MGT 400 Final Exam Guide
Cost Drivers
-Cost of input drivers -Economies of Scale -Learning-curve effects -Experience-curve effects
CAGE Distance Framework
-Cultural Distance: Cultural disparity between an internationally expanding firm's home country and its targeted host country -Administrative and Political Distance -Geographic Distance -Economic Distance Refer to Figure 10.3 pg 319
Value Drivers
-Products -Customer Service -Complements
Conglomerate
A company that combines two or more strategic business units under one overarching corporation; follows unrelated diversification strategy (Refer to exhibit 8.7 pg 258)
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
Absorptive capacity
A firm's ability to understand external technology developments, evaluate them, and integrate them into current products or create new ones
Foreign Direct Investment (FDI)
A firm's investments in value chain activities abroad
Organizational Inertia
A firm's resistance to changes in the status quo
Patent
A form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of underlying idea
Licensing
A form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property
Open Innovation
A framework for R&D that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and inventions, but also from external ones. The sharing goes both ways: some external ideas and inventions are in-sourced while others are spun-out
Core Competence-market matrix
A framework to guide corporate diversification strategy by analyzing possible combinations of existing/new core competencies and existing/new markets (Refer to exhibit 8.8 Pg. 261)
Franchising
A long-term contract in which 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; t he franchisee in turn pays an up-front buy-in lump sum and a percentage of revenues
credible commitment
A long-term strategic decision that is both difficult and costly to reverse
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 strategy
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
Liability of Foreignness
Additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances
Transaction Costs
All internal and external costs associated with an economic exchange, whether within a firm or in markets
Standard
An agreed-upon solution about a common set of engineering features and design choces
Diversification
An increase in the variety of products and services a firm other or markets and the geographic regions in which it competes
Radical Innovation
An innovation that draws on novel methods or materials, is derived either from an entirely different knowledge base or from a recombination of existing knowledge bases with new stream of knowledge, or targets new markets by using new technologies
Incremental Innovation
An innovation that squarely builds on an established knowledge base, and steadily improves an existing product or service offering; targets existing markets by using existing technology
Ambidextrous Organization
An organization able to balance and harness different activities in trade-off situations
Globalization Hypothesis
Assumption that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous
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
Location Economies
Benefits from locating value chain activities in the world's optimal geographies for specific activity, wherever that may be
Long tail
Business model which companies can obtain a large part of their revenues by selling a small number of units from among almost unlimited choices
Integration Strategy
Business-level Strategy that successfully combines differentiation and cost-leadership activities
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
Backward Vertical Integration
Changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs( point of the value chain
Strategic Trade-offs
Choices between a cost or value position. Such choices are necessary because higher value tends to require higher cost
First-movers advantages
Competitive benefits that accrue to the successful innovator
Unrelated diversification Strategy
Corporate strategy in which a firm derives less than 70% of its revenues from a simple business activity and there are few, if any, linkages among its businesses (Refer to exhibit 8.7 pg 258)
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 Related-constrained: All businesses share competencies in products, services, technology, or distribution Related Linked-Only some businesses share competencies in products, services, technology, or distribution (Refer to exhibit 8.7 pg 258)
Geographic Diversification Strategy
Corporate strategy in which a firm is active in several different countries
Product diversification strategy
Corporate strategy in which a firm is active in several different product markets
Product-Market Diversification Strategy
Corporate strategy in which a firm is active in several different product markets and several different countries (Refer to exhibit 8.7 pg 258)
Internal Transaction costs
Costs pertaining to organizing an economic exchange within a hierarchy; also called administrative costs
Economies of Scale
Decreases in cost per unit as output increases
Differentiation Strategy
Generic business strategy that seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping the firm's cost structure at the same or similar levels
Cost-leadership Strategy
Generic business strategy that seeks to create 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 it customers.
Diseconomies of Scale
Increases in cost per unit when output increases
Strategic Outsourcing
Moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain
Product Innovations
New or recommended knowledge embodied in new products
Process Innovations
New ways to produce existing products or deliver existing services
Joint Venture
Organizational form in which two or more partners create and jointly own a new organization
Minimum efficient Scale
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
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
Productivity Frontier
Relationship that captures the result of performing best practices at any given time; the function is concave (bulging outward) to capture the trade-off between value creation and production cost
Focused Cost-Leadership Strategy
Same as the cost-leadership strategy except with a narrow focus on a niche market
Focused Differentiation Strategy
Same as the differentiation strategy except with a narrow focus on a niche market
Economies of Scope
Saving that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology
Diversification Discount
Situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units
Diversification Premium
Situation in which the stock price of related-diversification firms is valued at greater than the sum of their individual business units
Information Asymmetrics
Situations in which one party is more informed than another, because of the possession of private information
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 (Refer to exhibit 10.5 pg. 324)
Integration-responsiveness Framework
Strategy framework that juxtaposes the pressures an MNE faces for cost reductions and local responsiveness to derive four different strategies to gain and sustain competitive advantage when competing globally: international strategy, multidomestic strategy, global-standardization strategy, and transnational strategy
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; the strategy arises out of the combination of high pressure for local responsiveness and low pressure for cost reductions (Refer to exhibit 10.5 pg. 324)
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) (Refer to exhibit 10.5 pg. 324)
International Strategy
Strategy that involves leveraging home-based core competencies by selling the same products or services in both domestic and foreign markets; advantageous when MNE faces low pressures for both local responsiveness and cost reductions (Refer to exhibit 10.5 pg. 324)
Entrepreneurs
The agents that introduce change into the competitive system. They do this not only by introducing new products or services, new production processes and new forms of organization
National Culture
The collective mental and emotional "programming of the mind" that differentiates human groups
Innovation
The commercialization of any new product or process, or the modification and recombination of existing ones. To drive growth, innovation also needs to be useful and successfully implemented
Corporate Strategy
The decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industries and markets simultaneously; addresses where to compete along three dimensions: products and services, industry value chain, and geography (regional, national, global markets)
Vertical Integration
The firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs
Industry Life Cycle
The five different stages-introduction, growth, shakeout, maturity, and decline-that occur in the evolution of an industry over time
Business-Level Strategy
The goal-directed actions managers take in their quest for competitive advantage when competing in a single product market. -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?
mass customization
The manufacture of a large variety of customized products or services at a relatively low unit cost
Local Responsiveness
The need to tailor product and service offerings to fit local consumer preferences and host-country requirements; generally entails higher costs
Network effects
The positive effect (externality) that one user of a product or service has on the value of that product for other users
Entrepreneurship
The process by which people undertake economic risk to innovate-to create new products,processes, and sometimes new organizations
Globalization
The process of closer integration and exchange between different countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs
strategic entrepreneurship
The pursuit of innovation using tools and concepts from strategic management
Social Entrepreneurship
The pursuit of social goals by using entrepreneurship
Invention
The transformation of an idea into anew product or process, or the modification and recommendation of existing ones
Specialized Assets
Unique assets with high opportunity cost: They have significantly more value in their intended use than their next-best use. They come in three types: site specificity, physical asset specificity, and human-asset specificity
Scope of Competition
Whether to pursue a specific, narrow part of the market to go after the broader market
National Competitive Advantage
World leadership in specific industries
Pareto Principle
`Roughly 80% of effects come from 20% of the causes
Thin Markets
a situation in which transactions are likely not to take place because there are only a few buyers and sellers who have difficulty finding each other
External Transaction Costs
costs of searching for a firm or an individual with to contract, and then negotiating, monitoring and enforcing the contract
Industry Value Chain
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
BCG Growth-share maxtrix
refer to figure 8.11 pg 265
Strategic Alliances
voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage