Foundations of Strategy - Exam 2

product-market diversification strategy

(a type of general diversification strategy) a company that pursues both a product and a geographic diversification strategy simultaneously

geographic diversification strategy

(a type of general diversification strategy) a firm that is active in several different countries

product diversifiction strategy

(a type of general diversification strategy) a firm that is active in several different product markets

industry value chain

(also called vertical ______ ______) depiction of the transformation of raw materials into finished goods and services along distinct vertical stages each which typically represents a distinct industry in which a number of different firms are competing. moving up or down "it" would be vertical integration.

taper integration

(an alternative to vertical 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 (ex: apple and nike). firms that did this achieved superior performance in both innovations and financial performance when compared with firms that relied on vertical integration or strategic outsourcing.

strategic outsourcing

(an alternative to vertical integration) which involves moving one or more internal value chain activities outside the firm's boundaries to other firm's in the industry value chain

joint venture

(another form of strategic alliance) two or more partners create and jointly own a NEW organization. Partners each contribute equity so they make a long-term commitment which in turn facilitates transaction specific investments.

economies of scale

(cost driver) firms with greater market share might be in this position to decreases their cost per unit ad output increases. allows a firm to: spread fixed costs over larger output, employ specialized systems and equipment, take advantage of certain physical properties.

experience curve

(cost driver) in contrast to the learning curve, we now change the underlying technology whole holding the cumulative output constant. in general, technology and production produces do not stay constant. process innovation (a new method to technology to produce a product) may initiate a new and steeper curve.

cost of input factors

(cost driver) raw materials, capital, labor and IT services

learning curve

(cost driver) the more complex the underlying process to manuf. a product or deliver a service, the more learning effects we can expect. As cumulative output increases, managers learn how to optimize the process and workers improve their performance through repetitions. the only difference between two points on the SAME learning curve is the size of cumulative output, the underlying technology remains the same.

licensing

(form of long-term contract) occurs in the manufacturing sector and enables firms to commercialize intellectual property such as a patent.

franchising

(form of long-term contract) where a franchisor grants a franchisee the right to use the franchisor's trademark and business processes to offer goods and services that carry the franchisor's brand name

equity alliances

(form of strategic alliance) a partnership in which at least one partner takes partial ownership in the other partner. A partner purchases an ownership share by buying stock or assets. can help a company gain more information (about another/the other company)

4 key questions when formulating blue ocean strategy

(lower costs) 1. eliminate. which of the factors that the industry takes for granted should be eliminated? 2. reduce. which of the factors should be reduced well below the industry's standard? (increase perceived consumer benefits) 3. raise. which of the factors should be raised well above the industry's standard? 4. create. which factors should be created that the industry has never offered?

physical asset specificity

(type of specialized asset) assets whose physical and engineering properties are designed to satisfy a particular customer. ex: molds for bottling for E&J Gallo

human asset specificity

(type of specialized asset) investments made in human capital to acquire unique knowledge and skills such as mastering the routines and procedures of a specific org. which are not transferable to a different employer.

site specificity

(type of specialized asset)assets required to be co-located, such as the equipment necessary for mining bauxite

transaction costs

(underlying strategic management concept) all costs (internal and external) associated with an economic exchange. answer the question of whether it is cost-effective for the firm to expand its boundaries through vertical integration or diversification.

economies of scope as a underlying strategic management concept

(underlying strategic management concept) the savings that come from producing two or more outputs or providing different services at less of a cost than producing each individually.

core competencies

(underlying strategic management concept) unique strengths embedded deep within a firm. they allow a firm to differentiate its products and services from those of its rivals. determines a firms boundaries.

complements

(value driver) add value to a product or service when they are consumed in tandem.

product features

(value driver) adding unique product attributes allows firms to turn commodity products into differentiated products commanding a premium price

advantages of firms (for organizing economic activity)

- ability to make command-and-control decisions along clear hierarchal lines of authority - coordination of high, complex tasks to allow for specialization and division of labor - transaction-specific investments such as specialized robotics equipment that is of high value to the firm but little value to the external market - creation of a community of knowledge

disadvantages of firms (for organizing economic activity)

