WPC480 FINAL

Related diversification strategy

Corporate strategy in which a firm derives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity

Dominant business

Derives between 70-95% of its revenues from a single business, but it pursues at least one other business activity that accounts for the remainder of Revenue.

Economic dimension: Profit. Captures the necessity of businesses to be profitable to survive. Social dimension: People. Emphasizes the people aspect, such as PepsiCo's initiative of the whole person at work Ecological dimension: Planet. Emphasizes the relationship between business and the natural environment

Describe each dimension of the Triple bottom line

-Exporting -strategic alliances (licensing for products, franchising for services) -joint venture - subsidiary (acquisition or Greenfield) higher levels of control, and thus greater protection of IP and a lower likelihood of any loss of reputation, go along with more investment intensive foreign entry modes such as Acquisitions or greenfield plants

How do MNEs enter foreign markets? The strategist has the following foreign entry modes available:

real-time feedback

Platform businesses leverage technology to provide ___________.

Gatekeepers; digital technology Pipeline businesses rely on Gatekeepers to manage the flow of value from end to end of the pipeline.

Platform businesses scale more efficiently than pipeline businesses by eliminating __________ and leveraging ______________.

Stakeholder impact analysis

Provides a decision tool with which strategic leaders an recognize, prioritize, and address the needs of different stakeholders. Helps achieve a competitive advantage while acting as a good corporate citizen.

Invention

Second Step of the Innovation process. Describes the transformation of an idea into a new product or process, or the modification and recombination of existing ones.

○ product diversification strategy: Corporate strategy in which a firm is active in several different product markets ○ Geographic diversification strategy: corporate strategy in which a firm is active in several different countries ○ Product- Market diversification strategy: corporate strategy in which a firm is active in several different product markets and several different countries.

What are the 3 General diversification strategies: ?

threat of entry, power of suppliers, power of buyers, threat of substitutes, and rivalry among existing firms

What are the Five forces?

- Organizational design - Corporate governance and business ethics

What are the Implementation (Part 3) topics?

Patents: expire 20 years after filed Designs Copyrights Trademarks Trade secrets

What are the The five major forms of Intellectual property (IP) protection?

The balanced scorecard The triple bottom line

What are the Two integrative frameworks, combing quantitate data with qualitative assessments?

Incremental vs Radical innovation Architectural vs Disruptive innovation

What are the diagonal pairs of the markets and Technology framework?

return on assets (ROA) return on Equity (ROE) return on invested capital (ROIC) return on Revenue (ROR).

What are the most Commonly used profitability metrics in Strategic Management?

Alliance Management capability

a firm's ability to effectively manage three Alliance related tasks currently, partner selection and Alliance formation, Alliance design and governance, Post formation Alliance Management

Franchising

a long-term contract in which a franchisor grants a franchisee the rights to use the franchisor's trademark and business processes to offer services that carry the franchisor's brand name.

Credible commitment

a long-term strategic decision that is both difficult and costly to reverse

hostile takeover

acquisition in Which a company does not wish to be acquired

Business ethics

agreed-upon code of conduct in business, based on societal norms

Transaction costs

all internal and external costs associated with an economic exchange, whether within a firm or in markets.

Stock market valuations

? = share price * number of outstanding shares

reconciles

A Blue Ocean strategy is only successful if the firm can Implement some type of value innovation that ___________ the inherent trade-off between value creation and underlying costs.

Complementor

A company that provides a good or service that leads customers to value your firm's offering more when the two are combined

Core rigidity

A former core competency that turned into a liability because the firm failed to hone, refine, and upgrade the competency of the environment changed

SWOT Analysis

A framework that allows managers to synthesize insights obtained from an internal analysis of the company strengths and weaknesses with those from an analysis of external opportunities and threats to derive strategic implications

Strategic group model

A framework that explains differences in firm performances within the same industry

outside directors

board members who are not employees of the firm, who are frequently senior Executives from other firms or full-time professionals

Vision Basing actions on a vision, a firm will build the necessary resources and capabilities through continuous organizational learning to translate into reality what begins as a stretch goal or strategic intent.

captures an organizations aspirations and spells out what it ultimately wants to accomplish. Effective ones pervades the organization with a. sense of winning and motivates employees at all levels to aim for same target. Asks the question: What do we want to accomplish ultimately?

Backward vertical integration

changes in an industry value chain that involves moving ownership of activities Upstream to the originating point (input) of the value chain

Customer- oriented vision statements

defines a business in terms of providing solutions to customer needs. Companies with this vision can more easily adapt to changing environments.

Activities

distinct and fine- grained business processes such as order taking, the physical delivery of products, or invoicing customers. Each distinct activity enables firms to add incremental value by transforming inputs into goods and services

Customer switching costs

incurred by moving from one supplier to another. Onetime sunk costs, which can be quite significant. Example: a firm that uses ERP from SAP will incur switching costs when implementing a new ERP system from Oracle

Shareholders

individuals or organizations that own one or more shares of stock in a public company. The legal owners of public companies

Perfect competition

industry is fragmented and has many small firms, a commodity product, ease of entry, and little or no ability for each individual firm to raise its prices. Firms in this competition are approximately similar in size and resources. Consumers make purchasing decisions solely on price. Firms in perfect competition have difficulty achieving even a temporary competitive advantage and can only achieve competitive parity

Mobility barriers

industry- specific factors that separate one strategic group from another

Stakeholder strategy

integrative approach to managing diverse set of stakeholders effectively in order to gain and sustain competitive advantage. Allows firms to analyze and manage how various external and internal stakeholders interact to jointly create and trade value.

Rare resource

only one or a few firms possess it. If the resource is common, it will result in perfect competition where no firm is able to maintain a competitive advantage

Monopoly

only one, often large firm supplying the market.

Core values statement

provides touchstones for the employees to understand the company culture. Offers bedrock principles that employees at all levels can use to deal with complexity and to resolve conflict. Help provide a moral compass.

Valuable resource

resource that enables the firm to exploit an external opportunity or offset an external threat. Enables a firm to increase its economic value creation (V-C).

Functional manager

responsible for decisions and actions within a single functional area. These decisions aid in the implementation of the business- level strategy

Shareholder capitalism

shareholders- the providers of the necessary risk capital and the legal owners of public companies- have the most legitimate claim on profit

Information asymmetry

situation in which one party is more informed than another because of the possession of private information.

Diversification premium

situation in which the stock price of related diversification firms is valued at greater than the sum of their individual business units.

CEO/ chairperson Dualit

situation where the CEO of publicly traded company is also the chairperson of the board of directors

transnational strategy

strategy that attempts to combine the benefits of a localization strategy (High local responsiveness) with those of a global standardization strategy (lowest cost position attainable)

International strategy

strategy that involves leveraging home-based core competencies by selling the same products or services in both domestic and foreign markets.

board of directors

the centerpiece of corporate governance, composed of inside and outside directors who are elected by the shareholders

National culture

the collective mental and emotional "programming of the mind" that differentiates human groups

Vertical integration

the firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs

Local responsiveness

the need to tailor product and service offerings to fit local consumer preferences and host country requirements

Acquisition

the purchase or takeover of one company by another; can be friendly or unfriendly

Threat of entry

the risk that potential competitors will enter the industry. The more profitable an industry, the more attractive it is for new competitors to enter.

Innovation

the third step in the Innovation process. the commercialization of any new product or process, or the modification and recombination of existing ones. To sustain a competitive Advantage, a firm has to continuously innovate. Successful innovators can benefit from a number of first-mover advantages

○ reduction in competitive intensity. ○ Lower costs. ○ Increase differentiation.

there are three main benefits to a horizontal integration strategy:

Resource- based view

this model systematically aids in identifying core competencies. This model sees resources as key to Superior firm performance.

Competitive parity

2 or more firms perform at the same level

fragmented

A _________ industry consists of many small firms and tends to generate low profitability

Consolidated

A _________ industry is dominated by a few firms, or even just one firm, and has the potential to be highly profitable.

strategy canvas

A _________ is a graphical depiction of a company's relative performance vis-a-vis its competitors across the industry's key success factors. Can visually represent How a firm is stuck in the middle and, as a consequence, experience inferior performance and sustained competitive disadvantage.

Path dependence

A situation in which the options one faces in the current situation are limited by decisions made in the past. Rests on the notion that time cannot be compressed at will; learning and improvements must take place over time, and existing competencies must constantly be nourished and upgraded

Sustainable strategy Example: using renewable energy sources such as wind or solar power is sustainable over time

A strategy along the economic, social, and ecological dimensions that can be pursued overtime without detrimental effects on people or the planet.

• Incrementally or dramatically • Proactively and adaptively

A strategy evolves:

VRIO Framework

A theoretical framework that explains and predicts firm- level competitive advantage. for a firm to be the basis of a sustainable competitive advantage, it must be Valuable Rare costly to Imitate Organized to capture the value of the resource

strategic profile

A value curve that zig zags across the strategy canvas indicates a lack of Effectiveness in its _____________

growth stage

After the initial innovation has gained some Market acceptance, demand increases rapidly as first-time buyers rush to enter the market, convinced by the proof-of-concept demonstrated in the introductory stage. Since demand is strong during the growth phase, both efficient and inefficient firms Thrive; the rising tide lifts all boats. As the size of the market expands, a standard signals the markets agreement on a common set of engineering features and design choices.

Business strategy

Concerns the question of how to compete. Three generic business strategies are available: cost leadership, differentiation, or value innovation.

Functional strategy

Concerns the question of how to implement a chosen business strategy. Different corporate and business strategies will require different activities across the various functions

○ 67% face to face meetings ○ 13% working alone ○ 7% on emails ○ 6% on calls ○ 5% at business meals ○ 2% at public events

How do strategic leaders spend their day?

patented

If an invention is useful, novel, and non-obvious, it can be __________.

profitability

The five forces model helps managers use generic business strategies to protect themselves against the industry forces that drive down __________.

expand the customer base to bring in nonconsumers. Expand traditional internal firm value creation to include more non-traditional Partners. Focus on creating new Regional clusters.

To ensure that managers can reconnect economic and societal needs, Michael Porter recommends that managers focus on three things within the shared value creation framework: what are they?

A differentiation strategy

a generic business strategy that seeks to create higher value for customers in the valley that competitors create, while containing costs, Allowing the firm to charge higher prices to its customers.

Globalization hypothesis

assumption that consumers needs and preferences throughout the world are converging and thus becoming increasingly homogeneous.

Game theory

attempts to predict strategic behaviors by assuming that the moves and reactions of competitors can be anticipated

Location economies

benefits from locating value chain activities in the world's optimal geographies for specific activity, wherever that may be

External transaction costs

costs of searching for a firm or individual with whom to contract, and then negotiating, monitoring, and enforcing the contract.

