Cells 15-21

Question 0

Unrelated diversification: Financial synergies and parenting

Answer 0

Firms entering a business that has little horizontal interaction with other businesses of a firm
Finance driven approach to create shareholder wealth
NO SYNERGY IN VALUE CHAIN

Question 1

Related Diversification: The transaction cost perspective

Answer 1

Useful in understanding vertical integration (when a firm becomes its own supplier or distributor)
Every transaction involves a transaction cost and are the sum of the following:
Search costs
Negotiating
Contract
Monitor
Enforcement
* transaction costs can be avoided by internalizing the activity

Question 2

The means to achieve diversification

Answer 2

1. Acquisition or mergers: can attain 3 bases of synergies by leveraging core competences, sharing activities, building market power
   Pooling resources of other companies with firms own resource base: (1) joint venture of two or more firms to contribute equity to form new entity (2) strategic alliance: cooperative relationship with 2 or more firms
   Internal development: corporate entrepreneurship or new venture

Question 3

How managerial motives can erode value creation (3 ways)

Answer 3

1. Growth for growth’s sake: management self interest
2. Egotism: pride is at stake
3. Anti-takeover tactics:
   Greenmail: pmt to firm to a hostile party for the firms stock at a premium price
   Golden parachute: prearranged contract with managers specifying that in the event of a hostile takeover the target firms mangers will be paid a significant package.

Question 4

Factors affecting a nations competitiveness

Answer 4

1. Factor endowments= infrastructure
2. Demand conditions (must be high): consumer preferences
   Ex: US needs faster PC, but third world country need running water
3. Related and supporting industries: presence or absence of supplier industries that are internationally competitive
4. Firm strategy, structure, and rivalry: strongest indicator of global competitive success. ( strong consumer demand, strong supplier base, high new entrants from related industries)

Question 5

International expansion: a company’s motivation

Answer 5

1. Increase the size of potential markets
2. Taking advantage of arbitrage opportunities: buying cheap selling it somewhere else for more
3. Extend a product’s life cycle in maturity stage( may have greater demand somewhere else)
4. Optimize the location of value chain activities ( helps performance enhancement, cost and risk reduction)
5. Explore reverse innovation, it is possible to sell first world versions of products

Question 6

Achieving competitive advantage in global markets: opposing forces that firms face when expanding into global markets

Answer 6

1. Cost reduction

2. Adaption to local markets

Question 7

Ch.1 what is strategic mgmt and what is the purpose of all strategy?

Answer 7

ADA: analysis, decision, action

Purpose is to build a sustainable competitive advantage.

Question 8

Ch. 2 role of scanning

Answer 8

Surveillance of a firms external environment to predict environmental changes and detect changes already underway

Question 9

Ch. 2 role of monitoring

Answer 9

Tracks evolution of environmental trends, sequence of events, or streams of activities

Question 10

Ch.2 role of competitive intelligence

Answer 10

Collecting and interpreting data on competitors, defying and understanding the industry, and identifying competitors strengths and weaknesses

Question 11

Ch. 2 forecasting

Answer 11

Development of plausible projections about direction, scope, speed, and intensity of environmental change

Question 12

Ch.2 define general environment

Answer 12

Factors external to an industry, usually beyond a firm’s control

Question 13

Ch. 2 general environment key trends and events

Answer 13

Demographic, sociocultural, political/legal, technological, economic, global

Question 14

Ch.2 define competitive environment

Answer 14

External factors beyond a firms control and affects a firms strategy, this includes: competitors, customers, and suppliers. Measured with the porter five forces.

Question 15

When is Threat of new entrants high?

Answer 15

New industry, new entrants and profit margin, above average and low investment.

Question 16

Where do substitutes come from?

Answer 16

Outside the industry that produce products or services that satisfy the same customer need( new or adjacent industries)

Question 17

What is most powerful force

Answer 17

Rival competitors: price competition, advertising battles, product introductions, increased customer service or warranties.

Question 18

Value chain analysis

Answer 18

Organization that uses value creating activities where porter says value must be greater than costs

Question 19

Value chain 3 primary activities

Answer 19

Physical creation of products
Sale and transfer to buyer
Service after sale
Ex: in bound logistics, ops, outbound logistic, marketing and sales, customer service

Question 20

Value chain support activities

Answer 20

Adds value by themselves
Or through important relationships with primary activities and other support activities
Ex: stay the same for every industry: procurement, IT, HR, general admin, firm infrastructure

Question 21

Interrelationship among value chain activities within and across organizations

Answer 21

Collaborative and strategic exchange relationships between value chain activities either
1. Within firms
2. Between firms
* involve exchange of resources that contribute to success of firm
exchange of 
Info
People
Tech
Money

Question 22

Integrating customers in value chain

Answer 22

Prosumer: customer and producer

Concentrates on most important stakeholder, the customer to satisfy their particular needs.

