Exam 2 - Strategic Management (MGMT 3013)

What are the drivers of competitive behavior?

1. Awareness 2. Motivation 3. Ability

Increased Diversification

1. Both related and unrelated - reduces risk 2. Conglomerates a. Tyco •Security and Fire Products - ADT, Grinnell, Simplex b. United Technologies •Acquired Goodrich •High Tech Security and Aviation c. Johnson Controls •HVAC/Security and Fire Safety/ Refrigeration/Batteries/Automotive Seating

What makes for effective acquisitions?

1. Complementary Assets 2. Friendly Acquisition 3. Careful Selection 4. Financial Slack 5. Low Debt 6. Sustained R & D 7. Experienced with Change

Methods Managers Use to Guard Against Alliance Risk

1. Control Orientation (Typically against relational risk) -Contractual -Equity -Managerial 2. Flexible Orientation -Short term renewable partnership -Phased Alliance (e.g. Merck and Astra) -Exit Strategy: When? How?

Competitive Arenas

1. Cost and price 2. Technology and features 3. Strongholds

Why do firms use cooperative strategies?

1. Create value for a customer that it likely could not create by itself 2. Try to create competitive advantages -A competitive advantage developed through a cooperative strategy often is called a collaborative or relational advantage. 3. Outperform its rivals in terms of strategic competitiveness 4. Earn above-average returns

Overcoming Entry Barriers

1. Cross Border Acquisitions -Walmart into Mexico -HEB into Mexico -UPS overseas - acquires local company ex: SAB/Miller, Inbev/Budweiser

Key Trends in Alliances

1. Cross Border Alliances to Overcome Geographic Barriers. 2. Powerful, less competitive firms from LDCs using deep pockets for predatory/technology upgrade purposes -e.g. Tisco took over Corus, Aeroflot in the market for Alitalia; and even Lenovo and IBM PC 3. Alliances as an 'option' to acquire/merge.

What are the different things firms compete for?

1. Customers 2. Geographic Resources 3. Inputs 4. Talent 5. Capital 6. Technology

Forms of Restructuring

1. Downsizing -Shedding personnel and/or facilities 2. Downscoping -Eliminating businesses that are unrelated to its core business -Allows refocusing on core business 3. Leveraged Buyouts -Take firm private 4. Private Equity Firms -Sale of Assets 5. Management Buyout 6. Employee Buyout

Value-Creating Diversification

1. Economies of scope (related diversification) •Sharing activities •Transferring core competencies 2.Market power (related diversification) •Blocking competitors through multipoint competition •Vertical integration 3. Financial economies (unrelated diversification) •Efficient internal capital allocation •Business restructuring

Learning and Developing New Capabilities

1. FedEx acquiring American Freightways and Roadway Package Service 2. Northrop acquiring Litton, TRW and Newport News Shipbuilding

Increase Market Power

1. Horizontal Acquisitions -H/P buying Compaq -Coca-Cola buying Glaceau 2. Vertical Acquisitions -FedEx/Kinko's -UPS/Mailboxes Etc. 3. Related Acquisitions -Boeing/McDonnell Douglas/Rockwell

Featured article on Page 213 - Broadcom's Failed Hostile Takeover Attempt of Qualcom

1. In late 2017 Broadcom made a hostile takeover offer for Qualcomm, which has focused on cellphone chips and is investing in the next generation network, 5G technol-ogy. Through a series of five large acquisitions since 2013 including Freescale and Brocade Communications Systems, Broadcom, headquartered in Singapore, has become the fifth largest semiconductor firm in the world. 2. One reason that Broadcom took an opportunity to make a hostile offer for Qualcomm was that Qualcomm's stock price was discounted due to regulatory challenges. Qualcomm has traditionally sought to make significant revenues through patent licensing. This approach has been problematic for the firm in that many countries have sought substantial fines for alleged anti-competitive behavior. 3. With Qualcomm's lower stock market prices due to regulatory and patent infringement uncertain-ties, Broadcom was able to offer a relatively significant premium to Qualcomm shareholders. 4. Although Qualcomm rejected the initial $130 billion offer, it looked as if a Qualcomm shareholder vote would favor Broadcom's position and elect Broadcom's slate as Qualcomm board members. Broadcom, however, withdrew its offer when the Committee for Foreign Investment in the United States (CFIUS) chose not to support the deal. 5. Qualcomm does some classified research work for the U.S. government. Additionally, an apparent concern of this committee was that Qualcomm will help to set the standard for next generation cellular network, 5G Internet. The 5G net-work update will make possible what is labelled "The Internet of Things," which would support advances such as autono-mous cars and home appliances that run over networks. 6. It is interesting to note that Broadcom had promised to move its headquarters to the United States; had it completed this move prior to the offer for Qualcomm, it would no lon-ger be under CFIUS review. It's also interesting to note that even though Broadcom CEO Tan is a U.S. citizen, Broadcom has not invested as much on lobbying as Qualcomm. In fact, Qualcomm's expenditures were over 100 times those of Broadcom.

