Strategic Management Chapter 9

What is a real options perspective and how is it staged? What does it allow firms to gain?

- breaks down a larger investment decision into a set of smaller decisions - staged sequentially over time and allows firms to obtain information in stages

What three things must a firm ensure to gain partner selection and alliance formation?

1. B(x) > C(x), and one of the five reasons of alliance formation is present 2. Partner compatibility which captures aspects of cultural fit between firms 3. Partner commitment in willingness to share resources for the long term

What are four examples of post-integration failure?

1. Daimler-Chrysler 2. AOL and Time Warner 3. HP and Autonomy 4. Bank of America and Merrill Lynch

Why do firms enter into strategic alliances to learn?

1. Firms are motivated by the desire to learn from their partners 2. Co-opetition (cooperation by competitors to achieve a strategic objective) 3. Firms that learn more quickly is motivated to exist the alliance "learning races"

What are the three costs to horizontal integration through M&A?

1. Integration failure 2. Reduced flexibility 3. Increased potential for legal repurcussions

What are three complimentary assets?

1. Marketing 2. Manufacturing 3. After-sale service

What are three characteristics of mergers and acquisitions?

1. Most costly 2. Most complex 3. Most difficult to reverse strategic option

What can three things govern strategic alliances?

1. Non-equity alliances 2. Equity alliances 3. Joint ventures

What are the three options managers choose from for an appropriate governance mechanism?

1. Non-equity contractual agreement 2. Equity alliances 3. Joint venture

What are the three alliance-related tasks that determine the firm's alliance management capability?

1. Partner selection and alliance formation 2. Alliance design and governance 3. Post-formation alliance management

What are three reasons why we see so many mergers, even though on average they destroy rather than create shareholder value?

1. Principal-agent problems (related to managerial hubris) 2. The desire to overcome competitive disadvantage (preemptive) 3. Superior acquisition and integration capabilities (companies like Disney)

What are three markets firms are interested in when entering strategic alliances?

1. Product markets 2. Service markets 3. Geographical markets

What are the three main benefits to a horizontal integration strategy?

1. Reduction in competitive intensity 2. Lower costs 3. Increased differentiation

What three things must be present to have effective alliance governance?

1. Relation-specific investments 2. Knowledge-sharing routines 3. Interfirm trust

What are the four main issues of the build-borrow-buy framework?

1. Relevancy (how relevant are the firm's existing internal resources to solving the resource gap) 2. Tradability (how tradable are the targeted resources that may be available externally) 3. Closeness (how close do you need to be to your external resource partner) 4. Integration (how well can you integrate the targeted firm

What are five reasons why firms enter into strategic alliances?

1. Strengthen competitive position 2. Enter new markets 3. Hedge against uncertainty 4. Access critical complementary assets 5. Learn new capabilities

What does a contract allow for a firm's tradability?

1. The transfer of ownership 2. Use of the resource

When are internal resources relevant?

1. They are similar to those the firm needs to develop 2. They are superior to those of competitors in the targeted area 3. They pass the VRIO framework (do not need to satisfy all of these)

What are the three reasons why firms make acquisitions?

1. To gain access to new markets and distribution channels 2. To gain access to a new capability or competency 3. To preempt rivals

What is the build-borrow-or-buy framework?

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)

What is an alliance management capability?

A firm's ability to effectively manage three alliance-related tasks concurrently

What is 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

What is joint venture?

A standalone organization created and jointly owned by two or more parent companies

What are hostile takeovers?

Acquisition in which the target company does not wish to be acquired

What is an example of tradability?

Biotech-pharma industry: producers use licensing agreements to transfer knowledge and technology

What does closeness enable?

Borrowing of resources

How can strategic alliances help strengthen competitive position?

Change industry structure to the firm's favor (e.g. influence industry standards)

What does the relational view of competitive advantage say?

Critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries

Do mergers and acquisitions create competitive advantage?

Despite their popularity, in most cases they do not

What should firms do if its internal resources are high in relevance?

Develop internally

What is an example of how a strategic alliance strengthened competitive positioning?

IBM and Apple - wanted to strengthen their competitive position in mobile computing and business productivity apps - put competitive pressure on rivals such as Microsoft

What is a critical dimension of alliance success, in addition to the formal governance mechanisms?

Interorganizational trust

What is explicit knowledge?

Knowledge that can be codified; concerns knowing about a process or product

What is tacit knowledge?

Knowledge that cannot be codified; concerns knowing how to do a certain task and can be acquired

How is alliance design and governance formed?

Managers design the alliance and choose an appropriate governance mechanism from among three options

What is non-equity alliance?

Partnership based on contracts between firms

What is an equity alliance?

Partnership in which at least one partner takes partial ownership in another

What is horizontal integration?

Process of merging with a competitor at the same stage of the industry value chain

What are ways to borrow resources from another company?

Short-term and long-term (ex: licensing and franchising)

What is a principal-agent problem?

The agent (e.g. manager) does not act in the best interest of the principal (e.g. shareholder)

What are mergers?

The joining of two independent companies to form a combined equity

What are acquisitions?

The purchase or takeover of one company by another (friendly/unfriendly)

How can closeness be achieved?

Through integrated alliances (equity alliances and joint ventures)

What are strategic alliances?

Voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services