Chapter 6-9 BUS 189

transaction costs

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

diversification

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

build borrow or buy framework

conceptual model that aids strategists in deciding whether to pursue internal development(build), enter a contract arrangement or strategic alliance(borrow), or acquire new resources, capabilities, and competencies(buy)

the productivity frontier

a set of best-in-class strategic positions the firms can take relating to value creation and low cost at a given point in time

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

joint venture

a standalone organization created and jointly owned by two or more parent companies

strategic alliance

a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services

firms engage in acquisitions

access new markets and distribution channels, gain access to a new capability or competency, and preempt rivals

hostile takeover

acquisition in which the target company doesnt wish to be acquired

coopetition

cooperation by competitors to achieve a strategic objective

the trade-offs between differentiation and low cost can be addressed at what levels?

corporate and business level

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

unrelated diversification strategy

corporate strategy in which a firm derives less than 70% of its revenues from a single business activity and there are few, if any, linkages among its businesses

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

unique value drivers that managers can manipulate (cost leadership)

cost of input factors, economies of scale, and learning- and experience-curve effects

external transaction costs

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

internal transaction costs

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

two distinct strategic positions

differentiation and cost leadership

result of reaching the productivity frontier

enhances the likelihood of obtaining a competitive advantage

To address the trade-offs between differentiation and cost leadership at the business level, managers may leverage what

equality, economies of scope, innovation, and the firm's structure, culture, routines

corporate venture capital

equity investments by established firms in entrepreneurial ventures; CVC falls under the broader rubric of equity alliances

long tail concept

firms digitize their offerings to leverage the Internet as a disruptive force

cost leadership strategy

focus of competition is achieving the lowest possible cost position, which allows the firm to offer the lowest price while maintaining acceptable value

closed innovation

framework for R&D that proposes impenetrable firm boundaries

open innovation

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

star

high market share in a fast growing market; earnings are high and either stable or growing

strategic tradeoffs

higher value tends to require higher cost

cash cow strategy

hold

star strategy

hold or invest for growth

the four steps to innovation process

idea, invention, innovation, immitation

if a firm does not reach the productivity frontier and other firms are positioned at the productivity frontier

implies competitive disadvantage

value drivers contribute to competitive advantage only if their _ in value creation exceeds the _ in costs

increase

question mark strategy

increase market share or harvest/divest

diseconomies of scale

increases in cost per unit when output increases

the four types of innovation emerging when applying the existing versus new dimensions of technology and markets

incremental, radical, architectural, and disruptive innnovations

corporate strategy concerns the boundaries along which 3 dimensions

industry value chain, products and services, and geography

five distinct stages of industry life cycle

introduction, growth, shakeout, maturity, and decline

architectural innovation

is an embodied new product in which known

architectural innovation

new market/existing technology

radical innovation

new market/new technology

process innovations

new ways to produce existing products or deliver existing services

joint venture

organization 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

non-equity alliance

partnership based on contract between firms. most frequent forms are supply agreements, distribution agreements, and licensing agreements

equity alliance

partnership in which at least one partner takes partial ownership in the other

strategic positioning

requires that managers address strategic trade-offs that arise between value cost, because higher value tends to go along with higher cost

integration strategy

requires that trade-offs between diffentiation and lost cost be reconciled

economies of scope

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

incremental innovation

squarely builds on an established knowledge base, and steadily improves an existing product or service offering

reasons to why firms enter alliances

strengthen competitive position, enter new markets, hedge against uncertainty, access critical complementary resources, and learn new capability

differentiation and cost leadership strategies allow firms to do what?

to carve out strong strategic positions, protect themselves against give forces, benefit from them in their quest for competitive advantage

Entrepreneurship describes the process by which change agents undertake economic risks to innovate

to create new products, processes, and sometimes new organizations

transaction cost econmics

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

differentiation strategy

to increase the perceived value of goods and services so that customers will pay a higher price for additional features

what do social entrepreneurs use to assess performance?