Reasons for Acquisitions

1. Increase market power 2. Overcome entry barriers to new markets or regions 3. Avoid the costs of developing new products and increase the speed of new market entries 4. Reduce the risk of entering a new business 5. Become more diversified 6. Reshape their competitive scope by developing a different portfolio of businesses 7. Enhance their learning as the foundation for developing new capabilities

Why do acquisitions fail?

1. Integration difficulties 2. Bad target evaluations/assessments 3. Firm becomes unwieldy 4. Managerial conflict 5. Loss of key employees in acquired firms

Types of Strategic Alliances

1. Joint Venture 2. Equity Strategic Alliance 3. Non-Equity Strategic Alliance

Business Group

1. Largely in foreign countries 2. Can be family businesses 3. Tata in India 4. Would probably violate anti-trust laws

What is the dynamic nature of a business model?

1. Many companies have multiple business models 2. Models can evolve ex: Freemium to a Subscription 3. Models can be disrupted ex: Beer Distributorships - breweries don't allow other brands "in house"; craft beers and non-alcoholic products demanded locally

Cost of New Product Development / Increased Speed to Market

1. Pharmaceutical Industry -Merck - develops products internally -Pfizer and GlaxoSmithKline grow through acquisitions

Lower Risk Compared to Developing New Products

1. Pharmaceuticals are best example 2. Pepsi acquiring Quaker Oats/Gatorade 3. Defense Contractors -Why develop technology when you can buy it for less?

What are the different kinds of business models?

1. Razor-Razorblade 2. Pay as you go 3. Subscription 4. Freemium 5. Wholesale 6. Agency 7. Bundling

Reshaping Firm's Competitive Scope

1. Reducing firm's dependence on specific markets alters firm's competitive scope -HP/Compaq -GE moving from small appliances and electronics into services

Three Types of Alliance Risks

1. Relational Risk: Partner not committed 2. Performance Risks: Alliance fails despite best efforts 3. Perceptual Risk: Misrepresentation or misunderstanding partner strengths

What are the components of a business model?

1. Revenue Model 2. Expenditure Model 3. Margin Model 4. Resource Velocity/Turnover Model

What are the advantages of related diversification?

1. Sharing Activities 2. Transfer core competencies among businesses 3. Market Power -Multi-point competition a) Vertical and horizontal integration b) Backward and forward vertical integration

Types of Diversification

1. Single Business 2. Dominant Business 3. Related Constraint 4. Related Link 5. Unrelated

Articles to study for Launder's exam

1. Sprint/T-Mobile Merger (Week 11 - Mergers and Acquisitions) 2. P&G/Tide Dry Cleaners (Week 10 - Corporate Level Strategy) 3. Uber/Career Acquisition (Week 11 - Mergers and Acquisitions) 4. Airline Alliances (Week 12 - Cooperative Strategies)

Reasons for Diversification

1. Value-Creating Diversification 2. Value-Neutral Diversification 3. Value-Reducing Diversification

Why do firms choose to engage in business level alliances?

1. Vertical complementary alliance 2. Horizontal complementary alliance 3. Competitive Response 4. Uncertainty Reduction 5. Strengthening competitive positioning 6. Learning new capabilities

What is a business model?

A business model outlines the need the firm will fill, the operations of the business, its components and functions, as well as the expected revenues and expenses.

Razor-Razorblade

A business tactic involving the sale of dependent goods for different prices - one good is sold at a discount, while the second dependent good is sold at a considerably higher price. ex: If you've ever purchased razors and their replacement blades, you know this business method well. The razors are practically free, but the replacement blades are extremely expensive. The video game industry is another user of this pricing strategy. They sell the game consoles at a relatively low price, recouping the lost profits on the high-priced games.

How is a business model related to strategy?

A company's business model is a part of its business' overall strategy. It is a component in how the company plans to achieve its goals.

