MGT 405 CH 5 NEW, MGT 405 CH 9, MGT 405 CH 9, Ch 8, Ch 7 *, Business strategy Chap 7, MGT CH 6, Chapter 8: 487 pt2 Entrepreneurial Strategy and Competitive Dynamics, Strategic Exam 2

For an entrepreneurial venture to create new value, three factors must be present

- an entrepreneurial opportunity, - the resources to pursue the opportunity - an entrepreneur or entrepreneurial team willing and able to undertake the opportunity.

What companies use a differentiation strategy?

-APPLE -TARGET people value their UNIQUE & VARIETY of products = brand loyal customers

Overall Cost Leadership Tactics

-Aggressive construction of efficient scale facilities -Vigorous pursuit of cost reductions from experience -Tight cost and overhead control -Avoidance of marginal customer accounts -Cost minimization in all activities in firms value chain (R&D, service, sales force, and advertising)

What companies use a focus strategy?

-COSTCO (bundled up volumes) -IKEA (cheap nice furniture) differentiation + cost leadership = big stores with products you cant get anywhere else at this price

Combination Strategies

-Combine best feature of low -cost, differentiation, and focus strategies. -Flexibility and quick decision -making ability of a small firm not laden with layers of bureaucracy.

Potential Pitfalls of Focus Strategies

-Cost advantages may erode within narrow segment -Even product and service offerings that are highly focused are subject to competition from new entrants and from imitation. -Focusers can become too focused to satisfy buyer needs.

Start-ups

-Current or past work experience -Hobbies that grow into businesses or lead to inventions -Suggestions by friends or family -Chance events -Change Low budget start-ups are launched with personal savings and contribution of family and friends. 70% of funding for start-ups comes from equity investments, entrepreneur's family, and friends or personal loans. After 5 years of operation, the largest source of funding is from loans taken out by the business.

Explore reverse innovation

-Design & manufacture products locally -Export no-frills products to developed markets

Hidden costs from offshoring include:

-Higher total wage & indirect costs -Increased coordination costs -Increased inventory due to longer lead time -Reduced market responsiveness -Cost of protecting intellectual property

strategies that favor global products and brands assumes:

-Homogenous customer needs & interests -People prefer lower prices at high quality -Global markets produce economies of scale

Motivations for International Expansion

-Increase market size -Take advantage of arbitrage -Enhancing the growth rate of a product -Optimize the physical location for every activity in the firm's value chain -Availability of needed talent

A company decides to become a multinational firm in order to:

-Increase market size: Attain economies of scale -Take advantage of arbitrage opportunities: In every stage of the value chain -Enhance a product's growth potential: Reinvigorating the product life cycle

Commitment to Excellence

-Know the customer -Provide quality products and services -Pay attention to details -Continuously learn -Surround themselves with good people

What companies use an overall cost leadership strategy?

-MCDONALDS -WALMART cheap products = low cost leaders

Likelihood of competitive reaction depend on three factors:

-Market dependence, - Competitor's resources, - Reputation of the firm that initiates the action

Demanding consumers drive firms in that country to:

-Meet high standards -Upgrade existing products and services -Create innovative products and services -Better anticipate future global demand -Proactively respond to product & service requirements

Entrepreneurial Opportunities in Established Firms

-Needs of existing customers -Suggestions by suppliers -Technological developments that lead to new advances -Changes

Strategies that favor global products & brands should do the following:

-Standardize all products for all markets -Reduce overall costs by spreading investments over a larger market

New Value can be Created in...

-Start-up ventures -Major corporations -Family-owned businesses -Non-profit organizations -Established institutions

Discovery Phase

-The process of becoming aware of a new business concept -May be spontaneous or unexpected -May occur as the result of deliberate search for new venture projects or creative solutions to business problems.

Optimize the location of value chain activity

-To enhance performance -To reduce cost -To reduce risk

3 Turnaround Strategies

1. Asset cost surgery (cut assets that don't produce returns) 2. Selective product and market pruning (discontinue product lines and focus on profitable ones) 3. Piecemeal productivity improvements

SUMMARY REVIEW QUESTIONS

1. Discuss how managers can create value for their firm through diversification efforts. 2. What are some of the reasons that many diversification efforts fail to achieve desired outcomes? 3. How can companies benefit from related diversification? Unrelated diversification? What are some of the key concepts that can explain such success? 4. What are some of the important ways in which a firm can restructure a business? 5. Discuss some of the various means that firms can use to diversify. What are the pros and cons associated with each of these? 6. Discuss some of the actions that managers may engage in to erode shareholder value.

SUMMARY REVIEW QUESTIONS

1. Explain why the concept of competitive advantage is central to the study of strategic management. 2. Briefly describe the three generic strategies—overall cost leadership, differentiation, and focus. 3. Explain the relationship between the three generic strategies and the five forces that determine the average profitability within an industry. 4. What are some of the ways in which a firm can attain a successful turnaround strategy? 5. Describe some of the pitfalls associated with each of the three generic strategies. 6. Can firms combine the generic strategies of overall cost leadership and differentiation? Why or why not? 7. Explain why the industry life-cycle concept is an important factor in determining a firm's business- level strategy.

What are the 4 stages in the industry life cycle?

1. INTRO 2. GROWTH 3. MATURITY 4. DECLINE

first stage- new products that are not known to customers, poorly defined market segments, unspecified product features, low sales growth, rapid technological change, operating losses and a need for financial support; (differentiation strategy)

1. INTRO STAGE

What are the 3 generic strategies?

1. OVERALL COST LEADERSHIP 2. DIFFERENTIATION 3. FOCUS

SUMMARY REVIEW QUESTIONS

1. What are some of the advantages and disadvantages associated with a firm's expansion into international markets? 2. What are the four factors described in Porter's diamond of national advantage? How do the four factors explain why some industries in a given country are more successful than others? 3. Explain the two opposing forces—cost reduction and adaptation to local markets—that firms must deal with when they go global. 4. There are four basic strategies—international, global, multidomestic, and transnational. What are the advantages and disadvantages associated with each? 5. What is the basis of Alan Rugman's argument that most multinationals are still more regional than global? What factors inhibit firms from becoming truly global? 6. Describe the basic entry strategies that firms have available when they enter international markets. What are the relative advantages and disadvantages of each?

Case Analysis Process

1. become familiar with the material 2. identify the problems 3. conduct strategic analysis 4. Propose alternative solutions 5. make recommendations

Globalization

2 meanings: -The increase in international exchange of goods, services, money, ideas, and information. -The growing similarity of laws, rules, norms, values, and ideas across countries.

second stage- increases in sales, growing competition, developing brand recognition and a need for financing complementary value chain activities such as marketing, sales, customer service and research and development (differentiation strategy)

2. GROWTH STAGE

third stage- slowing demand growth, saturated markets, direct competition, price competition and strategic emphasis on efficient operations;(differentiation + overall cost leadership)...adopt REVERSE or BREAKAWAY positioning

3. MATURITY STAGE

Days' Sales in Inventory

365/inventory turnover Aim to make this as small as possible How long are goods in the inventory? Want this to be small Tells us how fast goods are selling

Days' Sales in Receivables

365/receivables turnover average collection period

Maturity Stage

3rd Stage. Characterized by 1) slowing demand growth 2) saturated markets 3) direct competition 4) price competition 5) strategic emphasis on efficient operations

fourth stage- falling sales and profits, increasing price competition (overall cost leadership + focus strategies)

4. DECLINE STAGE

Decline Stage

4th Stage characterized by 1) falling sales and profits 2) increasing price competition 3) industry consolidation

Venture capitalists

= companies organized to place their investors' funds in lucrative business opportunities. Through venture capitalists, entrepreneurs can raise money by selling shares in the new venture.

Market commonality

= the extent to which competitors are vying for the same customers in the same markets.

Resource similarity

= the extent to which rivals draw from the same types of strategic resources.

Crowdfunding is

=funding a venture by pooling small investments from a large number of investors, often raised on the internet (KickStarter)

Market capitalization (market value of equity)

=share price x the number of shares outstanding

Technology Alliance

Allows the larger firm to enhance its technological capability and expands the revenues and reach of the smaller firm

Overall Cost Leadership

This strategy has an advantage due to: Simpler organizational structure & smaller size Quicker decision-making to upgrade technology & integrate marketplace feedback controls costs.

Differentiation

This strategy is able to compete by Offering a unique value proposition through innovation & superior use of new technology Deploying resources in a radical new way.

Focus

This strategy means having the ability to use niche strategies that fit the small business model. Focus strategies work for small businesses because there is a natural fit between the narrow scope of the strategy and the small size of the firm.

Devastate rivals' profit sanctuaries

Through focused attacks on a rival's most profitable segments, a company can generate maximum leverage with relatively smaller-scale attacks.

inventory days

Time between goods received and goods sold

collection days

Time between goods sold and payment received We want to minimize the time it takes to collect

Total debt ratio

Total Debt (current and long term liabilities)/Total Assets $ amount of debt for every $1 in assets

Debt to Equity Ratio

Total Debt/Total Equity Tells us how the company is financed Generally larger than one because most companies are financed by debt Optimal value is between 1-3 Don't want this ratio to be too big

A sequential method of organizational control in which strategies are formulated and top management sets goals (1), strategies are implemented (2), and performance is measured against the predetermined goal set (3)

Traditional approach to strategic control

in FAVOR OF DUALITY for it provides clear focus, eliminates confusion and conflict and enhances a firms responsiveness

UNITY OF COMMAND

Theory which is in favor of duality for it provides clear focus, eliminates confusion and conflict and enhances a firms responsiveness

Unity of command

Book Value

Value of assets or liabilities according to the balance sheet (=book) Values recorded at their historical cost adjusted for depreciation ("backward-looking")

Market Value

Value of assets or liabilities were they to be resold in a market ("forward-looking")

Businesses with extensive development costs or firms on the brink of rapid growth are likely to turn to

Venture Capitalists

Viable Opportunities

Viable opportunities have the following qualities: They are attractive in the marketplace. They are achievable; practical & physically possible. They are durable or attractive long enough for the development and deployment to be successful. They are value-creating & potentially profitable; the benefits MUST surpass the cost of development by a significant margin.

_______ may be an entrepreneur's most important asset.

Vision

Vision

Vision may be an entrepreneur's most important asset. Entrepreneurs envision realities that do not yet exist. With vision, entrepreneurs are able to exercise a kind of transformational leadership that creates something new and, in some way, changes the world. In order to develop support, get financial backing, and attract employees, entrepreneurial leaders must share their vision with others.

Motivation & capability to respond means asking:

What type of competitive response is necessary? What resources are needed to fend off a competitive attack?

What is the concern of informational control?

Whether or not the organization is "doing the right things"

What is the concern of behavioral control?

Whether or not the organization is "doing things right" in the implementation of its strategy

Managers = to make financial decisions Investors = to evaluate a company's performance Creditors = to assess creditworthiness Competitors = use them as a benchmark Financial markets = to understand company's value

Why are financial statements important?

because book value of equity is usually smaller than total assets

Why is ROE is generally larger than ROA?

inventory

_________ is the least liquid current asset

top

__________ line on the income statement is total sales

bottom

___________ line on the income statement is the profit

wholly owned subsidiary

a business in which a multinational company owns 100 percent of the stock.

rule of law

a characteristic of legal systems where behavior is governed by rules that are uniformly enforced.

franchising

a contractual arrangement in which a company receives a royalty or fee in exchange for the right to use its intellectual property; franchising usually involves a longer time period than licensing and includes other factors, such as monitoring of operations, training, and advertising.

franchising

a contractual arrangement in which a company receives a royalty or fee in exchange for the right to use its intellectual property; it usually involves a longer time period than licensing and includes other factors, such as monitoring of operations, training, and advertising.

licensing

a contractual arrangement in which a company receives a royalty or fee in exchange for the right to use its trademark, patent, trade secret, or other valuable intellectual property

licensing

a contractual arrangement in which a company receives a royalty or fee in exchange for the right to use its trademark, patent, trade secret, or other valuable intellectual property.

strategic alliance

a cooperative relationship between two or more firms.

related diversification

a firm entering a different business in which it can benefit from leveraging core competencies, sharing activities, or building market power.

unrelated diversification

a firm entering a different business that has little horizontal interaction with other businesses of a firm.

