final Flashcards

Question

Earnings calls key benefits

Answer 1

Insights into Leadership Perspective, Industry Trends and Competitive Landscape, Key Performance Metrics, Stakeholder Concerns

Answer 2

Decision-making: Inform competitive positioning and identify growth areas. Gap Analysis: Compare Company Strengths And Weaknesses relative to competitors. Scenario Planning: Anticipate future challenges and opportunities.

Answer 3

Strengths: low cost manu, UI, cons sat, rel with OS providers Weaknesses: not well known brand, lacks its own OS, no app store, too many models, bad in tablets

Answer 4

develop OS, invest in building brand, firsts mover differentiation

Answer 5

1. Stay the course PROS: Capabilities to deal with Android and Windows already exist. Ecosystems already exist. CONS: Dependent on Google and Microsoft. Android Segmentation May Discourage developers. 2. Develop or buy an OS PROS: Emulate Apple’s success through a proprietaryOS. Gain greater control over product development. Boost The Chances Of differentiation. CONS: High cost (US$200 million). How To Create Apps For The New platform? How To Create An ecosystem? Too Late? App developers already have too many platforms to use. 3. License another OS PROS: Reduce dependency on Android. CONS: Detract from R&D effort allocated to Android and Windows. May Undermine Efforts To Reduce product portfolio. Existing Options(RIM,Tizen,etc) lack well-developed ecosystem.

Answer 6

Importance of competitor analysis in strategic decision- making The different scope decisions made by players in the mobile phone industry illustrate not only the link between scope and firm capabilities, but also the link between scope decisions and competitive positions over time. One can build a table/graph that captures the placement of a given firm in the cost vs. differentiation space and the decisions made in the value chain.

Answer 7

the set of mechanisms used to manage the relationships among stakeholders and to determine and control the strategic direction and performance of organizations - Its concerned with identifying ways to ensure that decisions (especially strategic decisions): are made effectively, facilitate a firm’s efforts to achieve strategic competitiveness - Can be thought of as a means to establish and maintain harmony between a firm’s owners and its top-level managers

Answer 8

Modern corporations are characterized by an agency relationship between owners and managers. An agency relationship exists when one party delegates decision-making responsibility to a second party for compensation.

Answer 9

Owners (principals) hire managers (agents) to make decisions that maximize the firm’s value. As risk-bearing specialists, owners diversify their risk by investing in multiple corporations with different risk profiles. Owners expect their agents (the firm’s top-level managers, who are decision-making specialists) to make decisions that will help to maximize the value of their firm.

Answer 10

The principal and the agent may have different interests and goals. The agent may make decisions that result in pursuing goals that conflict with those of the principal. These divergent interests and goals between principals and agents may lead to managerial opportunism.

Answer 11

Managerial opportunism is the seeking of self-interest with guile (i.e., cunning or deceit). Managerial opportunism prevents the maximization of shareholder wealth.

Answer 12

Principals establish governance and control mechanisms to prevent agents from acting opportunistically. Agency costs are the sum of incentive costs, monitoring costs, enforcement costs, and individual financial losses incurred by principals because governance mechanisms cannot guarantee total compliance by the agent.

Answer 13

1. Ownership Concentration 2. Board of Directors 3. Executive Compensation 4. Market for Corporate Control

Answer 14

Relative amounts of stock owned by individual shareholders and institutional investors. Institutional owners: financial institutions, such as mutual funds and pension funds, that control large-block shareholder positions. By using their positions of concentrated ownership, institutional owners can force managers and boards of directors to make decisions that best serve shareholders’ interests.

Answer 15

In general, diffuse ownership (a large number of shareholders with small holdings and few, if any, large-block shareholders) produces weak monitoring and control of managerial decisions. With high degrees of ownership concentration, the probability is greater that managers’ decisions will be designed to maximize shareholder value.

Answer 16

Individuals responsible for representing the firm’s owners by monitoring top-level managers’ strategic decisions. A board of directors is a group of elected individuals whose primary responsibility is to act in the owners’ best interests by formally monitoring and controlling the firm’s top-level managers. Shareholders elect the members of a firm’s board of directors. Generally, board members are classified into one of three groups: Insiders, Related outsiders, Outsiders

Answer 17

Insiders: the firm’s CEO and other top-level managers. Related outsiders: individuals uninvolved with day-to-day operations, but who have a relationship with the firm. - Non-independent - Affiliated directors (e.g. suppliers, including banks, legal, accounting services); Ex-officers or ex CEO; Family members Independent outsiders: individuals who are independent of the firm’s day-to-day operations and other relationships. no significant financial or other tie to corporation

Answer 18

To enhance accountability and performance, many boards are implementing changes such as: a. Increasing diversity to bring varied perspectives (e.g., gender, skills, global experience). b. Strengthening internal controls to ensure robust financial oversight. c. Establishing formal processes to evaluate board members’ performance. d. Creating a "lead director" role for focused oversight of non-management board activities.