Strategic Alliance

A cooperative strategy in which firms combine some of their resources to create a competitive advantage. -Involve firms with some degree of exchange and sharing of resources to jointly develop, sell, and service goods or services -Are used by firms to leverage their existing resources while working with partners to develop additional resources as the foundation for new competitive advantages

Diversification

A corporate strategy to enter into a new market or industry in which the business doesn't currently operate, while also creating a new product for that new market. •Is successful when it reduces variability in the firm's profitability as earnings are generated from different businesses •Provides firms with the flexibility to shift their investments to markets where the greatest returns are possible rather than being dependent on only one or a few markets

Single Business

A corporate-level strategy wherein the firm generates 95% or more of its sales revenue from its core business area. ex: Southwest Airlines

First Mover Advantage

A first mover is a firm that takes an initial competitive action to build or defend its competitive advantages or to improve its market position. First Mover Advantage occurs when an organization can significantly impact its market share by being first to market with a competitive advantage. 1. Customer loyalty 2. Brand awareness 3. Early market share gain 4. Tying down scarce resources 5. Learning curve advantages

Learning Curve

A graphical representation of how an increase in learning (measured on the vertical axis) comes from greater experience (the horizontal axis); or how the more someone (or something) performs a task, the better they get at it. Can often play role is determining a firm's long-run success of failure and therefore also lays an important role in competitive strategy.

Late Mover Advantage

A late mover is a firm that responds to a competitive action a significant amount of time after the first mover's action and the second mover's response. Late Mover Advantage gives the ability of later market entrants to achieve long-term competitive advantages by not being the first to offer a certain product in a marketplace.

Conglomerates

A major corporation that includes a number of smaller companies in unrelated industries.

Tactical Move

A market-based move that is taken to fine-tune a strategy that usually involves fewer resources and is relatively easy to implement and/or reverse.

Cooperative Strategies

A means by which firms collaborate to achieve a shared objective.

Pay As You Go

A plan where you pay only for what you use. ex: energy companies, prepaid cellphones

Second Mover Advantage

A second mover is a firm that responds to the first mover's competitive action, typically through imitation. Second Mover Advantage allows the firm to learn from competitor's mistakes, creativity of the product, and experience in the market.

Takeover

A special type of acquisition where the target firm does not solicit the acquiring firm's bid; thus, takeovers are unfriendly acquisitions. Without mutual consent = Takeover/hostile takeover

Joint Venture

A strategic alliance in which two or more firms create a legally independent company to share some of their resources to create a competitive advantage. -Have partners who own equal percentages and contribute equally to the venture's operations - Are often formed to improve a firm's ability to compete in uncertain competitive environments Can be effective in establishing long-term relationships and transferring tacit knowledge between partners.

Corporate Strategy

A strategy that specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets. Is concerned with two key issues: 1. In what product markets and businesses should the firm compete? 2. How should corporate headquarters manage those businesses?

Acquisition

A strategy through which one firm buys a controlling, or 100 percent, interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio. After the acquisition is completed, the management of the acquired firm reports to the management of the acquiring firm. Not done on a basis of equality. Mutual consent = Acquisition

Mergers

A strategy through which two firms agree to integrate their operations on a relatively coequal basis. Done on a basis of equality.

Subscription

A written agreement to use or receive a product for a set period of time. Users typically pay a fixed amount of money per month in order to use or receive the product.

Business Level Alliances

Also known as Complementary Strategic Alliances. Two main types: 1. Vertical CSA -Partnering firms share resources and capabilities from different stages of the value chain to create competitive advantage - Sales and Service 2. Horizontal CSA -Partnering firms share resources and capabilities from the same stage of the value chain to create a competitive advantage - Outbound Logistics -Long-term

Non-Equity Strategic Alliance

An alliance in which two or more firms develop a contractual relationship to share some of their resources and capabilities for the purpose of creating a competitive advantage. -Are less formal -Demand fewer partner commitments than do joint ventures and equity strategic alliances -Generally do not foster an intimate relationship between partners Outsourcing commonly occurs through non-equity strategic alliances.

Equity Strategic Alliance

An alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities for the purpose of creating a competitive advantage. Companies commonly form equity alliances because they want to ensure that they have control over assets that they commit to the alliance.

Competition

Companies battling for customers, geographic resources, inputs, talent, capital and technology.

Build-Borrow-Buy Framework

Conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual arrangement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy). Criteria used for BBB: -Relevance of current resources -Trade-ability of current resources -How close (how much monitoring/control) -How easily are resources/company with resource acquirable

What is the difference between cost and price?

Cost is the amount incurred in the production of goods, i.e. it is the money value of the resources involved in producing something. Price is the money or amount to be paid, in order for the consumer to purchase the product. ex: The cost for Apple to make the latest iPhone vs. the price we pay to purchase it.

