Chapter 8 strategic managment

Industry Value Chain

1: Raw Materials 2: Components &Intermediate Goods 3: Final Assembly & Manufacturing 4: Marketing & Sales 5: After-Sales Service & Support

When a manufacturer of computers starts to produce its own computer components, the manufacturer engages in ____________

Backward Vertical Integration

Stages four and five of the Industry Value Chain involve

Marketing & Sales, After-Sales Service & Support

Alternatives in the make-or-buy continuum include

Short-term contracts, strategic alliances (long term contracts, equity alliances, joint ventures), parent-subsidiary relationships, licensing, franchising

olivias, on olive oil company, grows and harvests olives, makes olive oil, and distributes its olive oil to its retail shop. olivias is an example of

a fully vertically integrated company

transaction costs

all costs associated with an economic exchange

short- term contracting

an example of an alternative arrangement located on the continuum between buying and making

transaction cost economics help managers

choose which activities to do within the firm

the four underlying strategic management concepts that determine the scope of a firm are

core competencies, economies of scale, economies of scope, transaction costs

twn, a large multinational corporation, chose to spin off one of its SBUs which was unrelated to TWNs core business in order to avoid the ____ ____. when they announced the spin off, the stock price of twn went up by 5%

diversification discount

in the boston consulting group BCU matrix, _______ hold the small market share in a low-growth market

dogs

The persons responsible for forming corporate-level strategy are the

executives

four quadrants of the core competence-market matrix

existing competence in existing market, new competence in existing market, existing competence in new market, new competence in new market

why might a firm want to enter into an equity alliance instead of a short-term or long-term contact?

greater commitment to the partnership, to facilitate transaction-specific investments, to get insider information about the partner's business

how long do long-term contracts typically last?

greater than one year

the lemons problem

information asymmetries cause superior goods to be replaces by inferior ones

one way to overcome the principal-agent problem is to

make managers owners through stock options

what level of diversification lead to the highest levels of performance?

moderate

in taper integration system, a firm has ___ reliance of outside markets

partial

equity alliances

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

types of general diversification strategies

product diversification, geographic diversification, product-market diversification

corporate strategy needs to be dynamic over time in order to

respond to the ever-changing external environment keep and maintain a competitive advantage diversify to capture growth opportunites

the BCG growth-share matrix requires managers to view their SBUs in terms of relative market ______, and speed of market ______

share; growth

types of business diversification

single business dominant business related diversification unrelated diversification (the conglomerate)

which types of diversification tend to have the lowest performances

single business unrelated diversification

forms of specialized assets include

site specificity, physical asset specificity, human asset specificity

Long term contracts, equity alliances, and joint ventures are examples of

strategic alliances

alternatives to vertical integration

taper integration and strategic outsourcing

Offshoring

the act of outsourcing some of the firm's activities outside of the home country to another nation

what is a major disadvantage of organizing economic activity within firms

the principal - agent problem

googles choice to hire programmers in-house suggests that they decided that the _________ costs associated with this strategy are _______ than the costs associated with contracting in the open market

transaction; lower

when a firm is more efficient in organizing economic activity than markets, they should

vertically integrate

strategic alliance

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

principal - agent problem

when an agent of the owner pursues his or her own interests. caused by the separation of ownership and control

coordination costs

costs that arise from managing the linked businesses in a related-constrained or related-linked diversification scenario

The global off-shoring market is expected to ___________

grow quickly in the future

advantages of organizing economic activity at the market level

high-powered incentives increased flexibility

kava botanicals, a boutique retailer that sells high-end makeup and accessories, is owned by two makeup manufacturers. kava botanicals is an example of which strategic alliance?

a joint venture

related diversification strategy

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

risks of vertical integration

increased costs reducing quality reducing flexibility increasing the potential for legal repercussions

industry value chain

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

specialized assets

unique assets that have significantly more value in their intended use than in next-best use

the tata group has SBUs operating in a variety of industries, from automobiles to hospitality. the tata group is an example of which type of diversification?

unrelated

diversification

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

advantages of vertical integration

lowering costs improving quality facilitating scheduling and planning facilitating investments in specialized assets securing critical supplies and distribution channels

benefits of taper integration

exposes in-house supplies and distributers to market competition so performance comparisons are possible enhances flexibility combine internal and external knowlege