- administrative costs because of necessary bureaucracy - low-powered incentives such as hourly wages and salaries ( less attractive motivators that entrepreneurial activities) - principal-agent problem

advantages of markets (for organizing economic activity)

- high-powered incentives. rather than work as a salaries engineer for an existing firm, an individual can start a new venture offering specialized software. entrepreneurs ability to capture the venture's profit. - increased flexibility. compare prices and services among many different providers

risks of vertical integration

- increasing costs - reducing quality - reducing flexibility - increasing the potential for legal reprecussions (monopolies)

benefits of vertical integration

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

alliances can be governed by the following mechanisms:

- non-equity alliances - equity alliances - joint ventures

why do we see so many mergers?

- principal-agent problems - the desire to overcome competitive disadvantage - superior acquisition and integration capability

For diversification to enhance firm performance, it must do at least one of the following:

- provide economies of scale, which reduces costs - provide economies of scope, which increases value - reduce costs AND increase value

there are three main benefits to a horizontal integration strategy

- reduction in competitive intensity - lower costs - increased differentiation

disadvantages of markets (for organizing economic activity)

- search costs. scouring the market to find reliable suppliers - opportunism by other parties. self-interest seeking with guile - incomplete contracting. all contracts are incomplete to some extent because not all future contingencies can be anticipated at the time of contracting. also difficult to specify expectations - enforcement of contracts. difficult, costly, and time consuming

common reasons firms enter alliances

- strengthen comp. adv - enter new markets - hedge against uncertainty - access critical complementary assets - learn new capabilities

3 main reasons firms make acquisitions

- to gain access to new markets and distribution channels - to gain access to a new capability or competency - to preempt rivals

underlying strategic management concepts

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

4 strategic options at the final stage of the industry life cycle

1. exit 2. harvest (reducing investments in future innovation) 3. maintain 4. consolidate (buying rivals)

moving from the traditional pipeline business to a platform business model implies 3 important shifts in strategy focus.

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

success of strategy depends on 2 factors

1. how well the strategy leverages the firm's internal strengths while mitigating its weaknesses. 2. how well it helps the firm exploit external opportunities while avoiding external threats

why firms need to grow

1. increase profits 2. lower costs 3. increase market power 4. reduce risk 5. motivate management (why for each on page 269)

4 options to formulate corporate strategy via core competencies

1. leverage existing core competencies to improve current market position 2. build new core competencies to protect and extend current market position 3. redeploy and recombine existing core competencies to compete in markets of the future 4. build new core competencies to create and compete in markets of the future

managerial hubris comes in 2 forms:

1. managers of the acquiring firm convince themselves that they are able to manage the business of the target company more effectively and therefore create additional shareholder value 2. although most top-level managers are aware that majority of acquisitions destroy rather than create shareholder value, they see themselves as the exceptions to the rule.

industry value chain stages

1. raw materials 2. components & intermediate goods 3. final assembly & manufacturing 4. marketing & sales 5. after-sales service and support (not all stages are equally profitable)

4 main types of business diversification

1. single business 2. dominant business 3. related diversification 4. unrelated diversification

3 dimensions that determine the boundaries of the firm

1. the degree of vertical integration 2. the type of diversification 3. the geographic scope

alliance management capability

A firm's ability to effectively manage three alliance-related tasks concurrently: (1) partner selection and alliance formation, (2) alliance design and governance, and (3) post-formation alliance management.

strategic trade-offs

Choices between a cost or value position. Such choices are necessary because higher value creation tends to generate higher cost.

relevancy

How relevant are the firm's existing internal resources to solving the resource gap?

vertical integration question

In what stages of the industry value chain should the company participate?

diversification question

What range of products and services should the company offer?

geographic scope question

Where should the company compete geographically?

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. If successful, investments in differentiation and low cost are not substitutes but are complements providing important spillover effects.

conglomerate

a company that combines two or more strategic business unites under one overarching corp and follows an unrelated diversification strategy.

single business

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

related-constrained diversification

a firm follows this when it derives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business linked to the primary business activity.

patent

a form of intellectual property and gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea. in the U.S. the time period to exclude others from use is 20 years from the filing date of a patent application.

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.

