Strategy Exam Flashcards

Question

When does a Deliberate Strategy arise?

Answer 1

Arise when actions are taken to put intended strategies in place

Answer 2

* What the org is actually doing * Combination of top-down strategic intentions and bottom-up emergent strategy

Answer 3

* Plans which never get implemented, or those which die out after some attempt(s) at implementation * Parts of an intended strategy that fall by the wayside because of unpredictable events

Answer 4

* A way of describing patterns which did not arise from a planning process * Unplanned strategic initiative bubbling up from deep within an organization

Answer 5

Stakeholder strategy: an approach to strategy formulation that considers all of the company's stakeholders not just its shareholders, a core tenant is that a single-minded focus on shareholders exposes a firm to undue risk in order to gain and sustain competitive advantage. Needs to effectively balance the needs of various stakeholders. Strategy scholars have provided arguments as to why effective stakeholder management can increase firm performance: * Satisfied stakeholders are more cooperative and more likely to reveal information that can further increase the firms value creation or lower its costs * Increased trust lowers the cost of firm’s business transactions * Effective management of the complex web of stakeholders can lead to greater organizational adaptability and flexibility * The likelihood of adverse outcomes can be reduced creating more predictable and stable returns * Firms can build strong reputations that are rewarded by business partners, employees, and customers; most strategic leaders care about the firm's public perception, and they celebrate and publicize their inclusion in high profile rankings such as fortunes world's most admired companies

Answer 6

* Economic * Legal * Ethical * Philanthropic

Answer 7

* Provide adequate return for the risks investors take * Repay creditors * Produce safe products and services at reasonable prices and acceptable quality * Pay suppliers in full and on time * Pay taxes * Manage natural resources (i.e. air and water)

Answer 8

* Industry structure, composition of their strategic groups (a set of close rivals), customers/suppliers, regulatory bodies, labor force. * Strategic leaders have some influence over forces in this environment

Answer 9

* Political Factors result from the pressure that various groups such as government bodies, nongovernmental orgs (NGOs) and social movements can exert to influence the decisions and behavior of firms * NGO examples: the National Rifle Association (NRA), Black Lives Matter (BLM), #MeToo * Political factors and legal factors are closely related * Example: 5 decades of ppl campaigning for gay rights, in 2015 the Supreme court ruled the 14th Amendment requires all states to allow for same sex marriages * While these factors are in the firm's general environment where they wield less influence, companies work hard to shape and influence this realm by pursuing nonmarket strategy in which they obtain more favorable outcomes for the firm through activities such as lobbying, PR, contributions and litigation

Answer 10

Economic Factors are largely macroeconomic, affecting economy wide phenomena Strategic leaders (SL's) need to consider how the following 5 macroeconomic factors can affect firm strategy: * Growth rates * Employment level * Interest rates * Price stability (inflation and deflation) * Currency exchange rates

Answer 11

Sociocultural Factors capture a society's cultures, norms and value. Because these flux and differ across groups, SLs need to monitor trends and consider implications for firm strategy * Demographic trends are critical sociocultural trends (ex. age, gender, family size, ethnicity, sexual orientation, religion and socioeconomic class) * Demographic trends present opportunities and threats * Firms that adjust can gain competitive advantage while those that don’t may experience negative performance implications

Answer 12

Technological Factors capture the application of knowledge to create processes and products Significant innovations in process technology include lean manufacturing, six sigma quality, genetic engineering, AI, and quantum computing

Answer 13

* Ecological Factors concern broad environmental issues such as the natural environment, climate change, and sustainable economic growth - Orgs and the natural environment co-exist in an interdependent relationship - Companies contribute to the pollution of air, water, land and the depletion of the worlds natural resources * Ecological factors such as climate change can also provide business opportunities - Ex: Tesla addressing environmental concerns through EVs

Answer 14

Legal Factors capture the official outcomes of political processes as manifested in laws, mandates, regulations, and court decisions, all of which can directly impact a firms profit potential

Answer 15

Task environment – Directly affects a firm’s operations and performance. Strategic leaders have some influence. * Ex. industry's structure, the composition of their strategic groups, customers, labor force General environment - Doesn’t have a direct impact on your business, but shapes the overall business environment. Strategic leaders have little direct influence. * Ex. Political factors in the PESTEL analysis, economic conditions, technological trends

Answer 16

Economies of Scale: Decreases in cost per unit as output increases. Reduces costs Cost advantages that accrue to firms with larger output because they can: * spread fixed costs over more units * employ technology more efficiently * benefit from a more specialized division on labor * demand better terms from their suppliers

Answer 17

Savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology. Increases value

Answer 18

Learning Curve - underlying technology remained constant, while only cumulative output increased Variable costs go down as a function of the volume produced I.e. the firm learns how to be productive as more are produced

Answer 19

Experience Curve - underlying technology is changed while holding cumulative output constant * Combines economy of scale & learning curves. * Scale comes down a given learning curve. * Technology allows movement to steeper curve. * Combination can leapfrog in competitive advantage. - Ex. Walmart high volumes & technology leadership

