplace and taking root in niches poorly served by firms using established technology
First-mover 5 Key Advantages:
-Opportunity to exploit network effects and positive feedback loops -Ability to establish significant brand loyalty -Ability to ramp up sales volume early -Ability to create switching costs for customers -Ability to accumulate valuable knowledge
Format Wars
-one standard will come to dominate the market -many battles in high-tech industries are companies competing to set standard
Steps for successful new venturing include
-placing funds for research in hands of business unit managers and aligning incentives -using R&D effectively -Fostering close relationship between marketing and R&D -Investing sufficiently to match the scale of opportunity
A company may find it difficult to change strategies because of
-prior industry success. -fear of erosion in existing sales. -reluctance to change with market.
Porter's Diamond
1. Companies from given nation likely to succeed in industries with four favorable attributes 2. Attributes form a mutually reinforcing system with the effect of one attribute dependent on state of others
Organizational Drivers
Customer Needs Drive Strategy Drive structure which includes- skills and competencies, technology and systems (both link to customer needs)
Ownership of retail outlets to enhance customer satisfaction may be important for a manufacturer if
complex, after-sales service is required for its products.
Mature industries are generally characterized by
concentration into a small number of large firms.
The partners is a ___ share decision making authority, control of the operation and profits earned
joint venture
When technology in an industry is changing rapidly, a company pursuing a strategy of vertical integration may find itself
locked into an old, inefficient technology.
To build trust in a cooperative relationship, both firms can
make mutual investments in specialized assets.
Cosmetics makers focus on the unique needs of customers of different ages. The cosmetics makers recognize the importance of
market segments.
The competitive force of substitute products tends to be stronger when
the costs that buyers face in switching over to substitutes are low.
As an industry enters the mature stage,
the growth rate in demand for existing products and/or services slows.
A resource is _____ to the extent that it helps a firm create strategies that capitalize on opportunities and ward off threats.
valuable
A strategy of vertical integration may be a risky strategy for a company to pursue when demand is
unpredictable.
Disruptive Technology
"..new technology that gets its start away from mainstream of market and invades main market as functionality improves.." -Revolutionizes industry structure and competition -causes technological paradigm shift -Often causes decline of established companies- because they listen to customers who say they do not want it
Responsibilities of the Board of Directors
-Approves corporate strategy, over all direction, mission, or vision -Hire and fires the CEO -Monitors, or supervises top management -Reviews and approves the use of resources -Cares for shareholders' interests -Assures that the corporation is managed in accordance with state laws, security regulation and conflict of interest situations
Governance Mechanisms include:
-Board of Directors --Committees of the Board -Financial Statements & Independent Auditors -Stock-Based Compensation -Takeover Constraints
Guidelines for a successful acquisition
- Good bidding strategy -A clear strategic rationale for making the acquisition -Thorough preacquisition screening -Postacquisition audit to review the process and discuss ways to improve it
Customer responsiveness leading to higher satisfaction can include which of the following?
- Identifying and satisfying customer needs -Closely matching the company's products/services to the customer needs. -Superior buying experience that produces consumer surplus value in use. -Superior product design that better satisfies customers
According to Porter's Five Forces Model, determinants of the extent of rivalry among established companies include
- The number and size distribution of companies in the industry - Demand conditions in the industry - The cost structure of firms in the industry - Exit barriers for firms in the industry
A company pursuing a strategy of vertical integration may expand its operations
- backward into an industry that produces inputs for the company's products. -forward into an industry that uses, distributes, or sells the company's products.
At the growth stage of an emerging market,
- ongoing technological progress makes a product easier to use. -key complementary products are developed. -companies in the industry find ways to reduce costs. -demand for the product increases.