Threat analysis is

a firm's awareness of its closest competitors and the kinds of competitive actions they might be planning.

adaptive new entry

a firm's entry into an industry by offering a product or service that is somewhat new and sufficiently different to create value for customers by capitalizing on current market trends Does not involve "reinventing the wheel" it involves taking an existing idea and adapting it to a particular situation Pitfalls: 1) value proposition must be perceived a unique 2) there is nothing to prevent a close competitor from mimicking the new firm's adaption as a way to hold on to the customer 3) Once an adaptive entrant achieves initial success, the challenge is to keep the idea fresh Differentiation is associated with strong brand identity, innovation, technology and customer service, distinctive branding are arenas where new ventures have made a name for themselves.

core competencies

a firm's strategic resources that reflect the collective learning in the organization.

co-opetition

a firm's strategy of both cooperating and competing with rival firms

portfolio management

a method of (a) assessing the competitive position of a portfolio of businesses within a corporation, (b) suggesting strategic alternatives for each business, and (c) identifying priorities for the allocation of resources across the businesses.

greenmail

a payment by a firm to a hostile party for the firm's stock at a premium, made when the firm's management feels that the hostile party is about to make a tender offer.

devil's advocate

a person who has the job of criticizing ideas to ensure that their downsides are fully explored

transaction cost perspective

a perspective that the choice of a transaction's governance structure, such as vertical integration or market transaction, is influenced by transaction costs, including search, negotiating, contracting, monitoring, and enforcement costs, associated with each choice.

golden parachute

a prearranged contract with managers specifying that, in the event of a hostile takeover, the target firm's managers will be paid a significant severance package.

Domestic rivalry leads to

a search for new markets

Global strategy

a strategy based on firms' centralization and control by the corporate office, why the primary emphasis on controlling costs, and used in industries where the pressure for local adaptation is low and pressure for lowering costs is high.

multidomestic strategy

a strategy based on firms' differentiating their products and services to adapt to local markets; used in industries where the pressure for local adaptation is high and the pressure for lowering costs is low.

international strategy

a strategy based on firms' diffusion and adaptation of the parent companies' knowledge and expertise to foreign markets, used in industries where the pressures for both local adaptations and lowering costs are low.

transnational strategy

a strategy based on firms' optimizing the trade-offs associated with efficiency, local adaptation, and learning; used in industries where the pressures for both local adaptation and lowering costs are high. a region such as Europe, North America, or Asia.

business-level strategy

a strategy designed for a firm or a division of a firm that competes within a single business.

entrepreneurial strategy

a strategy that enables a skilled and dedicated entrepreneur, with a viable opportunity and access to sufficient resources, to successfully launch a new venture. The new entrant needs to examine barriers to entry, if the barriers are to high, the potential entrant may decide not to enter. Second factor is the threat of retaliation incumbents.

In order to realize the strongest competitive advantage, firms engaged in worldwide competition must

pursue a strategy that combines the uniformity of a global strategy and the specificity of a multidomestic strategy in order to achieve optimal results.

Pioneering new entry is when a firm's entry into an industry with a

radical new product or highly innovative service that changes the way business is conducted

Tactical actions=

refinements or extensions of strategies usually involving minor resource commitments.

Globalization

has two meanings. 1. one is the increase in international exchange, including trade in goods and services as well as exchange of money, ideas, and information. 2. is the growing similarity of laws, rules, norms, values, and ideas across countries.

sharing activities

having activities of two or more businesses' value chains done by one of the businesses.

Case analysis

helps us learn how to ask good questions & make good decisions: Why do some firms succeed and others fail? Why are some companies higher performers than others? What information is needed in the strategic planning process? How do competing values and beliefs affect strategic decision making? What skills and capabilities are needed to implement a strategy effectively?

revenue minus expenses

net income is equal to

earnings per share

net income/the number of shares outstanding shows how much money a company makes for each share of its stock

joint ventures

new entities formed within a strategic alliance in which two or more firms, the parents, contribute equity to form the new legal entity.

Reverse innovation

new products developed by developed country multination firms for emerging markets that have adequate functionality at a low cost.

Opportunities can come from many sources, however all entrepreneurial firms must make the most of changes brought about by

new technology, socio-cultural trends, and shifts in consumer demand.

Even though entrepreneurial activity is usually associated with startup companies,

new value can be created in many different contexts.

Adaptive new entry is when a firm's entry into an industry by

offering a product or service that is somewhat new and sufficiently different to create value for customers by capitalizing on current market trends.

traditional strategy

optimizing the trade-offs associated with efficiency, local adaptation, and learning, used in industries where the pressures for both local adaptation and lowering costs are high.

intangible

patents, licenses, and copyrights are considered ________ assets

Economic risk

potential threat to a firm's operations in a country due to economic policies and conditions, including property right laws and enforcement of those laws

economic risk

potential threat to a firm's operations in a country due to economic policies and conditions, including property rights laws and enforcement of those laws.

Currency Risks

potential threat to a firm's operations in a country due to fluctuations in the local currency's exchange rate.

Political risk

potential threat to a firm's operations in a country due to ineffectiveness of the domestic political system.

Management Risks

potential threat to a firm's operations in a country due to the problems that managers have making decisions in the context of foreign markets. Variety of forms: culture, customs, language, income levels, distribution systems, etc.

angel investors

private individuals who provide equity investments for seed capital during the early stages of a new venture

Angel investors are

private individuals who provide equity investments for seed capital during the early stages of a new venture.

exporting

producing goods in one country to sell to residents of another country.

(break in industry) tend to continuously augment products- offer products with fewer product attributes and lower prices; strip away "sacred" product attributes while adding new ones; Commerce Bank becoming the most convenient bank in America

REVERSE POSITIONING

POLICIES that specify WHO gets REWARDED and why

REWARDS SYSTEM

New entrants with a ___________ new product or highly innovative service may change the way business is conducted in an industry.

Radical

The final step before initiating a competitive response is to evaluate what a competitor's _______________is likely to be.

Reaction

Two Opposing Pressures

Reducing costs and adapting to local markets

Tactical Actions

Refinements or extensions of strategies usually involving minor resource commitments.

Dedication and Drive

Reflected in: -Hard work -Patience -Willingness to work long hours -Internal motivation -Intellectual commitment to the enterprise -Strong enthusiasm for work and life

Competitive dynamics are likely to be most intense among companies that are competing for the same customers or who have highly similar sets of __________________.

Resources

Resources

Resources are an ESSENTIAL component of a successful entrepreneurial launch. For STARTUPS, the most important resource is usually money because a new firm typically has to expend substantial sums just to start the business. However, financial resources are not the only kind of resource a new venture needs. HUMAN CAPITAL and SOCIAL CAPITAL are also important. Many firms also rely on government resources to help them thrive.

Entrepreneurial Resources

Resources are essential of a successful entrepreneurial launch. For start-ups, the most important is money. Human capital and social capital are important. Types of financial resources may depend on: 1) stage of venture development; 2) scale of venture 5% or less comes from angel investors or venture capitalists 1) Human Capital = strong and skilled management 2) Social Capital= are contacts made via prior jobs, industry organizations, and local business groups. 3) Government Resources

Policies that specify who gets rewarded and why

Reward system

Entrepreneurial Activity involves _______________ .

Risk

Examples of Adaptive New Entrants Table

SEE Exhibit 8.3 on Powerpoint Slide 29. An adaptive new entry approach does not involve "reinventing the wheel," nor is it merely imitative either. It involves taking an existing idea and adapting it to a particular situation. Exhibit 8.3 presents examples of four young companies that successfully modified or adapted existing products to create new value.

process of MONITORING and CORRECTING a firms strategy and performance

STRATEGIC CONTROL

Receivables Turnover

Sales / Accounts Receivable How fast do we collect on our sales? We want this to be as large as possible

Total Asset Turnover

Sales/Total Assets How much sales do firms generate for every $ in assets

Plagiarize with pride

Second movers can see how customers respond, make improvements, and launch a better version without all market development costs.

Counterfeiting

Selling of traditional goods without the consent of the trademark holder. Direct form of theft of IP rights.

Compared to large firms, new ventures often have __________________ organizational structures that make decision-making both easier and faster.

Simple **The smaller size also helps young firms change more quickly when upgrades in technology or feedback from the marketplace indicates that improvements are needed.

Social Capital

Social capital includes: - Extensive social contacts & strategic alliances which can be facilitated using technology, manufacturing, or retail alliances. - Federal, state, & local government resources, such as, government contracting, Loan guarantee programs, and training, counseling, & support services.

Mostly ideas consist of problems and ________________.

Solutions

Start-up Ventures

Start-up venture ideas can come from: - Current or past work experiences - Hobbies or suggestions by friends or family For established firms, opportunities can come from: - Existing customers - Suggestions by suppliers - Technological developments **For all firms, change or chance events can uncover unmet consumer needs.

The process of monitoring and correcting a firms strategy and performance

Strategic control

Firm strategy, structure, & rivalry do to

Strong consumer demand Strong supplier base High new entrant potential from related industries

risk to management of the firm being acquired by a HOSTILE RAIDER

TAKEOVER CONTROL

SEQUENTIAL method of organizational control 1. strategies formulated & top management sets goals 2. strategies implemented 3. performance measured against predetermined goal set

TRADITIONAL APPROACH

The risk to management of the firm being acquired by a hostile raider

Takeover control

Industry Life Cycle

The stages of introduction growth, maturity, and decline that typically occur over the life of an industry.

GAAP (Generally Accepted Accounting Principles)

The standards and rules that accountants follow while recording and reporting financial activities.

Profit Pool

The total profits in an industry at all points along the industry's value chain.

Unleash massive and overwhelming force

This is a full-frontal attack where a firm commits significant resources to a major campaign to weaken rivals' position in certain markets.

Deceive competition

This may cause the competition to miss strategic shifts, spend money pursuing dead ends, or slow their responsiveness.

Two broadly defined types of competitive action include

strategic actions and tactical actions.

corporate-level

strategy a strategy that focuses on gaining long-term revenue, profits, and market value through managing operations in multiple businesses.

Rivalry is intense in nations with conditions of ________ consumer demand, ___________supplier bases, and ____________ new entrant potential from related industries.

strong , strong, high

Bankers, venture capitalists, and angel investors agree that the most important asset an entrepreneurial firm can have is

strong and skilled management

When any two firms have both a HIGH degree of market commonality and HIGHly similar resource bases, a

stronger competitive threat is present.

All of the factors below have made India's software services industry extremely competitive on a global scale except

tax and antitrust legislation that protect the dominant players in the industry.