Factor conditions

describe a country's endowments in terms of natural, human, and other resources. Other important factors include Capital markets, the support of institutional framework, research universities, and public infrastructure, among others

Social entrepreneurship

describes the pursuit of social goals while creating profitable business. Social entrepreneurs evaluate the performance of their Ventures not only by Financial metrics but also by ecological and social contribution. They use a triple bottom line approach to assess performance.

Direct imitation Example: Crocs were directly imitated. Competitive advantage cannot be sustained if the underlying capability can easily be replicated and directly imitated.

directly imitating the resources in question. A way to copy or imitate a valuable and rare resource, when firms have difficulty protecting their advantage. Swift if the firm is successful and intellectual property protection such as patents or trademarks to be easily circumvented.

○ liability of foreignness: additional cost of doing business in an unfamiliar cultural and economic environment, and of coordinating across Geographic distances ○ Loss of reputation. ○ Loss of intellectual property

disadvantages to Going Global include: (3)

Stock options

incentive mechanism to align the interests of shareholders and managers, by giving the recipient the right (but not the obligation) to buy Company stock at a predetermined price sometime in the future

Diseconomies of scale

increases in cost as output increases. As firms get to Big, the complexity of managing and coordinating the production process raises the cost, negating any benefits to scale.

Global strategy

part of a firm's corporate strategy to gain and sustain a competitive Advantage when competing against other foreign and domestic companies around the world

non-equity alliances

partnership based on contracts between firms. The most frequent forms of non- equity alliances are Supply agreements, distribution agreements, and Licensing agreements.

Pay- as- you- go

pay for only the services they consume. Most widely used by utilities providing power and water and cell phone service plans, but it is gaining momentum in other areas such as rental cars in cloud computing What business model is this?

Diversification discount

situation which the stock price of Highly Diversified firms is valued at less than the sum of their individual business units

learning races

situations in which both Partners in a strategic Alliance are motivated to form an alliance for learning, but the rate at which the firms learn May vary

Value chain

the internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental volume, but also incremental costs. Allows firms to obtain a more detailed understanding of how the firm's economic value creation (V-C) breaks down into a district set of activities that help determine perceived value and the costs to create it.

Merger

the joining of two independent companies to form a combined entity

Specialized assets

unique assets with high opportunity cost: they have significantly more value in their intended use than in their next best use. come in three types: Site specificity, physical asset specificity, human assets specificity

○ gain access to a larger market. ○ Gain access to a low-cost input factors. ○ To buy new competencies.

why do firms expand internationally? The main reasons firms expand abroad are to: (3)

Substitution Example: the emergence of the internet allowed Amazon and Jeff Bezos to come up with a new distribution system for books that negated the need for retail stores and high real- estate cost. This model of ecommerce substituted the traditional fragmented supply chain in book retailing and allowed Amazon to offer lower prices due to its lower operating costs.

working around it to provide a comparable product or service. Often accomplished through strategic equivalence.

Dog:

In the Boston Consulting Group (BCG) growth-share Matrix: low market growth, low relative market share

Laggards

The last consumer segments to come into the market that enter in the declining stage of the industry life cycle. These are customers to adopt a new product only if it is absolutely necessary, such as first-time cell phone adopters in the U.S. today. Generally don't want new technology, either for personal or economic reasons. Make up no more than 16% of the total Market potential. Their demand is far too small to compensate for reduced demand from the early and late majority, who are moving on to different products and services.

Incremental Innovation

The markets and Technology framework: existing markets and existing technologies.

Disruptive Innovation

The markets and Technology framework: existing markets and new technologies.

Architectural Innovation

The markets and Technology framework: new markets and existing technologies.

Radical Innovation

The markets and Technology framework: new markets and new technologies.

Reservation price

The maximum price a consumer is willing to pay for a product or service based on the total perceived consumer benefits

Risk capital

The money provided by shareholders in exchange for an equity share in a company; it cannot be recovered if the firm goes bankrupt

There are a few buyers and each buyer purchases large quantities relative to the size of a single seller The industry's products are standardized or undifferentiated commodities Buyers face low or no switching costs Buyers can credibly threaten to backward integrate into the industry

The power of buyers is high when: (4)

Powerful suppliers can raise costs of production by (1) demanding higher prices for their inputs or by (2) reducing the quality of the input factor or service level delivered

The power of suppliers reduces a firm's ability to obtain superior performance for 2 reasons:

Agency

The producer relies on an agent or retailer to sell the product, at a predetermined percentage Commission. Sometimes the producer will also control the retail price. Long used in entertainment industry, where agents Place artists or artistic properties and then take the commission. What business model is this?

discount; premium

Unrelated diversification often results in a diversification ___________ and related diversification often results in a diversification ____________.

○ increasing costs. ○ Reducing quality. ○ Reducing flexibility. ○ Increasing the potential for legal repercussions.

Vertical integration has several risks, some of which directly counted the potential benefits, including: (4)

○ lowering costs. ○ Improving quality. ○ Facilitating scheduling and planning. ○ Facilitating Investments and specialized assets. ○ Securing critical supplies and distribution channels.

Vertical integration, either backward or forward, can have a number of benefits, including: (5)

20% the industry effects. (industry in which it operates) Up to 55% firm effects. Manager actions. 25% Other effects like business cycle effects or unexplained variances.

What 3 things drive superior firm performance?

• Competitors make unexpected moves • The needs and preferences of buyers change • New market opportunities emerge • Managers develop new ideas to improve the strategy • Evidence mounts that the strategy is not working well

What are 5 reasons why a strategy changes over time?

• Satisfied stakeholders are more cooperative • Increased trust lowers transaction costs • Effective management leads to greater adaptability and flexibility • Avoidance of negative outcomes • Reduction of risk exposure • Strong reputations rewarded in the marketplace

What are 6 ways that effective stakeholder management can benefit firm performance?

Equity Alliance

a partnership in which at least one partner takes partial ownership in the other partner. A partner purchases an ownership share by buying Stocker assets, and thus making an equity investment.

Standard

an agreed-upon solution about a common set of engineering features and design choices. After a standard is established in an industry, the basis of competition tends to move away from product Innovations toward process innovations.

Diversification

an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes. An un-Diversified company focuses on a single Market, whereas a diversified company competes in several different Markets simultaneously.

Support activities Include: R&D Human resources Information systems Accounting and finance Firm infrastructure including processes, policies, and procedures

Activities that add value indirectly, but are necessary to sustain primary activities

process

After a standard is established in an industry, the basis of competition tends to move away from product Innovations toward _________ innovations.

Isolating mechanisms

Barriers to imitation that prevent Rivals from competing away the advantage of a firm may enjoy. If one, or any combination, of these isolating mechanisms is present, a firm May strengthen its basis for competitive Advantage, increasing its chance to be sustainable over a longer period Of time

○ cultural distance ○ administrative and political distance ○ Geographic distance ○ economic distance

CAGE distance framework: a decision framework based on the relative distance between home and a foreign Target country along four dimensions. What are they?

single business

Characterized by a low level of diversification, if any, because it derives more than 95% of its revenues from one business.

Triple bottom line

Combination of economic, social, and ecologically concerns- or profits, people, and planet- that can lead to a sustainable strategy. Related to stakeholder theory.

resource heterogeneity

Comes from the insight that bundles of resources, capabilities, and competencies differ across firms. This Insight ensures that analysts look more critically at the resource bundles of firms competing in the same industry (or even the same strategic group), because each bundle is unique to some extent.

It can charge higher prices to reflect the higher value and thus increase its profitability OR it can charge the same price as competitors and thus gain market share

Competitive Advantage goes to the firm that achieves the largest economic value created, which is the difference between V, the consumer's willingness to pay, and C, the cost to produce a good or service because ...

intangible; tangible

Competitive advantage is more likely to spring from _____________ rather than __________ resources. Buildings can be bought by anyone who has the cash, but a brand name must be built.

Crossing the chasm framework

Conceptual model that shows how each stage of the industry life cycle is dominated by different customer groups.

Oligopoly

Consolidated with a few large firms, differentiated products, high barriers to entry, and some degree of pricing power. Game theory. Example: Express delivery industry. Main competitors are FedEx and UPS so any strategic decision made by FedEx (e.g. to expand delivery services to ground delivery of larger- size packages) directly affects UPS. Other examples: Coke vs Pepsi, The Home Depot vs Lowes, P&G vs Unilever.

Co-opetition

Cooperation by competitors to achieve a strategic objective. Example: Samsung and google cooperate as complementors to compete against Apple's strong position in the mobile device industry

○ organic growth through internal development. ○ External growth through alliances. ○ External growth through Acquisitions.

Corporate Executives have three options at their disposal to drive firm Growth:

Focus on a strength- opportunities quadrant to derive "offensive" alternatives by using an internal strength to exploit an external opportunity. Focus on the weakness- threats quadrant to derive "defensive" Alternatives by eliminating or minimizing an internal weakness to mitigate an external threat. Focus on the strengths- threats quadrant to use an internal strength to minimize the effect of an external threat. Focus on the weaknesses- opportunities quadrant to shore up an internal weakness to improve its ability to take advantage of an external opportunity

Describe the different quadrants of the SWOT Matrix: Internal strengths and weaknesses along left side of matrix, external opportunities and threats along top of matrix.

Financial Objectives - Communicate management's targets for financial performance. - Are lagging indicators that reflect the results of past decisions and organizational activities. - Relate to revenue growth, profitability, and return on investment. Strategic Objectives - Are related to a firm's marketing standing and competitive vitality. - Are leading indicators of a firm's future financial performance and business prospects. - If achieved, indicate that a firm's future financial performance will be better than its current or past performance.

Describe the differentiating characteristics between financial and strategic objectives.

Corporate executives must provide answers to the question f where to compete, whether in industries, markets, or geographies, and how to create synergies among different business units General managers in strategic business units must answer the strategic question of how to compete in order to achieve superior performance. They must manage and align the firm's different functional areas for competitive advantage. Functional managers are responsible for implementing business strategy within a single functional area

Describe the roles of corporate, business, and functional managers in strategy formulation and implementation

resource immobility

Describes the Insight that resources tend to be "sticky" and don't move easily from firm to firm. Because of that stickiness, the resource differences that exist between firms are difficult to replicate and, therefore, can last for a long time.

Business- level strategy

Details the goal- directed actions managers taking their quest for competitive Advantage when competing in a single product Market. May involve a single product or group of similar products that use the same distribution Channel. Concerns the broad question "how should we compete?". managers must answer the who, what, why, and how questions of competition

Strategic position

Determined by a firm's business level strategy. It's strategic profile based on value creation and cost in a specific product Market.

boundaries

Determining the _________ of the firm so that it is more likely to gain and sustain a competitive Advantage is a critical challenge in corporate strategy.

value proposition

No matter how low the price, if there is no acceptable ______________, the product or service will not sell.