Answer 19

The use of salary, bonuses, and long-term incentives to align managers’ interests with shareholders’ interests. Executive compensation is a governance mechanism that seeks to align the interests of managers and owners through salaries, bonuses, and long-term incentives such as stock awards and options. Executive compensation is a highly visible and often criticized governance mechanism.

Answer 20

The purchase of a firm that is underperforming relative to industry rivals in order to improve its strategic competitiveness. The market for corporate control is an external governance mechanism that is active when a firm’s internal governance mechanisms fail. The market for corporate control is composed of individuals and firms that buy ownership positions in or purchase all of potentially undervalued corporations typically for the purpose of forming new divisions in established companies or merging two previously separate firms. An effective market for corporate control ensures that ineffective and/or opportunistic top- level managers are disciplined. - Because the top-level managers are assumed to be responsible for the undervalued firm’s poor performance, they are usually replaced. - Threat of takeover may lead firm to operate more efficiently

Answer 21

individuals, groups, and organizations that can affect the firm’s vision and mission, are affected by the strategic outcomes achieved, and have enforceable claims on the firm’s performance.

Answer 22

(also called “stockholders”) are a corporations’ owners who invest in a company in the expectation that their investments will grow in value over time.

Answer 23

Profit maximization view; Argues against the concept of social responsibility Primary goal of business is profit maximization not spending shareholder money for the general social interest Friedman thus referred to the social responsibility of business as a “fundamentally subversive doctrine” and stated that: - There is one and only one social responsibility of business— to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud

Answer 24

A framework that describes a business’s obligation to create value for a range of stakeholders, not simply its shareholders. Businesses must look beyond the “bottom line” and examine how their decisions may impact their stakeholders. - This may mean trade-offs in its returns to investors, but ultimately can lead to a more sustainable business with fewer risks and more satisfied group of stakeholders. Stakeholder theory has become one of the foundations of corporate social responsibility and sustainability.

Answer 25

It is much more complex than the Friedman Doctrine because simultaneous optimization against several objectives is hard to achieve in practice. It can also takes far more time and validate some stakeholders whose claims may be less salient than others.

Answer 26

1. Economic responsibilities : Be profitable enough to reward creditors & shareholders: produce goods and services of value to society so that the firm may repay its creditors and increase the wealth of its shareholders 2. Legal responsibilities: Act legally: defined by governments in laws that management is expected to obey 3. Ethical responsibilities: Follow ethical principles (work with community in closures): follow the generally held beliefs about behavior in a society 4. Discretionary responsibilities: Follow discretionary responsibilities (hire hard-core unemployed, day care): purely voluntary obligations a corporation assumes

Answer 27

1. Sustainability reporting: Many organizations publish annual sustainability reports following guidelines like the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB). ESG metrics: increasingly used to evaluate a company’s ethical impact and sustainability practices. 2. CSR ratings and indexes: Morgan Stanley Capital International’s (MSCI) Kinder. Kinder, Lyndenberg, & Domini (KLD) databse. Corporate misconduct data from Violation Tracker, and the Reputation Risk (RepRisk) Index from Wharton Research Data Services (WRDS). Dow Jones Sustainability Index provide CSR ratings 3. Impact assessments : S&P Global Trucost: e.g., carbon emissions

Answer 28

1.Capital market stakeholders 2. Product market stakeholders 3. Organizational stakeholders

Answer 29

Shareholders and lenders expect a firm to preserve and enhance their wealth. - The most obvious stakeholders, at least in U.S. organizations, are shareholders—individuals and groups who have invested capital in a firm in the expectation of earning a positive return on their investments. Expected returns are correlated with the investments’ degree of risk: - Low-risk investments = lower returns / High-risk investments = higher returns

Answer 30

1. Customers seek reliable products at the lowest possible prices. 2. Suppliers seek loyal customers who are willing to pay the highest sustainable prices for products. 3. Host communities (the national, state / province, and local government entities with which the firm interacts) want companies willing to be long-term employers and providers of tax revenue without placing excessive demands on public support services. 4. Unions seek secure jobs and desirable working conditions for members. - Product market stakeholders are generally satisfied when a firm’s profit margin reflects at least a balance between the returns to capital market stakeholders and the returns in which they share.

Answer 31

Employees: Expect the firm to provide a dynamic, stimulating, and rewarding work environment Generally prefer to work for a growing company in which they can develop their skills Are critical to organizational success when they learn how to use new knowledge productively Leaders: Must use the firm’s human capital successfully to serve the day-to-day needs of stakeholders Help a firm’s employees understand competition in the global competitive landscape through international assignments

Answer 32

- Stakeholders vary in their economic philosophies, their ideologies, agendas, histories and cultural backgrounds. - Identify key stakeholders and influence them effectively using the communication techniques. - Good workplace communications help us manage and engage our stakeholders. - A relationship in which we help our stakeholders obtain their objectives helps deliver shareholder values. - Communication strategy plus engagement

Answer 33

- Can affect development of the firm’s vision and mission - Are affected by the strategic outcomes achieved by the firm - Can have enforceable claims on the firm’s performance - Are influential when in control of critical valued resources

Answer 34

An integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets 1. Core competencies : resources and superior capabilities that are sources of competitive advantage over firm’s rivals 2. Strategy : firm forms to describe how it intends to compete in the product market by exploiting core competencies 3. Business level strat: providing value to customer and gaining comp adv by exploiting core competencies in individual product markets

Answer 35

the strategy that the firm forms to describe how it intends to compete against rivals on a day-to- day basis in its chosen product market

Answer 36

a firm must decide if it intends to perform activities differently or if it will perform different activities. Thus, the firm’s business-level strategy is a deliberate choice about how it will perform the value chain’s primary and support activities to create unique value.

Answer 37

A business model describes what a firm does to create, deliver, and capture value for its stakeholders. Developing and integrating a business model and a business-level strategy increases the likelihood of company success. - In essence, a business model is a framework for how the firm will use processes to create, deliver, and capture value, while a business-level strategy is the path the firm will follow to gain a competitive advantage by exploiting its core competencies in a specific product market.

Answer 38

1. Franchise model: A firm licenses its trademark and the processes it follows to create and deliver a product to franchisees. Example: McDonald’s 2. Freemium model: The firm provides a basic product to customers for free and earns revenues and profits by selling a premium version of the service. Example: Dropbox, iCloud 3. Advertising model: for a fee, a firm provides advertisers with high-quality access to its target customers. Example: Google 4. Subscription model: A firm offers a product to customers on a regular basis such as once-per-month, once-per-year, or upon demand. Example: Netflix 5. Peer-to-peer model: A business matches those wanting a particular service with those providing that service. Example: Airbnb

Answer 39

Basis for customer value - Achieving lower overall costs than rivals: Performing activities differently (reducing process costs) Possessing the capability to differentiate the firm’s product or service and command a premium price - Performing different (more highly valued) activities Competitive scope - Broad Scope: the firm competes in many customer segments - Narrow Scope: the firm selects a segment or group of segments in the industry and tailors its strategy to serving them at the exclusion of others

Answer 40

1. Opportunities and threats in a firm’s external environment 2. Strengths and weaknesses derived from its resource portfolio Thus, it is critical for the firm to select a business-level strategy that represents an effective match between the opportunities and threats in its external environment and the strengths of its internal organization based on its core competencies.

Answer 41

Cost leadership strategy is an integrated set of actions taken to produce products with features that are acceptable to customers at the lowest cost, relative to that of competitors. Firms using the cost leadership strategy commonly sell standardized goods or services, but with competitive levels of differentiation, to the industry’s most typical customers. Process innovations (newly designed production and distribution methods and techniques that allow the firm to operate more efficiently) are critical to a firm’s efforts to use the cost leadership strategy successfully.

Answer 42

Potential entrants: Over time, the efficiency of a cost leader enhances its profit margins, which in turn creates an entry barrier to potential competitors. - New entrants must be willing to accept less than average returns until they gain the experience required to approach the cost leader’s efficiency. Competitive risks of cost leadership include; - A loss of competitive advantage to newer technologies - A failure to detect changes in customers’ needs - The ability to imitate the cost leader’s competitive advantage through competitors’ own distinct strategic actions

Answer 43

Differentiation strategy is an integrated set of actions taken to produce products (at an acceptable cost) that customers perceive as being different in ways that are important to them. Focus is on non-standardized products ; Raise performance of product or service Appropriate when customers value differentiated features more than they value low cost - Create sustainability through customer perceptions of uniqueness; customer reluctance to switch to non-unique product or service

Answer 44

Rivalry with Existing Competitors: Customers of products differentiated in ways that are meaningful to them tend to be loyal and less sensitive to price increases. - The relationship between brand loyalty and price sensitivity insulates a firm from competitive rivalry. Potential Entrants: Substantial barriers to potential entrants are created by: - Customer loyalty - The need to overcome the uniqueness of a differentiated product

Answer 45

A customer group’s decision that a differentiated product’s unique features are no longer worth a premium price The inability of a differentiated product to create the type of value for which customers are willing to pay a premium price The ability of competitors to provide customers with products that have features similar to those of the differentiated product, but at a lower cost Counterfeiting: The failure of a firm to meet customers’ expectations through its efforts to implement the differentiation strategy