DuPont Analysis

technique of breaking return on total assets and return on equity into their component parts Splitting ROE to understand its changes over time

Return on Assets

tells you what earnings were generated from invested capital (assets)

mergers

the combining of two or more firms into one new legal entity.

firm strategy, structure, and rivalry (national advantage)

the conditions in the nation governing how companies are created, organized, and managed. -Domestic rivalry leads to a search for new markets -Rivalry is a strong indicator of global competitive success

entrepreneurship

the creation of new value by an existing organization or new venture that involves the assumption of risk New value can be created: * start up ventures * major corporations * family-owend businesses * non-profit organizations * established institutions 3 Factors must be present to create new value: 1) Entrepreneurial opportunity; 2) resources to pursue the opportunity; 3) entrepreneurial team willing and able to undertake the opportunity

divestment

the exit of a business from a firm's portfolio.

market commonality

the extent to which competitors are vying for the same customers in the same markets

resource similarity

the extent to which rivals draw from the same types of strategic resources

Government Resources

the federal government provides support for entrepreneurial firms in two key areas. 1) financing 2) government contracting Government does not make loans but provides underwriting to the banks so their is no risk.

pooled negotiating power

the improvement in bargaining position relative to suppliers and customers.

acquisitions

the incorporation of one firm into another through purchase.

restructuring

the intervention of the corporate office in a new business that substantially changes the assets, capital structure, and/or management, including selling off parts of the business, changing the management, reducing payroll and unnecessary sources of expenses, changing strategies, and infusing the new business with new technologies, processes, and reward systems.

Demand conditions (national advantage)

the nature of home-market (consumers) demand for the industry's product or service.

Arbitrage Opportunities

the opportunity to profit by buying and selling the same good in different markets. Aka: buying something where it is cheap and selling it somewhere expensive.

parenting advantage

the positive contributions of the corporate office to a new business as a result of expertise and support provided and not as a result of substantial changes in assets, capital structure, or management.

related and supporting industries (national advantage)

the presence, absence, and quality in the nation of supplier industries and other related industries that supply services, support, or technology to firms in the industry value chain.

The discovery phase refers to

the process of becoming aware of a new business concept

Opportunity recognition is

the process of discovering and evaluating changes in the business environment, such as a new technology, socio-cultural trends, or shifts in consumer demand, that can be exploited.

We want to know how much $ the firm has, where it came from, and how they use it

why is balance sheet important

Michael Porter's diamond of national advantage explains

why some nations and their industries outperform others: Factor endowments Demand conditions Related and supporting industries Firm strategy, structure, & rivalry

Types of Competitive Actions

1) Strategic Actions 2) Tactical Actions

3 Characteristics of Entrepreneurial Leadership

1) Vision 2) Dedication and Drive 3) Commitment to Excellence

concern of INFO control?

"DOING THE RIGHT THINGS"

concern of BEHAVIORAL control?

"DOING THINGS RIGHT"

Which Resources are essential for entrepreneurial success?

# 1 - Financial resources Human capital Social capital Government resources

Quick Ratio (Acid Test)

(Current Assets - Inventory) / Current Liabilities Inventory is the least liquid current asset Acid test Removes inventory from current assets so that the debate over whether those inventory will be sold is out of the discussion/debate Should be around 1 or a bit larger QR>1 = sufficient very near-cash assets (CA) to cover CL

Potential Pitfalls to Overall Cost Leadership Strategies

-Too much focus on one or a few value chain activities -Increase in the cost of the inputs on which the advantage is based (increased labor costs in china) -A strategy that can be imitated too easily -A lack of parity in differentiation -Reduced Flexibility -Obsolescence of cost advantage

Hidden costs of Offshoring

-Total Wage Cost (less productivity, etc) -Indirect Costs -Increased Inventory (due to longer delivery times, firms often need to tie up more capital in work in progress and inventory) -Reduced market responsiveness (damaged brand image) -Coordination Costs (paying overtime for coordination across timezones, etc) -Intellectual Property Rights (weak IP laws could mean losing trade secrets) -Wage Inflation (developing markets can be volatile)

Pitfalls of differentiation

-Uniqueness that is not valuable -Too much differentiation -Too high a price premium -Differentiation that is easily imitated

multidomestic strength

-ability to adapt products and services to local market conditions. -ability to detect potential opportunities for attractive niches in a given market, enhancing revenue.

traditional strategy strengths

-ability to attain economies of scale. -ability to adapt to local markets -ability to locate activities in optimal locations -ability to increase knowledge flows and learning.

Challenges in globalization include:

-balancing between emerging markets & developed markets -How to meet the needs of customers at very different income levels

multidomestic limitations

-decreased ability to realize cost savings through scale economies. -greater difficulty in transferring knowledge across countries. -may lead to "over adaptation" as conditions change

Factors of production must be

-industry & firm specific -Must be rare, valuable, difficult to imitate, and rapidly & efficiently deployed

Imitative (New Entry Strategy)

-introduce the same basic product/service in another segment of the market *****-products or services that capitalize on proven market successes and that usually has a strong marketing orientation.

International Strategy strengths

-leverage and diffusion of a parent firm's knowledge and core competencies.

global strategy limitations

-limited ability to adapt to local markets. -concentration of activities may increase dependence on a single facility -single locations may lead to higher tariffs and transportation costs.

Strategic Actions

-major commitments of distinctive and specific resources -actions require significant planning and resources -difficult to reverse once initiated -ex: launching a breakthrough innovation, building a new production facility, or merging w/another company

balance sheet

-most extensive financial document -snapshot/static document of the companies assets and liabilities Financial statement that shows the value of the firm's assets (uses of funds) and liabilities (sources of assets) at a particular point in time

Pioneering (New Entry Strategy)

-radical new product or highly innovative service that changes the way business is conducted. -ex: first personal computer, first Internet browser - breakthrough in which new ways are created to solve old problems

Tactical Actions

-refinements or extensions of strategies (usually involving minor resouce commitments) -actions typically draw on general resources -can be implemented quickly -ex: cutting prices, improving gaps in services, strengthening marketing efforts

Transparency International Corruption Perceptions Index (CPI)

-reveals the most corrupt countries in the world -The scores range from 100 (very clean) to 0 (highly corrupt).

global strategy strengths

-strong integration across various businesses. -standardization leads to higher economies of scale, which lowers costs. -helps create uniform standards of quality throughout the world.

Characteristics of GOOD Opportunities

1) Attractive 2) Achievable 3) Durable 4) Value-creating 1) Attractive = must be market demand for the new product or service 2) Achievable= must be practical and physically possible 3) Durable= attractive long enough for the development and deployment to be successful, window of opportunity must be open long enough to be worthwhile 4) Value Creating= must be potentially profitable, benefits must surpass the cost of development by a significant margin

Five "Hardball" Strategies

1) Devastate rivals' profit sanctuaries 2) Plagiarize with pride 3) Deceive competition 4) Unleash massive and overwhelming force 5) Raise competitors' costs

Likelihood of Competitive Reaction

1) Market dependence 2) Competitor's resources 3) The reputation of the firm that initiates the action

Opportunity Analysis Framework

1) Opportunity 2) Resources 3)Entrepreneurs NO PARTICULAR ORDER

Generic Strategies for New Ventures include:

1) Overall Cost Leadership 2) Differentiation 3) Focus

Generic Strategies

1) Overall Cost Leadership 2) Differentiation 3) Focus

3 Types of Entrepreneurial Entry Strategies

1) Pioneering 2) Imitative 3) Adaptive

TWO Types of Competitive Actions:

1) STRATEGIC ACTIONS include: - Entering new markets - Creating new product introductions - Changing production capacity - Pursuing mergers/alliances 2) TACTICAL ACTIONS include: - Doing price cutting (or offering increases) - Making product/service enhancements - Increasing marketing efforts - Developing new distribution channels.

2 Factors of Financing New Ventures

1) Stage of venture development 2) Scale of venture Highest source of capital: Inside Equity Lowest source of capital: Investor Equity

Breakaway positioning

A break in the industry tendency to incrementally improve products along specific dimensions, characteristics of the product life cycle, by offering products that are still in the industry but are perceived by customers as being different.

Market Dependence

A business that has a high concentration of it's business in a particular industry.

Market Dependence

A degree of concentration of a firm's business in a particular industry.

Mass Customization

A firm's ability to manufacture unique products in a small quantity at a low cost. (manufacture unique products in small quantities at low cost.)

Competitive Parity

A firm's achievement of similarity or being "on par" with competitors with respect to low cost, differentiation or other strategic product characteristics.

Consolidation Strategy

A firm's acquiring or merging with other firms in an industry in order to enhance market power and gain valuable assets

Threat Analysis

A firm's awareness of its closest competitors and the kinds of competitive actions they might be planning. Threat analysis involves an assessment of: Market commonality Resource similarity And, also, to ask.....How serious is the threat?

Threat Analysis

A firm's awareness of its closest competitors and the kinds of competitive actions they might be planning. -Market Commonality: whether or not competitors are vying for the same customers and how many markets they share in common -Resource Similarity: The degree to which rivals draw on the same types of resources to compete

Forbearance

A firm's choice of not reacting to a rival's new competitive action.

Forbearance

A firm's choice of not reacting to rival's new competitive action.

Adaptive New Entry

A firm's entry into an industry by offering a product or service that is somewhat new and sufficiently different to create value for customers by capitalizing on current market trends. An adaptive new entry involves taking an existing idea and adapting it to a particular situation. However, unless potential customers believe the product or service does a superior job of meeting their needs, they will have little motivation to try it. Second, there is nothing to prevent a close competitor from mimicking the new firm's adaptation as a way to hold onto its customers. Third, once an adaptive entrant achieves initial success, the challenge is to keep the idea fresh. If the attractive features of the new business are copied, the entrepreneurial firm must find ways to adapt and improve the product or service offering.

Pioneering New Entry

A firm's entry into an industry with a radical new product or highly innovative service that changes the way business is conducted. If the product or service is unique enough, a pioneering new entrant might actually have little direct competition. However, there is a strong risk that the product or service will not be accepted by consumers. A pioneering new entry is also potentially disruptive to the status quo of an industry. If it is successful, other competitors will rush into copy it. This can create issues of sustainability for entrepreneurial firms. For a new entrant to sustain its pioneering advantage, it may be necessary to protect its intellectual property, advertise heavily to build brand recognition, form alliances with businesses that will adopt its products or services, and offer exceptional customer service.

Imitative New Entry

A firm's entry into an industry with products or services that capitalize on proven market successes and that usually has a strong marketing orientation. An imitative new entry strategy is used by entrepreneurs who see products or business concepts that have been successful in one market niche or physical locale and introduce the same basic product or service in another segment of the market. Sometimes the key to success with an imitative strategy is to fill a market space where the need had previously been filled inadequately. Entrepreneurs are also prompted to be imitators when they realize that they have the resources or skills to do a job better than an existing competitor. But success triggers imitation.

Focus Strategy

A firm's generic strategy based on appeal to a narrow market segment within an industry.

Overall Cost Leadership

A firm's generic strategy based on appeal to the industrywide market using a competitive advantage based on low cost

Differentiation Strategy

A firm's generic strategy based on created differences in the firm's product or service offering by creating something that is perceived industry wide as unique and valued by customers

Co-opetition

A firm's strategy of both cooperating and competing with rival firms.

Diamond of National Advantage

A framework for explaining why countries foster successful multinational corporations; consists of 4 factors: 1)factor endowments 2)demand conditions 3)Related and supporting industries 4)firm strategy, structure, and rivalry

Angel Investors

A private individuals who provide equity investments for seed capital during the early stages of a new venture. These outside investors favor companies that already have a winning business model and dominance in a market niche. Once a venture has established itself as a going concern, other sources of financing become readily available, such as commercial loans taken out by the business.