Entry barriers

Obstacles that determine how easily a firm can enter an industry and often significantly predict industry profit potential

cost of input factors

One of the most basic advantages a firm can have over its Rivals is access to lower-cost input factors such as raw materials, Capital, labor, and IT services.

Shareholders' equity through the selling of shares Interest- bearing debt through borrowing from financial institutions and bondholders

One of the most commonly used metrics in assessing firm financial performance is return on invested income (ROIC= Net profits/ invested capital). If ROIC is greater than its cost of capital, it generates value. Measures how effectively a company uses its total invested capital which consists of: (2)

Upper- echelons theory

Organizational outcomes including strategic choices and performance levels reflect the values of the top management team. Strategic leaders interpret situations through the lens of their unique perspectives, shaped by personal circumstances, values, and experiences.

○ Factor conditions: describe a country's endowments in terms of natural, human, and other resources. Other important factors include Capital markets, the support of institutional framework, research universities, and public infrastructure, among others ○ Demand conditions: the specific characteristics of demand in a firm's domestic Market. ○ Competitive intensity and focal industry: Companies that face a highly competitive environment at Home tend to outperform Global competitors that lack such intense domestic competition. ○ Related and supporting Industries/ complementors.

Porter's Diamond of national competitive advantage framework: explains national competitive Advantage-- why some Nations outperform others in specific Industries. it consists of four interrelated factors: What are they?

early majority

The customers coming into the market in the Shakeout stage. Make up about 34% of the total Market potential. Their main consideration in deciding whether or not to adopt a new technological innovation is a strong sense of practicality. Pragmatists are more concerned with the question of what the new technology can do for them. They weigh the benefits and costs carefully before adopting a new product or service. They prefer to wait and see how things shake out because they are aware that many hyped product introductions will fade away.

S curve

The development of most Industries follows an __________. Initial demand for a new product or service is often slow to take off, then accelerates, before decelerating, and eventually turning to zero, and even becoming negative as a market contracts.

Economic value created

The difference between a buyer's willingness to pay for a product or service in the firm's total cost to produce it. (V-C)

Consumer surplus

The difference between the value of consumer attaches to a good or service and what he or she paid for it (V-P)

Value (V)

The dollar amount a consumer attaches to a good or service; the consumers maximum willingness to pay; also called reservation price

vision, mission and values

The first step to gain and sustain a competitive advantage is to define an organization's _____________,_________, and ________

Market acceptance and Seed future growth

The Strategic objective during the introductory stage is to achieve _______________ and ____________. One way to accomplish these objectives is to initiate and leverage Network effects.

early majority; late majority

The __________ and ___________ make up the Lion's Share of the market potential.

Organized to capture value

The characteristic of having in place an effective organizational structure, processes, and systems to fully exploit the competitive potential of the firm's resources, capabilities, and competencies

Strategic activity system

The conceptualization of a firm as a network of interconnected activities. Socially complex and causally ambiguous, thus enhancing the possibility that a competitive Advantage can be sustained over time. One can easily observe several elements of a strategic activity system, but the capabilities necessary to orchestrate and manage the network of a distinct activities cannot be so easily observed and therefore are difficult to imitate. Need to evolve over time.

differentiation

The goal of a ____________ strategy is to add unique features that will increase the perceived value of goods and services in the minds of consumers so they are willing to pay a higher price. Aims to achieve a level of value creation that its competitors cannot easily match.

adequate

The goal of a cost leadership strategy is to reduce the firm's cost below that of its competitors while offering ________ value.

economic contribution

The greater the difference between value creation and cost, the greater the firm's ____________________ and the more likely it will gain competitive advantage

• the greater the firm's economic contribution • the more likely it will gain competitive advantage

The greater the difference between value creation and cost:

Efficient- market hypothesis

The idea that all available information about a firm's past, current state, and expected future performance is embedded in the market price of a firm's stock

strategic

A firm has to be able to change its internal resource base as the external environment changes. The goal should be to develop resources, capabilities, and competencies that create a ____________ fit with the firm's environment. Rather than creating a static fit, the firm's internal strengths should change with its external environment in a dynamic fashion

direct imitation and/ or substitution

A firm that enjoys a competitive Advantage, attracts significant attention from its competitors. They will attempt to negate a firm's resource Advantage by either:

Dynamic capabilities

A firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage. Essential to move Beyond a short-lived advantage and create a sustained competitive advantage.

Growth rates levels of employment interest rates price stability (inflation and deflation) currency exchange rates

In the PESTEL model- economic element, The following 5 macroeconomic factors can affect firm strategy:

Scenario planning

also starts with a top- down approach. Top management envisions different scenarios to anticipate plausible futures in order to derive strategic responses. Addresses both pessimistic and optimistic futures. The AFI framework goes through loops as different scenarios and realities emerge. Example: new lays might restrict carbon emissions or expand employee health care

Platform business

an Enterprise that creates value by matching external producers and consumers in a way that creates value for all participants, and that depends on the infrastructure or platform that the enterprise manages

Emergent Strategy

any unplanned strategic initiative bubbling up from deep within the organization. Have the potential to influence and shape a firm's overall strategy

Firm effects

attribute firm performance to the actions strategic leaders take.

inside directors

board members who are generally part of the company's senior management team; appointed by shareholders to provide the board the necessary information pertaining to the company's internal workings and performance

Forward vertical integration

changes in an industry value chain that involves moving ownership of activities closer to the end point (customer) of the value chain

First mover advantages

competitive benefits that accrue to the successful innovator. this includes economies of scale as well as experience and learning curve effects. May also benefit from Network effects. May hold important intellectual property such as critical patents. May also be able to lock in key suppliers as well as customers through increasing switching costs.

Corporate strategy

comprises the decisions that leaders make and the goal directed actions it takes to gain and sustain competitive advantage and several Industries in markets simultaneously. Provides answers to the question of where to compete.

Build- borrow- or- buy framework

conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual Arrangement or strategic Alliance (borrow), or acquire new resources, capabilities, and competencies (buy).

unrelated diversification strategy

corporate strategy in which a firm derives less than 70% of its revenues from a single business and there are few, if any, linkages among its businesses

cultural distance

cultural disparity between an internationally expanding firm's home country and its targeted host country

Economies of Scale

decreases in cost as output increases

poison pill

defense Provisions to deter hostile takeovers by making the target firm less attractive

Product- oriented vision statements

defines a business in terms of a good or service provided. Tend to force managers to take a more myopic view of the competitive landscape. Tend to be less flexible and more likely to fail.

Top- down strategic planning

derived from military strategy, is a rational process through which executives attempt to program future success. All strategic intelligence and decision- making responsibilities are concentrated in the office of the CEO. More often rests on the assumption that we can predict the future from the past. Works well when the environment does not change much.

Capital requirements

describe the "price of the entry ticket" into a new industry. How much capital is required to compete in this industry, and which companies are willing and able to make such investments?

Network effects

describe the positive effect that one sure of a product or service has on the value of that product or service for other users. The threat of potential entry Is reduces when network effects are present

Industry effects

describe the underlying economic structure of the industry. They attribute firm performance to the industry in which it competes. Common elements are entry and exit barriers, number and size of companies, and types of products and services offered.

parent subsidiary relationship

describes the most integrated alternative to performing an activity within one's own corporate family. The corporate parent owns the subsidiary and contracted via command and control.

Entrepreneurship

describes the process by which change agents (entrepreneurs) undertake economic risk to innovate

Restructuring

describes the process of reorganizing and divesting business units in activities to refocus a company to leverage its core competencies more fully.

Strategic entrepreneurship

describes the pursuit of innovation using tools and Concepts from Strategic Management. We can leverage Innovation for competitive Advantage by applying a strategic management lens. The fundamental question here is how to combine entrepreneurial actions, creating new opportunities or exploiting existing ones with strategic actions taken in the pursuit of a competitive advantage.

Mission

describes what an organization actually does such as the products and services it plans to provide, and the markets in which it will compete Asks the question: How do we accomplish our goals?

Organizational core values

the ethical standards and norms that govern the behavior of individuals within a firm or organization

Minimum efficient scale (MES)

the output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest cost position that is achievable through economies of scale. this concept applies not only to manufacturing processes but also to managerial tasks such as how to organize work.

Network effects

the positive effect that one user of a product or service has on the value of that product for other users. Occur when the value of a product or service increases, often exponentially, with the number of users. If successful, Network effects Propel the industry to the next stage of the life cycle.

horizontal integration

the process of merging with competitors, leading to Industry consolidation.

Value Innovation

the simultaneous pursuit of differentiation and low-cost in a way that creates a leap in value for both The Firm and the consumers; considered a cornerstone of Blue Ocean strategy.

Scope of competition

the size narrow or broad of the market in which a firm chooses to compete. Managers must Define this when considering different business strategies.

Power

the strategic leader's ability to influence the behavior of other organizational members to do things, including things they wouldn't do otherwise

Illusion of control

the tendency by managers to overestimate their ability to control events

the absolute size of the CEO pay package compared with the pay of the average employee the relationship between firm performance and CEO pay

What are Two issues at the Forefront of executive compensation?

Blue Ocean strategy

a business level strategy that successfully combines differentiation and cost leadership activities using value innovation to reconcile the inherent trade-offs In those two distinct strategic positions. Uses the metaphor of an ocean to denote Market spaces.

POWER OF BUYERS Benefits: >Differentiation: Protection against decrease in sales prices, because well differentiated products or services are not perfect imitations >Cost- leadership: Protection against decrease in sales prices, which can be absorbed POWER OF BUYERS Risks for both differentiation and cost leadership is erosion of margins

Explain the Benefits and risks of differentiation and cost leadership strategies relating to the force of the power of buyers

Tangible resources

Have physical attributes and are visible. Examples are labor, Capital, land, buildings, plant, equipment, and supplies

Values

Asks the question: What commitments do we make, and what guardrails do we put in place, to act both legally and ethically as we pursue our vision and mission?

inferior performance; competitive disadvantage

Being stuck in the middle of different strategic positions is a recipe for ___________ and ______________.

Economies of scope

Describe the savings that come from producing two or more outputs at less cost than producing each output individually, even though using the same resources and Technology.

industry; firm

Firm performance Is determined primarily by two factors: ________ and ______ effects

introductory

In the introductory stage, the innovators core competency is R&D, which is necessary to creating a product category that will attract customers. This is a capital-intensive process, in which the innovator is investing in designing the unique product, trying new ideas to attract customers, and producing small quantities-- all of which contribute to a high price. Initial Market size is small, and growth is slow.

Creating economic value Capturing as much of it as possible

The economic value creation framework shows that strategy is about: (2)

Profit

Difference between price charged and the cost to produce (P-C); also called producer Surplus

Black swan events In the past, most people assumed that all swans are white, so when they first encountered swans that were black, they were surprised.

