Strategy and contemporary issues > Chapter 12 > Flashcards

Chapter 12 Flashcards

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1
Q

What are the three common methods for achieving growth strategies?

A
  • Mergers
  • Acquisitions
  • Alliances

These methods are often used in strategic development and can have major implications for companies.

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2
Q

In 2022, Microsoft announced plans to acquire which gaming company for $68.7 billion?

A

Activision Blizzard

This acquisition would be the biggest in Microsoft’s history and aims to enhance their gaming business.

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3
Q

What is the default method for pursuing a strategy according to the text?

A

Organic development

This method relies on a company’s own resources for growth.

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4
Q

List the five principal advantages of relying on organic development.

A
  • Knowledge and learning
  • Spreading investment over time
  • No availability constraints
  • Strategic independence
  • Culture management

These advantages highlight the benefits of using internal capabilities for growth.

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5
Q

True or false: Organic development is typically faster and less risky than mergers and acquisitions.

A

FALSE

Organic development can be slow, expensive, and risky, especially for major innovations.

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6
Q

What is meant by corporate entrepreneurship?

A

Radical change driven by the organisation’s own capabilities

This concept emphasizes significant internal change rather than relying solely on external entrepreneurship.

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7
Q

What are the two principal external growth options discussed in the chapter?

A
  • Mergers
  • Acquisitions

These options are contrasted with organic development.

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8
Q

Define mergers and acquisitions (M&A).

A

Methods of achieving major strategic change through the combination of companies

M&A can involve significant financial implications and risks.

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9
Q

What are the two types of acquisitions mentioned?

A
  • Friendly acquisitions
  • Hostile acquisitions

Friendly acquisitions involve cooperation, while hostile acquisitions occur against the target’s management wishes.

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10
Q

What is the historical context of M&A?

A

M&A show cyclical quality with high peaks and deep troughs

Activity levels can vary significantly over time, influenced by economic conditions.

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11
Q

List the three main strategic motives for M&A.

A
  • Extension
  • Consolidation
  • Resources and capabilities

These motives relate to improving competitive advantage and market position.

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12
Q

What does the term extension refer to in the context of M&A?

A

Using M&A to extend the reach of a firm in geography or markets

An example is Canadian Pacific Railway’s acquisition to connect Canada to Mexico.

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13
Q

What is the purpose of consolidation in M&A?

A

To reduce competition and increase market power

This can lead to increased efficiency and bargaining power.

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14
Q

Fill in the blank: M&A can be used to acquire new ________ and capabilities.

A

resources

Acquiring resources can enhance a company’s competitive position.

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15
Q

True or false: All M&A are cross-border transactions.

A

FALSE

While many M&A are cross-border, a significant number occur within national boundaries.

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16
Q

What are the three main financial motives for mergers and acquisitions (M&A)?

A
  • Financial efficiency
  • Tax efficiency
  • Asset stripping or unbundling

These motives focus on optimizing financial resources rather than directly improving the business.

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17
Q

True or false: Tax efficiency in M&A can involve transferring profits or tax losses within a combined organization.

A

TRUE

This can benefit from different tax regimes between industries or countries.

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18
Q

What is meant by asset stripping in the context of M&A?

A

Buying companies to sell off different business units for a total price exceeding the original purchase price

Often criticized as opportunistic profiteering, but can lead to better economic effectiveness.

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19
Q

What are the two main criteria for selecting and evaluating targets in M&A?

A
  • Strategic fit
  • Organisational fit

Strategic fit strengthens or complements the acquiring firm’s strategy, while organisational fit relates to management practices and cultural compatibility.

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20
Q

Fill in the blank: M&A may sometimes serve managers’ self-interest due to _______.

A

[personal ambition]

This can manifest in various forms, including financial incentives tied to growth targets.

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21
Q

What is the bandwagon effect in the context of M&A?

A

Pressure on managers to join acquisition trends during market upswings

This can lead to unnecessary acquisitions and potentially paying too much.

