Strategic Management Exam II

foreign direct investment

-A firm's investments in value chain activities abroad

benefits of vertical integration

-Lowers costs -Improves quality -Facilitates scheduling and planning -Facilitates investments in specialized assets -Secures critical supplies and distribution channels

alliance design and governance

-Possible governance mechanisms:Non-equity contractual agreement, Equity alliances, Joint venture -Joining specialized complementary assets increases the likelihood that the alliance is governed hierarchically -Inter-organization trust is critical

4 building blocks of organizational structure

-Specialization-Formalization-Centralization-Hierarchy

global strategy

-To gain and sustain a competitive advantage-To compete against other foreign and domestic companies around the world/ part of corporate strategy

When does vertical integration make sense?

-When there are shortages of raw materials -To enhance the customer's experience

Alternatives on the Make-or-Buy Continuum

-short term contracts -strategic alliances *long term contracts (licensing, franchising) *equity alliances *joint ventures -Parent-subsidiary relationships

Why do firms enter strategic alliances?

-strengthen competitive position -enter new markets -hedge against uncertainty -access critical complementary assets -learn new capabilities

how to make alliances work

1. interfirm trust 2. knowledge sharing routines 3. relation specific investments

advantages of going global

1.Gain access to a larger market.2.Gain access to low-cost input factors.3.Develop new competencies.

disadvantage of going global

1.Liability of foreignness2.Loss of reputation3.Loss of intellectual property

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, and economic distance.

Globalization

A process of closer integration and exchange•Between different countries and peoples worldwide•Made possible by:-Falling trade and investment barriers-Advances in telecommunications-Reductions in transportation costs

joint venture

A stand-alone organization created and jointly owned by two or more parent companies. explicit and tacit knowledge exchanged

main benefits of merging

Reduction in competitive intensity•Changes underlying industry structure in favor of surviving firms2.Lower costs•Economies of scale3.Increased differentiation•Fills product gaps

cetralization

Refers to the degree to which decision making is concentrated at the top of the organization•Example: BP oil spill in 2010-Decisions made in UK HQ and not on site-Centralization reduced response time and led to a prolonged crisis.•Affects strategic planning:-Top-down strategic planning takes place in highly centralized organizations. -Planned emergence is found in more decentralized organizations.

What determines whether resources are relevant?

Similar to those the firm needs to develop Superior to those of competitors in targeted areas Pass VRIO framework

Stages of industry value chain

Stage 1. Raw Materials Stage 2. Components/Intermediate Goods Stage 3. Final Assembly/Manufacturing Stage 4. Marketing/Sales Stage 5. After-Sales Service and Support

Transnational Strategy

Strategy that attempts to combine:-Benefits of a localization strategy •High local responsiveness-With a global-standardization strategy•Lowest-cost position attainable•Arises out of the combination of:-High pressure for local responsiveness-High pressure for cost reductions•Used by MNEs that pursue a blue ocean strategy•Difficult to implement

BCG Growth-Share Matrix

The Boston Consulting Group planning tool that evaluates business units in terms of their growth potential and market share.

death-of-distance hypothesis

The assumption that geographic location shouldn't lead to firm-level competitive advantage because firms are able to source inputs globally.-This assumption is inaccurate.•High-performing firms in certain industries are concentrated in specific countries.

Crossing the Chasm Framework

The largest difference in consumer expectations is between the early adopters and the early majority; difficult for firms to cross the chasm because each stage of the industry cycle feature a different group of customers with different preferences and demands

What does first move advantage include?

The need to continuously perfect a product The need to find distribution channels The need to educate potential customers about a product's benefits

organizational design

The process by which managers make specific organizing choices that result in a particular kind of organizational structure.

herding

The tendency of customers to enter the market in large numbers during the growth stage of the industry life cycle

What should a firm do if their internal resources are high?