Incidents that describe highly improbable, but high impact events. Example: 9/11 terrorist attack or the British exit from the European Union (Brexit)

stockholders, employees, and board members

Internal stakeholders include ...

Strategic trade- offs

Managers must make these to achieve a desired strategic position. These are choices between a cost or value position. Managers must address the tension between value Creation and the pressure to keep costs in check so as not to erode the firm's economic value creation and profit margin

fiduciary responsibility

each director has a ____________, a legal duty to act solely in another parties interest, toward the shareholders because of the trust placed in him or her.

stock price.

Effective strategies to grow the business can increase a firm's profitability and, thus, its _________

lower

The stronger the five forces, the ______ the industry's profit potential

Market capitalization

A firm's performance metric that captures the total dollar market value of a company's total outstanding shares at any given point in time

Strategic position

A firm's strategic profile based on the difference between value creation and cost (V-C)

Corporate social responsibility (CSR)

A framework that helps firms recognize and address the economic, legal, social, and philanthropic expectations that society has of the business enterprise at a given point in time

Five forces model

A framework that identifies five forces that determine the profit potential of an industry and shape a firm's competitive strategy

Dynamic capabilities perspective

A model that emphasizes a firm's ability to modify and leverage its resource base in a way that enables it to gain and sustain competitive advantage in a constantly changing environment. The essence of this perspective is that competitive Advantage is not derived from static resource or Market advantages, but from a Dynamic reconfiguration of a firm's resource base

Social complexity

A situation in which different social and business systems interact with one another. Look at it this way a group of three people has three relationships, connecting every person directly with one another. Adding a fourth person to this group doubles the number of direct relationship to six. Introducing a fifth person increases the number of relationships to 10. This gives you some idea of how complexity might increase when we combine different systems with many different parts

Causal ambiguity

A situation in which the cause and effect of a phenomenon are not readily apparent. this implies that managers need to have some kind of understanding about what causes Superior or inferior performance and why

Level 1: Highly Capable Individual. Makes productive contributions through motivation, talent, knowledge, and skills Level 2: Contributing Team Member. Uses high level of individual capability to work effectively with others in order to achieve team objectives. Level 3: Competent Manager. Is efficient and effective in organizing resources to accomplish stated goals and objectives. Does things right. Level 4: Effective Leader. Presents compelling visions and mission to guide groups toward superior performance. Does the right things. Level 5: Executive. Builds enduring greatness through a combination of willpower and humility.

According to the Level-5 leadership pyramid, which applies to both distinct corporate positions and personal growth, effective strategic leaders go through a natural progression of 5 levels. Describe those 5 levels.

guiding policy

After the diagnosis of the competitive challenge, a firm needs to formulate an effective _______________ in response to the needs to be implemented

backward-looking

All accounting data are historical and thus _______________. They focus mainly on tangible assets and do not consider intangibles that are hard or impossible to measure and quantify, such as Innovation competency.

partner selection and Alliance formation. alliance design and governance. Post formation Alliance Management

Alliance Management capability: a firm's ability to effectively manage three Alliance related tasks currently:

Stakeholder theory

An approach to understanding a firm as embedded in a network of internal and external constituencies that each make contributions and expect consideration in return

sustainable competitive advantage

An effective strategic management process lays the foundation for _______________

technology and markets

An insightful way to categorize Innovations is to measure their degree of newness in terms of _______ and ________. Measuring an Innovation along these Dimensions gives us the markets and Technology framework.

Entry barriers: relatively low bc to enter the industry, a prospective new entrant needs only a couple airplanes, which can be rented; a few pilots and crew members; some routes connecting city pairs; and gate access in airports. Threat of Substitutes: high. If prices are seen as too high, customers can drive their cars or use the train or bus Power of suppliers: high. The providers of airframes, makers of aircraft engines, air- craft maintenance companies, caterers, labor unions, and airports controlling gate access all bargain away the profitability of the airline. Power of buyers: High. Consumers make decisions primarily based on price. Nature of rivalry: incredibly intense. Thanks to internet travel sites such as Travelocity and kayak, price comparisons are effortless. Low switching costs and nearly perfect information combine to strengthen buyer power.

Analyze the Five forces for the airline industry

Strategic Initiative

Any activity a firm pursues to explore and develop new products and processes, new markets, or new ventures. Can come from anywhere; they could emerge as a response to external trends or come from internal sources. Can come from top- down or bottom- up processes.

Shakeout

As the industry moves into this next stage of the industry life cycle, the rate of growth declines. Firms begin to compete directly against one another for market share, rather than trying to capture a share of an increasing pie. As competitive intensity increases, the weaker firms are forced out of the industry, only the strongest competitors survive increasing rivalry as firms begin to cut prices and offer more services, all in an attempt to gain more of a market that grows slowly, if at all. This competition erodes profitability of all but the most efficient firms in the industry. The winners in this increasingly competitive environment are often firms that stake out a strong position as cost leaders.

Strategy as Planned emergence

Blended strategy process in which organizational structure and systems allow both top- down vision and bottom- up strategic initiatives to emerge for evaluation and coordination by top management.

Vertical integration: What stages of the industry value chain should the company participate in? The industry value chain describes the transformation of raw materials into finished goods and services along distinct vertical stages. Diversification: What range of products and services should the company offer? Geographic scope: Where should the company compete geographically in terms of regional, National, or International markets?

Corporate strategy Determines the boundaries of the firm along three dimensions that underlies an implicit desire for growth. What are those 3 boundaries?

Intellectual property (IP) protection

Critical intangible resource that can provide a strong isolating mechanism, and thus help to sustain a competitive advantage. Intent is to prevent others from copying legally protected products or services. In many knowledge-intensive industries that are characterized by high research and development costs, IP protection provides not only an incentive to make these risky and often large-scale investments in the first place, but also affords a strong isolating mechanism that is critical to a firm's ability to capture the returns to investment. Doesn't last forever. Once the protection has expired the invention can be used by others.

late majority

Customer group that enters the market in the maturity stage. They are a large customer segments, like the early majority, making up approximately 34% of the total Market potential. Shares all the concerns of the early majority. Prefer to buy from well-established firms with a strong brand image rather than from unknown new Ventures.

early adopters

Customers entering the market in the growth stage. they make up roughly 13.5% of the total Market potential. Eager to buy early into a new technology or product concept. Their demand is driven by their imagination and creativity rather than by the technology per se.

Maturity

During this stage of the industry life cycle, the industry structure morphs into an oligopoly with only a few large firms. Most of the demand was largely satisfied in the Shakeout stage. Any additional market demand in the maturity stage is limited. Demand now consists of replacement or repeat purchases. The market has reached its maximum size, and Industry growth is likely to be zero or even negative going forward.

Market changes

Dynamic capabilities also enable firms to create ________________ that can strengthen their strategic position. These _______(same)______ implemented by proactive firms introduced altered circumstances, to which more reactive Rivals might be forced to respond

Competitive industry structure

Elements and features common to all industries, including the number and size of competitors, the size of competitors, the firms degree of pricing power, the type of product or service offered, an the height of entry barriers

corporate Venture Capital (CVC)

Equity Investments by established firms in entrepreneurial Ventures; CVC falls under the broader rubric of equity alliances

local

Even in a more globalized world, the basis for competitive Advantage is often ________

Dominant strategic plan

Executed in the implementation stage. This is the option that top managers decide most closely matches the current reality. If the situation changes, managers can quickly retrieve and implement any of the alternate plans developed in the formulation stage.

POWER OF SUPPLIERS Benefits: >Differentiation: Protection against increase in input prices, which can be passed on to customers >Cost- leadership: Protection against increase in input prices, which can be absorbed POWER OF SUPPLIERS Risks for both differentiation and cost leadership is erosion of margins

Explain the Benefits and risks of differentiation and cost leadership strategies relating to the force of the power of suppliers

RIVALRY AMONG EXISTING COMPETITORS: Benefits: >Differentiation: Protection against competitors if product or service has enough differential appeal to command premium price >Cost- leadership: Protection against price wars because lowest-cost firm will win. Risks: > Differentiation: (1) Focus of competition shifts to price. (2) Increasing differentiation of product features that do not create value but raise costs. (3) Increasing differentiation to raise cost above acceptable thresholds. > Cost- leadership: (1) Focus of competition shifts to non-price attributes. (2) Lowering cost to drive value creation below acceptable threshold

Explain the Benefits and risks of differentiation and cost leadership strategies relating to the force of the rivalry among competitors

THREAT OF SUBSTITUTES Benefits: >Differentiation: Protection against substitute products due to differential appeal >Cost- leadership: Protection against substitute products through further lowering of prices THREAT OF SUBSTITUTES Risk for both Differentiation and Cost- leadership is replacement, especially when faced with innovation.

Explain the Benefits and risks of differentiation and cost leadership strategies relating to the force of the threat of substitutes

THREAT OF ENTRY benefits: >Differentiation: Protection against entry due to intangible resources such as a reputation for Innovation, quality, or customer service >Cost- leadership:Protection against entry due to economies of scale THREAT OF ENTRY risks for both differentiation and cost leadership is erosion of margins, and replacement

Explain the Benefits and risks of differentiation and cost leadership strategies relating to the force of threat of entry.

task

External factors in the firm's _______ environment are ones that mangers do have some influence over, such as the composition of their strategic groups (a set of close rivals) or the structure of the industry

general

External factors in the firm's ________ environment are ones that managers have little direct influence over, such as macroeconomic factors (e.g interest o currency exchange rates)

customers, suppliers, alliance partners, creditors, unions, communities, governments at various levels, and the media

External stakeholders include .....

Primary activities Include: Supply chain management Operations Distribution Marketing and sales After- sales service

Firm activities that add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along the internal value chain. Example: from raw materials to production phases to sales and marketing and finally customer service

stuck in the middle

Firms can end up being _____________, meaning the firm has neither a clear differentiation nor clear cost leadership profile. This leads to inferior performance and results in competitive disadvantage.

Intangible resources

Have no physical attributes and thus are invisible. Examples are a firm's culture, its knowledge, brand Equity, reputation, and intellectual property

value innovation

For Blue Ocean strategy to succeed managers must resolve trade-offs between the two generic strategic positions of low-cost and differentiation. This is done through ___________

○ provide economies of scale, which reduce cost. ○ Exploit economies of scope, which increases value. ○ Reduce costs and increase value.

For Diversification to enhance firm performance, it must do at least one of the following: (3)

-Who- which customer segments will we serve? -What customer needs, wishes, and desires will we satisfy? -Why do we want to satisfy them? -How will we satisfy our customers' needs?

For a business strategy, managers must answer the who, what, why, and how questions of competition. Detail what each of these questions are specifically.