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22
Q

What is the importance of due diligence in the M&A process?

A

Structured investigation focusing on key aspects of the target business

Poor due diligence can lead to serious post-acquisition difficulties, such as significant financial write-downs.

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23
Q

What are the four key steps in the M&A process?

A
  • Growth strategy
  • Target investigations and choice
  • Bid negotiation
  • Integration

Each step imposes different tasks on managers and is crucial for creating value.

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24
Q

What does strategic fit refer to in M&A?

A

The extent to which the target firm strengthens or complements the acquiring firm’s strategy

It relates to the original strategic motives for the acquisition.

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25
What is the **risk of overpaying** in an acquisition?
The acquirer may pay so much that the original cost can never be earned back ## Footnote This can lead to a cycle of overvaluation and undermine the strategic value of the target company.
26
What is the **winner's curse** in M&A?
The phenomenon where an acquirer pays too much to win a bid ## Footnote This can result in financial losses if the acquisition does not generate expected returns.
27
What is the **critical factor** for extracting value from an acquisition?
Integration with the acquirer ## Footnote Integration is often challenging due to cultural differences, incompatible systems, or routines.
28
Name the **two key criteria** that determine the most suitable approach to integration.
* Extent of strategic interdependence * Need for organisational autonomy ## Footnote These criteria influence how closely the acquired company should be integrated with the acquirer.
29
What is the **absorption** approach in integration?
High strategic interdependence, low organisational autonomy ## Footnote Requires rapid adjustment of the acquired company’s strategies, structures, and culture.
30
What does the **preservation** approach entail?
High autonomy, low integration need ## Footnote Allows the acquired company to maintain its strategies and culture with minimal changes.
31
Define the **symbiosis** approach in integration.
High strategic interdependence, high autonomy ## Footnote Both firms learn from each other, requiring time and careful management.
32
What is the **intensive care** approach in acquisitions?
Little to gain by integration, remedial action needed ## Footnote Focuses on imposing short-term targets without integrating the acquired company.
33
What characterizes **reorientation** acquisitions?
Good health of acquired company, need for central administrative integration ## Footnote Distinctive resources are left alone while changes are made to align functions.
34
True or false: **Acquisition success** depends on how well the integration process is managed.
TRUE ## Footnote Effective management of integration processes is crucial for long-term success.
35
What are **serial acquirers**?
Companies that make multiple acquisitions over time ## Footnote They learn to improve their M&A processes through experience.
36
What is the **parenting advantage** in divestiture?
Corporate parent adds more value than other potential owners ## Footnote If no parenting advantage exists, divestiture may be necessary.
37
What is a **strategic alliance**?
Collaboration between two or more organizations to pursue a common strategy ## Footnote Alliances can involve partial changes in ownership or no ownership at all.
38
Name the **two main types** of strategic alliances based on ownership.
* Equity alliances * Non-equity alliances ## Footnote Equity alliances involve joint ventures, while non-equity alliances are based on contracts.
39
What is an example of a **non-equity alliance**?
Franchising ## Footnote In franchising, one organization allows another to sell its products or services for a fee.
40
What is a **joint venture**?
A new entity owned separately by partner organizations ## Footnote It allows companies to collaborate while remaining independent.
41
What is the role of **governments** in strategic alliances?
Encouraging public-private partnerships and consortia ## Footnote Governments often support collaborations for building and maintaining public infrastructure.
42
What is a **strategic alliance**?
A cooperative agreement between organizations to achieve shared objectives ## Footnote Strategic alliances can involve sharing resources, knowledge, or market access.
43
Name the **three key motives** for forming strategic alliances.
* Scale alliances * Access alliances * Collusive alliances ## Footnote These motives help organizations achieve competitive advantages and efficiencies.
44
What is a **scale alliance**?
An alliance formed to achieve necessary scale in production or services ## Footnote Organizations combine resources to gain economies of scale.