The benefit(s) of product/service bundling is/are
-Ability to differentiate your products by combining elements or features customers want -Allowing customers to reduce the number of suppliers -Providing contract and/or pricing flexibility -the potential to add a service component
Will help and established company in addressing the potential challenge of a disruptive technology
-Access to knowledge about how disruptive technologies can revolutionize markets -Investing in newly emerging technologies that may ultimately become disruptive technologies -Anticipating and planning for how disruptive technology will change business -Understanding that a disruptive technology will require a radically different value chain with a different cost structure
Technology Issues
-Adoption- the chasm (technology adoption life cycle: diagnose and adapt as markets evolve) -standards -cost structure -disruption -first mover
Agency Problems
-Agents & principals may have different goals -Agents goals not in best interests of principals -Agents may take advantage of information asymmetries to maximize interests at expense of principals -Difficult for principals to measure performance
Exploiting first-move advantages: choosing strategy
-Does company have complementary assets to exploit innovation? -How difficult for imitators to copy innovation? -Are there capable competitors who could rapidly imitate innovation
Drivers for Globalization- Companies
-Drive for market share, scale and scope -Need/Desire to follow existing customers -Pressures for cost reductions -Pressures for localization of product and/or responsiveness
Carroll's four responsibilities of business:
-Economic (must do) -Legal (Have to do) -Ethical (Should do) (Social Responsibility) -Discretionary (Might do) (Social Responsibility)
Basic Structures
-Entrepreneurial -Functional -Multidivisional -Matrix
Governance Mechanisms Inside Company- Strategic Control Systems
-Establish standards for performance -Create systems - measure & monitor performance -Compare actual against targets -Evaluate results - take corrective actions
Problems in Implementing Multidivisional Structure
-Establishing divisional-corporate authority relationship -Restrictive financial controls lead to short-run focus -Competition for resources -Transfer pricing -Duplication of functional resources
Increasing profitability through global expansion
-Expand by leveraging products- goods/services developed at home & selling internationally -Economies from global volume - economies of scale -Location economies - economic benefits from performing value creation in optimal location -Leveraging skills of global subsidiaries - applied elsewhere *Must also consider transportation costs, trade barriers, as well as political and economic risks.
National Competitive Advantage: Attributes of Porter's Diamond
-Factor Conditions- cost/quality of factors of productions -Local Demand Conditions- most sensitive to needs of closest customers -Competitiveness of Related & Supporting Industries- benefits from investments -Intensity of Rivalry- competitive advantage
Which of the following is (are) the probable consequence(s) of an inability to integrate two divergent corporate cultures after an acquisition?
-High management turnover -damaging political tensions between the management of the acquired and acquiring companies -an inability to realize potential gains from synergies
External Dynamics- Global
-Industries becoming global in cope- industry boundaries no longer stop at borders -shift from national to global markets has intensified competition -steady decline in barriers to cross-border trade and investment has opened once protected markets to companies based elsewhere
True of Industry Lifecycle models
-Industries have been known to skip the embryonic (emergent) phase and go straight to the growth phase. -Cycles do not always follow generalizations. -Actions by the management teams involved in the industry can lengthen the growth phase and delay the mature phase.
National Competitive Advantage
-Intensity of rivalry -local demand conditions -competitiveness of related and supporting industries -factor conditions
Implications of Paradigm Shifts- Established Companies
-Knowledge about how disruptive technologies can revolutionize markets is valuable asset. -Important for established firms to invest in newly emerging technologies that may become disruptive -Commercialization may require different value cha9in & cost structure
The Business Life Cycle- Aging
-Leadership Style- Beyond crisis, survival, impersonal, turmoil, cost driven -Driving Forces- Reduce Cost, defer repair, no investment -Competition- Few Direct Competitors
The Business Life Cycle- Mature
-Leadership Style- Continuity, analytical, status quo, organization, bureaucratic, maintain -Driving Forces- Profit, Cautious, Slow Investment -Competition- Competitor consolidate
The Business Life Cycle- Growth
-Leadership Style- Implement, planned, proactive, teach, freedom, change. -Driving Forces- Market Share, Sales, Capital Investment -Competition- Many competitors
The business life cycle- Start Up
-Leadership Style-Creative, frenetic, opportunity, individual, informal, action -Driving Forces-Cash, gross sales -Competition- No real competition
How should Porter's Five Forces Model shape management's thinking about the competitive environment?
-Management must realize that the forces may shift over time and due to external changes. -A strong competitive force should be viewed as a threat to the organization's profitability. -A weak competitive force should be viewed as an opportunity to increase the organization's profitability.
What accounts for the high failure rate of all new products that reach the marketplace?
-Market entry on too small a scale -Poor commercialization of the new-venture product -Poor corporate management of the new-venture unit
Accurate statements about outsourcing
-Outsourcing can be done for an entire function, for example, all of human resources or just a portion, say payroll. -Outsourcing requires that some value creation activities be performed outside an organization. -A risk of outsourcing is the decreased control that organizations have over how the functions are performed. -Outsourcing means that activities can be performed by companies that specialize in that activity.
