Strategy Final

Describe 2 major risks of international diversification

political risks: related to instability in national governments and to war, both civil and international; created numerous problems: -economic risks -uncertain government regulation -potential nationalization of private assets economic risks: interdependent with political risks -intellectual property rights -terrorism -fluctuations in different currencies

Explain the short and long term outcomes of the different types of restructuring strategies

**Compared to downsizing & LBO, downscoping generally leads to more positive outcome both ST/LT - LT outcome of high performance a product of reduced debt costs & emphasis on strategic controls - Whole firm LBOs have been hailed as significant innovation in financial restructuring of firms; however, can be complicated especially when cross-border transactions involved & negative financial trade offs

3. Combination Structure and Transnational Strategy

- Combination structure: a structure drawing characteristics and mechanisms from both the worldwide geographic area structure and the worldwide product divisional structure - Transnational strategy: combines multi-domestic strategy's local responsiveness with global strategy's efficiency; often implemented through two possible combination structures - a global matrix structure and a hybrid global design - Global matrix design: brings together both local market and product expertise into teams that develop and respond to the global marketplace promotes flexibility in designing products; limited in that it places employees in position of being accountable to more than one manager - Hybrid structure: depicted above; some divisions oriented towards products while others oriented toward market areas depending on which is most important

equity (strategic alliance)

- Equity Strategic Alliance: two or more firms own different percentages of a company that they have formed by combining some of their resources to create a competitive advantage - Ex. Many Chinese firms, particularly those state-owned, use equity alliances to engage in outward FDI - Firms use equity alliances to refocus strategy as means of creating competitive advantage

joint venture (strategic alliance)

- Joint Venture: where two or more firms create a legally independent company to share some of their resources to create a competitive advantage; typically partners own equal percentages and contribute equally to venture's operations - JVs effective in establishing long-term partnerships and transferring knowledge between partners - Ex. GM & China-based SAIC Motor Corp. JV to develop cars catered to Chinese market

Discuss the environmental trends affecting international strategy

-liability of foreignness -regionalization

Describe the 5 alternative modes for entering international markets

1. EXPORTING: high cost, low control 2. LICENSING: low cost, low risk, little control, low returns 3. STRATEGIC ALLIANCES: shared costs, shared resources, shared risks, problems of integration 4. ACQUISITION: quick access to new market, high cost, complex negotiations, problems of merging with domestic operations 5. NEW WHOLLY OWNED SUBSIDIARY: complex, often costly, time consuming, high risk, maximum control, potential above-average returns

Describe the 4 basic benefits of international strategies

1. increased market size 2. greater returns on major capital investments 3. greater economies of scale, scope, or learning 4. a competitive advantage through location

explain the effects of international diversification on firm returns and innovation

INTERNATIONAL DIVERSIFICATION: strategy through which a firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets -provides incentives for firms to innovate -provides potential for firms to achieve greater returns on their innovations through larger or more numerous markets -lowers the risks of R&D investments -may be necessary to generate required resources complex relationship between diversification, innovation, and returns -some level of performance is necessary to provide the resources to generate diversifications, which in turn provides incentives and resources to invest in R&D; which should enhance the returns of the firm, which then provides for resources for continued diversification and R&D investment

explain why the positive outcomes from international expansion are limited

firms tend to earn positive returns on early international diversification, but returns can level off and become negative after some point 1. greater geographic dispersion across country borders increases costs of coordination between units and distribution of products 2. trade barriers, logistical costs, cultural diversity, and other differences by country can complication implementation institution and cultural factors can present strong barriers to transfer of a firms' competitive advantage -marketing redesigned -establish new distribution networks -different labor costs and capital charges difficult to effectively implement, manage, and control a firm's international operations

define transnational international corporate-level strategy

international strategy through which the firm seeks to achieve both global efficiency and local responsiveness -high need for local responsiveness, high need for global integration

Competitive Risks with Cooperative Strategies:

many cooperative strat fail. (70%)

Summary of Structural Characteristics for Diversification Strategies:

- Most centralized and most costly structural form is cooperative structure - Least centralized with lowest bureaucratic costs is competitive structure - SBU structure requires partial centralization/some mechanisms

non-equity (strategic alliance)

- Non-equity Strategic Alliance: two or more firms develop a contractual relationship to share some resources to create a competitive advantage; firms do not establish independent company and therefore have no equity positions - Less formal, demand fewer partner commitments and generally do not foster intimate relationships - unsuitable for complex projects - Ex. Licensing agreements, distribution agreements, supply contracts, outsourcing arrangements

describe moderate/high-levels of diversification with different corporate-level strategies

- Related constrained - Campbell Soup, Procter & Gamble, and Merck & Co. - each firm shares resources/activities across its businesses (ex. Publicis Groupe derives value from synergies across groups - mobile, interactive online communication, television, cinema and radio - especially the digital capabilities in its advertising business) less than 70% of revenue comes from the dominant business and all businesses share product, technological, and distribution linkages - Related linked - GE because they share fewer resources & assets between their businesses, concentrating instead of transferring knowledge and core competencies btwn. Businesses less than 70% of revenue comes from the dominant business and there are only limited linkages between businesses

attributes of successful acquisitions

- Research shows friendly acquisitions facilitate integration of the acquiring/acquired firms - greater incentive for firms to collaborate to create synergy while integrating operations

Discuss Functional Structure & Integrated Cost Leadership/Differentiation (3)

- Selling products that create customer value due to: relatively low product cost through emphasis on production/process engineering, with infrequent product changes o Reasonable sources of differentiation based on new-product R&D emphasized while production/process engineering are not o Frequently used in global economy - Structural characteristics: o Decision-making patterns that are partially centralized/decentralized o Jobs semi-specialized o Rules/procedures are semi-formal/informal

describe low-levels of diversification with different corporate-level strategies

- Single business - McIlhenny Company (producer of Tabasco) - primarily creates hot sauces 95%+ of revenue comes from a single business - Dominant-business - UPS (61% revenue from U.S. package delivery; 22% from INTL package) between 70-95% of revenue comes from single business - Benefits of low-levels: 1. Can develop capabilities useful for markets & provide superior services to customers 2. Fewer challenges associated with managing a small set of businesses, allowing them to gain economies of scale. 3. Build reputation in small segment

describe very high-levels of diversification with different corporate-level strategies

- Unrelated - United Technologies Corporation, Textron, Samsung, Hutchison Whampoa Limited (HWL) all examples - firms using this strategy are typically conglomerates - HWL a leading international corporation with 5 core businesses: ports and related services, property and hotels, retail, energy, infrastructure, investments and others, and telecom less than 70% of revenue comes from the dominant business and there are no common links between businesses

Parent Viewpoint strategy

-levels of strategy: corporate, divisional, business, and functional -characteristics of the parent: mental maps, functions, central services, and resources, people and skills, parenting structures, systems, and processes -parenting advantage: based on value creation insights -4 types of parental value creation: 1. stand-alone influence 2. linkage influence 3. central functions and services 4. corporate development

Discuss how strategic centre firms implement strategic networks at the business level

. Business Level Cooperative Strategies and Strategic Networks: - Vertical complementary alliances: firms have complementary competencies in different value chain stages that let them cooperatively integrate their different skills; has a number of implementation issues: 1. Strategic center firm encourages subcontractors to modernize their facilities and provide them with technical and financial assistance to do so 2. Strategic center firm reduces transaction costs by promoting longer-term contracts with subcontractors, so supplier-partners increase long-term productivity 3. Strategic center firm enables engineers in upstream companies (suppliers) to have better communications with those companies with whom it has contracts for services ***Therefore, suppliers and strategic center firm become more interdependent and less independent - Horizontal complementary alliances: firms that agree to combine competencies to create value in the same stage of the value chain; more difficult to sustain than vertical: 1. Strategic center firm not always obvious in horizontal alliance (ex. since airlines operate in multiple horizontal alliances, difficult to tell who the center firm is) 2. Network members question loyalty if a firm is involved in too many alliances 3. If too many rivals band together, government may suspect collusion

Explain the use of Competitive Form to implement different diversification strategies (Multidivisional structure)

