Foundations of Strategy Flashcards
(39 cards)
Corporate social responsibility
A firm’s obligation to society to take responsibility for the social and environmental, as well as financial, impacts of its actions
Corporate strategy vs business strategy
Corporate: Which industries and markets it competes in
Business: How the firm competes within a particular industry or market
Value is created when
the price the customer is willing to pay for a product exceeds the costs incurred by the firm
Sources of network externalities
products where users are linked in a network: telephone, railway, IM
availability of complementary products and services
economizing on switching costs
Industry Life Cycle: Introduction Phase
- products/services little known
- few customers
- novelty
- high costs, low quality
- customers: affluent, innovation-oriented, risk-tolerant
Industry Life Cycle: Growth Stage
- accelerating market penetration
- technical improvements
- increased efficiency
Industry Life Cycle: Maturity Stage
- market saturation
- demand is for replacements
Industry Life Cycle: Decline Stage
-Industry is challeneged by technologically superior products
Dominant design
Defines the look, functionality, prod method for the product/service and becomes accepted as industry standard
Technical standard
tech/spec important for compatibility
Sources of organizational intertia
ROUTINES: core capabilities become core rigidities
SOCIAL AND POLITICAL: change is socially stressful/disruptive & politically threatening to power
CONFORMITY: firms imitate one another to gain legitimacy
LIMITED SEARCH: limit search to areas close to existing activities, chose exploitation over exploration
STRATEGIC, STRUCTURAL, SYSTEMATIC COMPLEMENTARITIES: complex configuration, “fit” established
What should managers do when seeking to manage strategic change?
Create a sense of crisis to drive change
Scenario analysis
A systematic way of thinking about how the future might unfold
Product scope
Firm’s product range
Vertical scope
Extent of firm’s involvement in industry value chain
Economies of scope
Cost economies from increasing the output of multiple products.
Exist when the use of a resource across multipe activities consumes less of that resource than when activities are carried out independently.
Transaction costs
Search costs
Negotiating & drawing up contracts
Monitoring
Enforcement of arbitration or litigation
Costs of corporate complexity
Additional management costs incurred by managing different businesses
Porter’s 3 essential tests for diversification
ATTRACTIVENESS: industry must be structurally attractive
COST-OF-ENTRY: cost of entry must be < future profits
BETTER-OFF: either new or original unit must gain competitive advantage from link with corporation
Reasons firms diversify
- exploit linkages between different businesses
- escape stagnant or declining markets
- benefit from use of internal capital markets to allocate resources between different businesses
Specialist brewers of beer have not moved into the productiono f bottles and cans because
- struck hard bargain with bottle/can producers and can purchase at discounted prices
- transaction costs are high
- the brewers are too small to achieve scale necessary for efficient bottle and can manufacture
From a strategy perspective, sheltered industries tend to be industries
protected by high tariff barriers
In international industries, competitive advantage depends on
both a firm’s resources and its national environment
What can Porter’s national diamond framework be used for?
To analyze which particular industries within a country develop the resources and capabilities that confer international competitive advantage