BCG growth-share matrix

a helpful tool to guide corporate portfolio planning. this matrix locates the firm's individual SBUs in two dimensions: relative market share (horizon axis) and speed of market growth (vertical axis)

credible commitment

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

innovation ecosystem

a network of suppliers, buyers, complementors, and so on. they no longer make independent decisions but must consider the ramifications on other parties in their innovation ecosystem.

information asymmetry

a situation in which one party is more informed than another, because of the possession of private information. When firms transact in the market, such unequal information can lead to a lemons problem. (frequently sellers have better info about products and services than buyers).

core competence-market matrix

advanced by Gary Hamel and C.K. Prahalad as a way to guide managerial decisions in regard to diversification strategies. the first task for managers is to identify their existing core competencies and understand the firm's current mkt situation. seen on exhibit 8.9 on page 292

markets-and-technology framework

along the horizontal axis we ask whether the innovation builds on existing technologies or creates a new one. on the vertical axis, we ask whether the innovation is targeted toward existing or new markets. four types of innovation emerge: incremental, radical, architectural, and disruptive innovations.

standard

an agreed-upon solution about a common set of engineering features and design choices. happens as the size of the market expands (in the growth stage).

platform business

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

corporate venture capital (CVC)

another governance mechanism that falls under the broad rubric of equity alliances. investments by established firms in entrepreneurial ventures. strategy scholars find that these have a positive impact on value creation for the investing firm, especially in high-tech industries.

diversification

answers to questions about the number of markets to compete in and where to compete geographically relate to this topic. increases the variety of products and services it offers or markets and the geographic regions in which is competes,

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 over time. this approach allows the firm to obtain additional info at predetermined stages.

equity alliance

at least one partner takes partial ownership in the other partner. less common than non-equity alliances because they often require larger investments. allow for the sharing of tacit knowledge. tend to produce stronger ties and greater trust. they also offer a Windows into new technology.

minimum efficient scale

between "Q1" and "Q2" the returns to scale are constant (the bottom flat part of curve). Th output range needed to bring down the cost per unit as much as possible allowing a firm to stake out the lowest cost position achievable through Econ. of scale.

caveat emptor

buyer beware. information asymmetries can result in the crowding out of desirable goods and services by inferior ones.

differentiation strategy competitive advantage

can occur/ be achieved as long as the firms economic value created (V-C) is greater than that of its competitors.

forward vertical integration

changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain (like to stage 5)

decline stage

changes in the external environment often take industries from maturity to decline. demand falls often rapidly. if a technological or business model breakthrough emerges that opens up a new industry.

cash cows (in the BCG matrix)

compete in a low-growth market but hold considerable market share. high and stable earnings combined with high and stable cash flows

corporate strategy

comprises the decisions that leaders make and the goal-directed actions they take in the quest for competitive advantage in several industries and markets simultaneously. answers the key questions: where to compete? Determines the boundaries of the firm along three dimensions: vertical integration along the industry value chain, diversification of products and services, and geographic scope.

crossing the chasm framework

conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group.

innovation

concerns the commercialization of an invention. 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. needs to be novel, useful, and successfully implemented to help firms gain and sustain a competitive advantage.

relational view of competitive advantage

critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries. the basis for competitive advantage is formed when a strategic alliance creates resource combinations that are valuable, rare, and difficult to imitate and the alliance is organized appropriately to allow for value capture.

early majority

customers coming into the market during the shake-out stage. their main consideration in deciding whether of not to adopt a new technological innovation is a strong sense of practicality. weigh benefits and costs carefully. makes up roughly 1/3 of the market potential. enters in large number (herding effect). the difference in attitudes toward technology of the early majority when compared to the early adopters signify the wide competitive gulf - the chasm - between these two customer segments.

early adopters

customers entering the market in the growth stage. eager to buy early into new technology or product concept. demand is driven by imagination and creativity.

vertical integration

deciding whether to make or buy the various activities in the industry value chain. It's the firm's ownership of its production of needed inputs or of the channels by which it distributes outputs. Can be measured by a firm's value added: what % of a firm's sales is generated within the firm's boundaries?