Answer 46

An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment - Particular buyer group—youths or senior citizens - Different segment of a product line— professional craftsmen versus do-it- yourselfers - Different geographic markets—east coast versus west coast Types of focused strategies - Focused cost leadership strategy (e.g., Aldi, Small aircraft flight charter) - Focused differentiation strategy (e.g., Voyage, Ducati, Ferrari, Microbreweries)

Answer 47

Large firms may overlook small niches A firm may lack the resources needed to compete in the broader market Focusing allows the firm to direct its resources to certain value chain activities to build competitive advantage A firm is able to serve a narrow market segment more effectively than can its larger industry-wide competitors

Answer 48

- A competitor’s ability to use its core competencies to “out- focus” the focuser by serving an even more narrowly defined market segment - An industry-wide company’s decision that the market segment served by the firm using a focus strategy is attractive and worthy of competitive pursuit - A reduction in differences of the needs between customers in a narrow market segment and the industry-wide market over time

Answer 49

Integrated cost leadership/differentiation strategy finds a firm engaging simultaneously in primary value chain activities and support functions to achieve a low cost position with some product differentiation. - When using this strategy, firms seek to produce products at a relatively low cost that have some differentiated features that their customers value. Developing two sources of competitive advantage (cost and differentiation) increases the number of primary value chain activities and support functions in which the firm becomes competent.

Answer 50

Often involves compromises - Becoming neither the lowest cost nor the most differentiated firm In such cases, the company becomes “stuck in the middle.” – Firms stuck in the middle: Compete at a disadvantage, Are unable to earn more than average returns

Answer 51

1. To implement a cost leadership strategy, operations is the main function Process engineering is emphasized over research and development Large centralized staff oversees activities Formalized procedures guide actions Overall structure is mechanical Job roles are highly structured 2. To implement a differentiation strategy, marketing is the main function for tracking new product ideas. New product R&D is emphasized Most functions are decentralized Formalization is limited to foster change and promote new ideas Overall structure is organic Job roles are less structured

Answer 52

MGMT : Fast moving, competitive culture. Frugal habits. Matches customers’ culture – working class, rural roots. Decentralized price control – in store Merchandising/procurement : Empowerment of local store managers, who can tailor merchandise to match local preferences. One-stop shop - Bulk buys. Fast restock Logistics : Electronic data intercharge / Retail link. Monopoly in rural locations. Inventory management experts Store ops: Big stores in small towns – local monopolies, low rental costs. Pricing that reflects local monopoly. Concentric expansion HR : Associates vs. employees. Anti-union /discrimination = lots of turnover. No healthcare benefits

Answer 53

where the position of each element moves up or down, depending on pricing decisions and market pressures

Answer 54

Relative cost analysis: Understand your cost structure. Identify cost drivers for each activity. Quantify the effect of cost drivers. Determine competitors’ relative position Isolate key sources of cost advantage: Tight control over them. Configure activities around them

Answer 55

Low cost strategies are driven by decisions not up in the corner office, but throughout all corners of the enterprise; Wal-Mart’s culture, financial systems, human resources, logistics, purchasing, and merchandising operations are all aligned towards one goal – identifying cost drivers and wringing every penny of savings out of those activities. Through digging into the data and conducting your own financial analysis, you discover what really drives a firm’s success. - Low cost competitors understand the sources of their cost advantage, tightly control them, constant look at all functions to decrease costs, and configure activities around savings. - Low cost firms and upscale companies differ in their attempts to move the elements on the Value Stick.

Answer 56

specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets. A corporate-level strategy: - Is used as a means to grow revenues and profits - Focuses on diversification - Is expected to help the firm earn above-average returns by creating value Is concerned with two key issues: 1. In what product markets and businesses the firm should compete 2. How corporate headquarters should manage those businesses

Answer 57

1. Low levels of diversification - Single business (85% rev from single business): - Dominant business (70-05% of rev from single business) 2. Moderate to high levels of diversification : - Related constrained (less than 70% of rev from dominant business and all businesses hare product, technological and distribution linkages) - Related linked (mixed related and unrelated) (less than 70% of revenue comes from the dominant business and there are only limited links between business) 3. Very high levels of diversification - Unrelated (less than 70% of rev comes from dominant business and there are no common links between businesses)

Answer 58

- Competition occurs at the business-unit level - Being part of a diversified company involves inevitable costs for business units; Often underestimated - Corporate strategy must produce a clear and offsetting gain in the competitive advantage of business units Must exceed that available through alternative governance structures – e.g., alliances; contracts Thus the central issue is: How can a corporation make its businesses more competitive? - By guiding what mix of businesses the company is in - By dictating how the businesses are integrated

Answer 59

Diversification strategies play a major role in the behavior of large firms. Product diversification concerns: a. the scope of the industries and markets in which the firm competes. b. how managers buy, create and sell different businesses to match skills and strengths with opportunities presented to the firm.