45
What is an **access alliance**?
An alliance formed to access capabilities or resources needed to produce or sell products ## Footnote This often involves partnering with local firms to enter new markets.
46
True or false: **Collusive alliances** are formed to cooperate against competitors.
TRUE ## Footnote These alliances can lead to anti-competitive behavior and may harm other market players.
47
What is the **importance of trust** in strategic alliances?
Trust is crucial for the success and longevity of alliances ## Footnote It involves both structural and behavioral trust between partners.
48
What are the **stages of strategic alliance evolution**?
* Courtship * Negotiation * Start-up * Maintenance * Termination ## Footnote Each stage involves different levels of resource commitment and trust.
49
During the **courtship** stage of a strategic alliance, what is primarily committed?
Managerial time ## Footnote This stage focuses on assessing strategic and organizational fit between partners.
50
What is involved in the **negotiation** stage of a strategic alliance?
Setting terms, ownership proportions, and responsibilities ## Footnote Clear contracts are essential to avoid future disputes.
51
What is the **start-up** phase of a strategic alliance characterized by?
Investment of material and human resources ## Footnote This phase tests the initial agreements and requires mutual trust.
52
What does the **maintenance** stage of a strategic alliance require?
Active management and adaptation to changing circumstances ## Footnote Trust and cooperation are vital as partners build experience.
53
What does the **termination** stage of a strategic alliance involve?
Completion of the alliance's purpose or amicable separation ## Footnote Trust remains important for potential future collaborations.
54
What are the **criteria** for choosing between acquisitions, alliances, and organic development?
* Urgency * Uncertainty * Type of resources and capabilities ## Footnote These factors influence the best strategic approach for an organization.
55
True or false: **Acquisitions** are the slowest method for pursuing a strategy.
FALSE ## Footnote Acquisitions are typically the fastest method compared to alliances and organic development.
56
What type of resources do **acquisitions** work best for?
Hard resources, such as physical investments ## Footnote These resources are easier to value and integrate post-acquisition.
57
What is a potential risk of acquiring **soft resources**?
Significant integration problems ## Footnote Cultural differences can complicate the integration process.
58
What are the **three options** for acquiring capabilities in business?
* Buy * Ally * DIY ## Footnote These options represent different strategies for businesses to acquire resources and competencies.
59
True or false: The **organic method** is typically the most culturally consistent approach to acquiring capabilities.
TRUE ## Footnote The organic method tends to align better with existing company culture.
60
What are some **key success factors** in M&A and strategic alliances?
* Strategic fit * Accurate valuation * Effective management ## Footnote These factors are critical for ensuring successful outcomes in mergers and acquisitions as well as alliances.
61
In M&A, what is the **'winner’s curse'**?
Excessive valuation due to competitive bidding ## Footnote This phenomenon occurs when bidders overestimate the value of the target company during acquisition.
62
What distinguishes the **process of alliances** from M&A?
* Courtship between partners * No option for hostile takeovers ## Footnote Alliances require mutual willingness, while M&A can involve hostile bids if negotiations fail.
63
What are the **integration approaches** in M&A?
* Absorption * Preservation * Symbiosis * Intensive care * Re-orientation ## Footnote These approaches dictate how the acquired company is integrated into the acquiring organization.
64
How do **divestitures** differ from the termination of alliances?
* Divestitures are one-off transactions * Alliance terminations can affect future relationships ## Footnote The nature of divestitures and alliances leads to different implications for ongoing partnerships.
65
Fill in the blank: **Strategic fit** is critical in both M&A and _______.
alliances ## Footnote The alignment of the target or partner with the desired strategy is essential for success.
66
What is a potential issue in managing **alliances** compared to acquisitions?
More difficult to manage due to lack of ownership rights ## Footnote In alliances, partners maintain independence, complicating management.
67
What is the **cultural challenge** often faced in acquisitions?
Culture clashes between people from different organizations ## Footnote Merging different corporate cultures can lead to conflicts and challenges.
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