Groupthink

A situation in which group members seek unanimous agreement despite their individual doubts

Global Strategy

A strategy based on firm's centralization and control by the corporate office with primary emphasis on controlling costs. used in industries where the pressure for local adaptation is low and pressure for lowering costs is high

Harvesting Strategy

A strategy of wringing as much profit as possible out of a business in the short to medium term by reducing costs

Entrepreneurial Strategy

A strategy that enables the skilled and dedicated entrepreneur, with a viable opportunity and access to sufficient resources, to successfully launch a new venture. To be successful, new ventures must evaluate industry conditions, the competitive environment, and market opportunities in order to position themselves strategically. However, a traditional strategic analysis may have to be altered somewhat to fit the entrepreneurial situation. For instance, a five-forces analysis can be applied to the analysis of new ventures to assess the impact of industry and competitive forces. First, the new entry needs to examine barriers to entry. A second important factor is the threat of retaliation by market incumbents. Part of any decision about what opportunity to pursue is a consideration of how a new entry will actually enter a new market, and, once it's there, how it will compete. NEW technologies, shifting social and demographic trends, and sudden changes in the business environment can create opportunities for entrepreneurship. However, business opportunities can disappear as quickly as they appear. Whether the firm is an entrepreneurial startup, a small business, or an existing business entering a market or industry for the first time, it must rely on sound strategic principles to be successful. ENTREPRENEURIAL ACTIVITY influences a firm's strategic priorities and intensifies the rivalry among an industry's close competitors. Even with a strong initial resource base, entrepreneurs are unlikely to succeed if their business ideas are easily imitated or the execution of the strategy falls short. Not only is it important for a firm to recognize an entrepreneurial opportunity, a firm must understand the COMPETITIVE DYNAMICS that are at work in the business environment in order to succeed with a growth opportunity. It's important to have an effective competitive strategy.

Turnaround Strategy

A strategy that reverses a firm's decline in performance and returns it to growth and profitability.

Three ingredients are critical in order for an entrepreneurial startup to be successful. What are they?

A viable opportunity, available resources, and a qualified and motivated founding team.

Why is vision such an important element of entrepreneurial leadership?

A) Because the entrepreneur has to envision realities that do not yet exist B) Because a vision statement must be part of the documentation used to obtain venture financing C) Because organizations cannot function without a detailed and operational vision D) All of the above ANSWER: A

Which of the following might best describe the motivations and actions of small firms as they respond to competitive attacks?

A) Because they lack legitimacy in the marketplace, small firms need to signal their competitive actions long before they launch those actions. B) Small firms typically have more resources available as they undertake competitive attacks. C) Small firms are more nimble and can respond quickly to competitive attacks. D)All of the above. ANSWER: C Smaller size makes them more nimble compared to large firms so they can respond quickly to competitive attacks. Because they are not well known, startups also have the advantage of the element of surprise in how and when they attack. Innovative uses of technology, for example, allow small firms to deploy resources in unique ways. Because they are young, however, startups may not have the financial resources needed to follow through with a competitive response. In contrast, older and larger firms may have more resources and a repertoire of competitive techniques they can use in a counterattack. Large firms, however, tend to be slower to respond.

When an industry is mature, a _________ strategy may be considered to be an effective approach for a new entrant.

A) Focus B) Differentiation C) Overall Low-Cost D) Small Business ANSWER: A **If a start-up wants to succeed, it has to take business away from an existing competitor. Young firms can often succeed best by finding a market niche where they can get a foothold and make small advances that erode the position of the existing competitors. From this position, they can build a name for themselves and grow.

Three ingredients are critical in order for an entrepreneurial startup to be successful. What are they?

A) Good ideas, a team of investors, and a business plan. B) A viable opportunity, available resources, and a qualified and motivated founding team. C) An opportunity, a marketing plan, and office space. D) Management, marketing, and money. ANSWER: B

The difference between a franchise and licensing contract is that

A) a franchise contract is more specific and usually longer in duration.

In Michael Porter's framework all of the following factors affect a nation's competitiveness

A) factor conditions. B) demand characteristics. C) related and supported industries.

Low pressure for local adaptation combined with low pressure for lower costs would suggest what type of strategy?

A) international.

All of the factors below have made India's software services industry extremely competitive on a global scale

A) large pool of skilled workers. B) large network of public and private educational institutions. D) large, growing market and sophisticated customers.

All of the following are limitations of a multidomestic strategy

A) less ability to realize cost savings through scale economies. B) greater difficulty in transferring knowledge across countries. D) may lead to "overadaptation" as conditions change.

All of the following are limitations of a global strategy

A) limited ability to adapt to local markets. C) the concentration of activities may increase dependence on a single facility. D) single locations may lead to higher tariffs and transportation costs.

Optimizing the location of every activity in the value chain can yield all of the following strategic advantages

A) performance enhancement. B) cost reduction. D) risk reduction.

Casio, a giant electronic products producer, synthesizes it abilities in miniaturization, microprocessor design, material science, and ultrathin precision castings to produce digital watches. It uses the same skills to produce card calculators, digital cameras, and other small electronics. These collective skills are known as _________________. A. core competencies B. strategic resources C. shared activities D. economies of scope

A. core competencies Core competencies reflect the collective learning in organizations, which is how to coordinate diverse production skills, integrate multiple streams of technologies, and market diverse products and services. In some circumstances, a core competence can create value and provide a viable basis for synergy among the businesses in a corporation. Casio, a giant electronic products producer, synthesizes its abilities in miniaturization, microprocessor design, material science, and ultrathin precision castings to produce digital watches. These are the same skills it applies to the design and production of its miniature card calculators, digital cameras, pocket electronic dictionaries, and other small electronics.

Corporate-level strategy focuses on _____________. A. gaining long-term revenue B. gaining short-term profits C. decreasing business locations D. managing investment bankers and their interests

A. gaining long-term revenue Corporate-level strategy focuses on gaining long-term revenue, profits, and market value through managing operations in multiple businesses.

A theory of the relationship between principals and their agents with emphasis on two problems (1) the conflicting goals of principals and agents along with the difficulty of principals to monitor the agents and (2) the different attitudes and preferences toward risk of principals and agents

Agency theory

Theory which is not in favor of duality but separation instead for it safeguards against corruption and incompetence and removes conflict of interest

Agency theory

Sharing core competencies is one of the primary potential advantages of diversification. In order for diversification to be most successful, it is important that _____________. A. the similarity required for sharing core competencies must be in the value chain, not in the product B. the products use similar distribution channels C. the target market is the same, even if the products are very different D. the methods of production are the same

A. the similarity required for sharing core competencies must be in the value chain, not in the product For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, different businesses in the corporation must be similar in at least one important way related to the core competence. It is not essential that the products or services themselves be similar, but at least one element in the value chain must require similar skills in creating competitive advantage.

McKesson, a large distribution company, sells many product lines such as pharmaceuticals and liquor through its super warehouses. This is an example of ____________. A. using related diversification to achieve value by sharing activities to create economies of scope B. using related diversification to achieve value by leveraging core competencies to create market power C. using unrelated diversification to create value by managing its portfolio to create financial synergies D. using unrelated diversification to create value by managing its portfolio to create restructuring advantages

A. using related diversification to achieve value by sharing activities to create economies of scope In this case, McKesson uses related diversification to create value by sharing activities in order to create economies of scope.

relationship between PRINCIPALS and AGENTS with emphasis on 2 problems 1. CONFLICTING GOALS 2. DIFFERENT ATTITUDES toward risk -NOT in favor of DUALITY (SEPARATION instead)

AGENCY THEORY

What are the common drivers of venture failure?

According to David Drews: - Failure to plan based on analysis of market demand; spending too much time planning - Not having enough top talent who can wear multiple hats; having too many employees you can't afford - Coming up short on revenue; neglecting to figure out "burn rate" of capital or break-even point

How does one identify profitable opportunities?

According to David Drews: - Listen to the customers, anticipate their needs - Understand the competitive landscape; adopt new offerings before they're widely available in the market - Hire world-class talent with diverse backgrounds who can use new thinking to broaden product offerings.

How should growth be funded?

According to David Drews: Don't give away equity - use past earnings & debt to finance growth - protect the employee-owners.

How important are social networks & relationships to creating a competitive advantage?

According to David Drews: Social networks provide excellent background information, BUT nothing replaces a strong personal relationship. - Trust must be earned by solving real business problems for clients: addressing current & anticipating future needs - Find & develop trusted alliances with suppliers & technology partners - Take the time to build truly trusted relationships across the entire spectrum of clients, suppliers, employees & other business contacts

How to succeed?

According to David Drews: To be successful, you should know your business model and key success factors, and lead, inspire, & recruit outstanding people.

These outside investors favor companies that already have a winning business model and dominance in a market niche.

Angel Investors

New Competitive Action

Are acts that might provoke competitors to react, such as new market entry, price-cutting, imitating successful products, and expanding production capacity. Why do companies launch new competitive actions? - To improve market position - To capitalize on growing demand - To expand production capacity - To provide an innovative new solution - To obtain first mover advantages - To strengthen financial outcomes & capture profits - To grow the business The likelihood that a competitor will launch an attack depends on many factors. Some of these factors include competitor analysis, market conditions, types of strategic actions available, and the resource endowments and capabilities companies need in order to take this competitive action.

Venture Capitalists

Are companies organized to place their investors' funds in lucrative business opportunities. Through venture capitalists, entrepreneurs can raise money by selling shares in the new venture. Businesses with extensive development costs or firms on the brink of rapid growth are likely to turn to venture capitalists.

For an opportunity to be viable, it needs to have four qualities

Attractive Achievable Durable They are value-creating

Which of the following describes the most typical order of entry into foreign markets?

B) Exporting, Licensing, Franchising, Joint Venture, and Wholly owned subsidiary

Pressures to "reduce costs" require that

B) a company must pursue what is economically beneficial to the company including maximizing economies of scale and learning curve effects.

Units coordinate their activities with headquarters and with one another, units adapt to special circumstances only they face, and the entire organization draws upon relevant corporate resources. These are all attributes of which type of strategy?

B) a transnational strategy

All of the following are limitations of a global strategy except

B) the ability to locate activities in optimal locations.

Which of the following statements regarding internal development as a means of diversification is FALSE? A. Many companies use internal development to extend their product or service offers. B. An advantage of internal development is that it is generally faster than other means of diversification and firms can benefit from speed in developing new products and services. C. The firm is able to capture wealth created without having to share the wealth with alliance partners. D. Firms can often develop products or services at a lower cost, if they rely on their own resources instead of external funding.

B. An advantage of internal development is that it is generally faster than other means of diversification and firms can benefit from speed in developing new products and services. Potential disadvantages to internal development include that it may be time consuming and that firms may forfeit the benefits of speed that growth through mergers can provide. This may be important to high-tech or knowledge-based organizations in fast-paced environments in which being an early mover is critical.

Portfolio management frameworks, such as the BCG matrix, share which of the following characteristics? A. Businesses are plotted on a 3-dimensional grid. B. Grid dimensions are based on external environments and internal capabilities/market positions. C. Position in the matrix suggests a need for sharing synergies. D. They are most helpful in helping businesses develop types of competitive advantage.

B. Grid dimensions are based on external environments and internal capabilities/market positions. Portfolio models are overly simplistic, consisting of only two dimensions (growth and market share). They view each business as separate, ignoring potential synergies across businesses.

All of the following are limitations (or downsides) of the BCG (Boston Consulting Group) matrix EXCEPT: A. Every business cannot be accurately measured and compared on the two dimensions. B. It takes a dynamic view of competition which can lead to overly complex analyses. C. It views each business as a stand-alone entity and ignores the potential for synergies across businesses. D. While easy to comprehend, the BCG matrix can lead to some troublesome and overly simplistic prescriptions.