Answer 60

Expansion into multiple businesses that share inputs (tangible and/or intangible resources)

Answer 61

- Expansion into businesses that make inputs for – or use the output of – other units within the corporation - Can occur in two directions - Backward or upstream integration (e.g., a manufacturing firm supplies its own raw materials of components) - Forward or downstream integration (e.g., a manufacturing firm moves into marketing/distribution)

Answer 62

The company using the related diversification strategy wants to develop and exploit economies of scope between its businesses. - Economies of scope are cost savings a firm creates by successfully sharing resources and capabilities or transferring one or more corporate-level core competencies that were developed in one of its businesses to another of its businesses. Firms can foster market power through multipoint competition and vertical integration. - Multipoint competition exists when two or more diversified firms simultaneously compete in the same product areas or geographical markets. - Vertical integration exists when a company produces its own inputs (backward integration) or owns its own source of output distribution (forward integration).

Answer 63

Unrelated diversification occurs when firms expand into industries with no operational or corporate relatedness Instead of sharing resources, firms create value through financial economies, which involve smarter financial management. Two Ways Unrelated Diversification Creates Value: 1) Internal Capital Allocation 2) Asset Restructuring

Answer 64

antitrust regs tax laws

Answer 65

In the 1960s and 1970s: Antitrust laws prohibiting mergers that created increased market power (via either vertical or horizontal integration) were stringently enforced. - Most mergers were “conglomerate” in character. In the 1980s and early 1990s: Merger constraints were relaxed.More and larger horizontal mergers (acquisitions of target firms in the same line of business) occurred. In the early 2000s: Antitrust concerns emerged again. Mergers received more scrutiny.

Answer 66

1960s–1970s: Dividends were taxed higher than capital gains, leading shareholders to favor reinvesting profits into new businesses. 1986 Tax Reform Act: Lowered individual income tax rates (from 50% to 28%). Changed capital gains tax rules, reducing the incentive to diversify. Declining Tax Benefits of Acquisitions: - Financial Accounting Standards Board (FASB) reduced tax advantages by: Eliminating the pooling of interests method for acquisitions. Restricting R&D write-offs for acquired firms.

Answer 67

1. Low performance - Research shows: Firms with low returns tend to diversify more. The relationship between diversification and performance may not always be linear. 2. Uncertain cash flows - Diversification serves as a defensive strategy, especially when: A product line matures or faces decline. A firm experiences a financial downturn. Family businesses operate in mature industries. - Expanding into new markets or industries can help stabilize future cash flows. 3. Synergy creation Firms diversify to create synergies, where combined business units generate more value together than separately. However, high interdependence between units can also reduce flexibility and limit risk-taking. 4. Managerial motives Managerial motives can drive diversification beyond purely value- creating reasons: higher compensation, lower personal risk

Answer 68

1. Operational efficiencies – Sharing resources, supply chains, or technology. 2. Market advantages – Strengthening brand presence across industries. 3. Financial benefits – Reducing costs and leveraging internal capital.

Answer 69

1. Scope – Deciding which markets, industries, and technologies to invest in. 2. Resources – Leveraging core assets, skills, and capabilities to create value across businesses. 3. Organization – Structuring the firm to manage resource flows, balance innovation with stability, and reduce internal conflicts.

Answer 70

Alphabet separated Google’s core businesses from high-risk, experimental projects to improve focus, accountability, and innovation.

Answer 71

Both YouTube and Android are platforms that create new touch points attracting customers to feed Google’s core resource, its search engine. - These investments are based on a diversification logic that is primarily demand-related, i.e. increasing and driving volume towards the Google search engine from various consumer touch points (e.g. PCs and mobile). - Demand-side considerations are most likely at play in the other technology businesses characterized by network effects—the need to create and sustain demand for the core business may justify investments in complementary areas, which may be technologically quite distant from their original scope of activity.

Answer 72

Optimistic view: Prior success and/or resources should allow them to successfully diversify across a broad variety of sectors, regardless of their relationship with core Google; the company can provide unique tangible or intangible resources to its investments, regardless of their activity Pessimistic view: The Moonshots in particular as an expression of the desires of the founders of the company—who retain significant control rights thanks to the dual class shares structure—rather than sound business logic

Answer 73

moonshots: Control, independence, speed google: Economies of scope: The Alphabet reorganization provided the opportunity to create much tighter relationships between Google and complementary and related assets, such as YouTube and Android. Coherent yet flexible resource allocation investors/shareholders : It insulates the profitable core of the business from other much less profitable and risky assets, transparency, It improves the tradability of the assets

Answer 74

Decentralization necessarily also introduces a loss of control from the corporate center, which may lead to unproductive uses of internal resources The extreme decentralization is likely to reduce even further the possibility of actually sharing resources between Google and the Moonshots, under the same corporate umbrella It is doubtful that financial accountability can effectively keep the Moonshots in line -- the fundamental uncertain and risky nature of these investments

Answer 75

- Demand-side externalities drive diversification—companies like Alphabet, Amazon, and Facebook expand by leveraging strong market demand. This trend explains why conglomerates are making a comeback in the digital economy. - However, diversification has limits. Alphabet’s investment in Moonshot projects is hard to justify using conventional resource- sharing logic. (Many Moonshot projects don’t clearly share resources with Alphabet’s core business, raising questions about their strategic fit. A better approach might be contractual partnerships rather than full ownership.) - Decentralization has both benefits and drawbacks—Alphabet’s holding structure allows innovation and risk-taking while maintaining corporate stability. However, managing vastly different businesses under one umbrella can create challenges in coordination and resource allocation.