Answer 20

The threat of entry is HIGH when incumbents do not possess cumulative learning and experience effects. Cost advantages that accrue to firms with larger output because they can: * spread fixed costs over more units * employ technology more efficiently * benefit from a more specialized division on labor * demand better terms from their suppliers Additional ChatGPT Thoughts: * **Bargaining Power of Suppliers**: Lead to improved relationships with suppliers. As a company gains experience and expertise, it may be better equipped to negotiate favorable terms and prices with its suppliers. This can reduce the bargaining power of suppliers. * **Bargaining Power of Buyers**: Results in product or service improvements, cost reductions, and increased customer satisfaction. This can make it more difficult for buyers to switch to alternative suppliers or products, reducing their bargaining power. * **Threat of New Entrants**: A company that has accumulated significant knowledge and experience in its industry may have established barriers to entry for new competitors. This could be in the form of proprietary technology, economies of scale, or strong customer relationships, making it more challenging for new entrants to compete effectively. * **Threat of Substitutes** : Result in product or service differentiation and improvements, making it less likely for customers to switch to substitutes. This can reduce the threat of substitutes to the industry. *** Competitive Rivalry:** Companies that have accumulated knowledge and experience in their industry may have a competitive advantage over their rivals. This can lead to stronger competitive rivalry as experienced companies are better equipped to compete effectively and defe*nd their market positions.

Answer 21

Although the five forces plus complements model is useful in understanding an industry's profit potential, it provides only a point-in-time snapshot of a moving target. With this model (as with other static models), one cannot determine the changing speed of an industry or the rate of innovation. This drawback implies that strategic leaders must repeat their analysis over time to create a more accurate picture of their industry. It is therefore important that strategic leaders consider industry dynamics. “Models presented in chapter do not allow strategic leaders to understand why there are performance differences among firms in the same industry or strategic group.”

Answer 22

A strategic group is a set of companies that pursue a similar strategy within a specific industry in the quest for competitive advantage. Differ from one another along important dimensions such as: * expenditures on research and development * technology * product differentiation * market segment * distribution channels * customer service Firms in the same strategic group tend to follow a similar strategy and thus they are direct competitors. The rivalry among firms within the same strategic group is generally more intense than rivalry among strategic groups. Mobility Barriers are industry specific factors that separate one strategic group from another, these restrict the movement between groups. Think of the Airline graphic (Exhibit 3.8): Low/High Routes & Cost Structure

Answer 23

* Tangible: Resources that have physical attributes and thus are visible. - Ex. labor, capital, land, plant, building, supplies * Intangible: Resources that do not have physical attributes and thus are invisible. - Ex. firm culture, knowledge, brand equity, reputation, intellectual property

Answer 24

Assumption in the resource-based view that bundles of resources differ across firms Requires a more critical look at resources of firms competing in the same industry or same strategic group

Answer 25

Assumption in the resource-based view that a firm has resources that tend to be “sticky” and that do not move easily from firm to firm. Resource differences are difficult to replicate and therefore can last a long time

Answer 26

Together these assumptions mean that resource bundles differ across firms and such differences can persist for long periods. The two assumptions are critical to explaining superior firm performance in the resources-based model.

Answer 27

* Entry Barrier: Obstacles that discourage or prevent entry into an industry. - Often significantly predict industry profit potential - High = harder to get into the industry Incumbent firms can benefit from economies of scale, network effects, customer switching costs, capital requirements, advantages independents of size, governments policy, and credible threat of retaliation. Determinants: * Scale economies * Product differentiability * First Mover Advantages – Google * Network Effects - Facebook * Absolute cost advantages * Capital requirements * Access to distribution channels * Government policy

Answer 28

The critical assumptions of the resource-based model are different from describing a firm in the perfectly competitive industry structure. In perfect competition all firms have access to the same resources and capabilities ensuring that one firms advantage is short lived: * When resources are freely available and mobile, competitors can quickly acquire the same resources that the current market leader utilizes * Although some commodity markets approach this situation, most other markets include firms whose resource endowments differ. Resource based view is a model that sees certain types of resources as key to superior firm performance, which delivers useful insights to managers about how to formulate a strategy that will enhance the chances of gaining a competitive advantage.

Answer 29

Resource-Based View * Sees resources as key to superior firm performance * Aids in identifying core competencies * Separates resources by tangible or intangible * Looks inside the firm for sources of sustainable competitive advantage VRIO Framework * For a resource to be the basis for competitive advantage, it must be: Valuable, Rare, and costly to Imitate, and the firm must be Organized to capture the value of the resource. * Resources broadly defined to include any asset, capabilities, and competencies that a firm can utilize when formulating and implementing strategy

Answer 30

Competitive Advantage: Superior performance relative to other competitors in the same industry or the industry average (always relative, not absolute). Competitive Advantage is more likely to spring from intangible resources than from tangible resources. Strategic Leaders must be able to: * Asses their firm’s performance accurately * Compare/benchmark firm’s performance to other competitors in the same industry or against the industry average.