Derivative Structures
-Product-team -Geographic -Global-Area -Global Division -Global Product-Group -Global-Matrix
Technological Paradigm Shifts- New Technologies emerge that:
-Revolutionize structure of industry -dramatically alter nature of competition -requires firms adopt new strategies
Components of Porter's five forces model
-Risk of entry by potential competitors -The intensity of rivalry among established companies within an industry -The bargaining power of buyers -The bargaining power of suppliers
Stages of Corporate Development
-Simple/Entrepreneurial Structure-Flexible and dynamic -Functional Structure- Entrepreneur is replaced by a team of managers -Divisional Structure- Management of diverse product lines in numerous industries. Decentralized decision making -Beyond SBU's- Matrix & Network
Stakeholder Impact Analysis- Identify:
-Stakeholders -Stakeholders' interests/concerns -Claims stakeholders likely to make -Stakeholders most important from organization's perspective -Resulting strategic challenges
Stakeholders and Strategy
-Stakeholders: Individuals/groups with an interest/claim/or stake in company-Internal (e.g., employees, stockholders) & External (e.g., customers, creditors, governments) -Company must consider stakeholder claims in developing & implementing strategy
Governance Mechanisms Inside Company- Employee Incentives
-Stock options and ownership plans -compensation tied to attainment of strategic goals
Components of Control
-Strategic Level -Functional Level -Individual Level
Organization- Design Elements
-Strategy -Functions -Processes -Informational Flow -Decision Flow -People -Rewards
According to Drucker, in order for an organization's Business Theory to be valid what must happen?
-The assumptions must match reality and fit with each other. -The Theory must be known and understood by all. -The Theory must stand up to regular challenge
Determinants of the extent of rivalry among established companies
-The number and size distribution of companies in the industry -Demand conditions in the industry -The cost structure of firms in the industry -Exit barriers for firms in the industry
Which of the following factors may accelerate customer demand for a product?
-The product's relative advantage over similar offerings -The product's compatibility with complementary product and/or services -The simplicity of the product's use -The degree to which a product can be experimented with
strategies for consolidating a fragmented industry
-Using IT and the internet. -Horizontal merger and/or acquisition -Franchising. -Chaining
Criteria for a good director include
-Willingness to challenge management when necessary -Special expertise that is important to the company -Available for outside meetings to advise management -Expertise on global issues -Understands the firm's key technologies and processes -Brings external contacts that are potentially valuable to the firm -Has detailed knowledge of the firm's industry -Has high visibility in their field -Is accomplished at representing the firm to stakeholders
Better segmentation leads to...
-better needs definition -better product and/or service fit -higher profitability
An industry's buyers have low bargaining power when?
-buyers purchase in small quantities and/or represent a small portion of the suppliers sales. -buyers can switch vendors but only at great expense or with great disruption. -it is not economically feasible for buyers to purchase inputs from several companies at once. -buyers have no ability to enter the industry and produce the product themselves.
problems with a diversified portfolio of companies can be
-changes in specific industries or companies -the bureaucratic costs of diversification -loss of focus in one or more areas of the portfolio
A quality of an asset that makes it a strategic resource for a business
-difficult to imitate
Economies of scale can be realized by
-expansion of overseas sales. -better utilization of production facilities. -boosting bargaining power with suppliers. -increasing cost savings through learning effects.
Benefits of standards
-guarantee compatibility between products and compliments -reduce consumer confusion -reduce production costs -reduce risks associated with supplying complementary products
Common industry exit barriers include
-investments in assets specific to the industry. -emotional attachments to an industry. -high fixed costs associated with leaving the industry. -bankruptcy regulations
Benefits of horizontal integration
-lower cost structure -replication of business model -reduction in industry rivalry -increased bargaining power
The purpose of a joint venture between two or more companies is often to
-share and develop technology. -distribute and market brands and products. -share access to customers.