Answer 76

begins with competitive analysis in terms of market commonality and resource similarity. Market commonality and resource similarity affect the drivers of competitive behavior—a firm’s awareness, motivation, and ability to attack or respond. Direct competitors have high market commonality & high resource similarity

Answer 77

Market commonality is concerned with the: - number of markets with which a firm and a competitor are jointly involved. - degree of importance of the individual markets to each competitor. Each industry composed of various markets which can be subdivided into segments - Example: Automobile industry Firms competing against one another in several or many markets engage in multimarket competition.

Answer 78

Resource similarity is: how comparable the firm’s tangible and intangible resources are to a competitor’s in terms of both types and amounts. Firms with similar types and amounts of resources are likely to: have similar strengths and weaknesses. use similar strategies. Assessing resource similarity is difficult if critical resources are intangible, rather than tangible.

Answer 79

Simple payoff matrix used to represent games involving simultaneous moves with no communication. - Single-period simultaneous game - Dominant strategy is one that is optimal regardless of what rival does. Repeated games may result in threat of future retaliation influencing current move In repeated games with indefinite future, tit for tat strategy (reciprocity) proves most effective, generated co-operation in prisoners’ dilemma pay-off matrix.

Answer 80

Price war & ending price war Escalation of capacity in real estate: Building ever larger shopping centres or office buildings Capacity escalation in shipping: Building larger fleet ahead of forecast growth in demand Situations with high entry & high exit barriers

Answer 81

First Mover: A firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position. First movers tend to: Be aggressive, Be willing to experiment with innovation, Take higher yet reasonable levels of risk To be a first mover, the firm must have the readily available resources to: Invest significantly in R & D, Rapidly and successfully produce and market a stream of innovative products

Answer 82

the loyalty of customers who may become committed to the firm’s goods or services market share that can be difficult for competitors to take during future competitive rivalry Proprietary technology (patents)

Answer 83

A second mover is a firm that responds to the first mover’s competitive action, typically through imitation. The second mover: Studies customers’ reactions to product innovations Tries to find any mistakes the first mover made so that it can avoid them and the problems they created Has the time to develop processes and technologies that: Are more efficient than those the first mover used Create additional value for consumers The most successful second movers can interpret market feedback with precision in order to respond quickly yet successfully to first movers’ successful innovations.

Answer 84

1. Slow cycle markets Competitive advantages are shielded from imitation for long periods of time and imitation is costly. Competitive advantages are sustainable in slow-cycle markets. All firms concentrate on competitive actions and responses to protect, maintain and extend proprietary competitive advantage. Great for first movers 2. Fast cycle markets The firm’s competitive advantages aren’t shielded from imitation. Imitation happens quickly and somewhat expensively. Competitive advantages are not sustainable; Competitors use reverse engineering to quickly imitate or improve on the firm’s products. Perfect for second movers

Answer 85

Acquired firms often see above-average returns. Acquiring firms tend to earn little to no returns. The acquiring firm’s stock price usually drops right after an acquisition is announced.

Answer 86

Valuing a target firm is tricky, leading to firms overpaying. If the premium paid exceeds the real value, the acquisition can hurt rather than help.

Answer 87

Merger: Two firms combine as equals to create a single entity. Acquisition: One firm buys a controlling or full stake in another, making it a subsidiary. Takeover: An acquisition where the target firm is unwilling (a "hostile takeover") - Example: Kraft Foods acquiring Cadbury, Oracle buying PeopleSoft. - Acquisitions are the most common growth strategy.