. Multidivisional Structure: Competitive Form Unrelated Diversification Strategy Notes: 1. HQ has small staff 2. Finance/audit most prominent functions in HQ to manage CFs and assure accuracy of performance data coming from divisions 3. Legal affairs function becomes important when firm acquires/divests assets 4. Divisions independent & separate for financial eval. purposes 5. Divisions retain strategic control, but cash managed by HQ 6. Divisions compete for corporate resources - Competitive form: an m-form structure characterized by complete independence among firm's divisions that compete for corporate resources; unlike cooperative, divisions that are part of the competitive structure do not share common corporate strengths; integrating mechanisms are not part of competitive form o Efficient internal capital market is the foundation for using this strategy o Creates profit performance expectations for each division to promote internal comp. for resources o To emphasize competitiveness among divisions, HQ maintains arms-length relationship with them, intervening in divisional affairs only to audit operations and discipline managers - Three benefits arising from competition over cooperation: 1. Internal competition creates flexibility (eg. Corporate headquarters can have divisions working on different technologies and projects to identify those with the greatest potential) - resources then allocated to division with highest potential 2. Internal competition challenges status quo and inertia - resource allocation is reward-based 3. Internal competition motivates effort in that the challenge of competing against internal peers can be as great as challenge of competing against external rivals

Time of adoption innovations - Crossing the Chasm

.5% Visionaries -intuitive, support revolution -break away from the pack, take risks -motivated by future opportunities -seek what is possible 13.5% Pragmatists -analytic, support evolution -stat with the herd, manage risk -motivated by present problems -pursue what is possible

Describe 2 approaches used to manage cooperative strategies

1) Cost-minimization management approach - Have formal contracts with partner - Specify how strategy is to be monitored - Specify how partner behaviour to be controlled - Set goals that minimize costs and to prevent opportunities behaviour by partners 2) Opportunity maximization approach - Maximize partnership's value-creation opportunities by learning from each other - Explore additional marketplace possibilities - Maintain less formal contracts, reduce innovation/communication constraints

Discuss reasons why firms use n acquisition strategy to achieve strategic competitiveness

1) Increased market power: market power exists when a firm is able to sell its G&S above competitive levels or when the costs of its primary/support activities are lower than those of its competitors; market power usually derived from size of the firm, quality of resources it uses to compete, share of the market(s) it competes in - therefore, most acquisitions designed to increase market power entail buying competitor, supplier, distributor, or business in highly related industry a. Horizontal acquisitions - acquisition of a company competing in the same industry; increase market power by exploiting cost-based and revenue-based synergies; research suggests horizontal acquisitions result in higher performance when firms have similar characteristics (managerial styles, resource allocation patterns, strategy) - pharmaceutical industry b. Vertical acquisitions - acquiring a supplier or distributor of 1+ of its products; increased market power by controlling more of value chain - Delta Airlines 2012 purchase of refinery (jet fuel) c. Related acquisitions - acquiring a firm in a highly related industry; capture value through synergy that can be generated by integrating some of their resources/capabilities - Cisco purchasing companies in SDN space (software-defined networking) 2) Overcoming entry barriers: barriers to entry are factors associated with a market that increase the expense and difficulty new firms encounter when trying to enter that particular market; new entrant may find that acquiring an established company is more effective than entering the market as a competitor offering a product that is unfamiliar to current buyers; key advantage in gaining immediate access to market a. Cross-border acquisitions - acquisitions made between companies with headquarters in different countries (a product of global economy/globalization); risk is correlated with the country - ex. China's political/legal obstacles increase acquisition risk & ability to perform due dil. 3) Cost of new product development and increased speed to market: 88% of innovations fail to achieve adequate returns; acquisition strategy a way for firms to gain access & increase speed instead of internal innovation/development; returns more predictable since performance of acquired firm can be assessed prior 4) Lower risk compared to developing new products: act as a substitute for internal innovation; however, being dependent on others for innovation leaves a firm vulnerable & less capable of mastering innovation as a driver for wealth creation - need to be wary of integration of new innovation practices 5) Increased diversification: difficult for companies to develop products that differ from their current lines for markets in which they lack experience; acquisition strategies can be used to support related & unrelated diversification strategies - Ex. Campbell Soup uses unrelated diversification strategy - firms brands include Pepperidge Farm cookies, Royal Dansk biscuits, Pace Mexican Sauce; recently restructured around product categories rather than geographies/brand groups to position itself to acquire brands that are more popular/present greater growth opportunities - However, typically the more related the acquired firm is to the acquiring firm, the greater is the probability that the acquisition will be successful 6) Reshaping firm's competitive scope: to reduce the negative effect of an intense rivalry on financial performance, firms may use acquisitions to lessen their product/market dependencies 7) Learning and developing new capabilities: research shows firms can broaden their knowledge base/reduce inertia through acquisitions & they increase the potential of their capabilities when they acquire diverse talent through cross-border acquisitions

Strategic Alliances in different market types (3)

1) Slow-Cycle Markets: use strategic alliances to enter restricted markets or establish a franchise in a new market (important to note slow-cycle markets becoming increasingly rare in 21st century competitive landscape due to privatization of industries/economies, rapid expansion of Internet's capabilities, speed of technological advancement); helps firms transition from relatively sheltered markets to more competitive ones 2) Fast-Cycle Markets: Hypercompetitive nature of market precludes establishing sustainable competitive advantages firms constantly seek sources of new comp. adv. while creating value by using existing ones; alliances join resouces to help companies compete in fast-cycle markets and gain rapid entry into new ones 3) Standard-Cycle Markets: Alliances more likely to be made by partners that have complementary resources (ex. alliances formed by airline companies - formed so companies can gain marketing clout, have opportunities to reduce costs, have access to additional international routes, gain economies of scale)

The Accord Model - Diffusion - Innovation Characteristics

1. Advantage 2. Compatibility 3. Complexity 4. Observability 5. Riskiness 6. Divisibility

Model of competitive rivalry

1. Competitive Analysis 2. Drivers of Competitive Behavior 3. Interfirm Rivalry -attack vs response 4. Outcomes followed by feedback for next cycle Companies use this model to understand how to predict a competitor's behaviour and reduce uncertainty associated with it - Competitive rivalry evolves from the pattern of actions/responses as one firm's competitive actions have noticeable effects on competitors, eliciting competitive responses from them - Suggests firms are interdependent - marketplace success a function of both individual strategies & consequences of their use - Competitive rivalry has major effect on firm's financial performance/market position

Discuss factors affecting the likelihood a competitor will take competitive actions

1. First-mover benefits: general evidence that first movers have greater survivor rates than later market entrants; first mover refers to a firm that takes an initial competitive action in order to build/defend its competitive advantages or to improve its market position. - Benefits of first-mover: 1) above-average returns until competitors respond, 2) customer loyalty, 3) defensible market share - First movers allocate funds for: product innovation/development, aggressive advertising, advanced R&D - Second mover: a firm that responds to the first mover's competitive action, typically through imitation - benefit of fixing any mistakes made by first mover & develop processes that are more efficient/value-adding - Late mover: a firm that responds to a competitive action a significant amount of time after the first mover's action & second mover's response - success achieved considerably less than those achieved by first/second 2. Organizational size: affects the likelihood it will take competitive actions as well as the types/timing of those actions. Small firms more likely than large companies to launch competitive actions & tend to do so more quickly. - Large firms, however, likely to initiate more competitive actions along with more strategic actions during a given period - Good metrics to determine size: total sales revenue or # of employees 3. Quality: exists when the firm's G/S meet or exceed customers' expectations; firms can predict that competitors with poor quality will likely have declining sales & will be unable to compete until they fix quality problem. - Product quality dimensions: 1. Performance - operating characteristics 2. Features - important special characteristics 3. Flexibility - meeting operating specifications over some period of time 4. Durability - amount of use before performance deteriorates 5. Conformance - match with pre-established standards 6. Serviceability - ease and speed of repair 7. Aesthetics - how a product looks/feels 8. Perceived quality - subjective assessment of characteristics (product image) - Service quality dimensions: 1. Timeliness - performed in the promised period of time 2. Courtesy - performed cheerfully 3. Consistence - giving all customers similar experiences each time 4. Convenience - accessibility to customers 5. Completeness - fully serviced, as requires 6. Accuracy - performed correctly

Explain how ownership compensation is used to monitor and control managerial decisions (internal governance mechanisms)

1. Ownership concentration: defined by the number of large-block shareholders and the total percentage of the firm's shares they own. - Ownership concentration as a governance mechanism has received considerable interest because large-block shareholders are increasingly active in their demands that firms adopt effective governance mechanisms to control managerial decisions so they will best represent owners' interests - Institutional owners have replaced individuals as large-block shareholders - In general, ownership concentration's influence on strategies/firm performance is positive - Especially in emerging economies, problem of majority shareholders excessively appropriating wealth at expense of minority shareholders hence importance of BoD to mitigate appropriation Large-block shareholders: own at least 5% of the company's issued shares In general, diffuse ownership (many small investors) produce weak monitoring of managers' decisions: - Diffuse ownership makes it difficult for owners to effectively coordinate their actions - Research suggests ownership concentration associated with lower levels o firm product diversification - With higher degrees of ownership concentration, probability is greater that managers' decisions will be designed to maximize shareholder value Institutional owners: financial institutions, such as mutual funds and pension funds, that control large-block shareholder positions; have power to b powerful governance mechanism - Estimated equity in U.S. firms held by institutional owners range from 60-75% - Rise of activist investors & proxy wars to improve performance/accountability of CEOs - Recently, activists target action of boards more directly via proxy vote proposals intended to give shareholders more decision rights - Ex. BlackRock the largest manager of financial assets in the world ($4T invested in holdings) - has become more confrontational to ensure the value of its investments - Ex. Procter & Gamble recently in proxy war with Nelson Peltz (Trian Fund Managemnet) - wanted P&G to reorganize business into 3 units: beauty, grooming healthcare; fabric and homecare; baby, feminine, family care (most expensive proxy war to date)

