Chapter 8
principal-agent problem
situation in which an agent performing activities on behalf of a principal pursues his or her own interests.
information asymmetry
situation in which one party is more informed than another because of the possession of private information
Boston Consulting Group (BCG) growth-share matrix
A corporate planning tool in which the corporation is viewed as a portfolio of business units, which are represented graphically along relative market share (horizontal axis) and speed of market growth (vertical axis). SBUs are plotted into four categories (dog, cash cow, star, and question mark), each of which warrants a different investment strategy.
related-linked diversification strategy
A kind of related diversification strategy in which executives pursue various businesses opportunities that share only a limited number of linkages.
joint venture
A stand-alone organization created and jointly owned by two or more parent companies.
product-market diversification strategy
Corporate
related diversification strategy
Corporate strategy in which a firm derives less than 70 percent 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 percent of its revenues from a single business and there are few, if any, linkages among its businesses.
strategic outsourcing
moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain
specialized assets
Unique assets with high opportunity cost: They have significantly more value in their intended use than in their next best use. They come in three types: site specificity, physical asset specificity, and human-asset specificity.
conglomerate
a company that combines two or more strategic business units under one overarching corporation; follows an unrelated diversification strategy
licensing
a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property
core competence - market matrix
a framework to guide corporate diversification strategy by analyzing possible combinations of existing/new core competencies and existing/new markets
related-constrained diversification strategy
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
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
credible commitment
a long-term strategic decision that is both difficult and costly to reverse
diversification
an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes
transaction cost economics
a theoretical framework in strategic management to explain and predict the boundaries of the firm, which is central to formulating a corporate strategy that is more likely to lead to competitive advantage.
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
transaction costs
all internal and external costs associated with an economic exchange, whether within a firm or in markets
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
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
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
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
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
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
vertical integration
the firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs
strategic alliances
voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services
vertical market failure
when the markets along the industry value chain are too risky, and alternatives too costly in time or money