They should develop resources internally

main reasons for aquisitions

To access new markets & distribution channels-To overcome entry barriers•To access new capabilities or competencies•To preempt rivals

Post-Formation Alliance Management

To create VRIO resource combinations: make relation-specific investments establish knowledge-sharing routines build interfirm trust Build capability through repeated experiences over time repeated alliance exposure improves learning

T or F: Innovation can both make existing products or businesses obsolete and provide firms with a competitive advantage

True

multidomestic strategy

Used to try and maximize local responsiveness•MNEs hope that local consumers will perceive their products or services as local ones.•This strategy arises out of the combination of:-High pressure for local responsiveness-Low pressure for cost reductions•Can be costly and inefficient-Duplication of business functions across countries

organizational intertia

a firm's resistance to changes in the status quo

coordination costs

a function of the number, size, and types of businesses that are linked to one another

Principal-agent problem

a problem caused by an agent pursuing his own interests rather than the interests of the principal who hired him

Build Borrow Buy Framework

aids firm in determining whether firm should pursue internal development, strategic alliance or contract, or acquire new resources/capabilities.competencies

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

physical asset specificity

assets whose physical and engineering properties are designed to satisfy a particular customer

What are the types of vertical integration along industry value chain?

backward forward

Most active sectors of off=shoring

banking and financial services IT health care

partnmer selection and alliance formation

benefits must exceed costs partner compatibility and commitment necessary 5 reasons for it(above)

advantages of vertical integration

bettering quality reducing costs facilitating scheduling

kinds of reputation

brand rep customer service rep innovation rep

formalization

captures the extent to which employee behavior is steered by explicit and codified rules and procedures;•Is not necessarily negative•Often can be necessary for consistent and predictable results-Ex. Pilot training-Ex. Customer service call centers•Can slow decision making, reduce innovation, and hinder customer service

what do transaction costs help managers do?

choose which activities to carry out within firm

co-opetition strategy

cooperation by competitors to achieve a strategic objective

4 underlying strategic management concepts that determine the scope of the firm

economies of scope economies of scale transaction costs core competencies

strategic options during the decline stage of industry life cycle

exit maintain harvest consolidate

4 steps of innovation process

idea invention innovation imitation

open innovation

incorporating technological advancements and innovative ideas from outside agencies into a firm's internal research and development efforts

What does diversification allow for?

increase in variety of products/services offered by a firm and markets or geographic regions in which it competes

WHy would a firm focus on process innovation during the growth phase of the industry life cycle?

increase production volume, reduce per=-unit production costs

Risks of Vertical Integration

increasing costs, reducing quality, reducing flexibility, increasing the potential for legal repercussions

Radical innovation

innovations that target new markets and represent a major break

What are important core competencies during the growth phase of the industry life cycle?

marketing and maufacturing capabilities

Examples of complementary assets

marketing manufacturing after-sale service

first mover disadvantages

need to perfect a product need to find a distribution channel need to educate people on product's benefits

3 phases of alliance management

partner selection and alliance formation alliance design and governance post formation alliance management

non-equity alliance

partnership based on contracts between firms; easiest to terminate; explicit knowledge

Which metrics are used by social entrepreneurs to evaluate performance?

people planet profits

what is diversification targeted towards?

products geography product-market

types of innovation

radical disruptive incremental architectural open

Main issues in build borrow buy framework

relevancy of existing internal resources how tradable are targeted resources closeness - how close do you need to be to your external resource partner integration - how well can you integrate targeted firm

backward vs forward vertical integration

relying on others for supplies vs relying on others for distribution

restructuring

reorganizing and divesting business units and activities; reforcuses company on core competencies

4 main types of business diversification

single business -leverages competencies dominant business related diversification - related constrained: all businesses share competencies related linked: some businesses share competencies unrelated diversification: the conglomerate (no businesses share competencies)

3 types of specializede assets

site specificity (machine collaboration) physical asset specificity(Coca Cola bottle) human asset specificity(knowledge and skills for a specific process)

