MGT 4934

Agency Problem

the interests of the individuals that manage the company (agents such as the CEO) may not align with the interest of the owners (such as stockholders).

total costs

the sum of all production costs and always increases as output goes up

Vertical Linkages

tie supervisors and subordinates together. These linkages show the lines of responsibility through which a supervisor delegates authority to subordinates, oversees their activities, evaluates their performance, and guides them toward improvement.

CAGE Framework

Cultural distance - culture, language Geographic Distance - Physical distance Administrative Distance - legal, politcal Economic Distance - GDP

Acquisition/Wholly owned Subsidiary

when a firm acquires a business operation in a foreign country. The firm fully owns the acquired company.

Three Tests for Diversification

1. How attractive is the industry that a firm is considering entering? 2. How much will it cost to enter the industry? 3. Will the new unit and the firm be better off?

CSR

A firm is be socially accountable—to itself, its stakeholders, and the public EX: Reducing carbon footprint

Sarbanes-Oxley Act

A law passed by Congress that requires the CEO and CFO to certify that their firm's financial statements are accurate.

focused cost leadership

A strategy that attempts to provide the lowest cost to a narrow, niche target market (Dollar general)

broad differentiation

A strategy that offers something unique that differentiates their product or service from others (Nordstrom)

broad cost leadership

A strategy that offers the lowest price in the market for that product or service (Walmart)

focused differentiation

A strategy that provides unique or differentiated products or services to a narrow, niche target market (Anthropologie)

Related Diversification

Diversifying into business lines in the same industry; Volkswagen acquiring Audi is an example.

Unrelated Diversification

Diversifying into new industries, such as Amazon entering the grocery store business with its purchase of Whole Foods.

Porter's Diamond Model

Factor Conditions Related & Supporting Industries Demand Conditions Strategy, Structure, & Rivalry These shape the ability of firms to experience success in their home (originating) countries

first-mover advantage

Initial mover into a strategic position or new industry, etc. accumulates resources, capabilities, market share, EOS

backward vertical integration

Moving back along the value chain and entering a supplier's business

forward vertical integration

Moving further down the value chain to enter a buyer's business

Net Profit Margin

Net Profit /Net Revenue Profit earned per dollar of revenue

Risks of Expansion

Political risk Economic risk Cultural risk

Net income

Revenues - Expenses

Debt Ratio

Total Liabilities/Total Assets Proportion of assets financed through debt

Principle-Agent Problem

When the agent (worker or manager) doesn't act in the best interest of the principle (owner).

financial ratio

a comparison between two components of financial information

Licensing

a contract or agreement between two companies, where one company permits another company to manufacture its products under specified conditions and for a specified payment. EX: a software company allows others to use its software by providing them with a license to use the software.

vertical integration

a firm gets involved in new portions of the value chain

Crossing the Chasm

a gap between visionary customers who adopt early and pragmatist customers who take a "wait and see" approach

board of directors

a group of individuals that oversees the activities of an organization or corporation.

Matrix-Style Organizations

a hybrid between functional and divisional structures

acquisition

a larger firm purchases and absorbs a smaller firm

Joint Venture

an agreement between two or more companies to share a business project EX: Global Nuclear Fuel Co.—a collaboration among General Electric, Toshiba Corporation, and Hitachi Limited

horizontal linkage model

are formal relationships between equals in an organization. They often take the form of committees and task forces.

second mover advantage

challenger observes what has made the leader successful and improves on it

Inventory turnover

cost of goods sold/average inventory Efficiency of inventory management

Exporting

creating goods at home and then shipping them to another country

current ratio

current assets/current liabilities Ability to pay short term debts with short term assets like cash & inventory

Multidivisional Organizations

employees are divided into departments based on product areas and/or geographic regions. General Electric, for example, had six product divisions: Energy, Capital, Home & Business Solutions, Healthcare, Aviation, and Transportation.

fuctional organizational structure

employees are divided into departments that each handle activities related to a functional area of the business, such as marketing, production, human resources, information technology, and customer service.

Copyrights

exclusive rights to the creators of original artistic works such as books, movies, songs, and screenplays EX: Illegal downloads of music are copyright infringements. In spite of laws and increased enforcement, millions of songs are obtained illegally.

economies of scale

exist during a period of time if the average total cost for a unit of production is lower at higher levels of output

Trade secrets

formulas, practices, and designs central to a firm's business and that remain unknown to competitors EX: Coke's formula The blend of eleven herbs and spices used in Kentucky Fried Chicken's original recipe chicken

merger

generally used when two similarly sized firms are integrated into a single entity

strategy types

global, transnational, international, multi-domestic

Franchising

involves "renting" a firm's brand name and business processes to local entrepreneurs. EX: McDonald's

Network/Boundaryless

is flat, with decentralized decision-making and the use of many cross-functional teams. This structure works well in knowledge industries such as IT, where responsiveness to changing environmental and competitive forces must be quick.

Accounts Receivable Turnover

net credit sales/average net accounts receivable Efficiency of AR management

3 p's

people, planet, profit

Trademarks

phrases, pictures, names, or symbols that identify an organization EX: McDonald's golden arches Texas A&M's 12th Man

Patents

protect inventions from direct imitation for a limited time

Co-location

refers to a situation when goods and services offered under different brands are located very close to each other

Intellectual property

refers to creations of the mind, such as inventions, artistic products, and symbols

Horizontal integration

refers to pursuing a diversification strategy by acquiring or merging with a rival is aimed at lowering costs by achieving greater economies of scale