B. It takes a dynamic view of competition which can lead to overly complex analyses. There are some notable downsides to portfolio models. They compare SBUs on only two dimensions, making the erroneous assumption that those are the only factors that really matter and that every unit can be accurately compared on that basis. The approach views each SBU as a stand-alone entity, ignoring the promise for synergies across business units. The process can become mechanical, substituting an oversimplified graphical model for the important contributions of management judgment. Reliance on strict rules regarding resource allocation across SBUs can be detrimental to long-term viability for the firm. While easy to comprehend, the imagery of the BCG matrix can lead to some troublesome, overly simplistic prescriptions.

The primary means by which a firm can diversify are __________, _________, and ________. A. mergers and acquisitions; differentiation; overall cost leadership B. mergers and acquisitions; joint ventures and strategic alliances; internal development C. joint ventures and strategic alliances; integration of value chain activities; acquiring human capital D. mergers and acquisitions; internal development; differentiation

B. mergers and acquisitions; joint ventures and strategic alliances; internal development There are three basic means of diversification: First, through acquisitions or mergers, corporations can directly acquire company assets and competencies. Second, corporations may agree to pool the resources of other companies with their resource base, commonly known as a joint venture or strategic alliance. Third, corporations may diversify into new products, markets, and technologies through internal development.

Creating value within business units can happen when the corporate office helps subsidiaries make wise choices in their own acquisitions, divestures, and new ventures. This is known as ________. A. restructuring B. parenting C. leveraging core competencies D. increasing market power

B. parenting Parent companies create value through management expertise. They improve plans and budgets and provide especially competent central functions such as legal, financial, human resource management, and procurement. They also help subsidiaries make wise choices in their own acquisitions, divestitures, and new internal development decisions.

The term golden parachute refers to _________. A. a clause requiring that huge dividend payments be made upon takeover B. pay given to executives fired because of a takeover C. financial inducements offered by a threatened firm to stop a hostile suitor from acquiring it D. managers of a firm in a hostile takeover approaching a third party about making the acquisition

B. pay given to executives fired because of a takeover A golden parachute is a prearranged contract with managers specifying that, in the event of a hostile takeover, the target company managers will be paid a significant severance package.

The Cisco acquisition of Pure Digital Technologies, the parent of the Flip video camera, failed because __________________. A. Cisco had valuable competencies B. the Flip division of Cisco was slow and less responsive to market pressures C. consumers continued to purchase the camera D. Cisco had good vision of the market

B. the Flip division of Cisco was slow and less responsive to market pressures In large, widely diversified firms, decision making can become slow and remote to market conditions. Cisco competes in a wide range of markets and had nearly 60 decision making groups in its structure, with several layers separating John Chambers, the CEO of Cisco, from the individual markets. In such a large and diversified firm, the decision making in a small division with only $400 million in sales, 1 percent of the overall sales of Cisco, was not the top priority of corporate managers. Stephen Baker, an analyst with NPD Group, said that Cisco was never really committed to the product. As a result, Flip was slower and less responsive to market pressures than it was when it was an entrepreneurial firm.

Vertical integration is attractive when ____________. A. internal administrative costs are higher than transaction costs B. transaction costs are higher than internal administrative costs C. transaction costs and internal administrative costs are equal D. search costs are higher than monitoring costs

B. transaction costs are higher than internal administrative costs If transaction costs are higher than administrative costs, that is, those costs incurred when coordinating the activities elsewhere in the value chain, vertical integration becomes an attractive strategy.

firm INFLUENCES EMPLOYEE ACTIONS through culture, rewards and boundaries

BEHAVIORAL CONTROL

group that has a FIDUCIARY duty to ensure that the company is RUN CONSISTENTLY with the long term interests of the owners or shareholders of corporation that acts as an INTERMEDIARY between the SHAREHOLDERS + MGT

BOARD OF DIRECTORS (B.O.D.)

RULES that specify behaviors that are ACCEPTABLE vs. UNACCEPTABLE

BOUNDARIES & CONSTRAINTS

(break in industry) tend to incrementally improve products - offer products that still in industry but perceived as different; associate the product with a different category to redefine competition; EXAMPLE: Swiss watches new Swatch to be a "second watch" new concept of watches as casual, fun, disposable

BREAKAWAY POSITIONING

set of firms BOUND TOGETHER by a constellation of FORMAL + INFORMAL ties (EX: Japanese keiretsus, Korean chaebols)

BUSINESS GROUPS

International Strategy

Based on firm's diffusion and adaptation of the parent company's knowledge and expertise to foreign markets. Used in industries where the pressures for both local adaptation and lowering costs are low.

Generic Strategies

Basic types of business level strategies based on breadth of target market (industrywide vs narrow market segment) and type of competitive advantage (low cost vs uniqueness)

Why is vision such an important element of entrepreneurial leadership?

Because the entrepreneur has to envision realities do not yet exist.

A method of organizational control in which a firm influences the actions of employees through culture, rewards and boundaries

Behavioral control

A group that has a fiduciary duty to ensure that the company is run consistently with the long term interests of the owners or shareholders of corporation that acts as an intermediary between the shareholders and management

Board of directors

Rules that specify behaviors that are acceptable and unacceptable

Boundaries and constraints

Reverse Positioning

Break in the industry tendency to continuously augment products, characteristic of the product life cycle by offering products with fewer product attributes and lower prices

A set of firms that, though legally independent, are bound together by a constellation of formal and informal ties and accustomed to taking coordinated action; Japanese keiretsus, Korean chaebols

Business groups

Typically, a new entrant begins with a single business model that is equivalent in scope to a __________________________ strategy.

Business-level

All of the factors below have made India's software services industry extremely competitive on a global scale except

C) tax and antitrust legislation that protect the dominant players in the industry.

A domestic corporation considering expanding into international markets for the first time will typically

C) consider implementing a low risk/low control strategy such as exporting.

Optimizing the location of every activity in the value chain can yield all of the following strategic advantages except

C) extending the life cycle of the product of service.

Political Risk

Potential threat to a firm's operations in a country due to ineffectiveness of domestic political system.

In order to realize the strongest competitive advantage, firms engaged in worldwide competition must

C) pursue a strategy that combines the uniformity of a global strategy and the specificity of a multidomestic strategy in order to achieve optimal results.

Fees that a multinational receives from a foreign licensee in return for its use of intellectual property (trademark, patent, trade secret, technology) are usually called

C) royalties.

All of the following are limitations of a multidomestic strategy except

C) single locations may lead to higher tariffs and transportation costs.

Conflicts between two classes of principals- controlling shareholders and minority shareholders- within the context of a corporate governance system

Principal principal conflicts

High pressure for local adaptation combined with high pressure for lower costs would suggest what type of international strategy:

C) transnational

Which of the following is a disadvantage of a transnational strategy?

C) unique managerial challenges in fostering knowledge transfer

A ____________ is a business in which a multinational company owns 100 percent of the stock.

C) wholly owned subsidiary

In the BCG Matrix, a business that has a low market share in an industry characterized by high market growth is termed a ____________. A. Star B. Cash Cow C. Question Mark D. Dog

C. Question Mark Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Question Marks are SBUs competing in high-growth industries but having relatively weak market shares. Resources should be invested in them to enhance their competitive positions.

When using a BCG matrix, a business that currently holds a large market share in a rapidly growing market and has minimal or negative cash flow would be known as a __________. A. Cash Cow B. Dog C. Star D. Question Mark

C. Star Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Stars are SBUs competing in high-growth industries with relatively high market shares. These firms have long-term growth potential and should continue to receive substantial investment funding.

An antitakeover tactic in which existing shareholders have the option to buy additional shares of stock at a discount to the current market price is called ______. A. greenmail B. a golden parachute C. a poison pill D. scorched earth

C. a poison pill Poison pills are an antitakeover tactic used by a company to give shareholders certain rights in the event of a takeover by another firm. They are also known as shareholder rights plans.

Transaction costs include all of the following costs EXCEPT A. search costs B. negotiating costs C. agency costs D. monitoring costs

C. agency costs Transaction costs are the sum of search costs, negotiation costs, contracting costs, monitoring costs, and enforcement costs. These transaction costs can be avoided by internalizing the activity, in other words, by producing the input in-house.

Divesting of businesses can accomplish many different objectives, except _______. A. enabling managers to focus their efforts more directly on the core businesses of the firm B. providing the firm with more resources to spend on more attractive alternatives C. dispersing manager focus D. raising cash to help fund existing businesses

C. dispersing manager focus Divesting a business can accomplish many different objectives including: enabling managers to focus their efforts more directly on the core businesses of the firm, providing the firm with more resources to spend on more attractive alternatives, and raising cash to help fund existing businesses.

integrate

Consider the impact of various decisions & environmental influences on all parts of the organization Create a set of recommendations that affect the whole company Realize that changes made in one part of the company will affect other parts Have a organization-wide perspective

The antitakeover tactic, _______, is when a firm offers to buy shares of their stock from a company (or individual) planning to acquire their firm at a higher price than the unfriendly company paid for it. A. golden parachute B. poison pill C. greenmail D. scorched earth

C. greenmail Greenmail is an effort by the target firm to prevent an impending takeover. When a hostile firm buys a large block of outstanding target company stock and the target company management feels that a tender offer is impending, they offer to buy the stock back from the hostile company at a higher price than the unfriendly company paid for it.

The risks of vertical integration include all of the following EXCEPT: A. costs and expenses associated with increased overhead and capital expenditures. B. problems associated with unbalanced capacities along the value chain. C. lack of control over valuable assets. D. additional administrative costs associated with managing a more complex set of activities. The risks of vertical integration include costs and expenses associated with increased overhead and capital expenditures, loss of flexibility resulting from large investments, problems associated with unbalanced capacities along the value chain, and additional administrative costs associated with managing a more complex set of activities.

C. lack of control over valuable assets. The risks of vertical integration include costs and expenses associated with increased overhead and capital expenditures, loss of flexibility resulting from large investments, problems associated with unbalanced capacities along the value chain, and additional administrative costs associated with managing a more complex set of activities.

In the BCG Growth Share Matrix, the suggested strategy for Stars is to ________. A. milk them to finance other businesses B. invest large sums to gain a good market share C. maintain position and after the market growth slows use the business to provide cash flow D. not invest in them and to shift cash flow to other businesses

C. maintain position and after the market growth slows use the business to provide cash flow Stars are SBUs competing in high-growth industries with relatively high market shares. These firms have long-term growth potential and should continue to receive substantial investment funding. When growth slows, they may become Cash Cows themselves.

According to Michael Porter, there is a tremendous allure to _________. It is the big play, the dramatic gesture. With one stroke of the pen you can add billions to size, get a front-page story, and create excitement in markets. A. strategic alliances and joint ventures B. internal development C. mergers and acquisitions D. differentiation strategies

C. mergers and acquisitions There is an excitement and associated recognition of making a major acquisition. Michael Porter of Harvard University noted that there is a tremendous allure to mergers and acquisitions. It is the big play, the dramatic gesture. With one stroke of the pen you can add billions to size, get a front-page story, and create excitement in markets.

Internal development may be time consuming and, therefore, firms may forfeit the benefits of speed that growth through __________ and __________ can provide. A. strategic alliances; joint ventures B. strategic alliances; mergers C. mergers; acquisitions D. mergers; strategic alliances

C. mergers; acquisitions There are potential disadvantages to internal development. It may be time consuming; firms may forfeit the benefits of speed that growth through mergers can provide. This may be important among high-tech or a knowledge-based organization in fast-paced environments, where being an early mover is critical.