Approaches to Strategy Making (Triangle)

1. Strategic Planning (deliberate) -porter 2. Strategic Venturing and Learning (emergent) -Mintzberg -ready fire aim -idea, championing, approving and diffusing -community based 3. Strategic Visioning (deliberately emergent) -semi-conscious process -deep experience and creative insights -informal and personal vision

Discuss factors affecting the likelihood a competitor will respond to actions taken against it

1. Types of competitive action: strategic actions commonly receive strategic responses; tactical actions receive tactical responses - Strategic actions tend to elicit fewer responses than tactical actions because larger commitment of resources, harder to implement, and more time intensive 2. Actor's reputation: reputation refers to "the positive or negative attribute ascribed by one rival to another based on past competitive behaviour"; positive reputation can generate above-average returns - Competitors more likely to respond when they are taken by a market leader - evidence that strategic actions by market leaders will be imitated 3. Market Dependence: the extent a firm's revenues/profits are derived from a particular market. In general, competitors with high market dependence are likely to respond strongly to attacks threatening their market position.

explore the four factors that lead to a basis for international business-level strategies

1. factors of production 2. demand conditions 3. related and supporting industries 4. firm strategy, structure, and rivalry

Explain primary reasons why firms diversify

1. value-creating -firm builds upon or extends its resources/capabilities to build a competitive advantage by creating value for customers. Related diversification strategy wants to develop/exploit economies of scope between its businesses. 2. value-neutral -incentives to diversify come from both external & internal environments; 3. value-reducing -managerial motives to diversify can exist independent of value-neutral reasons (ie. incentives and resources) and value-creating reasons (eg. economies of scope); specific drivers are desire for increased compensation, reduced managerial risks (spread employment risk), build personal performance reputation

Describe how corporate governance fosters ethical strategic decisions and the importance of such behaviours on the part of top-level executives

Governance mechanisms and ethical behaviour: decisions of the BoD can be an effective deterrent to unethical behaviours by top-level managers; boundaries formalized in a code of ethics then communicated to managers - BoD holds managers fully accountable for developing/supporting an organizational culture where only ethical behaviour permitted - Major issue in MNCs operating in international markets is bribery - Important to serve interests of firm's multiple stakeholder groups: o Capital market stakeholders (shareholders most important, interests served by BoD) o Product-market stakeholders - may withdraw support of the firm if their needs not met (customers, suppliers, host communities) o Organizational stakeholders

Guest Speaker Piers Cumberlege ??????

Head of UK for All You Need For Growth -during Buy In section ADD MORE

Explain how board of directors is used to monitor and control managerial decisions (internal governance mechanisms)

2. BOARD OF DIRECTORS - Definition: A group of elected individuals whose primary responsibility is to act in the owners' best interests by formally monitoring and controlling the firm's top level managers; main functions are oversight and advisory - Board has power to: direct affairs of the organization, punish and reward managers, protect owners from managerial opportunism - BoD members classified into 3 groups: 1. INSIDERS: firms CEO and other top managers 2. RELATED OUTSIDERS: individuals not involved in day to day operations but who have a relationship with the company 3. OUTSIDERS: individuals independent from the firm - Historically, inside managers dominated a firm's BoD; however new rules for NYSE requiring outside directors to head audit committee & other important committees like compensation, nomination - Criticisms of BoD: 1. Too readily approve managers' self-serving initiatives 2. Exploited by managers with personal ties to board members 3. Not vigilant enough in hiring/monitoring CEO behaviour 4. Lack of agreement about the number or and most appropriate role of outside directors (too many outside = not involved enough in day-to-day operations; too many insiders = too self-serving) - CEO duality: when an individual is both CEO and chair of the board - Enhancing the effectiveness of BoD: 1. More diversity in the backgrounds of board members 2. Stronger internal management and accounting control systems 3. More formal processes to evaluate board's performance 4. Adopting a "lead director" role 5. Changes in compensation of directors 6. Increasing/requiring significant equity stake for outside directors to hold board seat

Discuss how strategic centre firms implement strategic networks at the corporate level

2. Corporate Level Cooperative Strategies and Strategic Networks: - Formed because of the potential to create synergies - Franchising: a common form of cooperative strategy used to facilitate product-market diversification o Allows firm to use competencies to extend product/market reach without completing M&A o Ex. McDonald's approach to franchising as a corporate-level cooperative strategy found firm emphasizing limited value-priced menu now, firm's structure being changed to decrease costs by selling off franchise ownership McDonald's HQ serves as strategic enter of the strategic network (network franchisees)

Explain the use of Strategic Business Units to implement different diversification strategies (Multidivisional structure)

2. Multidivisional Structure: Strategic Business Units (SBU) Related Linked Strategy Notes: 1. Structural integration among divisions within SBUs, but independence across SBUs 2. Strategic planning may be the most prominent function in HQ for managing strategic planning approbal process of SBUs for the president 3. Each SBU may have own budget for staff to foster integration 4. HQ staff members serve as consultants to SBUs and divisions, rather than having direct input to product strategy, as in the cooperative form - Strategic business unit (SBU): an m-form consisting of three levels: corporate HQ, SBUs, and SBU divisions; divisions within SBUs share (each SBU a profit center that is controlled/evaluated by HQ) - Used by large firms and can be complex, given associated organization size and product and market diversity - Divisions within SBUs develop economies of scope/scale by sharing product or market competencies - Disadvantage: even when efforts to implement are properly supported by use of the SBU form of the multidivisional structure, firms using this strategy and structure combination find it challenging to effectively communicate value of their operations to shareholders and their investors

Explain how executive compensation is used to monitor and control managerial decisions (internal governance mechanisms)

3. EXECUTIVE COMPENSATION: a governance mechanism that seeks to align the interests of managers/owners through salaries, bonuses, and long-term incentives such as stock awards and options - Forms of compensation: salaries, bonuses, long-term performance incentives, stock awards, stock options - Long-term incentive plans typically come in form of performance shares/matching shares of the company - Factors complicating executive compensation: 1. Strategic decisions by top-level managers are complex, non-routine and affect the firm over an extended period - result is a tendency to link managers' compensation to outcomes the board can easily evaluate (ex. financial performance) 2. Typically, effects of managers' decisions are stronger on firm's long-term performance than short-term - makes it difficult to assess effects of their decisions on a regular basis 3. Other variables affecting the firm's performance over time - ex. unpredictable changes in segments in firm's general environment (political, economic, demographic etc.) - Problems with annual incentive systems: 1. Increased focus on short-term results but less on long-term strategy/value creation 2. Increases executive exposure to risks associated with uncontrollable events - market fluctuations, industry decline - Limits on the effectiveness of executive compensation: 1. Unintended consequences of stock options 2. Firm performance not as important as firm size 3. Balance sheet not showing executive wealth 4. Options not expensed at the time they are awarded

Discuss how strategic centre firms implement strategic networks at the international level

3. International Cooperative Strategies and Strategic Networks: - Strategic networks formed to implement international cooperative strategies to compete in several countries; differences in countries' regulatory environments increase the challenge of managing international networks - Distributed strategic networks: the organizational structure used to manage international cooperative strategies; several regional strategic center firms are included in the distributed network to manage partner firms' multiple cooperative arrangements; structure is complex and demands careful attention

Resources needed for diversification

A firm must have both: 1. Incentives to diversify 2. Resources required to create value through diversification - cash and tangible resources (eg. Plant and equipment) - Value creation determined more by appropriate use of resources than be incentives to diversify - Intangible resources more flexible than tangible goods in facilitating diversification - Research shows picking the right target firm partner critical to acquisition success - can only realize synergies if good culture fit, integration/implementation plan

understand the importance of cross-border strategic alliances as an international cooperative strategy