Question 23

Applying value chain to service industry

Answer 23

Retail: vendors, purchasers, manage and distribute inventory, operate stores, market and sell

Engineer: R&D, engineer, design and solutions, market and sells, service

Question 24

Resource based

Answer 24

Perspective that firms competitive advantages are due to their endowment of strategic resources that are valuable, rare, costly to imitate, costly to substitute

Question 25

Types of resources:

Answer 25

Tangible: financials like cash, physical buildings, tech like trade secrets and patents/copyright/trademarks, organizational like control systems Intangible: human experience or skills, innovation like scientific skills, reputation like brand name Organizational capabilities: combine tangibles and intangibles to attain desired end: customer service, retain employee capital

Question 26

More than 50% of value GDP of developed countries is based on....

Answer 26

Knowledge

Question 27

Role of knowledge in today's economy: 3 capital

Answer 27

Intellectual capital: difference between the market value of firm and book value of firm (assets, rep, loyalty, brand) Human capital: individual capabilities, knowledge, skills, and experience of a company's employees and managers Social capital: the network of friendships and working relationships between talented people both in and outside of org.

Question 28

How social capital helps attract and retain talent

Answer 28

Is necessary, but not sufficient condition for creating a competitive advantage Knowledge workers are more loyal to colleagues and profession than employers. How social capital helps attract and retain Hiring via networking Teams or networks of people are leaving one company for another Some bring other job candidates with them Emigration of talent to form a start up Can provide mechanisms for obtaining resources and info from outside the org.

Question 29

Codifying knowledge for competitive advantage: tacit knowledge

Answer 29

Personal experience | Shared only with consent and participation of the individual

Question 30

Codifying knowledge for competitive advantage: explicit (codified) knowledge

Answer 30

Knowledge that is: documented, widely distributed, and easily replicated Can be reused many time at a low cost once knowledge asset is developed and paid for, assuming that doesn't need to be modified

Question 31

Ch5 What is business level strategy?

Answer 31

Designed for a firm or a division for a for that competes within a single business

Question 32

Ch5 what is generic strategy?

Answer 32

An analysis of business strategy into basic types based: on breadth of target market (is industry wide or narrow) and type of competitive advantage (low cost v. Uniqueness)

Question 33

Ch.5 Porter presents 3 generic strategies plus 1

Answer 33

1. Overall cost leadership: creating low cost position throughout the value chain 2. Differentiation: firm creates product that is unique and valued 3. Focus: focuses on narrow product lines, buyer segments, or targeted geographic markets that attain an advantage through the first 2 points. 4. Combo of differentiation and overall low cost

Question 34

Overall cost leadership

Answer 34

Low cost Manage relationships through value chain Low cost in ever activity Have to be parity with differentiation

Question 35

Experience curve

Answer 35

Key to overall cost leadership strategy. refers to how firm learns to lower costs as it gains experience with production process. The decline in unit costs of production as cumulative output increase.

Question 36

Competitive parity

Answer 36

Generate above average performance following overall cost leadership position on the basis of differentiation on par to competitors.

Question 37

Overall cost: position vis a vis the five forces

Answer 37

Think of each force Protects a firm against rivalry from competitors, powerful buyers Provides a more flexibility to cope with demand from powerful suppliers for input costs increase and provides substantial entry barriers from economies of scale and cost adv. Favorable position with respect to subs.

Question 38

Pitfalls of overall cost leadership

Answer 38

Too much focus on one or few value-chain activities All rivals share a common input or raw mater. Easy to imitate Lack parity of differentiation Erosion of cost adv. when pricing info. available to customers