Which of the following is not part of a good guideline list for managing strategic alliances? A. establishing a clear understanding between partners B. not shortchanging your partner C. relying primarily on a contract to make the joint venture work D. working hard to ensure a collaborative relationship between partners

C. relying primarily on a contract to make the joint venture work Strategic alliances and joint ventures should ensure the strengths contributed by the partners are unique; thus synergies created can be more easily sustained over the longer term. The goal is to develop synergies between partner contributions, resulting in a win-win situation. Moreover, the partners must be compatible and willing to trust each other. These partnerships may be undertaken with or without a contract.

Creating value within business units can happen when a firm tries to find and acquire either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. This is action is known as ______. A. parenting B. leveraging core competencies C. restructuring D. sharing activities

C. restructuring In restructuring, the corporate office tries to find poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. The parent intervenes, often selling off parts of the business; changing the management; reducing payroll and unnecessary sources of expenses; changing strategies; and infusing the company with new technologies, processes, or reward systems.

When management uses common production facilities or purchasing procedures to distribute different but related products, they are ________________. A. building on core competencies B. achieving process gains C. sharing activities D. using portfolio analysis

C. sharing activities Corporations can achieve synergy by sharing activities across their business units. These include value-creating activities such as common manufacturing facilities, distribution channels, and sales forces.

Verizon Wireless and ILS Technology have a _________ whereby Verizon integrates technology developed by ILS to improve its machine-to machine (M2M) data transmission systems. M2M systems allow firms to securely transmit data to and from various devices. A. joint diversification B. divestment C. strategic alliance D. global integration

C. strategic alliance Strategic alliances may be used to build jointly on the technological expertise of two or more companies. This may enable them to develop products technologically beyond the capability of the companies acting independently.

Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input to its manufacturing process. This is an example of _______________. A. using related diversification to achieve value by pooling negotiating power to achieve market power B. using related diversification to achieve value by leveraging core competencies to achieve economies of scope C. using related diversification to achieve value by integrating vertically in order to acquire market power D. using related diversification to achieve value by integrating vertically in order to attain economies of scope

C. using related diversification to achieve value by integrating vertically in order to acquire market power In this case, Shaw Industries uses related diversification to achieve value by integrating vertically in order to acquire market power.

Current Ratio

CA/CL Want to be higher than 1

Firms integrating of various strategies to provide multiple type of value to customers

COMBO STRATEGIES

managers ANTICIPATE CHANGES in both the internal and external environment (strategy formulation + implementation) (info + behavioral control)

CONTEMPORARY APPROACH

RELATIONSHIP among VARIOUS PARTICIPANTS in determining the direction and performance of corporations (shareholders + management + B.O.D.)

CORPORATE GOVERNANCE

MECHANISM created to allow different parties to contribute capital, expertise and labor for the MAX BENEFIT of EACH PARTY

CORPORATION

Cash Ratio

Cash / Current Liabilities

venture capitalists

Companies organized to place their investors' funds in lucrative business opportunities Form of private equity financing through which entrepreneurs raise money by selling shares in a new venture. Venture capital companies are organized to place the funds of private investors into lucrative business opportunities.

"Hardball" Strategies

Competition among incumbent rivals can involve "hardball" strategies: 1) Devastating rivals' profit sanctuaries 2) Plagiarizing with pride 3) Deceiving the competition 4) Unleashing massive & overwhelming force 5) Raising competitors' costs

Awareness of the threats posed by industry rivals allows a firm to understand what type of _______________response, if any, may be necessary.

Competitive

Competitive Dynamics

Competitive Dynamics concerns intense rivalry, involving actions and responses among similar competitors vying for the same customers in a marketplace. New entry into markets, whether by startups or by incumbent firms, nearly always threatens existing competitors. As a result, the competitive actions of the new entrants are very likely to provoke negative response from companies that feel threatened. COMPETITIVE DYNAMICS helps explain why competitive strategies evolve and how to respond: - Need to identify NEW COMPETITIVE ACTION. - Engage in THREAT ANALYSIS. - Have the motivation and capability to respond - Understand the types of competitive action - Evaluate the likelihood of competitive reaction

Opportunity Analysis Framework

Consists of THREE Factors: 1) Resources 2) Opportunity 3) Entrepreneur(s) For an entrepreneurial venture to create new value, THREE FACTORS must be present - an entrepreneurial opportunity, the resources to pursue the opportunity, and an entrepreneur or entrepreneurial team willing and able to undertake the opportunity. The entrepreneurial strategy that an organization uses will depend on these three factors. Thus, beyond merely identifying a venture concept, the opportunity recognition process also involves organizing the key people and resources that are needed to go forward.

Approach in which managers anticipate changes in both the internal and external environment; relationship between strategy formulation and implementation; informational control and behavioral control

Contemporary approach to strategic control

The relationship among various participants in determining the direction and performance of corporations; the primary participants are the shareholders, the management and the board of directors

Corporate governance

A mechanism created to allow different parties to contribute capital, expertise and labor for the maximum benefit of each party

Corporation

Which one of the following is one of Theodore Levitt's assumptions supporting a pure global strategy?

D) MNCs can compete with aggressive pricing on low cost products that meet the common needs of global consumers.

___________ are most appropriate where a firm already has the appropriate knowledge and capabilities that it can leverage rather easily through multiple locations in many countries.

D) Wholly owned subsidiaries

The form of entry strategy into international operations that offers the lowest level of control would be

D) exporting

Which of the following types of international firms are most likely to benefit from a global strategy as opposed to a multidomestic strategy?

D) firms in industries that have much value added in research and design or manufacturing

In Michael Porter's framework all of the following factors affect a nation's competitiveness except

D) policies that protect the nation's domestic competitors.

The downsides or limitations of mergers and acquisitions include all of the following EXCEPT: A. Premiums that are frequently paid to acquire a business are expensive. B. Difficulties exist in integrating the activities and resources of the acquired firm into on-going operations. C. There can be many cultural issues that can doom an otherwise promising acquisition. D. It is a slow means to enter new markets and acquire skills and competences.

D. It is a slow means to enter new markets and acquire skills and competences. There are several limitations of mergers and acquisitions including that takeover premiums paid for acquisitions are typically very high, competing firms often can imitate any advantages or copy synergies that result from the merger or acquisition, manager egos sometimes get in the way of sound business decisions, and cultural issues may doom the intended benefits from M and A endeavors.

In managing the corporate portfolio, the BCG matrix would suggest that __________. A. Dogs should be invested in to increase market share and become Cash Cows B. Stars are in low growth markets and can provide excess cash to fund other opportunities C. Cash Cows require substantial cash outlays to maintain market share D. Question Marks can represent future Stars if their market share is increased

D. Question Marks can represent future Stars if their market share is increased Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Question Marks are SBUs competing in high-growth industries but having relatively weak market shares. Resources should be invested in them to enhance their competitive positions, potentially making them Stars.

Which of the following is not a reason for merger and acquisition failures? A. The acquiring company pays too high a premium for the common stock of the target company. B. Top executives act in their best interests rather than those of the shareholders. C. The acquired company assets are poorly integrated into the acquiring company business lines. D. The acquisition leads to value creation.

D. The acquisition leads to value creation. Research shows that the vast majority of acquisitions result in value destruction rather than value creation. Many large multinational firms have also failed to effectively integrate their acquisitions, paid too high a premium for the common stock of the target company, or were unable to understand how the assets of the acquired firm would fit with their own lines of business. At times, top executives may not have acted in the best interests of shareholders. The motive for the acquisition may have been to enhance the power and prestige of the executive rather than to improve shareholder returns.

For a core competence to be a viable basis for the corporation strengthening a new business unit, there are three requirements. Which one of the following is not one of these requirements? A. The competence must help the business gain strength relative to its competition. B. The new business must be similar to existing businesses to benefit from a core competence. C. The collection of competencies should be unique, so that they cannot be easily imitated. D. The new business must have an established large market share.

D. The new business must have an established large market share. For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, it must meet three criteria: the core competence must enhance competitive advantage by creating superior customer value; different businesses in the corporation must be similar in at least one important way related to the core competence; and the core competencies must be difficult for competitors to imitate or find substitutes for.

According to the text, corporate restructuring includes A. capital restructuring, asset restructuring, and technology restructuring B. global diversification, capital restructuring, and asset restructuring C. management restructuring, financial restructuring, and procurement restructuring D. capital restructuring, asset restructuring, and management restructuring

D. capital restructuring, asset restructuring, and management restructuring Restructuring can involve changes in assets, capital structure, or management.

Portfolio management matrices are applied to what level of strategy? A. departmental level B. business level C. international level D. corporate level

D. corporate level Corporate-level strategy addresses two related issues: what businesses should a corporation compete in and how can these businesses be managed so they create synergy. Portfolio management matrices can be used to improve understanding of the competitive position of a portfolio (or family) of businesses, to suggest strategic alternatives, and to identify priorities for the allocation of resources.

Antitakeover tactics include all of the following EXCEPT _________. A. greenmail B. poison pills C. golden parachutes D. golden handcuffs

D. golden handcuffs Antitakeover tactics are common, including greenmail, golden parachutes, and poison pills.

Cooperative relationships such as __________ have potential advantages such as entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies. A. joint ventures B. mergers C. acquisitions D. joint ventures and strategic alliances

D. joint ventures and strategic alliances Strategic alliances and joint ventures have many potential advantages. Among these are entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies.

A Cash Cow, in the BCG framework, refers to a business that has _______________. A. high market growth and relatively high market share B. relatively low market share and low market growth C. relatively low market share and high market growth D. low market growth and relatively high market share

D. low market growth and relatively high market share Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Cash Cows are SBUs with high market shares in low-growth industries. These units have limited long-run potential but represent a source of current cash flows to fund investments in Stars and Question Marks.

Diversification initiatives include all of the following except ___________________. A. mergers and acquisitions B. strategic alliances C. joint ventures D. shareholder development

D. shareholder development Diversification initiatives, whether through mergers and acquisitions, strategic alliances and joint ventures, or internal development, must be justified by the creation of value for shareholders.

A firm should consider vertical integration when ___________. A. the competitive situation is highly volatile B. customer needs are evolving C. the suppliers of the firm willingly cooperate with the firm D. the suppliers of raw materials to the firm are often unable to maintain quality standards

D. the suppliers of raw materials to the firm are often unable to maintain quality standards A firm should consider vertical integration if the company is not satisfied with the quality of the value that its present suppliers and distributors are providing.

At Cooper Industries, there are few similarities in the products it makes or the industries in which it completes. The corporate office adds value through such activities as superb human resource practices and budgeting systems. This is an example of __________________. A. using related diversification to achieve value by leveraging core competencies to attain economies of scope B. using related diversification to achieve value by leveraging core competencies to acquire market power C. using unrelated diversification to achieve value through portfolio management in order to acquire financial synergies D. using unrelated diversification to achieve value through restructuring and parenting

D. using unrelated diversification to achieve value through restructuring and parenting In this case, the corporate office of Cooper Industries adds value to its acquired, unrelated businesses by performing such activities as auditing their manufacturing operations, improving their accounting activities, and centralizing union negotiations. The primary potential benefits of this unrelated diversification strategy are derived largely from hierarchical relationships; that is, value creation derived from the corporate office.

Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input into its manufacturing process. This is an example of ______________. A. leveraging core competencies B. sharing activities C. pooled negotiating power D. vertical integration

D. vertical integration Shaw Industries, a carpet manufacturer, has attained a dominant position in the industry via a strategy of vertical integration. Shaw has successfully implemented strategies of both forward and backward integration.

