Final Exam

Question 1

If internal resources are essential, what would you do to acquire resources and capabilities as a firm?

Answer 1

Build (internal development)

Question 2

If trading resources are readily available, what would you do to acquire resources and capabilities as a firm?

Answer 2

Borrow (License/Contract)

Question 3

If you can easily integrate the target firm, what would you do to acquire resources and capabilities as a firm?

Answer 3

Buy (Acquisition)

Question 4

If you are close to your trading partner, what would you do to acquire resources and capabilities as a firm?

Answer 4

Borrow (Alliance)

Question 5

Why did Lyft enter into strategic alliances with GM and Waymo?

Answer 5

–Expand Lyft’s reach in the ridesharing market.
–GM provided vehicles and services, while Waymo provided self-driving technology.
–Both of these strategic alliances allowed Lyft to access resources that it would not have had before.

Question 6

What are strategic alliances?

Answer 6

Voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.

Question 7

Why are strategic alliances important to firms?

Answer 7

-Allows firms to achieve goals faster and at a lower cost, and allow firms to circumvent potential legal repercussions including potential lawsuits filed by U.S. federal agencies or European Union.

Question 8

What caused strategic alliances to grow and become mainstream?

Answer 8

The speed of technology changing and innovation increasing

Question 9

What are Non-Equity Alliances?

Answer 9

o Partnership based on contracts.
o Supply agreements, distribution agreements, licensing agreements, franchises

Question 10

What are Non-Equity Alliances?

Answer 10

o Partnership based on contracts.
o Supply agreements, distribution agreements, licensing agreements, franchises

Question 11

What are Equity Alliances?

Answer 11

One partner takes a partial equity stake in another (GM/Lyft)

Question 12

What are Joint Ventures?

Answer 12

Standalone organization, created and jointly owned by two or more parent companies (HULU)

Question 13

What three components contribute to effective alliance management capability?

Answer 13

• Relation-Specific Investments
• Knowledge-Sharing Routines
• Interfirm Trust

Question 14

Mergers

Answer 14

describes the joining of two independent companies to form a combined entity. (tend to be friendly) (ex. Live Nation merged with Ticketmaster)

Question 15

Acquisitions

Answer 15

describes the purchase or takeover of one company by another. They can be either friendly or unfriendly. (Disney’s acquisition of Pixar was friendly)

Question 16

Hostile Takeover

Answer 16

When a target firm does not want to be acquired.

Question 17

What are the benefits of Horizontal Integration?

Answer 17

o Reduction in competitive intensity- changes industry structure
o Lower costs- economy of scale
o Increased differentiation- fills product gaps

Question 18

Why do firms acquire other firms?

Answer 18

• To access new markets, new distribution channels
• To overcome entry barriers
• To access new capabilities and competencies
• To pre-empt rivals
  o Facebook acquisitions of Instagram, WhatsApp, Oculus
  o Google acquisitions of YouTube, FitBit, Nest, Double Click

Question 19

What is the risk of Horizontal integration?

Answer 19

• Integration difficulties
• Inadequate evaluation of the target
• Extraordinary debt
• Inability to achieve synergy
• Too much diversification
• Managers overly focused on acquisitions
• Too large

Question 20

How do mergers impact competitive advantage and value creation? %%%%

Answer 20

20/60/20.
Failure merge
ok merge
Successful merge

Question 21

What principal-agent issue impacts mergers/acquisitions?

Answer 21

Managers may act in their own self-interest, eroding rather than enhancing value creation.

Question 22

Why does the principal agent happen?

Answer 22

EGO
buying a business is more interesting than running a business

Question 23

What is meant by strategic preemption?

Answer 23

A major move by a focal business ahead of moves by its adversaries. Related to the reduction in competitive intensity as a motivation to acquire.

Question 24

Managerial Hubris

Answer 24

A form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence of the contrary.

Question 25

Example of Managerial Hubris

Answer 25

Although most top-level managers are aware that the majority of acquisitions destroy rather than create shareholder value, they see themselves as the exceptions to the rule.

Question 26

What is corporate governance?

Answer 26

A strategic control mechanism focused on relationships among shareholders, management, and the board of directors.

Question 27

Who are the primary participants of corporate governance?

Answer 27

Shareholders Managers Board of Directors

Question 28

What is agency theory?

Answer 28

a theory of the relationship between principals and their agents, with emphasis on two problems: (1) the conflicting goals of principals and agents, along with the difficulty of principals to monitor the agents, and (2) the different attitudes and preferences toward risk of principals and agents.

Question 29

What are the three primary internal governance mechanisms for monitoring and managing the behavior of managers?

Answer 29

- A committed and involved board of directors that acts in the best interest of the shareholders to create long-term value. - Shareholder activism, wherein the owners view themselves as shareowners. - Managerial incentives, sometimes called “contract-based outcomes,” which consist of reward and compensation agreements.

Question 30

What are the duties of a board of directors?

Answer 30

Acts as a fulcrum between the owners and controllers of a corporation. Directors are the intermediaries who provide a balance between a small group of key managers in the firm. - The board needs to allocate its scarce time to the most critical issues to which its members can add value.

Question 31

What are the characteristics of an effective board of directors?

Answer 31

o Active, critical participants o Focus on forward-looking, strategic issues. o Evaluate CEOs against high performance standards. o Balance of insiders and independent outsiders.  Insiders: strong operational knowledge, relationships with non-board member executives  Outsiders: outside-industry experience, independent oversight of strategy o Diverse board members

Question 32

What is shareholder activism? Individual shareholder rights: (least amount of power)

Answer 32

sell stock, vote the proxy, bring suit for damages, get information, receive residual rights if company liquidates.

Question 33

What is shareholder activism? - Collective shareholder power: (2nd)

Answer 33

direct the course of corporate direction, file shareholder action suits, demand key issues be brought up for proxy power.

Question 34

What is shareholder activism? - - Institutional investors: (Powerful)

Answer 34

o May pressure for leadership changes. o Can take strategic actions through larger-scale stock purchase or sell-offs.

Question 35

What is the benefit of CEO duality?

Answer 35

- Unity of command: in favor of duality o Provides clear focus. o Eliminations confusion, conflict o Enhances firm’s responsiveness. o Allows for quick decisions based on first-hand knowledge.

Question 36

What is the downside of CEO Duality?

Answer 36

o Safeguards against corruption or incompetence. o Removes conflict of interest, particularly regarding CEO succession.

Question 37

EXTERNAL GOVERNANCE MECHANISMS - Market for Corporate Control

Answer 37

o Individuals and firms buy or take over undervalued firms- usually ineffective managers are replaced. o Threat of takeover may lead firm to operate more efficiently. o Changes in regulations have made hostile takeover difficult.

Question 38

EXTERNAL GOVERNANCE MECHANISMS Government controls

Answer 38

- Auditors: verify financial information. - Banks and analysts: conduct and publish in-depth studies of firms. - Governmental regulatory bodies: require disclosure of financial information (SEC) - Media, public activists: influence public perception.

Question 39

key global differences in corporate governance issues and solutions.

Answer 39

- Outside the U.S. and U.K.- key issue with principal-principal conflicts: o Concentrated ownership, family ownership. o Motivation to pursue strategies that benefit controlling shareholders. o Few formal (regulatory) or informal constraints. - Existence of business groups who can take coordinated action