Question 39

Differentiation strategy

Answer 39

``` Create p/s that are unique and valued Prestige brand Tech. Innovation Features Customer. Serv. Dealer network ```

Question 40

Differentiation strategy vis a vis porter five forces

Answer 40

Creates higher barrier due to customer loyalty Higher margarines that enable the firm to deal with supplier power Establishes customer loyalty hence less threat of sub.

Question 41

Differentiation strategy pitfalls

Answer 41

Uniqueness not valued Too much differentiation Price too high Easily imitated Diffusion of brand ID. through product-line extension Perception of different ion may vary between buyers and sellers

Question 42

Focus strategy

Answer 42

Based on the choice of a narrow competitive scope within an industry (niche markets) and dedicates itself to the segments. Cost focus: strives to create a cost advantage in its target segment Differentiation focus: firm seeks to differentiate in it target market

Question 43

Focus: competitive position vis a vis 5forces

Answer 43

Creates barriers of either cost leadership or differ. Or both Used to select niches that are least vulnerable to substitute or where competitors are weakest

Question 44

Focus pitfalls

Answer 44

Erosion of cost advantage within narrow segment Focused p/s still subject to competition from new entrants and imitation Too focused to satisfy buyer

Question 45

Combination of differentiation and overall cost

Answer 45

Automated and flexible Manu. Systems Exploiting profit pool concept of competitive advantage Coordinating extended value chain by way of information tech.

Question 46

Combo vis a vis porter 5

Answer 46

Think of Walmart

Question 47

All the following are potential pitfalls of an integrated overall low cost and differentiation strategy except:

Answer 47

Firms fail to attain both strategies may end up with neither and become "stuck in the middle" Underestimate the challenges and expenses associated with coordinating value creating activities in the extended value chain Miscalculating sources of revenue and profit pools in the firms industry. NOT targeting to large markets that causes unit costs to increase

Question 48

Are combination strategies the key to e-business success?

Answer 48

Greatest beneficiaries are the focusers who can use the Internet to capture a niche that use to be inaccessible. Many experts agree that the net effect of the digital economy is fewer rather than more opportunities for sustainable advantages. It challenges a company to carefully blend alternative strategic approaches and remain mindful of different decisions of a firms value creating process and value chains. Strong leadership is needed to maintain birds eye view on overall approach and coordinate the multiple dimensions of a combo strategy.

Question 49

Life cycle stages

Answer 49

Intro, growth, mature, decline

Question 50

Turnaround strategy

Answer 50

Reverses decline in performance and returns to growth and profitability. Asset and cost surgery Selective product and marketing pruning Piecemeal productivity improvements

Question 51

When to pursue a harvest strategy?

Answer 51

High growth Strong competitive advantage Mergers and acquisitions Decline in the market life cycle

Question 52

diversification

Answer 52

The process of firms expanding their operations by entering new businesses outside their industry. Two questions: 1. What business should a corporation compete in? 2. How should it be jointly managed to create more value than if it were free standing? SYNERGY IN THE VALUE CHAIN Related= synergy

Question 53

Synergy =

Answer 53

Economies of scope: cost saving from leveraging core competences or sharing related activities among businesses in a corporation

Question 54

Ch. 6 the sale of Boeing commercial aircraft and Microsoft operating systems in many countries enables companies to benefit from_____?

Answer 54

Economies of scale

Question 55

McKesson, a large distribution company, sells many product lines such as pharmaceuticals and liquor through it super warehouses. This is an example of:

Answer 55

Achieving economies of scope through related diversification.

Question 56

Phillip Morris bought miller brewing and used its marketing expertise to improve Millers market share. The justification for diversification is best described as:

Answer 56

Capitalizing on core competences

Question 57

Ch. 6 when is vertical integration good/bad?

Answer 57

Bad: If transaction costs are lower than admin cost ( mcDs high cost of raising cattle, easier to buy) Good: if admin costs are lower than transaction costs ( think of automobiles and high cost of making an engine, suppliers will not invest to create unique pieces)

Question 58

Unrelated diversification: parenting

Answer 58

``` Help increase revenues and profits by creating value through mgmt expertise: Improve plans and budgets Legal Financial Hr mgmt Procurement ```

Question 59

Unrelated diversification: restructuring

Answer 59

The "buy low sell high" mentality Acquire undervalued companies or competing businesses with a high potential for transformation *trouble=restructure Assets, sale unproductive assets or whole lines of business Capital, changes in debt-equity mix or the mix between different classes of debt or equity Mgmt, changes in composition of mgmt team, org structure, reporting relationships

Question 60

Unrelated diversification: portfolio mgmt

Answer 60

Creation of synergies and shareholder value by portfolio mgmt and the corporate office Assessing competitive position of a portfolio Suggesting strategic alternatives of each business Identify priorities for allocation of resources Allocate resources using BCG growth/ share matrix: stars, question marks, cash cow, dogs Experts of corporate office

Question 61

Portfolio mgmt matrices are applied to what level of strategy?

Answer 61

Corporate level

Question 62

International expansion: a company's risk

Answer 62

1. Political and economic risks ( social unrest, military turmoil, violence, laws and enforcement) 2. Currency risks (exchange fluctuations, appreciation of US dollar) 3. MGMT risks (culture, customs, language, income level, customer preference, distribution systems)

Question 63

Achieving competitive advantage in global markets: | 4 types of international strategies

Answer 63

1. International strategy 2. Global strategy 3. Multi-domestic strategy 4. Transnational strategy * the selection of one of these depends on a firms relative pressure to address each of the two forces.

Question 64

Which strategy offers lowest risk, but highest control?

Answer 64

Not enough info, if you want control, up your risk. | Ex: eBay in China: started global strategy, but should have been transactional strategy ( had to adapt).

Question 65

Entry modes of international expansion: Exporting

Answer 65

Produce goods in one country and sell to another. This strategy enables a firm to invest the least amount of resources in terms of its product, it's org, and overall corporate strategy. Benefits: partnerships with local distributors who have knowledge of their market and hiring and managing local personal is cheaper and minimizes risk. Risks: partners with distributors carry competing products