Unbalanced capacities that limit cost savings, difficulties in combining specializations, and reduced flexibility are disadvantages associated with ___________. A. strategic alliances B. divestment C. horizontal integration D. vertical integration

D. vertical integration The risks of vertical integration include costs and expenses associated with increased overhead and capital expenditures, loss of flexibility resulting from large investments, problems associated with unbalanced capacities along the value chain, and additional administrative costs associated with managing a more complex set of activities.

A firms generic strategy based on creating differences in the firms products or service offering by creating something that is perceived INDUSTRY WIDE as UNQIE AND VALUED BY CUSTOMERS

DIFFERENTIATION

DUAL LEADERSHIP structure where the CEO acts SIMULTANEOUSLY as BOARD OF DIRECTORS

DUALITY

Political risk due to social unrest, military turmoil, demonstrations, terrorism, absence of the rule of law can lead to

Destruction of property Disruption of operations Non-payment for goods and services Arbitrary government decisions

Both pioneering and adaptive entry strategies involve some degree of ______________________ .

Differentiation

Drive & Dedication

Drive and dedication are reflected in hard work. DRIVE involves internal motivation; DEDICATION calls for intellectual commitment that keeps an entrepreneur going even in the face of bad news or poor luck. They BOTH require patience, stamina, and a willingness to work long hours. **The dedicated entrepreneur's enthusiasm is also important - it attracts others to the business to help with the work.

Dual leadership structure where the CEO acts simultaneously as the chair of the board of directors

Duality

Interest Coverage Ratio

EBIT/interest expense Financial ratio showing a company's ability to pay interest on its debts from its operating income. EBIT=earnings before interest and taxes How good the company is at paying their interest obligations Do not want this to be lower than one because that means earnings is less than the interest expenses Haven't earned enough money this year so we have to go back and pay from some of the company's reserves Optimal number between 3 and 5, ideally as high as possible

Activities that ENRICH the CONTROLLING shareholders at the EXPENSE of the MINORITY shareholders

EXPROPRIATION OF MINORITY SHAREHOLDERS

ensure that MANAGERIAL ACTIONS LEAD TO SHAREHOLDER MAXIMIZATION

EXTERNAL GOVERNANCE CONTROL MECHANISMS

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End Chap 13

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End Chap 5

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End Chap 6

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End Chap 8

Vision

Entrepreneur's most important asset -Ability to envision realities that do not yet exist -Exercise a kind of transformational leadership -Able to share with others

------------------- influences a firm's strategic priorities and intensifies the rivalry among an industry's close competitors.

Entrepreneurial activity

Entrepreneurial Opportunities

Entrepreneurial opportunities require OPPORTUNITY RECOGNITION. TWO PHASES of activity: 1) DISCOVERY: Becoming aware of a new business concept. 2) EVALUATION: Analyzing the opportunity to determine whether it is viable or feasible to develop further.

____________ the creation of new value by an existing organization or new venture that involves the assumption of risk.

Entrepreneurship

differentiate

Evaluate many different elements of the situation Differentiate between the factors that are influencing the situation - isolate critical factors Distinguish between good and bad information Problems are often complex & multilayered

Commitment to Excellence

Excellence requires entrepreneurs to commit to knowing the customer, providing quality goods and services, paying attention to details, and continuously learning. Entrepreneurs who achieve excellence are sensitive to how these factors work together. The most successful entrepreneurs often report that they owed their success to hiring people smarter than themselves.

Activities that enrich the controlling shareholders at the expense of the minority shareholders

Expropriation of minority shareholders

New ventures founded by entrepreneurs who have __________________social contacts are also more likely to succeed.

Extensive

Methods that ensure that managerial actions lead to shareholder slue maximization and do not harm other stakeholder groups that are outside the control of the corporate governance system; things such as the market for cop rate control, auditors, banks and analysts, regulatory bodies (SEC), and media and public activists

External governance control mechanisms

A firms generic strategy based on appeal to a NARROW MARKET within an industry, advantages achieved either through DIFFERENTIATION OR COST LEADERSHIP

FOCUS

Raise competitors' costs

If a company has superior insight into the complex cost and profit structure of the industry, it can compete in a way that steers its rivals into relatively higher costs/lower profit arenas.

Financial Resources

Financial resources depend on stage of venture development & venture scale: Initial, start up financing can take the form of: - Personal savings, family, and friends - CROWDFUNDING Early stage financing can take the form of: - Bank financing, ANGEL INVESTORS. Later stage financing Commercial banks, VENTURE CAPITALISTS equity financing. Cash finances are, of course, highly important, but access to capital, such as a line of credit or favorable payment terms with the supplier, can also help a new venture succeed. The types of financial resources that may be needed depend on TWO factors: the stage of venture development and the scale of the venture.

Cash Flow Statement

Financial statement that shows the firm's cash receipts (inflows) and cash payments (outflows) over a period of time

Income Statement

Financial statement that shows the revenues, expenses, and net income of a firm over a period of time.

In the United States, the federal, state, and local government provides support for entrepreneurial firms in two key areas - ________________ and government contracting.

Financing

The level of available _______________ is often a strong determinant of how the business is launched and its eventual success.

Financing

Combination Strategies

Firms integrations of various strategies to provide multiple types of value to customers

Common theme of national competition

Firms that succeeded in global markets had first succeeded in intensely competitive home markets

Crowdfunding

Funding a venture by pooling small investments from a large number of investors, often raised on the internet.

Basic type of business level strategies based on breadth of target market (industry wide versus narrow market segment) and type of competitive advantage (low cost versus uniqueness); three were presented by Michael Porter to overcome the five forces and achieve competitive advantage

GENERIC STRATEGIES

When any two firms have both a ____________ degree of market commonality and highly similar resource bases, a stronger competitive threat is present.

High

Human Capital

Human capital includes strong, skilled management.

The stages of introduction, growth, maturity and decline that typically occur over the life of an industry

INDUSTRY LIFE CYCLE (4 stages)

EXAMPLE: Top managers at ABC Company meet every Friday to review daily operational reports and year-to-date data (GATHER EXTERNAL ENVIRONMENT DATA)

INFORMATIONAL CONTROL

firm gathers and analyzes information from the INTERNET + EXTERNAL ENVIRONMENT in order to obtain the best fit between organizations goals/strategies & the strategic environment

INFORMATIONAL CONTROL

If an idea does NOT have the opportunity to become commercialized, it is just an __________.

Idea **The idea must be viable, as well as, able to be commercialized in order to be an opportunity to pursue.

speculate

Imagine different scenarios (data may be missing) Contemplate the outcome of the decision Deal with uncertainty & incomplete knowledge

Regionalization

Increasing international exchange of goods, services, money, people, ideas, and information; and the increasing similarity of culture, laws, rules, and norms within a region such as Europe, North America, or Asia. *Most companies are regional, not global

A method of organizational control in which a firm gathers and analyzes information from the internet and external environment in order to obtain the best fit between the organizations goals and strategies and the strategic environment

Informational control

Top managers at ABC Company meet every Friday to review daily operational reports and year-to-date data. This is an example of?

Informational control

Competitive Dynamics

Intense rivalry, involving actions and response, among similar competitors vying for the same customers in a marketplace. -->New Competitive Action-->Threat Analysis--> Motivation and Capability to Respond--> Types of Competitive Action --> Likelihood of Competitive Reaction------------------------------->

Manufacturing alliances

Internet enabled capabilities such as collaborating online about delivery and design specifications have greatly simplified doing business, even with foregin manufacturers.

Opportunity Evaluation Phase

Involves analyzing an opportunity to determine whether it is viable and strong enough to be developed into a full-fledged new venture. -Talk to potential target customers -Discuss it with production or logistics managers -Conduct feasibility analysis

Entrepreneurial Leadership

Is leadership appropriate for new ventures that requires courage, belief in one's convictions, and the energy to work hard even in difficult circumstances, and that embodies vision, dedication and drive, and commitment to excellence. However, ventures built on the charisma of a single person may have trouble growing "from good to great" once that person leaves. Thus, the leadership that is needed to build a great organization is usually exercised by a team of dedicated people rather than a single leader. The leadership team must attract members who fit with the company's culture, goals, and work ethic. For a venture's leadership to be a valuable resource and not a liability it must be cohesive in its vision, drive and dedication, and commitment to excellence.

Entrepreneurship

Is the creation of new value by an existing organization or new venture that involves the assumption of risk. Even though entrepreneurial activity is usually associated with startup companies, new value can be created in many different contexts. New value can be created in many contexts: - Startup ventures - Major corporations - Family owned businesses - Nonprofit organizations - Established institutions

Alliance Pitfalls

Lack of oversight and control is one danger of parterning with foreign firms. Problems with product quality, timely delivery, and receiving payments can also sour an alliance. Technology riks, there is a risk that big firms may take advantage of technological know-how of their partners.

Retail Alliance

Licensing agreements allow one company to sell the products and services of another in different markets, including overseas.

Common savings from offshoring include:

Lower wages, benefits, energy costs, regulatory costs, taxes

EXAMPLE: RULES + REGULATIONS, rather than culture or rewards, would probably be used for strategic control at what type of company?

MANUFACTURER OF MASS-PRODUCED PRODUCTS

EXTERNAL CONTROL MECHANISM in which SHAREHOLDERS = DISSATISFIED with a firms management sell their shares

MARKET FOR CORPORATE CONTROL

Strategic Actions

Major commitments of distinctive and specific resources to strategic initiatives.

Bankers, venture capitalists, and angel investors agree that the most important asset an entrepreneurial firm can have is strong and skilled _____________________.

Management

Rules and regulations, rather than culture or rewards, would probably be used for strategic control at what type of company?

Manufacturer of mass-produced products

Managing political risk through:

Market diversification Developing stakeholder coalitions Wooing key influencers Putting key stakeholders on their boards

An external control mechanism in which shareholders dissatisfied with a firms management sell their shares

Market for corporate control

Imitators usually have a strong __________________ orientation. They look for opportunities to capitalize on proven market successes.

Marketing

Common Size Income Statement

an income statement in which each item is expressed as a percentage of sales

profit margin

Net Income/Sales It represents what percentage of sales has turned into profits. Simply put, the percentage figure indicates how many cents of profit the business has generated for each dollar of sale.

Return on Equity

Net Income/Total Equity The driver of the company's value Most important one used in business finance Net income/book value of equity Equity CAN be negative if there is more debt than assets→ means close to bankruptcy

Entry Strategies

New venture entry strategies need to: - Quickly generate cash flow - Build credibility - Attract good employees - Overcome the liability of newness. New entry strategies typically fall into one of THREE categories - pioneering new entry, imitative new entry, or adaptive new entry.

SYSTEM of SHARED VALUES + BELIEFS that SHAPE a companies people, structure and control systems (produce behavioral norms)

ORGANIZATIONAL CULTURE

A firms generic strategy based on appeal to the INDUSTRYWIDE MARKET using a competitive advantage based on LOW COST

OVERALL COST LEADERSHIP

Pursuing Combination Strategies

One of the best ways for young and small businesses to achieve success is by pursuing combination strategies. By combining the best features of low-cost, differentiation, and focus strategies, new ventures can often achieve something truly distinctive. Entrepreneurial firms are often in a strong position to offer a combination strategy because they have the flexibility to approach situations uniquely. They can often enact combination strategies in ways that the large firms cannot copy. For example, holding down expenses can be difficult for big firms because each layer of bureaucracy adds to the cost of doing business across the boundaries of a large organization. Also, large firms often find it difficult to offer highly specialized products or superior customer services, while entrepreneurial firms can create high-value products and services through their unique differentiating efforts. However, one of the major dangers is that either a large firm with more resources or a close competitor will copy what the new entry is doing. A carefully crafted and executed combination strategy may be the best answer. Nevertheless, competition among rivals is a key determinant of new venture success.