dominant business

derives between 70 and 95% of its revenues from a single business, but it pursues at least one other business activity that counts for the remainder of the revenue

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.

merger

describes the joining of two independent companies to form a combined entity. tend to be friendly.

parent-subsidiary relationship

describes the most integrated alternative to performing an activity within one's own corporate family. the corporate parents owns the subsidiary and can direct it via command and control.

entrepreneurship

describes the process by which change agents (entrepreneurs) undertake economic risk to innovate - to create new products, processes, and sometimes new orgs. they innovate by commercializing ideas and inventions.

acquisition

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

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 to entrepreneurship. the fundamental question of it is how to combine entrepreneurial actions, creating new opportunities or exploring existing ones with strategic actions taken in the pursuit of comp. adv.

social entrepreneurship

describes the pursuit of social goods while creating profitable businesses. they evaluate the performance of their ventures not only by financial metrics but also by ecological and social contribution. use the triple-bottom-line approach to asses performance.

invention

describes the transformation of an idea into a new product or process, or the modification of and recombination of existing ones. if it is useful, novel, and non-obvious as assessed by the U.S. patent and trademark office it can be patented

Richard Rumelt

developed a helpful classification scheme that identifies four main types of diversification by identifying two key variables: the % of revenue from the dominant or primary business and the relationship of the core competencies across the business unit

radical innovation

draws on novel methods or materials, is derived wither from an entirely different knowledge base or from a recombo of existing knowledge bases with a knew stream of knowledge. it targets new markets by using new technologies.

co-opetition

ensues when collaborating firms are also competitors. a portmanteau describing cooperation by competitors. they may cooperate to create a larger pie but then might compete about how the pie should be divided.

about joint venture

exchange explicit and tacit knowledge through interaction of personnel is typical. are also frequently used to enter foreign markets where the host country requires such a partnership to gain access. advantages are strong trust, ties, and commitment. but they can entail long negotiations and significant investments

architectural innovation

firms innovating by leveraging existing technologies into new markets. general y requires reconfiguring a component of technology meaning they alter the overall architecture of the product. a new product in which known components based on existing technologies are reconfigured in a novel way to create new markets.

strategy canvas

graphical depiction of a company's relative performance vis-a-vis its competitors across the industry's key success factors. a strong one has a focus and divergence and it can even provide a kind of tagline as to what strategy is being undertaken or should be undertaken. (look at one on page 209)

specialized assets

have a high opportunity cost: they have significantly more value in their intended use than in their next-best use. They come in 3 types: site specificity, physical asset specificity, and human-asset specificity. vertical integration along the industry value chain can also facilitate investments in these.

star (in the BCG matrix)

high market share in a fast growing market. earnings are high and either stable or growing

value curve

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

closeness

how close do you need to be to your external resource partner?

value innovation

how managers resolve the trade-offs between the two generic strategic positions. aligns innovation with total perceived consumer benefits, price, and cost. makes competition irrelevant by providing a leap in value creation thereby opening new and uncontested market spaces.

tradability

how tradable are the targeted resources that may be available externally? if highly traceable, then the resource should be borrowed via licensing agreement or other contractual agreement.

integration

how well can you integrate the targeted firm. should you determine you need to acquire the resource partner?

related-linked diversification

if executives consider new business activities that share only a limited number of linkages

differences in complexity

in some production processes, effects from Econ. of scale can be quite significant while learning effects are minimal. sometimes, economies of scale can be quite significant while learning effects are minimal(brain surgery or estate law). managers need to understand such differences to calibrate their business-level strategy.

disceonomies of scale

increases in cost as output increases (after MES on the graph). A firm gets too big and the complexity of managing and coordinating the production process raises the cost, negating any benefits to scale. or overly bureaucratic growing inflexible and slow in decision making.

maturity stage

industry structure morphs into an oligopoly with only a few large firms. any additional market demand is limited. increases competitive intensity. level of process innovation reaches its maximum as firms attempt to lower cost as much as possible.

reverse innovation

innovation that was developed for emerging economies before being introduced in developed economies. sometimes also called frugal innovation.

change

is the only constant and the rate of technological change has accelerated dramatically over the past hundred years. this makes innovation a powerful strategic weapon to gain and sustain a comp. adv.