INTERNATIONAL (CROSS-BORDER) COOPERATIVE STRATEGY: firms with headquarters in different countries decide to combine some of their resources to create a competitive advantage; virtually occurs in every industry & increasing; these alliances sometimes formed in lieu of M&As - less risky - Key Reasons: 1) limited domestic growth opportunities, 2) foreign government economic policies (ex. China regulations essentially require JV) - Obviously riskier than domestic corporate alliances - greater complexity and uncertainty - However, research indicates firms with foreign operations have longer survival rates than domestic-only

Define an agency relationship and managerial opportunism and describe their strategic implications

Agency relationship: exists when one party delegates decision-making responsibility to a second party for compensation (ex. shareholders and top-level managers, top managers and subsidiary managers) - Problems arising from agency relationships: 1. Principal-agent problem: conflicting interests; agent may pursue goals that conflict with those of the principals - can lead to "managerial opportunism" 2. Shareholders in big corporations lack direct control 3. FCFs (operating CF - CapEx; cash remaining after project investments) may be used to invest in product lines not associated with firm's current lines of business to increase firm's degree of diversification (and raise managerial compensation) - over-diversification - Agency relationship = opportunity for conflicts of interest Managerial opportunism: the seeking of self-interest with guile (ie. cunning); both an attitude & set of behaviours Product diversification as an example of an agency problem: - Product diversification a corporate-level strategy that can enhance strategic competitiveness & returns BUT also creates two benefits for top-level managers that shareholders do not enjoy: - Usually increases size of a firm and size is positively related to executive compensation; also creates additional complexity to managerial job that can require more compensation - Reduce top-level managers' employee risk - Managers may use FCFs to invest in product lines not associated with firm's current line of business to increase diversification Managerial employment risk: risk of job loss, loss of compensation, and loss of managerial reputation. Risks are reduced with increases diversification because a firm and its upper-level managers are less vulnerable to reduction in demand associated with a single/limited number of product lines or businesses Agency Costs: the sum of incentive costs, monitoring costs, enforcement costs, and individual financial losses incurred by principals because governance mechanisms cannot guarantee total compliance by the agent. - Principals' agency costs larger in diversified firms due to increased complexity in monitoring

Guest Speaker Alain Kassangana ?????

Autodesk and Entrepreneur -born in Senegal, grew up in Canada? -worked in Silicon Valley, VC funding, -start up culture vs corporate -entrepreneurial mindset vs corporate mindset

Manager and Shareholder Risk and Diversification

BUTT CHART As firm's owners, shareholders seek level of diversification that reduces risk of firm's total failure while simultaneously increasing value by developing economies of scale/scope (shareholders prefer point A) Agents seek optimal level of diversification - Declining performance from too much diversification will increase employment risk & affect future employment opportunities - However, prefer higher level of diversification than shareholders - Agents prefer point B on the M curve - want diversification that just falls short of increasing employment risk/reduces employment opportunities - In general, shareholders willing to take on risker strategy with more focused diversification (manage risk by holding diversified portfolio) - Managers prefer a level of diversification that maximizes firm size/their compensation while reducing employment risk

Guest Speaker Jens Bischof

CEO Sun Express Airlines -during mergers and acquisitions section -sun express is joint venture of lufthansa and turkish airlines in 1989 to support tourism between Turkey and Germany -today flies between 3 continents, 35 countries -goal: be europe's most innovative leisure airline that combines German and Turkish values strategic cubes: customer value, concept and brand, digitalization, cost leadership, diversification of revenues, organizational development -MESSAGE: importance of common goal and culture, trust, in M&A/JV

Discuss the use of corporate-level cooperative strategies in diversified firms

CORPORATE-LEVEL COOPERATIVE STRATEGIES: firms collaborate with one or more companies to expand its operations; diversifying, synergistic, and franchising most commonly used; an attractive option compares to mergers (particularly acquisitions) because they require fewer resource commitments and permit greater flexibility 1) Diversifying strategic alliance: firms share some of their resources to engage in product and/or geographic diversification; seek to enter new markets with existing products or with newly developed products 2) Synergistic strategic alliance: firms share some of their resources to create economies of scope; similar to business-level horizontal complementary strategic alliance, synergistic alliance create synergy across multiples functions or multiple businesses between partner firms 3) Franchising: firm (the franchisor) uses a franchise as a contractual relationship to describe and control the sharing of its resources with its partners (the franchisees) - Franchise - a form of business organization in which a firm that already has a success product/service licenses its trademark and method of doing business to other businesses in exchange for an initial franchise fee and ongoing royalty - Particularly attractive strategy to use in fragmented industries (retailing, hotels/motels, commercial printing) Assessing Corporate Level Cooperative Strategies: • Corporate-level cooperative strategies more broad & complex compared to business-level • Internalizing successful alliance experiences increases likelihood of attaining desired advantages

5 Strategy Archetypes

Classical: I can predict it, but I can't change it (Be BIG) Adaptive: I can't predict, and I can't change it(Be FAST) Visionary: I can predict it, and I can change it (Be FIRST) Shaping: I can predict it, but I can I can change it (Be the ORCHESTRATOR) Renewal: My resources are severely constrained (Be Viable) -need to master more than one approach to be a good strategist -mix of unpredictability, malleability, and harshness -contingent on environment

Competition-Reducing Strategy (Business Level Cooperative Strategy)

Collusive strategies differ from strategic alliances in that they are often an illegal cooperative strategy • Explicit collusion - exists when two or more firms negotiate directly to jointly agree about amount to produce as well as prices for what is produced (illegal in US and most developed markets) • Tacit collusion - exists when several firms in an industry indirectly coordinate production/pricing decisions by observing each other's competitive actions and responses - tend to take place in industries dominated by a few large players; results in production output below fully competitive levels and above fully competitive prices; research suggests tacit collusion between firms in one market can lead to less competition in other markets they operate in - Ex. Tacit collusion with four major Cereal brands (Kelloggs, General Mills, ConAgra Foods, Quaker Foods) to have higher consumer prices

Guest Speaker Leon Mwoti ????

Uber -during ch 8 and 9 ADD MORE

Guest Speaker Davide Pisanu ??????????

VP Strategy, Business Development and Transformation at Cirque du Soleil - used to do football but failed lol

Define corporate governance and explain why it is used to monitor and control managers' strategic decisions

Corporate Governance: the set of mechanisms used to manage the relationships among stakeholders and to determine and control the strategic direction and performance of organizations; concerned with finding ways to ensure that decisions (especially strategic decisions) are made effectively & contribute to competitive advantage - A means to establish/maintain harmony between parties whose interests conflict -> top priority is to ensure top-level managers' interests aligned with other stakeholders - Recent global emphasis on corporate governance stems from failure of mechanisms to monitor/control top-level managers' decisions Three internal governance mechanisms: 1. Ownership concentration (types of shareholders and their different incentives to monitor managers) 2. The board of directors 3. Executive compensation Corporate governance mechanisms: increased focus on strong governance mechanisms due to egregious behaviour from managers at places like Enron, WorldCom, major financial institutions in U.S.; U.S. Congress passed Dodd-Frank Wall Street Reform and Consumer Protection Act mid-2010 in response to financial crisis - Corporate governance mechanisms must receive greater scrutiny - stronger accounting/auditing scrutiny - Debate whether strong governance increases or decreases shareholder value (increase = more effective agents; decrease = more unnecessary costs) - Dodd-Frank the most sweeping financial regulatory reforms in US since Great Depression - meant to align financial institutions' actions with societal interests

Guest Speaker Daniel Novak ????????????

Crickstart -talked during Stakeholders and Choosing and MBA ADD MORE

Discuss the incentives and resources that encourage diversification (value-neutral)