The starting point for any new venture is the presence of an entrepreneurial __________________ .

Opportunity **Opportunities can come from many sources, however all entrepreneurial firms must make the most of changes brought about by new technology, socio-cultural trends, and shifts in consumer demand.

A system of shared values and beliefs that shape a companies people, organizational structures and control systems to produce behavioral norms

Organizational culture

Conflicts between 2 CLASSES OF PRINCIPALS (controlling shareholders + minority shareholders)

PRINCIPAL-PRINCIPAL CONFLICTS

By _________________ with other companies, through technology, manufacturing, or retail licensing agreements, young or small firms can expand or give the appearance of entering numerous markets or handling a range of operations.

Partnering

Startups with multiple ________________ are more likely to succeed.

Partners

Most new entrants use a strategy somewhere between pure imitation and pure _________________ .

Pioneering **That is, they offer a product or service that is somewhat new and sufficiently different to create new value for customers and capture market share.

New entry strategies typically fall into one of three categories -

Pioneering new entry, Imitative new entry, or Adaptive new entry.

Among the most important factors to evaluate is the market _____________ for the product or service.

Potential

Porter's Five Forces Model of Industry Competition

The "five forces" model developed by Michael E. Porter has been the most commonly used analytical tool for examining the competitive environment. It describes the competitive environment in terms of five basic competitive forces: 1. The threat of new entrants. 2. The bargaining power of buyers. 3. The bargaining power of suppliers. 4. The threat of substitute products and services. 5. The intensity of rivalry among competitors in an industry.

Growth Stage

The 2nd stage in the product life cycle 1) strong increases in sales 2) growing competition 3) developing brand recognition 4) A need for financing complementary value chain activities such as marketing, sales , customer service,

Firm strategy, structure, and rivalry

The conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry.

Experience Curve

The decline in unit costs of production as cumulative output increases

PHASE 1: Discovery Phase

The discovery phase is about becoming aware of the new business concept: - Can be spontaneous and unexpected. - Can also result from a deliberate search. Businesses should ask themselves: Where are the new venture opportunities? What might be a creative solution to a business problem? Many entrepreneurs report that their idea for a new venture came through some unexpected insight, often based on their prior knowledge, that gave them an idea for a new business. Viable opportunities often emerge only after a concerted effort. To stimulate the discovery of new opportunities, companies often encourage creativity, out-of-the-box thinking, and brainstorming.

PHASE 2: Evaluation Phase

The evaluation phase occurs AFTER an opportunity has been identified, and involves analyzing this opportunity to determine whether it is viable and strong enough to be developed into a full-fledged new venture. Ideas developed by new product groups or in brainstorming sessions are TESTED by various methods, including talking to potential target customers and discussing operational requirements with production or logistics managers. FEASIBILITY ANALYSIS is used to evaluate these and other critical success factors. This type of analysis often leads to the decision that a new venture project should be discontinued. Only if the venture concept continues to seem viable would a more formal business plan be developed.

Market Commonality

The extent to which competitors are vying for the same customers in the same markets

Resource Similarity

The extent to which rivals draw from the same types of strategic resources.

Introduction Stage

The first stage of the industry life cycle characterized by 1) new products that are not known to customers 2) poorly defined market segments 3)unspecified product features 4) low sales growth 5) rapid technological change 6)operating losses 7) need for financial support

How a competitor is likely to respond will depend on THREE factors:

The likelihood of competitive reaction depends on: - MARKET DEPENDENCE - Competitor's resources - The reputation of the firm that initiates the action - the actor's reputation. Choosing not to respond is a choice & includes: FORBEARANCE: holding back on an attack CO-OPETITION: both cooperating & competing. Working together behind the scenes to achieve industrywide efficiencies.

Factor Endowments

The nation's position in factors of productions, such as skilled labor or infrastructure, necessary to compete in a given industry.

Demand Conditions

The nature of home-market demand for the industry's product or service

Opportunity Recognition

The process of discovering and evaluating changes in the business environment, such as a new technology, socio-cultural trends, or shifts in consumer demand, that can be exploited. Changes in the external environment can lead to new business creation, but the discovery of these new ideas is NOT enough. They then need to be evaluated to find out if they're strong enough to become new ventures. Entrepreneurs must go through a process of identifying, selecting, and developing potential opportunities.

arbitrage opportunites

an opportunity to profit by buying and selling the same good in different markets.

new competitive action

acts that might provoke competitors to react, such as new market entry, price cutting, imitating successful products, and expanding production capacity Reasons for competitive actions: 1) improve market position 2) capitalize on growing demand 3) expand production capacity 4) provide an innovative new solution 5) obtain first mover advantages

New competitive action is when

acts that might provoke competitors to react, such as new market entry, price-cutting, imitating successful products, and expanding production capacity.

For a new entrant to sustain its pioneering advantage, it may be necessary to protect its intellectual property by

advertising heavily to build brand recognition, form alliances with businesses that will adopt its products or services, and offer exceptional customer service.

price-cutting, imitating successful products, or expanding production capacity are

all examples of competitive acts that might provoke a reaction.

The starting point for any new venture is the presence of

an entrepreneurial opportunity.

If a start-up wants to succeed, it has to take business away from

an existing competitor

vertical integration

an expansion or extension of the firm by integrating preceding or successive production processes.

Liquidity

assets are ordered by ________________ the ease with which an asset can be converted into cash

Imitative new entry is when a firm's entry into an industry with products/services that

capitalize on proven market successes and that usually has a strong marketing orientation .

Rule of law

characteristic of legal systems where by behavior is governed by rules that are uniformly enforced

One of the best ways for young and small businesses to achieve success is by pursuing

combination strategies

A domestic corporation considering expanding into international markets for the first time will typically

consider implementing a low risk/low control strategy such as exporting.

Inventory Turnover

cost of goods sold/average inventory How much we have sold over how much we still have in our warehouse Tells us how often we change this inventory into sales We want this to be higher than one and high as possible Ex: if this ratio is 5, that means the company is replacing its inventory 5 times because it is sold out

economies of scope

cost savings from leveraging core competencies or sharing related activities among businesses in a corporation.

Initial stage - early stage- later stage

crowdfunding , angel investors, venture capitalist

Net Working Capital

current assets - current liabilities Can the company cover its short term debt obligations? Want more current assets than current liabilities Amount of current assets that is financed by long term liabilities

multidomestic strategy

differentiating their products and services to adapt to local markets, used in industries where the pressure for local adaptation is high and the pressure for lowering costs is low. -consider language, culture, income levels, customer preferences, distribution systems.

Entrepreneurial opportunities - two phases

discovery & evaluation

Entrepreneurs envision realities that

do not yet exist

Management risk due to culture, customs, language, income level, customer preferences, distribution systems Could lead to the need for local adaptation of apparently standard products

due to culture, customs, language, income level, customer preferences, distribution systems -Could lead to the need for local adaptation of apparently standard products

Currency risk

due to fluctuations in the local currency's exchange rate -Affects cost of production or net profit

Related and supporting industries

enable firms to manage inputs more effectively -a competitive supplier base -close working relationships with suppliers -development of related industries

Entrepreneurial strategy is when the strategy

enables the skilled and dedicated entrepreneur, with a viable opportunity and access to sufficient resources, to successfully launch a new venture.

internal development

entering a new business through investment in new facilities, often called corporate entrepreneurship and new venture development.

The ___________ phase occurs after an opportunity has been identified, and involves analyzing this opportunity to determine whether it is viable and strong enough to be developed into a full-fledged new venture.

evaluation

Multinational firms

firms that manage operations in more than one country

Multinational firms

firms that manage operations in more than one country.

market power

firms' abilities to profit through restricting or controlling supply to a market or coordinating with other firms to reduce investment.

When an industry is mature, a _________ strategy may be considered to be an effective approach for a new entrant.

focus

crowdfunding

funding a venture by pooling small investments from a large number of investors; often raised on the internet

Rivalry is a strong indicator of

global competitive success

Managing economic risk through global dispersion of value chains Outsourcing Offshoring

global dispersion of value chains -Outsourcing -Offshoring

Trading blocs

groups of countries agreeing to increase trade between them by lowering trade barriers

could be lacking in another area because they could be spending or investing the cash might signal company has no investment opportunities Might be good because something big is coming → innovation, takeover of another company

if a company has a lot of cash, what could this mean?

Competitive dynamics are

intense rivalry, involving actions and responses among similar competitors vying for the same customers in a marketplace.

Factor endowments (national advantage)

involve factors of production: Land Capital Labor

total assets

is equal to total liabilities and shareholders equity

entrepreneurial leadership

leadership appropriate for new ventures that requires courage, belief in one's convictions, and the energy to work hard even in difficult circumstances and that embodies vision, dedication and drive, and commitment to excellence. Personality traits include: Vision, dedication and drive, and committment to excellence Leadership that encompasses: -Courage -Belief in one's convictions -Energy to work hard

Current Liabilities

liabilities due within a short time, usually within a year

long-term liabilities

liabilities owed for more than a year

International strategy limitations

limited ability to adapt to local markets -inability to take advantage of new ideas and innovations occurring in local markets.

Strategic actions =

major commitments of distinctive and specific resources to strategic initiatives.

managerial motives

managers acting in their own self-interest rather than to maximize long- term shareholder value.

antitakeover tactics

managers' actions to avoid losing wealth or power as a result of a hostile takeover.

growth for growth's sake

managers' actions to grow the size of their firms not to increase long-term profitability but to serve managerial self-interest.

egotism

managers' actions to shape their firms' strategies to serve their selfish interests rather than to maximize long- term shareholder value.

Among the most important factors to evaluate is the

market potential for the product or service

Price Earnings Ratio

market price per share/earnings per share How much investors are willing to pay per $ of earnings

Market to Book Ratio

market value of equity / book value of equity does the market value of the firm exceed their historical cost? if market reacts favorably to company's decisions, then this ratio is bigger than one

counterfeiting

selling of trademarked goods without the consent of the trademark holder

In order to develop support, get financial backing, and attract employees, entrepreneurial leaders must

share their vision with others.

offshoring

shifting a value-creating activity form a domestic location to a foreign location. -may be costly

Offshoring

shifting a value-creating activity from a domestic location to a foreign location

Firms following a GLOBAL STRATEGY strive to offer ______________ products and services as well as locate manufacturing, R&D, and marketing activities in _____________ locations.

standardized ; few

opportunity recognition

the process of discovering and evaluating changes in the business environment, such as new technology, socio-cultural trends, or shifts in consumer demand, that can be exploited *Entrepreneur must go through a process of identifying selecting,and* developing potential opportunities. Involves 2 phases of activity: 1) Discovery 2) Evaluation

diversification

the process of firms expanding their operations by entering new businesses

The types of financial resources that may be needed depend on two factors:

the stage of venture development & the scale of the venture.

balance sheet, income statement, statement of cash flows

the three financial statements are

capital intensity

total assets/sales High values in capital-intensive industries

false

true or false? cash equals profit

true

true or false? liquidity does not equal profitability

traditional strategy limitations

unique challenges in determining optimal locations of activities to ensure cost and quality. -unique managerial challenges in fostering knowledge transfer

poison pill

used by a company to give shareholders certain rights in the event of takeover by another firm.

Outsourcing

using other firms to perform value-creating activities that were previously performed in house

outsourcing

using other firms to perform value-creating activities that were previously performed in-house