An agreed upon solution about a common set of engineering features and design choices is a ______________.

standard

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-Transnational strategy

harvest strategy

strategy to minimize the amount of resources devoted to product support in order to maximize cash flow

key components of organizational design

structure, culture, and control

specialization

the concentration of the productive efforts of individuals and firms on a limited number of activities (division of labor)

merger

the joining of two independent companies to form a combined entity

acquisition

the purchase of a company by another company

The primary reason incumbant firms are vulnerable to disruptive innovation is ____________________________

they are too committed to existing products to make rapid changes in the face of disruptive innovations

T or F: mergers and acquisitions are the most costly, the most complex and the most difficult to reverse strategic operation

true

t or f: level of globalization is less than 25%

true; between 10 -25% total

Characteristics of a patentable product

useful novel non-obvious

How can incumbant firms counter disruptive innovations?

Protect the low end of the market Continue to innovate Disrupt themselves

mechanistic vs. organic organizations

Mechanistic Organization-High degree of specialization and formalization-Tall hierarchies-Rely on centralized decision making•Organic Organization-Low degree of specialization and formalization-Flat organizational structure-Decentralized decision making

Which of the following characteristics change as the industry life cycle progresses?

Number and size of competitors Type of customer Type and level of innovation

equity alliance

One partner takes partial ownership in the other explicit knowledge mainly; some tacit knowledge possible

Why would a large firm with a large number of established and formalized practices have a hard time producing radical innovations?

Organizational intertia

Vertical Integration

Practice where a single entity controls the entire process of a product, from the raw materials to distribution

Horizontal Integration

Absorption into a single firm of several firms involved in the same level of production and sharing resources at that level

Strategic Entepreneurship

Applying concepts from strategic management concepts to the innovation process

global standardization strategy

Attempts to reap significant:-Economies of scale & location economies-Through global division of labor where capabilities are at the lowest cost•Arises out of the combination of:-High pressure for cost reductions-Low pressure for local responsiveness•Price becomes the main competitive weapon

How do entrepreneurs innovate?

Commercializing new ideas and invention

what does FDI provide access to?

Communities of learning: often contained in specific geographic regions-Location economies: benefits from locating value chain activities in optimal geographies

Falling demand leads to reduction in market size in which stage of the industry life cycle

Decline

Hierarchy

Determines the formal, position-based reporting lines•Stipulates who reports to whom•Span of control:-The number of employees who directly report to a manager-In tall structures: the span of control is narrow.-In flat structures: the span of control is wide.•Meaning one manager supervises many employees

What does the Industry Life Cycle identify?

How industries tend to develop and change over time.

When does an alliance qualify as strategic?

If it has the potential to affect a firm's competitive advantage

network effects

Increase the value of a device for its users ex. complimentary apps for the iPhone

Which type of innovation applies to existing markets and existing technologies ?

Incremental

This allows a firm to redifine a market in its favor...

Innovation

What are stages of the industry life cycle?

Introduction Growth Maturity Shakeout Decline

Early majority vs. Late majority vs. Technology Enthusiasts vs. Early adopters vs. Laggards

Late majority :not confided with new technologies Early adopters: interested in how technology will improve their lives; Early majority: concerned with cost, have a strong sense of practicality, weigh the costs carefully, and they rely on reviews by reputable magazines. Technology enthusiasts: interested in the technical details ; enjoy providing feedback Laggards: Not considered worth the effort of pursuing by most firms

international strategy

Leverages home-based core competencies•Sells the same products or services in both domestic and foreign markets•Advantageous when the MNE faces:-Low pressures for local responsiveness-Low pressures for cost reductions•Often used successfully by MNEs with: -Large domestic markets-Strong reputations and brand names•Limited local responsiveness

In the _________________ stage of the industry life cycle, a moderate number of large firms compete for a share of the market that has reached its maximum size.

Maturity

What happens during the shakeout phase of the industry life cycle?

Profits degrade in all but the most efficient firms