Friedman: "The social responsibility of business is to increase its profits." Porter argues that executives should not concentrate exclusively on increasing firm profits. Multiple stakeholders. Shared value concept includes creating economic value for shareholders and social value by addressing society's needs and challenges

Friedman vs Porter:

Realized strategy

Generally formulated through a combination of its top- down strategic intentions and bottom- up emergent strategy

A differentiation strategy A cost leadership strategy

Generic business strategies are Called generic strategies because they can be used by any organization- whether manufacturing or service, large or small, for-profit or nonprofit, public or private, domestic or foreign- in the quest for competitive advantage, independent of Industry context. There are two fundamentally different generic business strategies, what are they?

principal-agent problems. The desire to overcome competitive disadvantage. Superior acquisition and integration capability.

Given that mergers and Acquisitions, on average, destroy rather than create short shareholder value, why do we see so many mergers? Reasons include: (3)

higher

Higher value creation tends to require _______ cost.

Value curve

Horizontal connection of the points of each value on the strategy canvas that helps strategic leaders diagnose and determine courses of action.

Raise and create. 1. Raise. Which of the factors should be raised well above the industry standard? Example: IKEA raised several competitive elements. It offers tens of thousands of Home Furnishing items in each of its big box stores versus a few hundred in traditional furniture stores. It also offers more than Furniture, including a range of accessories such as placemats, laptop stands, and much more. IKEA has hundreds of rooms fully decorated with all sorts of Ikea items, each with a detail tag explaining the item. They also raised the customer experience by laying out its stores in such a way thats Customers see and can touch basically all of their products. 2. Create. Which factor should be created that the industry has never offered? Example: IKEA created a new way for people to shop for furniture. Customers stroll along a predetermined path winding through the fully furnished showrooms. They can compare, test, and touch all the things in the show room. In traditional Furniture shopping, customers visit a small retail outlet where salespeople swarm them. Then the customer generally has to wait a few weeks before the furniture ships because many furniture makers do not produce items unless they are paid for in advance.

How do we increase perceived consumer benefits using Value innovation?

Eliminate and reduce. 1. Eliminate. which of the following factors that the industry takes for granted should be eliminated? Example: IKEA eliminated several taken-for-granted competitive elements such as salespeople, expensive but small retail outlets in Prime Urban locations and shopping malls, long waits after ordering Furniture, after sales services, and other factors. 2. Reduce. Which of the factors should be reduced well below the industry standard? Example: IKEA drastically reduced the need for staff at its Mega stores. Also reduced several other taken-for-granted competitive elements such as the 25 year warranty on high-end custom furniture, High degree of customization and selective options such as different fabrics and patterns, and use of expensive material such as leather or hardwoods, among other elements.

How do we lower costs using Value innovation?

Continue to innovate in order to stay ahead of the competition. Guard against disruptive innovation by protecting the low end of the market by introducing low-cost Innovations to preempt stealth competitors. Disrupt yourself, rather than wait for others to disrupt you.

How should one respond to disruptive innovation? (3)

exit, Harvest, maintain, or consolidate Exit: Some firms are forced to exit by bankruptcy or liquidation. Harvest: in pursuing a harvest strategy, The Firm reduces Investments in product support and allocates only a minimum of human and other resources. Maintain: in a maintain strategy, firms continue to support marketing efforts at a given level despite the fact that consumption may be declining. Consolidate: Some firms may choose to consolidate the industry by buying rivals even if the market size shrinks in a declining industry. This allows the consolidating firm to stake out a strong position possibly approaching monopolistic Market power, albeit in a declining industry.

In the decline stage of the industry life cycle, Managers generally have four strategic options:

1. from resource control to Resource orchestration. 2. From internal optimization to external interactions. 3. From customer value to ecosystem value

Moving from the traditional pipeline business to a platform business model implies three important shift in strategy Focus:

Think about a bathtub being filled with water. The amount of water in the bathtub indicates a company's level of a specific intangible resource stock such as its Dynamic capabilities, new product development, engineering expertise, Innovation capability, reputation for quality, and so on. Resource flows are represented by the different faucets from which water flows into the tub. These faucets indicate Investments that the Firm can make in different intangible resources. How fast the tub fills represents how fast a firm is able to build an intangible resource and depends on how much water comes out of the faucets and how long the faucets are left open. How fast the bathtub fills also depends on how much water leaks out of the tub. The outflows represent a reduction in the firm's intangible resource stocks. Resource might occur through employee turnover, especially if key employees leave. Significant resource leakage can erode a firm's competitive Advantage. A reduction resource stocks can occur if a firm does not engage in a specific activity for some time and forgets how to do this activity well. According to the dynamic capabilities perspective, the managers' task is to decide which Investments to make overtime, or which faucets to open and how far, in order to position the firm for competitive advantage in a changing environment

Identify the Difference between resource stocks and resource flows using the bathtub analogy

PESTEL analysis guiding consideration: How the external factors identified affect the firm's industry environment. Porter's five forces model identifies industry profit potential and firm positioning for gaining and sustaining competitive advantage. Strategic group map helps to find performance differences within the focal industry.

Identify the differences between PESTEL analysis, Porter's five forces model, and Strategic group mapping

competitive disadvantage

If the resource, capability, or core competency is not valuable, a firm has a ____________.

competitive parity

If the resource, capability, or core competency is valuable, but not rare, a firm has ________

temporary competitive advantage

If the resource, capability, or core competency is valuable, rare, but isn't costly to imitate, it has only _________________

temporary competitive advantage

If the resource, capability, or core competency is valuable, rare, costly to imitate, but isn't organized to capture value, then the firm only has ______________

Valuable Rare costly to Imitate Organized to capture the value of the resource

In a VRIO Framework, for a firm to be the basis of a sustainable competitive advantage, it must be ....

marketing and promotion Example: the water bottle industry commonly uses a differentiation strategy. Brands such as Lifewtr, smartwater, and Pellegrino are seen as premium water.

In a differentiation strategy, the Focus of competition tends to be on unique product features, service, and new product launches, or on _____________________ rather than price.

experience curve effects

In contrast to the learning curve, we now change the underlying technology while holding cumulative output constant. In the learning curve, we assume the underlying technology remains constant, while only cumulative output increased. Process Innovation, a new method or technology to produce an existing product, may initiate a new and steeper curve. Experience curve effects based on process innovation allow firms to leapfrog to a steep learning curve, thereby driving down its per unit cost.

Autonomous actions: strategic initiatives undertaken by lower- level employees on their own volition and often in response to unexpected situations Serendipity: random events, pleasant surprised, and accidental happenstances that can have a profound impact on a firm's strategic initiatives. Examples: post-it notes, Viagra was first intended as a drug to treat hypertension Resource- allocation process (RAP): determines the way it allocates its resources and can be critical in shaping its realized strategy

In particular, strategic initiatives can bubble up from deep within a firm through:

Star

In the Boston Consulting Group (BCG) growth-share Matrix: high market growth, high relative market share

Question mark

In the Boston Consulting Group (BCG) growth-share Matrix: high market growth, low relative market share

Cash cow

In the Boston Consulting Group (BCG) growth-share Matrix: low market growth, high relative market share

Relevancy: How relevant are the firm's existing internal resources to solving the resource cap? Tradeability: How trainable are the target resources that may be available externally? Closeness: How close do you need to be to your external resource partner? Integration: How well can you integrate the target firm, should you determine you need to acquire the resource partner?

In the Build- borrow- or- buy framework approach, strategic leaders must determine the degree to which certain conditions apply, either high or low, By responding to up to four questions sequentially before finding the best course. What are those questions?

Decline

In this final stage of the industry life cycle, the size of the market contracts further as demand Falls, often rapidly. Innovation efforts along both product and process Dimensions cease. If a technological or business model breakthrough emerges that opens up a new industry, however, then this dynamic interplay between product and process Innovation starts anew. At this final stage of the industry life cycle, Managers generally have four strategic options: exit, Harvest, maintain, or consolidate

Economies of scale Network effects Customer switching costs Capital requirements Advantages independent of size Government policy Credible threat of retaliation by incumbent firms Advantages independent of size: These advantages can be based on brand loyalty, proprietary technology, preferential access to raw materials and distribution channels, favorable geographic locations, and cumulative learning and experience effects Government policy: Example: until recently, India didn't allow foreign retailers such as Walmart or IKEA to own stores and compete with domestic companies in order to protect the company's millions of small vendors and wholesalers

Incumbent firms can benefit from several important sources of entry barriers. Describe what they are. (7)

Razor- razor- blades Example: invented by Gillette which gave away its razors and sold the replacement cartridges for relatively high prices

Initial product is often sold at a loss or given away for free to drive demand for complementary Goods. Company makes its money on the replacement part needed. What business model is this?

The innovation process

Innovation describes the discovery, development, and transformation of new knowledge in a four-step process captured in the four I's: idea, invention, Innovation, and imitation.

any stage

Innovations can emerge at __________ of an industry life cycle, which in turn can initiate a new cycle. Industries can also be rejuvenated, often in the declining stage. Some Industries never go through the entire life cycle, while others are continually renewed through innovation.

new Industries

Innovations frequently lead to the birth of __________. Example: Innovative advances in IT & Logistics facilitated the creation of the overnight express delivery industry by FedEx that of big box retailing by Walmart.

International strategy multidomestic strategy Global- standardization strategy transnational strategy

Integration- responsiveness framework: strategy framework that juxtaposes the pressures MNE faces for cost reductions and local responsiveness to the derive 4 different strategies to gain and sustain competitive Advantage when competing locally. What are they?

Strategic Management

Integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage

Corporate strategy addresses "where to compete". Business strategy addresses "how to compete"

Key difference between Corporate strategy and Business strategy

Imitation

Last step in the Innovation process. If an innovation is successful in the marketplace, competitors will attempt to imitate it.

Differences in timing and differences in complexity. Differences in timing. Learning effects occur over time as output accumulates, while economies of scale are captured at one point of time when output increases. If a firm's cost advantage is due to economies of scale, a manager should worry less about employee turnover and a potential loss in learning, and more about drops in production run Differences in complexity. In some production processes, effects from economies of scale can be quite significant, while learning effects are minimal. if the firm's low-cost position is based on complex learning, a manager should be much more concerned if a key employee was to leave.

Learning effects differ from economies of scale as shown: (2)

learning curve effects

Looking at the challenge of learning, many people tend to see it as an uphill battle, and assume the learning curve goes up. However, if we consider our productivity, learning curves go down, as it takes less and less time to produce the same output as we learn how to be more efficient--learning by doing drive down costs. As cumulative output increases, managers learn how to optimize the process, and workers improve their performance to repetition. The steeper the learning curve, the more learning has occurred.

1. managers of the acquiring company convince themselves that they are able to manage the business of the target company more effectively and, therefore create additional shareholder value. This justification is often used for an unrelated diversification strategy. 2. Although most top-level managers are aware that the majority of Acquisitions destroy rather than create shareholder value, they see themselves as the exception to the rule.