question marks (in the BCG matrix)

its not clear whether they will turn into dogs or stars. their earnings are low and unstable but they might be growing

explicit knowledge

knowledge that can be codified. patents, user manuals, fact sheets, and scientific publications are all ways to capture it.

tacit knowledge

knowledge that cannot be codified. concerns knowing how to do a certain task. can be acquired only through actively participating in the process.

late majority

large customer segment. they prefer to wait until the standards have emerged and are firmly entrenched so that uncertainty is much reduced.

differences in timing

learning effects occur over time as output accumulates, while economies of scale are captured at one point in time when output increases. (no diseconomies to learning)

disruptive innovation

leverages new technologies to attack existing markets. invades an existing market from the bottom up.

Successful differentiation strategy

likely to be based on a unique or specialized feature(s) of the product, on an effective marketing campaign, or on intangible resources such as reputation for innovation, quality, or customer service. The threat of entry is reduced. if the source of differentiation is intangible rather than tangible a differentiator is even more likely to sustain its advantage.

principal-agent problem

major disadvantage of organizing economic activity within a firm. It can arise when an agent such as a manager performing activities one behalf of the principal (owner of the firm) pursues his or her own interests. one way to overcome this is to give stock options to managers, thus making them owners

most important cost drivers

managers can manipulate the following to keep their costs low: -cost of input factors -economies of scale -learning-curve effects -experience-curve effects

growth stage

market growth accelerates. after the initial innovation has gained some market acceptance, demand increases rapidly as first-time buyers rush to enter the market. all firms thrive. prices begin to fall. firms begin to reap economies of scale and learning. process innovation ramps up. core competencies are marketing and manuf. capabilities. very little competitive rivalry.

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.

non-equity alliance

most common type of alliance. based on contracts between firms. the most frequent forms are supply agreements, distribution agreements, and licensing agreements. these are vertical strategic alliances. firms tend to share explicit knowledge. flexible and easy to initiate and terminate. also sometimes produce week ties which can result in lack of trust and commitment

backward vertical integration

moving ownership of activities upstream to the originating inputs of the value chain (like to stage 1)

product innovations

new or recombined knowledge embodied in new products. ex: jet airplane and smartphones

process innovation

new ways to produce existing precuts or to deliver existing services. made possible through advances such as the internet, lean manuf., 6 sigma, biotech, and nanotech.

internal transaction costs

occur within the firm. include costs pertaining to organizing an economic exchange within a firm. for example, the costs of recruiting and retaining employees; paying salaries and benefits; setting up a shop floor; providing office space and computers; and organizing, monitoring, and supervising work. tend to increase with organizational size and complexity.

external transaction costs

occurs when companies transact in the open market. The costs of searching for a firm or an individual with whom to contract and then negotiating, monitoring, and enforcing the contract.

vertical market failure

occurs when transactions within the industry value chain are too risky and alternatives to integration are too costly of difficult to administer. findings suggest that when a company vertically integrates two or more steps away from its core competency, it fails two-thirds of the time.

3 options to drive firm growth

organic growth through internal development, external growth through alliances, or external growth through aquisitions.

build-borrow-or-buy framework

provides a 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)

transaction cost economics

provides useful, theoretical guidance to explain and predict the boundaries of the firm. what activities to do in-house and what services and products to obtain from the external market

diversification-performance relationship (curve)

research indicates an inverted U-shaped relationship between the type of diversification and overall firm performance

organizational inertia

resistance to changes in the status quo

differentiation strategy

seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels, allowing the firm to charge higher prices to its customers. (generic strategy). goal: 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.

cost leadership strategy

seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors. (generic strategy). goal: reduce the firm's cost below that of its competitors while offering adequate value. focused attention on resources and reducing cost to manuf. or lowering operating cost.

opportunism

self interest in seeking with guile. backward vertical integration is often undertaken to overcome the threat of this and secure key raw materials

diversification discount

situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units. this happens more often with firms that pursue unrelated diversification because they are unable to create additional value.

diversification premium

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

entrepreneurs

the agents who introduce 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 processes, and new forms of organization.