Management techniques important in diversification
-the ability to transfer/leverage competencies between portfolio companies -general organizational capabilities such as rigorous strategic planning and enhanced access to capital -ability to bundle products and services between portfolio companies -sharing resources across portfolio companies
Guidelines for Proper Control
1. Controls should involve only the minimum amount of information needed to give a reliable picture of events (80/20 Rule) 2. Controls should monitor only meaningful activities and results, regardless of measurement difficulty 3. Controls should be timely so that corrective action can be taken before it is too late 4. Long-term and short-term goals should be used 5. Controls should aim at pinpointing exceptions 6. Emphasize the reward of meeting or exceeding standards rather than punishment for failing to meet standards
3 ways standards emerge
1. Firms lobby gov't to mandate industry standard-public domain 2. Standards often set by cooperation among firms/forums 3.Standards often selected by market demand -network effects -positive feedback loop -lockout
Choosing a Global Strategy
1. Globalization Standard- Reaping cost reductions from economies of scale & location - Parker Hannifin, McIlhenny (Tabasco) 2. Localization- Customizing goods & services to provide good match to tastes & preferences in different national markets - MTV, Nestle, Unilever, Heinz 3. International- multinational companies sell products serving universal needs (minimal need to differentiate) & don't face significant competitors (low cost pressure). -Microsoft, Intel, SAP, Oracle 4. Transnational- business model that simultaneously: -Achieves low costs -Differentiates across markets -Fosters a flow of skills between subsidiaries
Exploiting first-mover advantages: strategies
1. Going it alone- develop/market innovation 2. Strategic alliance/joint venture- develop/market innovation with other companies 3. License innovation- let them develop the market
First-Move Disadvantages
1. Pioneering cost-develop technology and distribution channels and educate customer 2. Prone to mistakes- uncertainties in new market 3. Risk building wrong resources and capabilities- mass-market may differ from the needs of early adopters 4. May invest in inferior.obsolete technology- if underlying technology advancing rapidly
Four Basic Strategies
1. Standard globalization strategy- high pressure for cost reductions, low pressures for local responsiveness 2.Localization strategy- high pressures for local responsiveness, low pressures for cost reduction 3. International Strategy- Low pressures for local responsiveness and cost reductions 4. Transnational Strategy- High pressures for local responsiveness and cost reductions
Plan Reviews- What (4 Key Questions)
1. What has changed in the external or competitive environment that may necessitate change in our plan or adoption of a different scenario? 2. What is working better than planned? -Are their any opportunities that suggest or require additional resources over budget? -What are the reasons and can they be migrated to other parts of the plan? 3. What's not working as planned and why not? 4. What do we do to recover from above or redirect?
In which of the following industry environments are new ventures most likely to be favored over acquisitions as a means of entering a new business area?
An embryonic/emerging industry
To expand its global sales, U.S.-based Miller Brewing Company purchased a firm that processes grains in Brazil. Miller plans to manage the new business by allowing it to continue as before, with little integration into the rest of the firm. Based on this information, which entry mode is Miller using in Brazil?
Acquisition
Julian is asked to examine the demographic environment facing his employer, a clothing manufacturer. Which of the following should Julian examine?
Aging of the population
Friedman's Traditional view of a business firm:
Argues against concept of social responsibility- primary goal of business is profit maximization not spending shareholder money for the general social interest
To compete in the fragmented restaurant industry, Red Lobster Corporation built and now operates hundreds of stores across the United States and Canada. Red Lobster is using which type of strategy?
Chaining
Drucker's Theory of the Business includes...
Management making assumptions about the Environment, the Mission and the Core Competencies of the organization.
Pressures for Local Responsiveness
Differences in: -Customer tastes and preferences -Infrastructure and traditional practices -distribution channels -host government demands *Dealing with these contradictory pressures is a difficult strategic challenge, primarily because being locally responsive tends to raise costs
When unemployment rises, discretionary income plummets. That hurts businesses selling costly but non-essential goods. This example represents the _____ area of an external analysis.
Economic
First-Mover Advantages
First to develop/pioneer revolutionary products can lead to enduring competitive advantage. Being first-mover does not guarantee success. Success depends on first-mover strategy pursued.
Strategic Significance of High-Tech Cost Structure
Fixed costs of developing product very high, but costs of producing additional units are low: -If can shift from cost structure with increasing marginal costs to high fixed costs but low marginal costs- profitability may increase -When company faces high fixed costs/low marginal costs, it should drive prices down to drive up volume
Which of the following strategies for fragmented industries grants the right to use the parent's name, reputation, and business model in a particular location or area in return for a fee and often a percentage of the profits?
Franchising
EBay expanded rapidly in European countries because its on-line auction model is more effective than the business model used by its European rivals. Which of the following benefits of global expansion did EBay experience, relative to its competitors?
Further exploitation of distinctive competencies
Pressures for Cost Reductions
Greatest in industries producing commodity-type products where price is the competitive weapon: -Differentiation on non-price factors difficult -Competitors are based in low-cost location -Consumers are powerful & face low switching costs -Persistent excess capacity -Liberalization of world trade & investment
Which of the following seems to be a major determinant of a new venture's success?
Large-scale entry into the target industry designed to build market share, even when such entry involves significant short-term losses
If there were a recent relaxation in government pollution standards, and a car company is withdrawing its electric-powered cars from sales in the U.S. market, the company is responding to a change in which of the following external forces?
Legal and regulatory
In which of the following is a firm most likely to lose direct control over value creation activities?