EXTERNAL INCENTIVES 1. Antitrust regulation - antitrust laws in 1960s/70s discouraged mergers that created increased market power (vertical or horizontal integration) and thus encouraged unrelated diversification as a means of growth; 1980s antitrust enforcement lessened resulting in more and larger horizontal mergers 2. Tax laws - higher tax on dividends on capital gains cause a corporate shift from dividends to buying/building companies in high-performance industries (preferred by shareholders); however: 1986 Tax Reform Act - reduced individual income tax rate but treated capital gains as income incentive to pay out as dividends now over invest INTERNAL INCENTIVES 3. Low performance - low performance an incentive for diversification; firms plagued by poor performance often take higher risks 4. Uncertain future cash flows - defensive strategy if product lines mature, are threatened, or firm is small & in a mature/maturing industry 5. Synergy & firm risk reduction - synergy exists when the value created by businesses working together exceeds the value created by them working independently - Diversified firms pursuing economies of scope often have investments that are too inflexible to realize synergy among business units - Synergy = interrelatedness = risk of corporate failure this threat may force two basic decisions: 1. Firm reduces level of technological change by operating in more certain environments 2. Firm constraints level of activity sharing and forgo potential benefits of synergy

describe how firms can create value by using a related diversification strategy

Economies of scope: cost savings a firm creates by successfully sharing resources and capabilities or transferring one or more corporate-level core competencies that were developed in one of its businesses to another of its businesses. - Firms can create economies of scope through either 1) sharing activities and 2) transferring corporate-level core competencies Corporate-level core competencies: complex sets of resources and capabilities that link different businesses, primarily through managerial and technological knowledge, experience, and expertise. Operational relatedness: sharing activities - firms can create operational relatedness by sharing either a primary activity (inventory delivery systems) or a support activity (eg. Purchasing practices) - Firms using related constrained diversification strategy share activities to create value (P&G uses this corporate level strategy) - RISK: ties among a firm's businesses create links between outcomes - ex. if demand for one business's product is reduced, it may not generate sufficient revenues to cover FC required to operate shared facilities - However: research shows value-adding - studies show horizontal acquisitions (same industry) found that sharing resources/activities create economies of scope and lead to post-acquisition increases in performance Corporate relatedness: transferring of core competencies - firms create value through corporate relatedness using the related linked diversification strategy (ex. GE) - Creates value in two ways: 1. Since expense of developing core competence has already been incurred in one of the firm's businesses, transferring it to a second business reduces/eliminates development costs in other business 2. Resource intangibility - difficult for competitors to understand and imitate - Ex. Virgin Group ltd. transfers marketing core competence across airlines, music, drinks, mobile phones, cosmetics, health clubs et. - Ex2. Honda transfers competence in engine design and manufacturing to motorcycles, lawnmowers, care, trucks - HOW TO EXECUTE: Managers can facilitate transfer of corporate level core competencies by moving key people into new management - but difficult to do (they may require a premium, be unwilling to transfer their knowledge to another business) Market power: firms using a related diversification strategy can achieve market power; exists when a firm is able to sell its products above the existing competitive level or to reduce the costs of its primary and support activities below the competitive level, or both. - Achieved through: increased scale, multipoint competition, and vertical integration - Multipoint competition: exists when two or more diversified firms simultaneously compete in the same product areas or geographical markets. (ex. UPS and FedEx competing in overnight delivery and ground shipping) - Vertical integration: exists when a company produces its own inputs (backward integration) or owns its own source of output distribution (forward integration) - commonly used in firms' core businesses to gain market power over rival o Market power gained as firms develop savings in operations, improve product quality, protect technology from imitation o Vertical integration has limitations: 1) outside supplier may produce at lower cost, 2) bureaucratic costs, 3) reduce flexibility - high capital investments, 4) changes in demand - capacity issues o Around 20th century some companies stopped integrating (Ford, GM, Dell), others reintegrate to maintain quality (Samsung) Simultaneous operational relatedness and corporate relatedness: Ability to simultaneously do both is difficult for competitors to understand/learn how to imitate - Walt Disney uses a related diversification strategy to simultaneously create economies of scope through operational and corporate relatedness - Disney has 5 separate but related businesses - media networks, parks and resorts, studio entertainment, consumer products, and interactive media - Within media business: economies of scope by sharing activities among movie distribution companies - Corporate relatedness through sharing of intimate knowledge of consumers to cross-sell products & advertise/market them in different channels: ex. movie characters at theme parks

Describe the relationship between strategy and structure

Evolutionary patterns of strategy and organizational structure: Research shows firms tend to grow in predictable patterns, which determines their structural form: volume -> geography->integration (horizontal and vertical) -> product/business diversification MATCHES BETWEEN BUSINESS-LEVEL STRATEGIES AND FUNCTIONAL STRUCTURE: - Different forms of functional organizational structure matched to: cost leadership strategy, differentiation strategy, integrated cost leadership/differentiation - Differences in these forms seen in 3 structural characteristics: specialization (number/types of jobs), centralization, formalization MATCHES BETWEEN CORPORATE LEVEL STRATEGIES AND THE MULTIDIVISIONAL STRUCTURE: - A firm's continuing success that leads to: product diversification, market diversification, or both product and market diversification - Increasing diversification creates control problems that the functional structure cannot handle (ex. information processing, coordination, control) - Diversification strategy requires firms to change from functional structure to a multidivisional structure - Different levels of diversification create the need for implementation of a unique form of the multidivisional structure MATCHES BETWEEN INTERNATIONAL STRATEGIES AND WORLDWIDE STRUCTURE: - Allow firm to search for new markets resources, core competencies, technologies - Forming proper matches between international strategies and organizational structures facilitates firm's efforts to effectively navigate cultural, institutional, and legal environments

Guest Speaker Alexandra Schwartz

Executive Director of Israel cancer Research Fund (Nonprofit) -brings fellows from Israel to do cancer research and treat patients in montreal hospitals -funds fellow's salaries for 3 years -event driven fundraising is main source, but difficult model . because uses money and time resources -entrepreneur vs corporate world!!; corporate structure is stricter; MBA gives respect -she opened health clubs that combined fight sports and yoga (small business) -MESSAGE: being a highly skilled generalist can be risky but good if you find an organization where you fit well

Explain the 2 ways value can be created with an unrelated diversification strategy

Financial economies (unrelated diversification): cost savings realized through improved allocations of financial resources based on investments inside or outside the firm 1) Efficient internal capital market allocation: in large diversified firms, corporate HQ distributed capital to its businesses to create value for overall corporation o Firms with efficient internal capital markets have at least two informational advantages: 1. Have a more complete financial picture - public information provided through annual reports tends to be more positive/doesn't reflect operational dynamics 2. Raising external money means disseminating information publically; allocating capital internally helps firm protect competitive advantages 2) Restructuring of assets: buying, restructuring, then selling the restructured companies' assets in the external market. This strategy has been taken up by private equity firms, who buy, restructure, then sell - often within a 4-5-year period. o Significant trade-offs associated with strategy: 1. in high-tech businesses, resource allocation decisions highly complex - often creating information overload for small HQ, 2. Difficult to profitably sell in the external market 3. Foreign divestures even more difficult than domestic

Uncertainty Reducing Strategy (Business Level Cooperative Strategy)

Firms sometimes use business level strategic alliance to hedge against risk and uncertainty, especially in fast-cycle markets; also used where uncertainty exists, like entering new product markets or entering EMs (ex. alliances between hybrid vehicles and batteries due to low supply of batteries)

Discuss the use of international corporate governance

INTERNATIONAL CORPORATE GOVERNANCE 1. Germany: owner and manager often the same in private firms; even in public company, a single shareholder is often dominant - Public firms often have a dominant shareholder, frequently a bank (10-15%) - Frequently less emphasis on shareholder value than in U.S. firms, though this may be changing as German firms gravitating toward U.S. governance mechanisms - German firms with more than 2,000 employees required to have a two-tiered board that places responsibility on monitoring/controlling managerial decisions 2. Japan: Important governance factors include obligation, "family", consensus; Japanese firms concerned with a broader set of stakeholders than U.S., including employees, suppliers, and customers - Kieretsu: a group of firms tied together by cross-shareholders; more than an economic concept - a family - Bank-based financial and corporate governance structure: banks (especially "main banks") highly influential with firm's managers - Main bank typically owns largest share in kieretsu and has closest relationship with firm's top-level managers - Other governance characteristics: - Powerful government intervention - Close relationships between firms and government sector - Passive and stable shareholders who exert little control - Virtual absence of external market for corporate control 3. China: socialist mixed with a market-oriented economy; corporate governance practices have been changing and evolving with increasing privatization of businesses; state still relies on direct/indirect controls to influence the strategies firms use - Private firms try to develop political ties with government because of their role in providing access to resources, capital, and the economy - Some evidence suggests corporate governance in China tilting towards Western model - ex. recent research showing compensation of top-level execs in Chinese companies closely related to prior/current financial performance of their firm - Development of internal equity markets has been hampered by insider trading Global corporate governance: organizations worldwide adopting a relatively uniform governance structure - BoD are becoming smaller, with more independent and outside members - Investors are becoming more active - In rapidly developing market economies, minority shareholder rights are not protected by adequate governance controls

Describe 7 problems that work against developing a competitive advantage using and acquisition strategy