Answer 88

1. Increased market power 2. Overcoming entry barriers 3. Cost of new product development & increase speed to market 4. Lower risk than developing new products 5. Learning and developing new capabilities 6. Reshaping firms competitive scope 7. Increased diversification

Answer 89

1. Integration Complexity – Aligning cultures, systems, and processes across merging firms 2. Valuation Risks – Accurately assessing the true value of the target firm 3. Financial Strain – Managing debt loads to ensure long-term investment capabilities 4. Synergy Overestimation – Avoiding unrealistic expectations of cost savings and revenue growth 5. Diversification Risks – Ensuring acquisitions align with core business strengths 6. Managerial Distraction – Balancing integration efforts with ongoing business operations 7. Bureaucratic Inefficiencies – Preventing excessive complexity that hampers agility and decision-making

Answer 90

Aligning distinct corporate cultures – Merging financial and IT systems – Establishing effective working relationships, especially with differing management styles – Defining leadership roles and decision-making structures

Answer 91

A cooperative strategy where firms share resources and capabilities to achieve a mutual competitive advantage. Key Characteristics: – Joint development or distribution of goods and services – Resource and knowledge sharing between firms – Requires strong cooperation and alignment of interests

Answer 92

The “Better-off” Test: of all possible vertical combinations the best combination is that in which the two partners in the value chain maximize their joint revenue. – Which combination brings the best set of assets together? Can Disney and Pixar together create more value than any other combination i.e., a best owner version of the “better-off” test?

Answer 93

The “Ownership” Test: vertical integration through internalizing transactions inside the firm hierarchy is only appropriate when alternative contractual forms of arranging those transactions or coordinating decisions along the value chain are difficult, if not impossible to write. – What are the problems and costs of the market governance of transactions i.e., contracts, particularly in the presence of uncertainty and differing incentives?

Answer 94

Disney alternatives 1. Fix Disney’s own animation unit : All internal attempts have been a failure, Fired a large number of animators when things started to go sour, The knowledge accumulated at Pixar is hard to replicate, Nobody like Katzenberg is available now, Doesn’t have the technology 2. Hire talent away from Pixar: Pragmatically hard to do; Pixar employees extraordinary loyal to the company, Team-based capability not individual capability, They will either demand more money or leave for another firm (appropriability of the resource) 3. New long-term contract Pixar alternatives 1. Build its own movie distribution networks, merchandising sales etc.: For example, Universal studios got into amusement parks. - Easy or difficult to imitate the Disney’s competitive advantage? The capabilities required to distribute and, more importantly, to merchandise are very different from Pixar’s capabilities (creativity and technological capabilities). It would require massive investments (or alliances with existing players). 2. Sign an exclusive distribution deal with a different movie company: Yes, but...Disney is the best partner who will add the most value. Very few alternative partners offer all the services in one. Pixar already has built relational assets with Disney. 3. New long-term contract

Answer 95

Uncertainty in the outcome There are so many areas where a contract can devolve into legal bickering and lawsuits that it is impossible to have a long-term happy relationship. Contracts are getting more detailed with new clauses such as distribution of profits, release dates, sequels, coverage and control. Dual role of Disney as competitor and supplier - It was Pixar’s concern that Disney wouldn't put the effort needed to promote a Pixar movie instead of a Disney movie.

Answer 96

Disney & Pixar – Acquisition (common ownership) vs. contract (cooperative strategy) Separation : Retain compensation practices (which Pixar asked and got in the merger agreement). Autonomy: Pixar asked for and got to be a discrete unit within Disney Integration : Who should be in charge? Will the Disney animators happily work for the Pixar managers? What about branding? Do you keep the name Pixar?

Answer 97

The choice of vertical scope – build (or borrow) vs. buy – is a crucial strategic decision - Indeed, it is a crucial strategic decision that is often made poorly, particularly by managers who believe that they should always integrate vertically in order to “capture the margin” upstream or downstream - Many failed attempts to vertically integrate content and distribution (e.g., AOLTimeWarner, UniversalVivendi, DisneyABC, etc.) - Both market contracting and the ownership have weaknesses. That is why we see firms, but not one huge firm running the entire economy. The better-off and ownership tests can be applied in a vertical integration decision - Better-off test: does participation in a broad range of businesses lead to a wider total gap between WTP and cost? - Ownership test: must one own the assets in order to get the benefits? Is ownership better than alternative governance arrangements?

Answer 98

JV equity strategic alliance non equity strategic alliance

Answer 99

A joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources to create a competitive advantage. Key Characteristics: Partners typically own equal shares and contribute equally to operations. Often formed to enhance competitiveness in uncertain market conditions Joint ventures can be effective in: Establishing long-term relationships & Transferring tacit knowledge between partners - Because it can’t be codified, tacit knowledge is critical to firms’ efforts to develop competitive advantages. EX. MillerCoors is a joint venture between SABMiller and Molson Coors Brewing Company to see all their beer brands in the U.S. and Puerto Rico. ABC NBC and Fox agreed to work together to create Hulu.

Answer 100

An equity strategic alliance occurs when one company acquires partial ownership in another (partial acquisition) or when both companies purchase equity in each other (cross-equity transactions). Key Characteristics: Formed to maintain control over shared assets and resources. Common in industries where protecting intellectual capital is critical. Frequently used in R&D alliances to safeguard proprietary knowledge and innovation

Answer 101

A non-equity strategic alliance is a contractual agreement between two or more firms to share resources and create a competitive advantage without equity investment. Key Characteristics: Less formal than joint ventures and equity alliances. Require lower levels of commitment from partners. Typically do not foster deep, long-term relationships between firms These alliances involve contracts, partnerships, or collaborations without ownership stakes. - Examples include supply agreements, licensing, co-branding, and R&D partnerships. They are flexible, lower-risk, and easier to dissolve, making them the most frequently used form of alliance.