triple bottom line approch

conglomerate

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

Boston Consulting Group growth matrix

a corporate planning toll in which the corporation is viewed as a portfolio of business units, which are represented graphically along relative market share and speed of growth

alliance management capability

a firm's ability to effectively manage three alliance-related tasks concurrently: partner selection and alliance formation, alliance design and governance, and post formation alliance management

absorptive capacity

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

innovation ecosystem

a firm's embeddedness in a complex network of suppliers, buyers, and complementors, which requires interdependent strategic decision making

organizational interia

a firm's resistance to changes in the status quo

licensing

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

managerial hubris

a form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary

core competency market matrix

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

franchising

a long term contact 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; the 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

real options perspective

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

forward vertical integration

changes in an industry value chain that involve moving ownership of activities closer to end point of the value chain

backward vertical integration

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

strategic tradeoffs

choices between a cost or value position

first mover advantage

competitive benefits that accrue to the successful innovator

besides selecting an appropriate strategic position, managers must also

define the scope of competition - whether to pursue a specific market niche or go after the broader market

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

long tail concept

describes a business model in which companies obtain a significant part of their revenues by selling a small number of units from among almost unlimited choices

strategic entrepreneurship

describes the pursuit of social goals by using entrereneurship

business-level strategy

determines a firm's strategic position in its quest for competitive advantage when competing in a single industry or product market

radical innovation

draws a novel methods or materials, is derived either from an entirely different knowledge base or from the recombination of the existing knowledge base with a new stream of knowledge

core argument of crossing the chasm framwork

each stage of the industry life cycle is dominated by a certain customer group, which responds differently to technological innovation

question mark

earnings are low and unstable but they might be growing; cash flow is negative

incremental innovation

existing market/existing technology

disruptive innovation

existing market/new technology

sharing goes both ways for open innovation

external ideas and inventions are in-sourced while others are spun out

dog strategy

harvest/divest

the five forces model

help managers use generic business strategies to protect themselves against the industry forces that drive down profitability

explicit knowledge

knowledge that can be codified information, facts, instructions, recipes concerns knowing about a process or product

tacit knowledge

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

the distinct difference between customer groups

lead to big gulf or chasm which companies and their innovations frequently fall into

disruptive innovation

leverages new technologies to attack existing markets from the bottom up

cash cow

low growth market; hold considerable market share; earnings and cash flows are high and stable

how to overcome the chasm

managers need to formulate a business strategy guided by the "who what why and how" questions of competition

M&A are popular vehicle for corporate strategy implementation for what reasons

principal agent problems, the desire to overcome competitive disadvantage, and the quest for superior acquisition and integration capability

entrepreneurship

process by which people undertake economic risk to innovate

unique value drivers that managers can manipulate (differentiation)

product features, customer service, customization, and complements

the goal of cost-leadership strategy

reduce the firm's cost below that of its competitors

firms use of horizontal integration

reduct competitive intensity, lower costs. and increase differentiation

productivity frontier

relationship that captures the result of performing best practices at any given time

principal-agent problem

situation in which an agent performing activities on behalf of a principal pursues his or her own interests

information asymmetrics

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

learning races

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; the firm that accomplishes its goals more quickly has an incentive to exit the alliance or reduce its knowledge sharing

dog

small market share in a low growth market; low and unstable earnings; neutral/negative cash flow

relational view of competitive advantage

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

crossing the chasm framework

tech enthusiasts, early adopters, (chasm), early majority, late majority, laggards

innovations usually lead to what?

the birth of new industries

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

the key to success for close innovation

the firm discovers, develops, and commercializes new product internally

vertical integration

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

merger

the joining of two independent companies to form a combined entity

mass cusomization

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

network effects

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

horizontal integration

the process of merging with competitors, leading to indsutry consolidation

No matter how low the price, what happens if there is not acceptable value proposition?

the product or service won't sell

acquisition

the purchase or takeover of one company another; can be friendly or unfriendly

scope of competition

the size of the market in which a firm chooses to compete

How can integration strategy be difficult?

the two distinct strategic positions require internal value chain activities that are fundamentally different from one another

specialized assets

they come in three types: site, physical asset, and human asset

specialized assets

they have significantly more value in their intended use than in their next-best use

what do strategic decisions have to do in response to environmental changes?

they need to change over time

result of being stuck in the middle

they succeed at neither strategy leading to competitive disadvantage

specialized assets

unique assets with high opportunity cost

focus of competition(differentiation strategy)

value enhancing attributes and features, while controlling costs

when costs to pursue an activity in house are less than the cost of transacting the market then the firm should

vertically integrate

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 advtange

how can firms end up being stuck in the middle?

when they fail to resolve strategic trade-offs between differentiation and cost