Learning and developing new capabilities Too large 1. Integration difficulties: believed to be the strongest determinant of success/failure; a complex set of organizational processes that generates uncertainty/resistance due to cultural clashes & org. politics - Challenges include: melding two/more unique corporate cultures, link between financial and control systems, build effective working relationships (particularly when mgmt. styles differ), determine leadership structure 2. Inadequate evaluation of target: due diligence is the process through which a potential acquirer evaluates a target firm for acquisition (financing for intended transaction, culture, tax implications, integration process) - commonly performed by investment banks/lawyers/accountants/consultants; proper due diligence must examine financial AND strategic/integrative dimensions - When firms overestimate value of synergies/future growth potential associated with acquisition, they pay excessive premium - has dilutive effect on newly formed firm's ST/LT earning potential 3. Large or extraordinary debt: firms must verify that their purchases do not create a debt load that overpowers their ability to remain solvent; though finance theory suggests managers are rational decision makers, hubris, escalation of commitment to complete a particular transaction, & self-interest can drive decisions and cause firms to take on too much debt 4. Inability to achieve synergy: "synergy" exists when the value created by units working together exceeds the value that those units could create working independently - derived from increased efficiencies in economies of scale, economies of scope, resource sharing - Private synergy: created when combining and integrating the acquiring and acquired firms' assets yield capabilities and core competencies that could not be developed by combining and integrating either firm's assets with another company; possible when firms' assets are complementary in unique ways - Ability to account for costs that are necessary to create anticipated revenue and cost-based synergies affect efforts to create private synergies - Transaction costs: expenses incurred when firms use acquisition strategies to create synergy o Direct: legal fees, charged to investment bankers who perform due diligence o Indirect: managerial time, loss of key talent post-acquisition 5. Too much diversification: creates a decline in performance and likely must decide to divest some units; even a high level of diversification (not over diversified) can have negative effects on LT performance; problems include - relying on financial controls over strategic controls to assess business lines, tendency to rely on acquisitions as a substitute for innovation 6. Managers overly focused on acquisitions: considerable amount of managerial time required for acquisition: a. Searching for viable candidate b. Completing effective due-diligence process c. Preparing for negotiations d. Managing integration process post-acquisition - Theory & research suggests managers can become overly involved in process of making acquisitions 7. Too large: size can increase complexity of the managerial challenge and create diseconomies of scope - not enough economic benefit to outweigh the costs of managing the more complex organization; larger size means more organizational complexity, higher costs, need for bureaucratic controls, and diminished flexibility

Define strategic networks, strategic centre firms, and MATCHES BETWEEN COOPERATIVE STRATEGIES AND NETWORK STRUCTURES:

MATCHES BETWEEN COOPERATIVE STRATEGIES AND NETWORK STRUCTURES: - Strategic network: a group of firms that has been formed to create value by participating in multiple cooperative arrangements; source of competitive advantage for members when operations create value that is difficult for competitors to duplicate and members can't individually achieve - Network strategy exists when partners form several alliances in order to improve the performance of the alliance network through cooperative endeavors (can be at business, corporate, international strategic level) o Greater levels of environmental complexity and uncertainty facing companies in today's competitive environment are causing more firms to use cooperative strategies such as alliances Strategic Center Firm: at the core of the strategic network; the one around which the network's cooperative relationships revolve - Concerned with aspects of organizational structure such as formal reporting relationships - Manages the complex cooperative interactions among network partners - Engages in four primary tasks: 1. Strategic outsourcing: strategic center firm outsources/partners with more firms than other network members 2. Competencies: to increase network effectiveness, seeks ways to support each member's efforts to develop core competencies with the potential of benefitting from the network 3. Technology: responsible for managing development and sharing of tech-based ideas among network 4. Race to learn: emphasizes principal dimensions of competition are between value chains and between networks of value chains a strategic network is only as strong as its weakest value-chain link; strategic center firm guides participants in effort to form network-specific competitive advantages

Explain how the market for corporate control acts as a restraint on top-level managers' strategic decisions (external corporate governance mechanism)

Market for corporate control: an external governance mechanism that is active when a firm's internal governance mechanisms fail; individuals and firms buy or take over undervalued firms - ineffective managers usually replaced in such takeovers - Threat of takeover may lead firm to operate more efficiently - Changes in regulations have made hostile takeovers difficult - Activist pension funds are reactive in nature, taking actions when they conclude that a firm is underperforming - Activist hedge funds are proactive, "identifying a firm whose performance could be improved and then investing in it" - typically avoid tech firms because they can rapidly change; choose mature industries - ex. Trian Fund Management, Nelson Peltz seeking to change strategy at DuPont by replacing four board members favorable to Peltz's activist hedge fund - wanted DuPont to divest several businesses; however they ultimately lost - Managerial defense tactics increase costs of mounting a takeover; defense tactics include: 1. Asset restructuring 2. Changes in the financial structure of the firm 3. Shareholder approval

Larry Grenier Model (5 Phases of Growth)

Matrix size vs age of organization (period of growth - period of crisis) 1. creativity - leadership 2. direction - autonomy 3. delegation - control 4. coordination - red tape 5. collaboration - ???

Explain the popularity of merger/acquisition strategies in firms competing in the global economy

Merger: a strategy through which two firms agree to integrate their operations on a relatively coequal basis. - Challenging to effectively implement, particularly for acquiring firm: research indicates shareholders of acquired firms often earn above average returns, while shareholders of acquiring firms earn returns close to zero - In approximately 2/3 of acquisitions, acquiring firm's stock price falls immediately after intended transaction announced - reflects investor skepticism about likelihood that acquirer will capture synergies required to justify premium - Issues affecting firms' efforts to merge on a coequal basis: who will lead merged firm, how to fuse disparate cultures, value companies - Primarily friendly Acquisition: a strategy through which one firm buys a controlling, or 100%, interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio. After the acquisition is completed, the management of the acquired firm reports to the management of the acquiring firm. - Can be friendly or unfriendly Takeover: a special type of acquisition where the target firm does not solicit the acquiring firm's bid; an unfriendly acquisition; firms commonly view unsolicited bids as "hostile" takeovers

Guest Speaker Rich Latour??????? Harsha Rajamani????

VP of Goldman Sach's in NYC -ADD MORE ? Managing Director of Commodities Division

Guest Speaker Marijke Waddell ?????????

Vertical Lead, Global Business Marketing Facebook -during ch 8 and 9 ADD MORE

define global international corporate-level strategy

international strategy through which the firm offers standardized products across country markets, with competitive strategy being dictated by the home office -low need for local responsiveness, high need for global integration

Explain the use of Cooperative Form to implement different diversification strategies (Multidivisional structure)

Multidivisional Structure: Cooperative Form: Related Constrained Strategy Notes: 1. Operations the main function 2. Process engineering emphasized rather than new product R&D 3. Relatively large centralized staff coordinates functions 4. Formalized procedures allow for emergence of low-cost culture 5. Overall structure mechanistic: job roles highly structured 6. Use of liaison roles - Cooperative form: an m-form structure in which horizontal integration is used to bring about interdivisional cooperation - Sharing divisional competencies facilitates development of economies of scope - ex. P&G shares 5 core strengths across businesses (consumer understanding, scale, innovation, GTM, brand-building - Divisions in a firm using related constrained diversification strategy commonly formed around products, markets, or both - To foster divisional cooperation, the corporate office emphasizes centralization of: 1) strategic planning, 2) human resources, 3) marketing, 4) potentially R&D o Direct contact between division managers and head office to share knowledge, capabilities, other resources that could be used to create new advantages o Rewards subjective, emphasizing overall corporate performance as well as divisional performance - Frequently may also use matrix organization: an organizational structure in which there is a dual structure combining both functional specialization and business product or project specialization

Define Network Cooperative Strategy and Alliance Network

Network Cooperative Strategy: several firms agree to form multiple partnerships to achieve shared objectives - Ex. Cisco's Global Partner Network - alliances with IBM, Emerson, Hitachi, Intel, Nokia to drive growth, differentiate from competitors, enter new business areas - Interestingly, Cisco has network with competitors - ex. Cisco & IBM compete in selling servers, but part of network to "find better ways to connect people, share critical data, create analytic insights to improve" ability to earn above-average returns - Particularly effective when formed by geographically clustered firms - Firms involves in network tend to be more focused on innovation Alliance Network: the set of strategic alliance partnerships that firms develop when using a network cooperative strategy; companies' alliance networks vary by industry characteristics: 1. Stable alliance network - formed in mature industries where demand constant/predictable; firms try to expand/diversify revenue streams while remaining profitable in mature industry 2. Dynamic alliance network - used in industries characterized by frequent product innovations and short product life cycles (ex. IBM and Apple recently partnered to collaborate on business services) to innovate new products, enter new markets, develop nascent markets

2. Worldwide Product Divisional Structure and Global Strategy

Notes: 1. HQ circle indicates centralized to coordinate information flow among worldwide products 2. Corporate HQ uses many inter-coordination devices to facilitate global economies of scale/scope 3. HQ also allocated financial resources in a cooperative way 4. Organization like centralized federation Worldwide Product Divisional Structure: decision-making authority centralized to coordinate/integrate decisions and actions among divisional business units - Global strategy: allows firm to offer standardized products across country markets - Effects on firm: o Success depends on firm's ability to develop and take advantage of economies of scope and scale on global level o Firm tends to outsource some primary or support activities to the world's best providers - Integrating mechanisms important: o Direct contact between managers o Liaison roles between departments o Temporary task forces and permanent teams