Managerial hubris Comes in two forms:

Monopolistic competition

Many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers. Example: Apple, ASUS, Dell, HP, etc. They have less than 20% market share, but while products between competitors tend to be similar, they are by no means identical so they have some ability to raise prices

materialize

Most mergers and Acquisitions destroy shareholder value because anticipated synergies never _________

Freemium

Provides the basic features of a product or service free of charge, but charges the user user for premium services such as advanced features are add-ons. What business model is this?

-T he visions are customer- oriented -Internal stakeholders are invested in defining the vision -Organizational structures such as compensation systems align with the firm's vision statement.

Research shows that vision statements and firm performance have correlation. A positive relationship is more likely to exist if: (3)

Bundling

Sells products or services for which demand is negatively correlated at a discount. Demand for two products is negatively correlated if a user values one product more than another. What business model is this?

No best strategy exists, only better ones. True Performance can be judged only in comparison to other contenders in the field or the industry average, not on an absolute basis. The goal of strategic management is to integrate and align each business function and activity to obtain Superior performance at the business unit in corporate levels. Therefore, competitive Advantage is best measured by criteria that reflect over a business unit performance rather than the performance of specific departments. Both quantitative and qualitative performance Dimensions matter in judging the effectiveness of a firm's strategy. Those who focus on only one metric will risk being blindsided by poor performance on another. A firm's business model is critical to achieving a competitive Advantage. How a firm does business is just as important as what it does.

Several managerial implications emerge from our discussion of competitive advantages and firm performance. What are they? (4)

Site specificity: assets required to be co-located, such as the equipment necessary for mining physical asset specificity: assets whose physical and Engineering properties are designed to satisfy a particular customer human assets specificity: Investments made in human capital to acquire unique Knowledge and Skills, such as mastering the routines and procedures of a specific organization, which are not transferable to a different employer.

Specialized assets come in three types. What are they?

Business model

Stipulates how the firm conducts its business with its buyers, suppliers, and partners in order to make money.

Relational view of competitive Advantage

Strategic Management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries.

Balanced scorecard

Strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals.

containing the cost to create it

Strategy is about creating superior value, while ________________________, or by offering similar value at lower cost.

Planned emergence

Strategy process in which organizational structure and systems allow bottom- up strategic initiatives to emerge and be evaluated and coordinated by top management

product features, customer service, and complements product features: Adding unique product attributes allows firms to turn commodity products into differentiated products commanding a premium price. customer service: Managers can increase the perceived value of the firm's product or service offerings by focusing on customer service. complements: complements add value to a product or service when they are consumed in tandem. Finding complements is an important task for managers in their quest to enhance the value of their offerings.

The 3 most Salient value drivers that managers have at their disposal are..

cost of input factors economies of scale learning curve effects experience curve effects:

The 4 most important cost drivers that managers can manipulate to keep the cost low are:

core competencies economies of scale economies of scope transaction costs

The 4 underlying Strategic Management Concepts that will guide our discussion of vertical integration, diversification, and Geographic competition are...

Political: result from the processes and actions of government bodies that can influence the decision and behavior of firms Economic: largely macroeconomic, affecting economy- wide phenomena The following 5 macroeconomic factors can affect firm strategy: Growth rates, levels of employment, interest rates, price stability (inflation and deflation), currency exchange rates Sociocultural: example of people becoming more health conscious or demographic trends Technological: example of lean manufacturing, six sigma technology, and biotechnology Ecological: involve broad environmental issues such as the natural environment, global warming, and sustainable economic growth Legal: include the official outcomes of political processes as manifested in laws, mandates, regulations, and court decisions

The PESTEL model groups the factors in the firm's general environment into six segments. What are they? and describe them.

limited liability for investors. this characteristic means the shareholders who provide the risk Capital are liable only to the capital specifically invested, and not for other Investments they may have made or for their personal wealth. Transferability of investor ownership- through the trading of shares of stock on exchanges such as the New York Stock Exchange and NASDAQ, or exchanges in other countries. Legal personality- that is, the law regards a non-living entity such as a for-profit firm as similar to a person, with legal rights and obligations. Separation of legal ownership and management control. In publicly traded companies, the stockholders are the legal owners of the company, and they delegate decision-making authority to professional managers.

The public stock company enjoys four characteristics that make an attractive corporate firm: what are they?

consumer and producer Surplus

The relationship between _________________________ is the reason trade happens; transacting parties capture some of the overall value created. The distribution of the value created between parties need not be equal to make trade worthwhile

The supplier's industry is more concentrated than the industry it sells to Suppliers do not depend heavily on the industry for a large portion of their revenues Incumbent firms face significant switching costs when changing suppliers Suppliers offer products that are differentiated There are no readily available substitutes for the products or services that the suppliers offer Suppliers can credible threaten to forward- integrate into the industry

The relative bargaining power of suppliers is high when: (6)

Competitive industry structure Industry growth Strategic commitments Exit barriers

The rivalry among existing competitors is determined largely by the following factors: (4)

technology enthusiasts

The smallest Market segment, making up some 2.5% of total Market potential. Often have an engineering mindset and pursue new technology practically. Frequently seek out new products before the products are officially introduced into the market.

Competitive rivalry is strongest between firms that are within the same strategic group The external environment affects strategic groups differently The five competitive forces affect strategic groups differently Some strategic groups are more profitable than others

The strategic group mapping provides additional insights. What are they? (4)

how well the strategy leverages the firm's internal strengths while mitigating its weaknesses how it helps the firm exploit external opportunities while avoiding external threats.

The success of each business level strategy depends on context and relies on two factors:

The substitute offers an attractive price- performance trade off The buyers cost of switching to the substitute is low

The threat of substitutes is high when: (2)

primary; support

The value chain breaks down into ________ and _________ activities.

Opportunity cost

The value of the best forgone alternative use of the resources employed

Incumbent firms may lower prices to make entry appear less attractive to the potential new competitors, which would in turn reduce the overall industry's profit potential, especially in industries with slow or no overall growth in demand May force incumbent firms to spend more to satisfy their existing customers. This spending reduces an industry's profit potential, especially if firms cant raise prices.

Threat of entry is the risk that potential competitors will enter the industry. The more profitable an industry, the more attractive it is for new competitors to enter. Potential new entry depresses the industry profit potential in two ways:

to gain access to New Markets and distribution channels. To gain access to a new capability or competency. To preempt rivals.

Three main reasons stand out on why firms acquire other firms:

1. it begins as a low-cost solution to an existing problem. 2. Initially, it's performances inferior to the existing technology, but it's rate of technological improvement over time is faster than the rate of performance increases required by different market segments.

To be a disruptive Force, new technology has to have 2 additional characteristics:

Who are the players? Allows strategic leaders to identify direct competitors and also focus on other external and internal stakeholders necessary to successfully compete in an industry When to enter? Need to consider at which stage of the industry (introduction, growth, shakeout, maturity, or decline) it should enter. How to enter? What type of entry? Refers to type of entry in terms of product market, value chain activity, geography, and type of business model. Where to enter?

To increase the probability of successful entry, strategic leaders need to consider the following five questions:

Identifying the most important strategic dimensions such as expenditures on research and development, technology, product differentiation, product and service offerings, cost structure, market segments, distribution channels, and customer service. These dimensions are strategic commitments based on managerial actions that are costly and difficult to reverse Choosing two key dimensions for the horizontal and vertical axes, which expose the important differences among the competitors Graphing the firms in the strategic group, indicating each firm's market share by the size of the bubble with which it is represented

To understand competitive behavior and performance within an industry, we can map the industry competitors into strategic groups. We do this by:

Subscription Example: Netflix

Traditional use for print magazines and newspapers. Users pay for access to a product or service whether they use the product or service during the payment term or not. What business model is this?

Advantages: -Communicate and Link the Strategic Vision to responsible parties within the organization - translate the vision into measurable operational goals - design and plan business processes - Implement feedback in organizational learning to modify and adapt strategic goals when indicated Disadvantages: -It is a tool for strategy implementation, not for strategy formulation. It is up to a firm's managers to formulate a strategy that will enhance the chances of gaining and sustaining a competitive advantage -The balanced scorecard approach provides only limited guidance about which metrics to choose. Different situations call for different metrics. -Managers need to be aware that a failure to achieve competitive Advantage is not so much a reflection of a poor framework but about strategic failure. -It does not provide much insight into how metrics that deviate from the set goals can be put back on track.

What are Advantages and disadvantages of the balanced scorecard?

○ Economies of Scope: Cost savings attributed to transferring the capabilities and competencies developed in one business to a new business without significant additional costs. ○ Market Power: When a firm can sell its products above the existing competitive level or reduce cost structures (or both).

What are Reasons for diversification? (2)

○ Internal capital market: Insiders can allocate capital across divisions more efficiently than the external capital market (e.g., insider knowledge of customers). Works only if managers have better information. May protect proprietary information ○ Risk Reduction ○ Tax Advantages ○ Anticompetitive reasons: Mutual forbearance or Market Power ○ Empire Building/Compensation

What are Reasons for unrelated diversification? (5)

Perfect competition Monopolistic competition Oligopoly Monopoly

What are The four main competitive industry structures?

1. Accounting profitability: we use financial data and ratios derived from publicly available accounting data 2. Shareholder value creation 3. Economic value creation

What are The three traditional frameworks to measure and assess firm performance?

The presence of sizable economies of scale in production or other areas of operation Cost and resource disadvantages not related to scale of operation Strong brand preferences and high degrees of customer loyalty High capital requirements Restrictive regulatory policies The difficulties of building a network of distributors-retailers and securing adequate space on retailers' shelves Tariffs and international trade restrictions The ability and willingness of industry incumbents to launch vigorous initiatives to block a newcomer's successful entry

What are some Examples of barriers to entry?

All accounting data are historical and thus backward-looking. Accounting profitability ratios show us only the outcomes from past decisions, and the past is no guarantee of future performance. There is also a significant time delay before accounting data become publicly available. Accounting data do not consider off-balance-sheet items. Off-balance-sheet items, such as pension obligations or operating leases in the retail industry, can be significant factors. Accounting data Focus mainly on tangible assets, which are no longer the most important. Accounting data capture some intangible assets, such as the value of intellectual property and customer Goodwill, but many key tangible assets are not captured

What are the 3 Limitations of accounting data?

1. Determining the value of a good in the eyes of consumers is not a simple task. 2. The value of a good in the eyes of consumers changes based on income, preferences, time, and other factors. 3. To measure firm-level competitive Advantage, we must estimate the economic value created for all products and services offered by the firm.

What are the 3 Limitations of economic value creation?

