FINAL

Question 1

The Strategic Management Process

Answer 1

A sequential set of analyses and choices that can increase the likelihood that a firm will choose a good strategy; that is, a strategy that generates competitive advantages.

Question 2

What is strategy?

Answer 2

A firm’s theory about how to gain competitive advantages.

Question 3

Business Level Strategies

Answer 3

Actions firms take to gain competitive advantages in a single market or industry

Question 4

Corporate Level Strategies

Answer 4

Actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously

Question 5

Competitive Disadvantage

Answer 5

Achieved when you generate less economic value than your rivals

Question 6

Competitive Parity

Answer 6

When a firm creates the same economic value as its rivals.

Question 7

Temporary Competitive Advantage

Answer 7

Competitive advantages that last a short time

Question 8

Sustained Competitive Advantage

Answer 8

Competitive advantages that last a long time

Question 9

Economies of Scale

Answer 9

When a firm’s costs fall as a function of its volume of production

Question 10

Diseconomies of Scale

Answer 10

When a firm’s costs rise as a function of its volume of production

Question 11

Economies of Scope

Answer 11

The value of a firm’s products or services increases as a function of the number of different businesses in which that firm operates

Question 12

U-Form Organizational Structure

Answer 12

Where different functional heads report directly to CEO; used to implement business-level strategies

Question 13

M-Form Organizational Structure

Answer 13

Organizational structure for implementing a corporate diversification strategy whereby each business a firm engages in is managed through a separate profit-and-loss division

Question 14

Corporate Diversification Strategy

Answer 14

When a firm operates in multiple industries or markets simultaneously

Question 15

Product Diversification

Answer 15

When a firm operates in multiple industries simultaneously

Question 16

Geographic Market Diversification Strategy

Answer 16

When a firm operates in multiple geographic markets simultaneously

Question 17

Product-Market Diversification Strategy

Answer 17

Operating in multiple industries and in multiple geographic markets simultaneously

Question 18

What are motivations for diversification?

Answer 18

1. When valuable economies of scope are present
2. Less costly for the firm to realize economies of scope than outside equity holders

Question 19

Economies of Scope

Answer 19

Activities where the average cost of producing two different products from a range of businesses is less

Question 20

Economies of Scale

Answer 20

The per-unit cost of production falls as the volume of production increases

Question 21

Different Types of Economies of Scope

Answer 21

1. Operational Economies of Scope
2. Financial Economies of Scope
3. Anticompetitive Economies of Scope
4. Employee and Stakeholder Incentives for Diversification

Question 22

Division

Answer 22

Each business that the firm engages in; aka a strategic business unit (SBU)

Question 23

Board of Directors

Answer 23

Group of 10-15 individuals drawn from a firm’s top management and from people outside the firm who make decisions inline with the firm’s stakeholders

Question 24

Senior Executive

Answer 24

President, CEO of a firm

Question 25

Chairman of the Board

Answer 25

Person who presides over the board of directors; may or may not be the same person as a firm’s senior executive

Question 26

Agency Problem

Answer 26

Separation of ownership (stockholders = principals) and management (agent) (corporation vs. division)

Question 27

Transfer Pricing System

Answer 27

Manages the transfer of intermediate products or services among divisions

Question 28

Nonequity Alliance

Answer 28

Cooperation between firms is managed directly through contracts, without cross-equity holdings or an independent firm being created (contracts)

Question 29

Joint Venture

Answer 29

Cooperating firms form an independent firm in which they invest. Profits from this independent firm compensate partners for this investment (joint equity holdings)

Question 30

Equity Alliance

Answer 30

Cooperative contracts are supplemented by equity investments by one partner in the other partner. Sometimes these investments are reciprocated. (cross equity holdings)

Question 31

Adverse Selection

Answer 31

An alliance partner promises to bring to an alliance certain resources that it either does not control or cannot acquire

Question 32

Moral Hazard

Answer 32

Partners in an exchange possess high-quality resources and capabilities of significant value to the exchange but fail to make them available to the other partners

Question 33

Holdup

Answer 33

One firm makes transaction-specific investments in an exchange than partner firms make and the firm that has not made these investments tries to exploit the firm that has made the investments

Question 34

What are the 3 Hazards of Strategic Alliances?

Answer 34

1. Adverse Selection 2. Moral Hazard 3. Holdup

Question 35

Acquisition

Answer 35

when a firm purchases a second firm

Question 36

Merger

Answer 36

when the assets of two similar-sized firms are combined

Question 37

Technical Economies

Answer 37

scale economies achieved when the physical processes inside a firm allow the same inputs to produce a higher quantity of outputs (e.g. marketing, production, experience, scheduling, banking, and compensation).

Question 38

Pecuniary Economies

Answer 38

economies achieved by the ability of firms to dictate prices by exerting market power.

Question 39

Diversification Economies

Answer 39

economies achieved by improving a firm’s performance relative to its risk attributes or lowering its risk attributes relative to its performance (e.g. portfolio management, risk reduction).

Question 40

International Strategies

Answer 40

theory about how to gain a competitive advantage by operating in multiple countries simultaneously

Question 41

Why do firms pursue International Strategies?

Answer 41

1. To gain access to new customers for products or services 2. To gain access to low cost factors of production 3. To develop new core competencies 4. To leverage current core competencies in new ways 5. To manage risk