Discuss Functional Structure & Differentiation Strategy (2)

Notes: 1. Marketing the main function for keeping track of new product ideas 2. New product R&D emphasized 3. Most functions decentralized (R&D/marketing may be centralized to work closely) 4. Formalization limited so new product ideas can emerge easily/change more readily accepted 5. Overall structure is organic: job roles less structured - Differentiation strategy: seeks to produce products that customers perceive as being different in ways that create value or them therefore need flexible reporting relationships, frequent use of cross-functional product development teams, and strong focus on marketing and product R&D vs. process R&D - Development-oriented culture where employees try to find ways to differentiate current products

Discuss 1. Worldwide Geographic Area Structure and Multi-Domestic Strategy

Notes: 1. Operations decentralized - integrating mechanisms not needed 2. Emphasis on differentiation by local demand to fit an area/country culture 3. Corporate HQ coordinates financial resources among independent subsidiaries 4. Organization like a decentralized federation 5. Disadvantage is inability to create global efficiencies Worldwide Geographic Area Structure: emphasizes national interests and facilitates firm's efforts to satisfy local differences - Multi-domestic strategy: decentralizes firm's strategic and operating decisions to business units in each country so that product characteristics can be tailored to local preferences; firms using this strategy try to isolate themselves from global competitive forces by establishing protected market positions or by competing in industry segments that are most affected by differences among local countries

Discuss Functional Structure & Cost Leadership Strategy (1)

Notes: 1. Operations is the main function 2. Process engineering emphasized rather than new product R&D 3. Relatively large centralized staff coordinates functions 4. Formulated procedures allow for emergence of low-cost culture 5. Overall structure is mechanistic: job roles highly structured - Cost leadership strategy: sell large quantities of standardized products to industry's average consumer - Need structure that allows them to achieve efficiencies and produce products at costs lower than competitors - Simple reporting relationships, a few layers in the decision-making and authority structure, a centralized corporate staff, and strong focus on process improvements

Define competitors

firms operating in the same market, offering similar products, and targeting similar customers -ex. Pepsi and Coke -firms interact with their competitors with how they make decisions to earn above-average returns

Define organizational controls and discuss the difference between strategic and financial controls

Organizational Control: guide the use of strategy, indicate how to compare actual results with expected results, suggest corrective actions to take when the difference is unacceptable; two types of organizational controls: 1. Strategic controls: largely subjective criteria intended to verify that the firm is using appropriate strategies for the conditions in the external environment and the company's competitive advantages; concerned with examining fit between what the firm can do and might do; evaluate the degree to which the firm focuses on the requirements to implement its strategy 2. Financial controls: largely objective criteria used to measure the firm's performance against previously established quantitative standards; firms evaluate current performance against previous outcomes as well as against competitors' performance and industries averages (accounting-based measures: ROI, ROA; market-based measures: Economic Value Added (EVA) - Relative use of controls varies by types of strategy: o Large diversified firms using a cost leadership strategy emphasize financial controls o Firms/business units using a differentiation strategy emphasize strategic controls

Define organizational structure

Organizational Structure: specifies the firm's formal reporting relationships, procedures, controls and authority and decision-making processes; the work to be done and how to do it, given the firm's strategy of strategies - Structural stability: provides capacity the firm requires to consistently and predictably manage its daily work routines to maintain current competitive advantages - Structural flexibility: makes it possible for the firm to identify opportunities and then allocate resources to pursue them as a way of being prepared to succeed in the future (& develop new competitive advantages) - Organizational inertia often inhibits efforts to change structure firms prefer structural status quo and its familiar working relationships until their performance declines to the point where change is vital - Reciprocal relationship btwn. strategy & structure (structure influences strategic action and vice versa)

Guest Speaker Jean-Francois Manzoni

President of IMD -business school for management and leadership courses -professor of leadership and organizational development -Strategic Questions: WHERE are we going to play? HOW are we going to win? what are our CAPABILITIES that let us do this better than everyone else? -digitization is a growing issue for businesses; battle against complexity -important to understand differences in management in different regions in the world (culture) -protect business from recessions: maximize organizational AND individual impact -tripod: engaging relationships, thought leadership, and personal process are key for strategy -executive education tries to grow individual impact; consulting firms maximize org impact, how to maximize both? _MESSAGE: competition is not a problem, it is a good thing because it creates business; key to being competitive is maximizing individual and org impact

Define the restructuring strategy and distinguish among its common forms.

Restructuring: a strategy through which a firm changes its set of businesses or its financial structure; a global phenomenon; although restructuring often employed for acquisitions not reaching expectations, firms sometimes use restructuring strategies to respond to changes in external environment - 3 types of restructuring strategies: 1) Downsizing - a reduction in the number of a firm's employees or number of operating units; used for the purpose of improving performance (organizational decline is the unintentional version - loss of resources); typically employed post acquisition, but firms should be careful to use consistent HR when doing so 2) Downscoping - divestiture, spin-off, or some other means of eliminating businesses that are unrelated to a firm's core businesses; has a more positive effect on firm performance than downsizing as it allows firms to refocus their core business; trend for US firms, more so than European firms 3) Leveraged Buyouts (LBO) - a restructuring strategy whereby a party (typically a PE firm) buys all of a firm's assets in order to take the firm private; once transaction is complete, firm's stock is no longer traded publically; traditionally used to correct managerial mistakes not in the best interest of shareholders; incur significant amounts of debt in LBO - to support owners sell large # of assets & often exit 5-8 yrs

Explain why ownership has been largely separated from managerial control in the modern corporation

Separation of Ownership and Managerial Control: The separation of ownership and managerial control allows shareholders to purchase stock, which entitles them to income (residual returns) from the firm's operations after paying expenses; shareholders typically have diversified portfolio to manage risk - The basis of the modern corporation - Those managing small firms typically own large portion of firm in this case less separation between ownership & control - Research shows family-owned firms perform better when member of the family is CEO rather than outsider - LatAm, Asia, some parts of Europe family-owned dominate the competitive landscape - Family controlled firms face two critical issues of governance: 1. May not have access to all skills needed to effectively manage firm/maximize returns as they grow 2. As they grow, may need to seek outside capital and thus give up some ownership

Strategy and structure growth pattern

Simple structure: owner-manager makes all major decisions and monitors all activities, staff serves as an extension of the manager's supervisory authority; characterized by: informal relationships, few rules, limited task specialization, frequent/informal communications, and unsophisticated information systems Functional structure: consists of CEO and a limited corporate staff, with functional line managers in dominant areas like production, accounting, etc.; structure allows for functional specialization, facilitates idea sharing within functional areas Multidivisional (M-form) structure: consists of a corporate office and operating divisions, each operating division represents separate business & profit center, top corporate officers delegate responsibilities and business-unit strategies to division managers; Each division represents self-contained business with own hierarchy **M-form widely adopted because diversification a dominant corporate-level strategy in global economy M-form has 3 major benefits: 1. Enables corporate officers to more accurately monitor performance of each business simplifies problem of control 2. Facilitates comparisons between divisions, which improves resource allocation process 3. It stimulates managers of poorly performing divisions to look for ways of improving performance

Guest Speaker Francoise Lavertu Stephens ???????????????