1. Stock prices can be highly volatile, making it difficult to assess firm performance, particularly in the short-term. Implies that total return to shareholders is a better measure of firm performance and competitive advantage over the long-term because of the "noise" introduced by market volatility, external factors, and investor sentiment 2. Overall macroeconomic factors such as economic growth or contraction, the unemployment rate, and interest and exchange rates all have a direct bearing on stock prices. 3. Stock prices frequently reflect the psychological mood of investors, which can at times be irrational.

What are the 3 Limitations of shareholder value creation?

1. Grandiose statements are not strategy. Examples: "Our strategy is to win" or "We will be #1". Provide little managerial guidance and lead to goal conflict and confusion. 2. A failure to face a competitive challenge is not strategy. If a firm doesn't define a clear competitive challenge, employees have no way of assessing whether they are making progress in addressing it. 3. Operational effectiveness, competitive benchmarking, or other tactical tools are not strategy. Examples: pricing strategy, internet strategy, alliance strategy, operations strategy, etc. These elements may be a necessary part of a firm's functional and global initiatives to support is competitive strategy, but they are not sufficient to achieve competitive advantage. -i. We reserve the term strategy for describing the firm's overall efforts to gain and sustain competitive advantage.

What are the 3 major hallmarks of what strategy is NOT?

Leverage existing assets. Think about a new combination of resources and capabilities that firms already possess, and if needed to combine them with partner resources through strategic alliances. Reconfigure value chains. Establish a niche in an existing industry. Example: red bull vs coke or Pepsi.

What are the 3 options when deciding how to enter?

idea, invention, Innovation, and imitation.

What are the 4 I's of The innovation process?

- Define the relevant industry. - Identify the key forces - group them. - Identify the drivers of each force. Are they strong or weak? - Assess overall industry structure. Profit potential

What are the 4 steps in How to apply the Five Forces Model?

1. Raw materials. 2. Intermediate goods and components. 3. Final assembly and Manufacturing. 4. Marketing and sales 5. After sales service and support.

What are the 5 Stages of Industry value chain?

○ Strengthen competitive position. ○ New markets. ○ Hedge against uncertainty. ○ Access critical complementary assets. ○ Learn new capabilities.

Why do firms enter strategic alliances? (5)

1. Identify how can the firm use strengths to take advantage of opportunities and use strengths to reduce the likelihood and impact of threats 2. Identify how can the firm overcome weaknesses that prevent the firm from taking advantage of opportunities and overcome weaknesses that will make threats a reality 3. Evaluate the pros and cons of each strategic alternative. 4. Select one or more alternatives to implement. 5. Carefully explain decision rationale. Including why other strategic alternatives were rejected

What are the 5 Steps in conducting a SWOT Analysis?

Increase profits Lower costs Increase market power Reduce risk Motivate management

What are the 5 reasons why firms need to grow?

Introduction Growth Shakeouts Maturity Decline

What are the 5 stages in the The industry life cycle?

- Strategic leadership and strategy process - External analysis - Internal Analysis - Competitive advantage, firm performance, and business models

What are the Analysis (Part 1) topics?

1. Restricts the classic economic goal of profit maximization 2. Business is not equipped to handle social activities 3. Dilutes the primary purpose of business 4. Increases the power of business 5. Limits the ability to compete in a global marketplace

What are the Arguments against socially responsible business being "good" business? (5)

1. Protects business self-interest 2. Wards off future government intervention 3. Addresses issues by using business resources and expertise 4. Addresses social issues brought on by business, and allows business to be part of the solution 5. The public supports CSR

What are the Arguments for socially responsible business being "good" business? (5)

Step 1: Who are our stakeholders? Step 2: What are our stakeholders' interests and claims? Step 3: What opportunities and threats do our stakeholders present? Step 4: What economic, legal, ethical, and philanthropic responsibilities do we have to our stakeholders? Step 5: What should we do to effectively address the stakeholder concerns?

What are the Five step process of recognizing stakeholders' claims?

- Business strategy - Corporate strategy - Global strategy

What are the Formulation (Part 2) topics?

Razor- razor- blades Subscription Pay- as- you- go Freemium Wholesale Agency Bundling

What are the Some of the more popular business models? (7)

How do customers view us? The customer's perspective concerning the company's products and services links directly to its revenue and profits. How do we create value? This challenges managers to develop strategic objectives that ensure future competitiveness, Innovation, and organizational learning. What core competencies do we need? This question focuses managers internally, to identify the core competencies needed to achieve their objectives in the accompanying business processes that support, hone, and leverage those competencies. How do shareholders view us? Understanding the shareholders view of value creation leads managers to a more future and oriented evaluation

What are the The four key questions in a balanced scorecard approach?

taper integration and strategic outsourcing taper integration: A way of orchestrating value activities in which a firm is backwardly integrated but also relies on outside Market firms for some of its supplies and/ or is forwardly integrated but also relies on outside Market firms for some of its distribution. strategic Outsourcing: Moving one or more internal value chain activities outside the friends boundaries to other firms in the industry value chain.

What are the Two alternatives to vertical integration that provide similar benefits without the accompanying risks?

adverse selection moral hazard

What are the Two specific Agency problems?

Core competencies that are not continuously nourished will eventually lose their ability to yield a competitive advantage. In analyzing a company's success in the market, it can be too easy to focus on the more visible elements or facts of core competencies such as superior products or services. It is more important to understand the invisible part.

What are the Two takeaways from core competencies?

1. Better expectations of future resource value: examples of Nike signing future mega-athletes early in their career (i.e., Michael Jordan) or Real estate development- Highway expansion 2. Path dependence 3. Causal ambiguity 4. Social complexity 5. Intellectual property (IP) protection

What are the conditions that make it costly for competitors to imitate the resources, capabilities, or competencies that underlie a firm's competitive advantage? (5)

Technology enthusiasts early adopters early majority late majority Laggards Technology enthusiasts: 2.5% of total market potential. Early adopters: 13.5% of total market potential. Growth stage. Early majority: 34% of total market potential. Shakeout stage. late majority: 34% of total market potential. Maturity stage. Laggards: no more than 16% of total market potential. Decline stage.

What are the different customer groups?

(from bottom to top) Economic Responsibilities- gain and sustain competitive advantage Legal Responsibilities- laws and regulations are society's codified ethics. Define minimum acceptable standard Ethical Responsibilities- do what is right, just, and fair Philanthropic Responsibilities- corporate citizenship

What are the elements of the Pyramid of Corporate Social Responsibility?

single business Dominant business Related diversification strategy Unrelated diversification: the conglomerate

What are the four main types of business diversification?

Why does the business model create value? What activities need to be performed to create and deliver the offerings to customers? How are the offerings to the customers created? Who are the main stakeholders performing activities?

What are the questions asked in the Why, what, who, and how business models framework?

-Power -Legitimacy -Urgency

What are the three important stakeholder attributes?

spread their fixed costs over a larger output, Employ specialized systems and equipment, and take advantage of certain physical properties spread their fixed costs over a larger output: This is why gains in market share are often critical to drive down per unit cost. This relationship is even more pronounced in many high-tech Industries because most of the cost occurs before single product or service is sold. Employ specialized systems and equipment: Larger output allows firms to invest in more specialized systems and Equipment such as ERP software or manufacturing robots. take advantage of certain physical properties: One such property is known as the cube Square rule, the volume of a body such as a pipe or a tank increases disproportionately more than its surface.

What causes per unit cost to drop as output increases? Economies of scale allow firms to:

Total return to shareholders

What investors are primarily interested in. Return on risk Capital that include stock price appreciation plus dividends received over specific period. external and forward-looking performance metric. Indicates how the stock market views all available public information about a firm's past, current state, and expected future performance, with most of the weight on future growth expectations.

the strategic role of complements.

What is The sixth force?

Part 1: A diagnosis of the competitive challenge. Accomplished through analysis of the firm's external and internal environments Part 2: A guiding policy to address the competitive advantage. Accomplished through strategy formulation, resulting in the firm's corporate, business, and functional strategies Part 3: A set of coherent actions to implement the firms guiding policy. Accomplished through strategy implementation.

What is a good strategy in relation to the AFI Strategy Framework?

the late majority is not confident in their ability to master the new technology so they prefer to wait until standards have emerged and are firmly entrenched, so that uncertainty is much reduced.

What is a key difference between the late majority and the early majority?

Blue oceans represent untapped Market space, the creation of an additional demand, and the resulting opportunities for highly profitable growth. Red oceans are the known market space of existing Industries. In Red oceans, the Rivalry among existing firms is Cut-throat because the market space is crowded and competition is a zero-sum game. Products become Commodities and competition is focused mainly on price. Any market share gain comes at the expense of other competitors in the same industry, turning the oceans bloody red.

What is the difference between blue and red oceans?

Experience curve effects: we now change the underlying technology while holding cumulative output constant. In the learning curve, we assume the underlying technology remains constant, while only cumulative output increased.

What is the key difference between learning curve effects and experience curve effects?

profit margin

When a firm's distinct activities generate value greater than the cost to create them, the firm obtains a ______________, assuming the market price the firm is able to command exceeds the cost of value creation.

positive externality

When network effects are present, the value of the product or service increases with the number of users. This is an example of __________________.

Strategic planning: Relatively formal, top- down planning approach Scenario planning: Relatively formal, top- down planning approach Strategy as planned emergence: Less formal and less stylized approach

When setting the strategy process, strategic leaders reply on three approaches. list them in the order that reflects how approaches were developed

differentiation

When the competitive scope is Broad and strategic position is differentiation then the generic business strategy is _________

cost leadership

When the competitive scope is Broad and the Strategic position is cost the generic business strategy is ______________.

focused cost leadership

When the competitive scope is narrow and the Strategic position is cost then the generic business strategy is _____________

focused differentiation

When the competitive scope is narrow and the Strategic position is differentiation than the generic business strategy is __________

Idea

Where Innovation process begins. Often presented in terms of abstract Concepts or as findings derived from basic research.

1. executive compensation- Has attracted significant attention in recent years. Two issues are at the Forefront: the absolute size of the CEO pay package compared with the pay of the average employee and the relationship between firm performance and CEO pay 2. The market for corporate control. 3. Financial statement Auditors, government regulators, and Industry analysts.

While the board of directors is the central governance piece for a public stock company, several other corporate mechanisms are also used to align incentives between principals and agents, including: (3)

Conglomerate

a company that combines two or more strategic business units under one overarching Corporation; follows an unrelated diversification strategy

Multinational Enterprise (MNE)

a company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries. Many MNEs are more than 50% globalized; they receive the majority of their revenues from countries other than their home country

The markets and Technology framework

a conceptual model to categorize Innovations along the market (existing/new) & technology (existing/new) dimensions. new and existing markets are on the left axis and existing and new technologies on the bottom axis. Four types of Innovations emerge incremental, radical, architectural, and disruptive innovation.