Outsourcing
Certain construction firms rely heavily on cheap labor provided by illegal immigrants. A tightening of the immigration policy would reduce their profit margins and potentially increase the prices of construction projects. For these firms, this aspect of illegal immigration represents the _____ area of the external analysis.
Political
Social Responsibility
Proposes that a private corporation has responsibilities to society that extend beyond making a profit
The duPont Identity evaluates which of the following...
Return of Equity (ROE)
The duPont Identity states...
Return on Equity = Return on Sales X Asset Efficiency X Leverage
Plan Reviews- Who
Same criteria as planning process, plus any execution members
Winning a format war
Successful strategies revolve around finding ways to make network effects work in their favor and against their competitors: ~ensure supply of complement- plus product itself ~Killer applications- New products so compelling customers adopt rapidly killing demand for competition ~Aggressively price/market- Price product low to increase installed base, price complements high for profits ~Cooperate with competitors- speed up adoption ~License format- Reduce incentive for competitors to develop own
Resource-based Theory of Competitive Advantage states?
That management's ability to combine resources, both tangible and intangible, with capabilities can lead to a sustained competitive advantage
Segment attractiveness refers to?
The fact that different segments have different levels of attractiveness depending on the company's situation and segment profile.
According to Porter's Five Forces Model, which of the following conditions is most likely to cause fierce rivalry between competitors of an industry?
The growth rate of demand for the industry's offerings is low
Cost of goods sold can be found by examining which of the following?
The income statement
Plan Reviews- When
Typically quarterly at a minimum. More often in critical times and in start-up/emerging market situations
Which of the following strategies facilitates the implementation of a just-in-time inventory system?
Vertical integration
The term value chain refers to the idea that a company is
a chain of activities for transforming inputs into outputs that customers value.
A differentiated product is a product that
better satisfies customer needs than rival products do.
New entrants are more likely to enter an industry if:
capital requirements to enter the industry are low.
Free cash flow is defined as
cash in excess of that required to fund investments in the company's industry and to meet any debt commitments.
A firm following a ____ strategy offers products or services with acceptable quality and feature to a broad set of customers at a low price
cost leadership
When the market is mature, technological change is low and customer needs are well established and standardized, the most appropriate generic strategy to pursue is
cost leadership.
A market segment is a group of
customers within a market that can be grouped on the basis of their distinct attributes and specific demands.
Pete opens a new pizzeria in town. He promises home delivery of pizzas within a period of thirty minutes. He also makes a unique offer that if the pizzas are not delivered within thirty minutes of placing the order, then the customer would not be charged for the pizza. None of the other pizzerias in his town offer such a deal. This is an example of a(n) _____ strategy.
differentiation
When a company has cash in excess of the amount needed to maintain a competitive advantage in its core business, it will most likely pursue
diversification.
A hospital supply company invests in training for a team of sales associates to learn the details of each hospital chain's operations. In return, the hospital chain invests in a computer system that supports supply ordering. The supply company and the hospital chain are working to ensure the success of their long-term relationship by
each making a credible commitment.
A company that sells dairy products purchases large quantities of milk from the local dairy farms. Since the quantity purchased is very high, the company is able to demand and get price concessions from the dairy farms. The company prices its dairy products at a lower rate than its competitors. The greater quantity of products sold compensates for the low price. This is an example of:
economies of scale
If a strategy or strategies emerge unforeseen from the external environment, it would be important for a firm's managers to
evaluate each one carefully, using only those that show the most promise.
Michael Porter's five forces analysis is an important tool:
for analyzing how much profit potential exists in an industry and what the profit trend might be.
Outsourcing occurs when a firm
hires another firm to perform value creation activities.
Strategic leadership is about
how to effectively manage a company's strategy and create competitive advantage.
Sales of complementors' products tend to
increase sales of the industry's product.
When a company services the broad market and has a low degree of product differentiation, it is most likely
pursuing a cost-leadership strategy.
Technical standards
standards are a set of technical specifications that producers adhere to when making the product or a component of it
A lack of complementary products may tend to
suppress sales of the industry's product.
In thinking about the value created and perceived by a firm's product or service offering...
the value in use is the difference between the utility the customer feels and the price.
Suppliers in an industry are most powerful when
there are few substitutes for the product suppliers sell.
Governance Mechanisms
try to limit agency problem by aligning incentives between agents & principals - monitor/control.
Scenario-based planning is a technique for coping with the problem of
uncertainty.
Scenario-based planning should be used when
when decisions involve uncertainty and have high potential for adverse consequence.
Role of the Board of Directors- Agency relationship
whenever one party delegates decision-making authority or control over resources to another.