technology enthusiasts

the customer segment in the introductory stage. the smallest market segment.

business level strategy

the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market. concerns the broad question: how should we compete? who - which customer segments what - customer needs will satisfy why - do we want to satisfy how - will we satisfy

introduction stage

the innovator's core competency is R&D. a capital intensive process. initial market size is small and growth is slow. innovators may encounter first-mover disadvantages. competition can be intense and early-winners are well positioned to stake out a strong position for the future. strategic objective is to achieve market acceptance and seed future growth.

red oceans

the known market space of existing industries. in these, the rivalry among existing firms is cut throat because the market space is crowded and competition is a zero-sum game.

laggards

the last consumer segment. enter in the declining stage. customers who adopt a new product only if it is absolutely necessary. don't want new technology.

platform ecosystem

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

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, they propel the industry to the next stage of the life cycle.

Horizontal Integration

the process of merging with a competitor at the same stage of the industry value chain. its a type of corporate strategy that can improve a firm's strategic position in a single industry. as a rule of thumb, firms should go ahead with it if the target firm is more valuable inside the acquiring firm than as a continued standalone company. changes the underlying industry structure in favor of the surviving firms.

restructuring

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

shakeout stage

the rate of growth declines. firms begin to compete directly against one another for market share. weaker firms are forced out of the industry. firms begin to cut prices and offer more services. key success factors at this stage are the manufacturing and process engineering capabilities that can be used to drove costs down. more importance placed on process innovation.

scope of competition

the size - narrow or broad - of the market in which a firm choses to compete

learning curve slope

the speed of learning determines this. the steeper it is, the more learning has occurred.

incremental innovations

the vast majority of innovations. squarely builds on an established knowledge base and steadily improves an existing product or service offering. it targets existing markets using existing technology.

Successful cost leadership strategy

they are protected from other competitors because of having the lowest cost. since reaping economies of scale is critical to CLS, they are likely to have a large market share which in turn reduces the threat of entry. however, if a new and relative expertise enters the market, the low cost leader's margins may erode due to loss in market share.

evaluating the relevance of internal resources in 2 ways

they test whether the resources are 1) similar to those the firm needs to develop 2) superior to those of competitors in the targeted area

most salient value drivers

things managers can adjust to improve a firm's strategic position that managers have at their disposal: -product features -customer service -complements

dogs (in the BCG matrix)

underperforming businesses. small market share in a low growth market. low and unstable earnings combined with neutral or negative cash flows

industry life cycle

ususally predictable. as an industry evolves over time, we can identify five distcint stages: introduction, growth, shakeout, maturity, and decline. the number and size of competitors change as this unfolds and different types of consumers enter the market at each stage.

trade secrets

valuable proprietary info that is not in the public domain and where the firm makes every effort to maintain its secrecy.

strategic alliances

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

strategic alliance

voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services. qualify as strategic only if it has the potential to affect a firms comp. adv.. enable firms to achieve goals faster and at lower costs than alone. allow firms to circumvent potential legal repercussions including potential lawsuits filed by the U.S. federal agencies.

learning races

what co-opetition can lead to.

first mover advantages

what successful innovators can benefit from. includes economies of scale as well as experience and learning curve effects. maybe also network effects. they may also be able to lock in key suppliers as well as customers through increases switching costs

short-term contracts

when engaging in these, a firm sends out requests for proposals (RFPs) to several companies which initiates a competitive bidding for contracts to be awarded with a short duration. generally less than one year.

related diversification

when it derives less than 70 percent of its revenues from a single business activity and obtains revenues from other lines of business linked to the primary business activity. the rationale behind this is to benefit from economies of scale and scope.

unrelated diversification strategy

when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses. research suggests that this can be advantageous in emerging economies.

when to vertically integrate?

when the costs of pursuing an activity in-house are less than the costs of transacting for that activity in the market.

long term contracts

work much like short-term contracts but with a duration generally greater than one year. Help facilitate transaction specific investments. licensing and franchising are examples

Geoffrey Moore

wrote crossing the chasm where he documented that many innovators were unable to successfully transition from one stage to the next. the clear argument is that each stage of the industry life cycle is dominated by a different customer group.