Boston Consulting Group (BCG) growth-share Matrix

a corporate planning tool in which the corporation is used as a portfolio of business units, which are represented graphically along relatively market share (horizontal axis) and speed of market growth (vertical axis). SBUs are plotted into four categories (dog, cash cow, star, and question mark) each of what which warrants a different investment strategy.

CAGE distance framework

a decision framework based on the relative distance between home and a foreign Target country along four dimensions: ○ cultural distance ○ administrative and political distance ○ Geographic distance ○ economic distance

the industry value chain

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

A patent

a form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specified time in exchange for public disclosure of underlying idea. Expires 20 years from the filing date. Often translates into a temporary Monopoly position until the patent expires.

Licensing

a form of long-term Contracting in the manufacturing sector that enables firms to commercialize intellectual property such as a patent.

Managerial hubris

a form of self-delusion in which managers convince themselves of their Superior skills in the face of clear evidence to the contrary.

Core competence- Market Matrix

a framework to guide corporate diversification strategy by analyzing possible combinations of existing/ new core competencies and existing/ new markets. Existing/ new core competence on the left axis and existing/ New Market is on the bottom axis

A cost leadership strategy

a generic business strategy that seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling The Firm to offer lower prices to its customers.

related linked diversification strategy

a kind of related diversification strategy in which Executives pursue various businesses opportunities that share only a limited number of linkages

related constrained diversification strategy

a kind of related diversification strategy in which executives Pursue only businesses where they can apply the resources and core competencies already available in the primary business

Industry analysis

a method to (1) identify an industry's profit potential and (2) derive implications for a firm's strategic position within an industry

The shared value creation framework

a model proposing that managers have a dual focus on shareholder value creation and value creation for society. Provides guidance to managers about how to reconcile the economic imperative of gaining and sustaining competitive Advantage with corporate social responsibility.

Industry convergence

a process whereby formerly unrelated industries begin to satisfy the same customer need. Often bright on by technological advances.

Complement

a product, service, or competency that adds value to the original product when the two are used in tandem

leveraged buyout (LBO)

a single investor or group of investors buys, with the help of borrowed money (leveraged against the company's assets), the outstanding shares of a publicly traded company in order to take it private

Principal-agent problem

a situation in which an agent performing activities on behalf of the principal pursues his or her own interests. It is a major disadvantage of organizing economic activity within firms, as opposed to within markets.

moral hazard

a situation in which information asymmetry increases the incentive of one party to take undue risks or shirk other responsibilities because the costs incurred to the other party

adverse selection

a situation that occurs when information asymmetry increases the likelihood of selecting inferior alternatives

joint venture

a stand-alone organization created and jointly owned by two or more parent companies

Corporate governance

a system of mechanisms to directly control an Enterprise in order to ensure that it pursues its strategic goals successfully and legally. Attempts to address the principal-agent problem, which describes any situation in which an agent performs activities on behalf of the principal.

Transaction cost economics

a theoretical framework in Strategic Management to explain and predict the boundaries of the firm, which is Central to formulating a corporate strategy that is more likely to lead to competitive advantage. Help mangers decide what to "make" and "buy"

agency theory

a theory that views the firm as a Nexus of legal contracts. in this perspective, corporations are viewed as a set of legal contracts between different parties.

non-equity alliances Pros: Flexible, fast, easy to get in and out Cons: weak ties, lack of trust/ commitment Equity alliances Pros: stronger ties, potential for trust/ commitment, window into new technology (option value) Cons: less flexible, slower, can entail significant investment Joint ventures. Pros: strongest tie, trust/ commitment most likely, may be required by institutional setting Cons: potentially long negotiations and significant Investments, long-term solution, managers may have two reporting lines (two bosses)

alliances can be governed by the following mechanisms: non-equity alliances, equity alliances, and joint ventures. Describe pros and cons of each

Resources

any assets such as cash, buildings, machinery, or intellectual property that a firm can draw on when crafting and executing a strategy. Can be tangible or intangible.

real-options perspective

approach to strategic decision-making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially overtime.

Strategic commitment

big changes that cannot be easily reversed. Example: sizable investments or changes to an organizations incentive and reward system.

Corporate Strategy

concerns questions relating to where to compete as to industry, markets, and geography

Economies of scale

cost advantages that accrue to firms with larger output because they can spread fixed costs over more units, employ technology more efficiently, benefit from a more specialized division of labor, and demand better terms from their suppliers. These factors in turn drive down the cost per unit, allowing large incumbent firms to enjoy a cost advantage over new entrants that cannot muster such scale.

Internal transaction costs

costs pertaining to organizing an economic exchange within the hierarchy; also called administrative costs.

Alliance Champion: a senior, corporate level executive responsible for high-level support and oversight. Also responsible for making sure that the alliance fits within the firm's existing Alliance portfolio and corporate level strategy Alliance leader: has the technical expertise and knowledge needed for the specific technical area and is responsible for the day-to-day management of the alliance. Alliance manager: positioned within the office of Alliance Management, serves as an alliance process resource and business integrator between the two Alliance partners and provides Alliance training and development, as well as diagnostic tools

each Alliance is managed by a three-person team:

Porter's Diamond of national competitive advantage framework

explains national competitive Advantage-- why some Nations outperform others in specific Industries. it consists of four interrelated factors.

foreign direct investment (FDI)

firms investments in value chain activities abroad

Costly- to- imitate resource

firms that do not possess the resource are unable to develop or buy the resource at a reasonable price

Industry

group of incumbent companies facing more or less the same set of suppliers and buyers

Death- of- distance

hypothesis assumption that geographic location alone should not lead to firm-level competitive Advantage because firms are now, more than ever, able to source inputs globally

Wholesale

in the book publishing industry, book publishers would sell books to retailers at a fixed price. Retailers, however, we're free to set their own price on any book and profit from the difference between their selling price and the cost to buy the book from the publisher (or wholesaler) What business model is this?

Crossing the chasms

many innovators are unable to successfully transition from one stage of the industry life cycle to the next. The core argument is that each stage of the industry life cycle is dominated by different customer groups with distinctly different preferences that may enter the industry at each stage of the industry life cycle. Each customer group responds differently to a technological innovation due to differences in the psychological, demographic, and social attributes observed in each unique customer segment. Only companies that recognize the differences between the early customer groups and Later customer groups are able to apply the appropriate competencies at each stage of the industry life cycle will have a chance to transition successfully from stage to stage.

Winner-Take-All markets

markets where the market leader captures almost all of the market share and is able to extract a significant amount of the value created.

Product innovations

new or recombined knowledge embodied in new products such as the jet airplane, electric vehicle, smartphones, and wearable computers.

Process Innovations

new ways to produce existing products or deliver existing services such as the internet, lean manufacturing, Six Sigma, biotechnology, and so on.

Value creation

occurs because companies with a good strategy are able to provide products or services to consumers at a price point that they can afford while making a profit at the same time. Lays the foundation for the benefits that successful economies can provide: education, infrastructure, public safety, health care, clean water and air, etc.

Strategic leadership

pertains to executives use of power and influence to direct the activities of others when pursuing an organization's goals

Value drivers

related to a firm's expertise in, and organization of, different internal value chain activities. contribute to competitive Advantage only if their increase in value creation exceeds the increase in cost.

Global- standardization strategy

strategy attempting to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best of class capabilities reside at the lowest cost

Integration- responsiveness framework

strategy framework that juxtaposes the pressures MNE faces for cost reductions and local responsiveness to the derive 4 different strategies to gain and sustain competitive Advantage when competing locally.

multidomestic strategy

strategy pursued by MNEs that attempts to maximize local responsiveness, with the intent that local consumers will perceive them to be domestic companies

Entrepreneurs

the agents who introduced change into the competitive system. They do this not only by figuring out how to use inventions, but also by introducing new products or Services, New production process, and new forms of organization. Entrepreneurs who drive Innovation need just as much skill, commitment, and daring as the inventors who are responsible for the process of invention. Entrepreneurs innovate by commercializing ideas and inventions. They seek out or create new business opportunities and then assemble the resources necessary to exploit them.

Resource stocks

the firm's current level of intangible resources.

Resource flows

the firm's level of investments to maintain or build a resource

platform ecosystem

the market environment in which all players participate relative to the platform.

Exit barriers

the obstacles that determine how easily a firm can leave an industry. An industry with low exit barriers is more attractive because it allows underperforming firms to exit more easily.

Capabilities

the organizational and managerial skills necessary to orchestrate a diverse set of resources and deploy them strategically. Intangible, they find their expression in a company's structure, routines, and culture.

Intended strategy

the outcome of a rational and structured, top- down strategic plan

Globalization

the process of closer integration and exchange between different countries and peoples worldwide, made possible by Falling trade and investment barriers, advances in telecommunication, and reductions in transportation costs.

Core competencies Examples: -Apple's core competencies are their superior industrial design in integration of hardware and software, their superior marketing and retailing experience, and establishing an ecosystem of products and services that reinforce one another in a virtuous fashion - Facebook's core competencies are their superior IT capabilities to provide reliable social network services globally on a large scale and their superior algorithms to offer targeted online ads -Uber's core competency is their superior mobile- app based transportation and logistics expertise focused on cities, but on global scale

unique strengths embedded deep within a firm. Can drive competitive advantage.

Trade secrets

valuable for proprietary information that is not in the public domain and where the firm makes every effort to maintain its secrecy. Example: the Coca-Cola recipe.

Strategic alliances

voluntary Arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services. This is an umbrella term that denotes different hybrid organizational forms- among them, long-term contracts, alliances, and joint ventures.

Economic incentives Organizational inertia Innovation ecosystem Economic incentives: Economists highlight the role of incentives in strategic Choice. Once an innovator has become an established incumbent firm, it has strong incentives to define a strategic position and Market power. Many markets where Network effects are important, turn into Winner-Take-All markets. Organizational inertia: resistance to changes in the status quo. Incumbent firms tend to favor incremental innovations that reinforce existing organizational structure in power distribution while avoiding radical Innovation that could disturb the existing power distribution. Innovation ecosystem: a firm's embeddedness and a complex network of suppliers, buyers, and complementors, which requires interdependent strategic decision-making. Continuous incremental Innovations reinforce this Network and keep all its members Happy, While radical Innovations disrupt it.

what are the 3 reasons why incumbents firms tend to be a source of incremental rather than radical Innovations?

resource heterogeneity resource immobility

what are the Two assumptions critical in the resource-based model?

Sustainable competitive advantage

when a firm is able to outperform its competitors or the industry average over a prolonged period

Vertical market failure

when the markets along the industry value chain are too risky, and alternatives to costly in time or money.

Strategic Business Units (SBUs) Within each strategic business unit are various business functions such as accounting, finance, HR, product development, operations, manufacturing, marketing, and customer service.

where business strategy occurs within. The standalone divisions of a larger conglomerate, each with its own profit- and- loss responsibility

National competitive Advantage

world leadership in specific Industries