Answer 102

1. Inadequate contracts 2. Misrepresentation of competencies brought to the partnership 3. Opportunistic behavior - Partners may fail to make committed resources and capabilities available to other partners - One partner may make investments that are specific to the alliance while its partner does not Risk management requires detailed contracts, monitoring, and developing trusting relationships

Answer 103

1. Strategic Alignment : Ensuring both companies share compatible objectives and visions within the alliance. 2. Competitive Advantage: The unique benefits and market position gained through the alliance. 3. Risk Mitigation: Identifying and managing potential challenges that could impact the alliance's success. 4. Financial Performance: Evaluating the financial outcomes resulting from the alliance. 5. Relationship Management: The effectiveness of collaboration and communication between partnering companies. Ex. between meta and qualcomm in sides

Answer 104

Build trust through prior collaboration * Equity investments or shared ownership * Establish strong contracts * Develop joint governance structures * Ongoing monitoring & performance metrics

Answer 105

– the firm’s formal reporting relationships, procedures, controls, and authority and decision-making processes – the work to be done and how to do it, given the firm’s strategy or strategies. It is critical to match organizational structure to the firm’s strategy.

Answer 106

Strategy and structure have a reciprocal relationship. In general, structure flows from or follows selection of the firm’s strategy. Once in place though, structure can influence current strategic actions as well as choices about future strategies. Overall, the effect of strategy on structure is stronger than is the effect of structure on strategy.

Answer 107

a. The stability needed to use current competitive advantages b. The flexibility required to develop future advantages Properly matching strategy and structure can create a competitive advantage.

Answer 108

Organizational growth creates the opportunity for the firm to change its strategy to become even more successful. Across time, successful firms move from the simple, to the functional, to the multidivisional structure to support changes in their growth strategies. No single organizational structure is inherently superior to the other. The firm must select a structure that is a proper match for its chosen strategy.

Answer 109

Owner-manager Makes all major decisions directly / Monitors all activities Staff Serves as an extension of the manager’s supervisor authority Matched with focus strategies and business-level strategies Commonly complete by offering a single product line in a single geographic market Growth creates complexity and managerial and structural challenges

Answer 110

Chief Executive Officer (CEO) – Limited corporate staff Functional line managers in dominant organizational areas of – Production, marketing, engineering, human resources, accounting, & R&D Supports use of business-level strategies and some corporate- level strategies – Single or dominant business with low levels of diversification

Answer 111

Benefits – Economies of scale and scope – Performance standards are better maintained – Specialized training and in-depth skill development – Clear decision making and lines of communication Disadvantages – hard to integrate – lack of common vision

Answer 112

Strategic Control – Operating divisions function as separate businesses or profit centers. Top corporate officer delegates responsibilities to division managers: – for day-to-day operations. – for business-unit strategy. Appropriate as firm grows through diversification

Answer 113

Three Major Benefits – Corporate officers are able to more accurately monitor the performance of each business, which simplifies the problem of control. – Facilitates comparisons between divisions, which improves the resource allocation process. – Stimulates managers of poorly performing divisions to look for ways of improving performance. Disadvantages – Difficult to coordinate across product lines – Replication of resources – Pressure to generalize, not specialize

Answer 114

Commercialized idea: a new match between a solution and a need. also – Change that creates a new dimension of performance (Peter Drucker) – The act of introducing something new (The American Heritage Dictionary) – A new idea, method or device (Merriam-Webster Online) – The successful exploitation of new ideas (Dept of Trade and Industry, UK)

Answer 115

- Illegal or regulated monopoly (unlikely though) - Cost advantages from scale - Doing something valuable, better, and different: – Differentiated products/services – Rare capabilities (USUALLY FOCUS FOR STARTUP FIRMS)

Answer 116

When the market demand for a solution to a problem or need in the marketplace triggers the development of a new product – Ex. Tony Fadell on the creation of Nest Labs How can we solve this particular problem? Which solution best meets the needs at attractive costs?

Answer 117

When research and development or a technology breakthrough drives the launch of a new product. What can we do with our solution? And...is our solution the best possible solution? Is the “customer” willing to pay more for the solution than it costs to deliver it? i.e., price – cost>>0

Answer 118

Every innovation faces challenges: Gaining marketplace entry requires overcoming significant hurdles. Systematic screening is key: Identifying and addressing constraints early increases the likelihood of success. Entrepreneurial mindset matters: Success involves thinking, seeing, and acting entrepreneurially to turn ideas into impactful ventures.

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