Tesla Region Manager, Latin America and Florida -talked while learning about external environment ADD MORE

Define strategic alliances and why firms use them

a cooperative strategy where firms combine some of their resources to create a competitive advantage; involves firms with some degree of exchange and sharing of resources to jointly develop, sell, and service G&S; leverage existing resources while working with partners to develop new resources and new competitive advantages Reasons Firms Develop Strategic Alliances: Empirical Justifications: 1) Can account for major revenue - alliances can account for up to 25% of firm's revenue 2) Alliances can be formed between educational institutions and individual companies to commercialize ideas flowing from basic research projects completed at universities 3) Growing need for alliances to remain competitive - alliances competing against each other within industries (ex. Airlines simultaneously compete each other while joining alliances - Star, OneWorld, SkyTeam) Two Major Justifications: a) Making it possible for firms to create value they couldn't enerate by acting independently and entering markets more rapidly 4) Ex. Pangea: alliance between online news publishers The Guardian, CNN Int., FT, and the Economist to make it possible for advertisers to reach online audiences with scale - allows global expansion b) Most companies lack the full set of resources needed to pursue all identifies opportunities and reach their objectives in the process - a reality indicating that partnering with others will increase probability or reaching firm-specific performance objectives 5) Ex. Collaboration btwn Expedia & Decolar.com (LatAm online travel leader) offers Expedia exposure to Latin-American travellers while helping Decolar expand int'l supply of hotels

Define cooperative strategies and explain why firms use them

a means by which firms collaborate to achieve a shared objective - Ex. cooperative strategy between Google, Intel, and TAG Heuer to apply tech innovation to compete in luxury fashion: collaborated to build unique resources to design, produce, then launch in smartwatch market - A strategy firms employ to create value for customers that it could not create itself - successful implementation allows companies to outperform rivals in terms of strategic competitiveness and above-average returns - Firms try to create competitive advantages when using a cooperative strategy (called a collaborative or relationship advantage when formed through cooperative strategy)

define product diversification

a primary form of corporate-level strategy; concerns the scope of the markets and industries in which the firm competes as well as "how managers buy, create, and sell different businesses to match skills and strengths with opportunities presented to the firm" - Successful diversification reduces variability in the firm's profitability

Name the business-level cooperative strategies and describe their use

a strategy through which firms combine some of their resources to create a competitive advantage by competing in one or more product markets; firm forms this type of strategy when it believes that combining some of its resources with those of one or more partners will create competitive advantages it can't by itself and lead to success in a specific product market Assessing Business-Level Cooperative Strategies: • Complementary business-level strategic alliances, especially vertical, have greatest probability of creating competitive advantage (possibly even sustainable) • Horizontal alliances sometimes difficult to maintain due to nature of firms being competitors • Cooperative strategies aimed at responding to competition, reducing uncertainty can create competitive advantage, but they are often more temporary - less focus on value creation and more focused on defensive response

define multi-domestic international corporate-level strategy

an international strategy in which strategic and operating decisions are decentralized to the strategic business unit in each country so as to allow that unit to tailor products to the local market -high need for local responsiveness, low need for global integration

Complementary Strategic Alliances (Business Level Cooperative Strategy)

business-level alliances in which firms share some of their resources in complementary ways to create a competitive advantage a) Vertical complementary strategic alliance - firms share some of their resources from different stages of the value change for the purpose of creating competitive advantage (ex. GE & Qualcomm using lighting and wireless technologies to create suggested items, product information, and indoor navigation as customers move through stores) b) Horizontal complementary strategic alliance - firms share some of resources from same stage of value chain for purpose of creating competitive advantage (ex. Pharmaceuticals to more quickly bring drugs to market)

Competitive pathway

competitors engage in competitive rivalry; competitive dynamics RESULTS; THROUGH competitive behaviours (actions and responses); in order TO gain an advantageous market position

Competition Response Strategy (Business Level Cooperative Strategy)

competitors initiate competitive actions (strategic and tactical) to attack rivals and launch competitive responses (strategic and tactical_ to their competitors' actions; alliances can be used at the business level to respond to attacks - Ex. Alliance btwn Google, TAG Heuer, Intel a response to Apple Watch

Explain traditional and emerging motives for firms to pursue international diversification

international strategy: strategy through which the firm sells its goods or services outside its domestic markets -international markets yield potential new opportunities TRADITIONAL -increased demand in foreign countries -low manufacturing costs -extend a product's life cycle -secure needed resources EMERGING -global integration of operations -universal product demand "nationless" -globally branded products -similarities in lifestyle in developed nations -increases in global communication media -globalization cultures -technology -economies of scale -cost reductions by purchasing from global suppliers -higher demand -currency fluctuations

describe motives that can encourage managers to overdiversify a firm (value-reducing)

managerial motives to diversify can exist independent of value-neutral reasons (ie. incentives and resources) and value-creating reasons (eg. economies of scope); specific drivers are desire for increased compensation, reduced managerial risks (spread employment risk), build personal performance reputation - Diversification provides benefits to top-level managers that shareholders do not enjoy - Effects of inadequate internal firm governance: research shows diversification increased firm size which increases executive compensation o Governance mechanisms (BoD, owners, compensation committees) can reduce tendency to over-diversify - but often not strong enough

Explain awareness, motivation, and ability as drivers of competitive behaviour

market commonality/resource similarity influence drivers of competitive behaviour; drivers influence the firm's actual competitive behaviour 1. Awareness: the extent to which competitors recognize the degree of their mutual interdependence that results from market commonality/resource similarity (awareness greatest when firms have similar resources) 2. Motivation: firm's incentive to take action against a competitor's attack - relates to perceived gains/losses (firms may be aware of threat but unmotivated if they perceive low threat or low ability to change outcome) 3. Ability: relates to each firm's resources & flexibility provided by resources; without available resources firm unable to attack competitor or respond

Explain competitive dynamics in fast-cycle markets

markets in which the firm's capabilities that contribute to competitive advantages aren't shielded from imitation and where imitation is often rapid and inexpensive - Competitive advantages not sustainable - These environments place pressure on top managers to quickly make strategic decisions that are effective - Competitors use reverse engineering & non-proprietary tech is diffused rapidly - More volatile than standard & slow-cycle markets - Firms avoid "loyalty" to products, preferring to cannibalize own products before competitors learn how to through successful imitation

Explain competitive dynamics in standard-cycle markets

markets in which the firm's competitive advantages are partially shielded from imitation & imitation is moderately costly. - Competitive advantages only partially sustainable if firms upgrade quality of capabilities - Firms seek large market shares, gain customer loyalty through brand names, and carefully control operations - Innovation a major driver for competitive actions/responses - especially when rivalry is intense

Explain competitive dynamics in slow-cycle markets

markets in which the firm's competitive advantages are shielded from imitation, commonly for long periods of time, & where imitation is costly. - Building a unique, proprietary capability produces competitive advantage - difficult for competitors to understand & imitate - Competitive advantages are sustainable for longer periods; all firms concentrate on competitive actions and responses to protect, maintain, and extend proprietary competitive advantage - In slow-cycle markets, firms launch product, exploit for as long as possible, then eventually competitors counter-attack

Define multi-market competition

occurs when firms compete against each other in several product or geographic markets.

define competitive dynamics

refer to all competitive behaviours - that is, the total set of actions and responses taken by all firms competing within a market. -concerned with the ongoing actions and responses among all firms competing within a market for advantageous positions. - "to explain competitive dynamics, we explore the effects of varying rates of competitive speed in different markets on the behaviour (action/responses) of all competitors within a given market

Define Corporate-level strategy and discuss its purpose

specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets. - Business-level strategy (competitive) - each business unit is a diversified firm choosing a business-level strategy as its means of competing in its individual product markets - Whereas corporate-level strategy is companywide- overarching strategy for each of its businesses - Corporate-level strategy concerned with two key issues: 1) what product-markets and businesses the firm should compete, 2) how the corporate headquarters should manage those businesses

describe resource similarity as a building block of competitor analysis

the extent to which the firm's tangible/intangible resources are comparable to a competitor's in terms of both type & amount - Ex. UPS & FedEx: have both market commonality and resource similarity - similar truck/airplane fleets, similar levels of financial capital, compete in similar geographic markets - the greater the resource imbalance, the greater the delay in response

Define competitor analysis

the first step the firm takes to predict extent/nature of rivalry; especially important when entering a foreign market to understand local competition & foreign competitors; used to understand and predict - Competitor analysis based on 2 dimensions: market commonality & resource similarity

describe market commonality as a building block of competitor analysis

the number of markets the firm and a competitor are jointly involved and the degree of importance of the individual markets to each (ex. financial services has markets for insurance, brokerage services, banks, etc.) - Markets can be further subdivided into market segments (ex. insurance - commercial and consumer), product segments (ex. health and life insurance), and geographic markets - Capabilities created through Internet technologies shape nature of industries' markets & their competition in those industries (ex. Facebook as both a marketing & distribution channel) - Firms competing in several of the same markets can respond to competitors through different common markets -firm more likely to attack rival with low market commonality than if it competes in multiple markets; strong competition as a result of market commonality means attacked firm will respond to protect position

Define competitive rivalry

the ongoing set of competitive actions/competitive responses that occur among firms as they maneuver for an advantageous market position. gauges likelihood of attack & response - Competitive action: a strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position. - Competitive response: a strategic or tactical action the firm takes to counter the effects of a competitor's competitive action. - Strategic action/response: market-based move that involves a significant commitment of organizational resources and is difficult to implement or reverse. - Tactical action/response: market-based move that is taken to fine-tune a strategy; involves fewer resources and is relatively easy to implement or reverse. -Likelihood of attack based on three primary factors: 1. First-mover benefits 2. Organizational size 3. Quality -Likelihood of response based on three factors: 1. Types of competitive action 2. Actor's reputation 3. Market dependence

define competitive behaviour

the set of competitive actions/responses a firm takes to build or defend its competitive advantages and to improve its market position.