Bundling

Grouping two or more products together and pricing them as a unit. ex: cable and internet

Likelihood of Attack

In addition to market commonality, resource similarity, and the drivers of awareness, motivation, and ability, three more specific factors affect the likelihood a competitor will take competitive actions: 1. First-mover benefits 2. Organizational size 3. Quality

Related Constrained

Less than 70% of revenue comes from the dominant business, and all businesses share product, technological, and distribution linkages. ex: Darden Group (owns many restaurants such as Red Lobster, Olive Garden, and Longhorn Steakhouse)

Unrelated

Less than 70% of revenue comes from the dominant business, and there are no common links between businesses. ex: United Technologies (owns a wide variety of businesses such as Sikorsky Helicopters, Otis Elevators, and Carrier Air Conditioners)

Related Linked

Less than 70% of revenue comes from the dominant business, and there are only limited links between businesses. ex: GE (aviation, digital, health care, lighting, oil and gas, power, renewable energy, and transportation)

Wholesale

Manufacturers sell to retail companies. ex: Tyson, Kellogg

Strategic Move

Market-based move that involves a significant commitment of organizational resources and is difficult to implement or reverse.

Fast-Cycle Markets

Markets in which competitors can imitate the focal firm's capabilities that contribute to its competitive advantages and where that imitation is often rapid and inexpensive. 1. Competitive advantages are not sustainable. 2. The velocity of change places considerable pressure on top-level managers to make quick and effective strategic decisions. 3. Reverse engineering is often used to gain quick access to the knowledge required to imitate or improve the firm's products. 4. Technology diffuses rapidly. 5. The technology firms use often is not proprietary. 6. Companies focus on forming the capabilities and core competencies that will allow them to develop new competitive advantages continuously and rapidly. Competition is substantial as firms concentrate on developing a series of temporary competitive advantages.

Slow-Cycle Markets

Markets in which competitors lack the ability to imitate the focal firm's competitive advantages that commonly last for long periods, and where imitation would be costly. 1. Firms may be able to sustain a competitive advantage over longer periods. 2. Building a unique and proprietary capability produces a competitive advantage and success. (ex: copyrights and patents) 3. The competitive actions and responses a firm takes are oriented to protecting, maintaining, and extending that advantage. 4. Major strategic actions usually carry less risk. In slow-cycle markets, the competitive advantage generated by a firm gradually erodes over time.

Standard Cycle Markets

Markets in which some competitors may be able to imitate the focal firm's competitive advantages and where that imitation is moderately costly. 1. Competitive advantages are partially sustainable but only if the firm can upgrade the quality of its capabilities continuously. 2. The capabilities and core competencies in which firms base their competitive advantages are less specialized. 3. Imitation is faster and less costly than in slow-cycle markets. 4. Imitation is slower and more expensive than in fast-cycle markets. 5. Both incremental and radical innovations are critical to firms' efforts to achieve strategic competitiveness. Firms imitate competitive actions and responses in standard-cycle markets to: •Seek large market shares •Gain customer loyalty through brand names •Control a firm's operations carefully The competition for market share is intense in standard-cycle markets because of: •Large volumes •The size of mass markets •The need to develop scale economies

Restructuring

Redesigning an organization so that it can more effectively and efficiently serve its customers. Financial economies can be created when firms learn how to create value by: 1. Buying assets at a low cost 2. Restructuring the assets 3. Selling the assets at a price that exceeds their cost in the external market

What are the most successful types of diversification?

Related Constraint and Related Link

Freemium

Subscriptions that provide some content for free but require a monthly subscription to take advantage of all the site has to offer. ex: Pandora, Hulu

Agency

The agent connects the individual to opportunities so the agent may obtain a commission. ex: Mary Kay, Advocare, Herbalife

Resource Commonality

The degree to which competitors compete to secure the same resources.

Market Commonality

The degree to which two companies have overlapping products, services, or customers in multiple markets.

Expenditure Model

The expenditure model looks at the different places a company has to pay money to create value. This includes both direct and indirect costs. ex: manufacturing, operations, and raw materials

Dominant Business

The firm generates between 70 and 95% of its total revenue within a single business area. ex: Kellogg's (primarily breakfast and snack foods)

Margin Model

The margin model analyzes the accounting and finance measure, making sure company hits certain margin on a product. It also analyzes the impact of multiple revenue streams.

Competitor Analysis

The process of identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid.

Revenue Model

The revenue model escribes how the firm will earn revenue, produce profits, and produce a superior return on invested capital. Price x Volume ex: sales revenue, royalties, and accessory sales

Resource Velocity/Turnover Model

The speed at which the resources need to be used to support target sales volume and reach anticipated profits margins Analyzes lead times, throughput, inventory turns, and asset utilization.

Customer Value Concept (CVC)

The unique characteristics of your product or service that the customer sees as adding value to the product and making it desirable to purchase. It is the "it factor" that makes your product more valuable to your consumer than your competition.

Value-Neutral Diversification

•Antitrust regulation •Tax laws •Low performance •Uncertain future cash flows •Risk reduction for firm •Tangible resources •Intangible resources

Value-Reducing Diversification

•Diversifying managerial employment risk •Increasing managerial compensation