Answer 31

Isolating Mechanisms – how to sustain a competitive advantage * Better expectations of future resource value * Path Dependence * Casual Ambiguity * Social Complexity * Intellectual Property (IP) Protection

Answer 32

If these better expectations can be systematically repeated over time they can help a firm develop a sustainable competitive advantage For example sometimes firms acquire resources at a low cost this can lay the foundation for competitive advantage later when the purchaser's expectations about the future value of the resource turns out to be more accurate than competitors expectations

Answer 33

Path dependence describes a process in which the options in a current situation are limited by decisions made in the past

Answer 34

Casual ambiguity describes a situation in which the cause and effect of a phenomenon are not readily apparent * To formulate and implement a strategy that enhances a firm's chances of gaining and sustaining a competitive advantage strategic leaders need to have a hypothesis or theory of how to compete * SL's need to have a good understanding of what causes superior or inferior performance and why

Answer 35

Social complexity describes situations in which different social and business systems interact * This emerges when two or more systems are combined * Copying the emerging complex social systems is difficult for competitors because neither direct imitation nor substitution is valid

Answer 36

Intellectual Property (IP) Protection is a critical intangible asset that helps sustain a competitive advantage * 5 primary forms of IP protection: patents, designs, copyrights, trademarks, trade secrets * These are intended to prevent others from copying legally protected products or services * IP protection can make direct imitation attempts difficult or even illegal * IP protection doesn't last forever, once the protection has expired the invention can be used by others

Answer 37

Other firms not being able to develop or buy the resource at a comparable cost. Each of these Isolating Mechanisms are directly related to the RBV criteria of costly (or difficult) to imitate: better expectations of future resource value, path dependence, casual ambiguity, social complexity, intellectual property protection

Answer 38

Resource stocks: the firm's current level of intangible resources Resource flows: the firm's level of investments to maintain or build an intangible resource Think of the Bath image. Water represents the level of specific intangible resource stocks. Faucets represent investment flows – building an innovative capability, R&D, etc. Each investment decision carries an opportunity cost.

Answer 39

Value Chain: The internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value. To help a firm achieve a competitive advantage, each distinct activity performed needs to either add incremental value to the product or service offering or lower its relative cost Value Chain Analysis requires identifying the different stages to the value chain, and which competitors possess capability advantages at those different stages The value chain helps us to understand where the firm is seeking to differentiate itself. Identifying differentiating capabilities leads to identifying the key talent pools within those capabilities.

Answer 40

The SWOT analysis gives insights for internal strengths and weaknesses and external opportunities and threats. SWOT allows strategic leaders to evaluate a firm’s current situation and future prospects by simultaneously considering internal and external factors. Internal strengths and weaknesses concern resources, capabilities, and competencies. * Whether they are strengths or weaknesses can be determined by applying the VRIO framework * A resource is a weakness if it's not valuable in which case the resource doesn't allow the firm to exploit an external opportunity or offset an external threat. * A resource is a strength and core competency if it is valuable, rare, and costly to imitate and the firm is organized to capture at least part of the economic value created. Opportunities and threats are in the firm’s general environment and can be captured by PESTEL and Five Forces analysis. * An attractive industry as determined by the five forces presents an external opportunity for firms not yet effective in the industry. * Ex. More regulation of financial institutions might represent an external threat to banks.

Answer 41

Core rigidity describes a former core competency that turned into a liability because the firm failed to hone, refined, and upgrade the competency as the environment changed

Answer 42

Resources are any assets such as cash, buildings, machinery, or intellectual property that a firm can draw on when crafting and executing a strategy * Tangible= labor, capital, land, plant, building, supplies * Intangible= firm culture, knowledge, brand equity, reputation, intellectual property

Answer 43

Tangible resources can be bought on the open market by anyone with the necessary cash. Intangible resources must be built or developed and this generally happens over long periods of time.

Answer 44

Return on invested capital (ROIC), return on equity (ROE), return on assets (ROA), return on revenue (ROR)

Answer 45

Return on Invested Capital (ROIC) = (net profits / invested capital) * Measures firm profitability * Measures how effectively a company uses its total invested capital, which consists of 1) shareholder’s equity through selling shares to the public and 2) interest-bearing debt through borrowing * If ROIC is greater than the cost of capital, it generates value, if less then it destroys value

Answer 46

Return on Equity (ROE) = (net income / total stockholder’s equity)

Answer 47

Return on Assets (ROA) = (net income / total assets)

Answer 48

Return on Revenue (ROR) = (Net profits / revenue) Indicates how much of the firm’s sales is converted into profits To explore margin differences, return on revenue is broken down into three smaller financial ratios: * COGS/Revenue → how efficiently a company can produce a good * R&D/Revenue → how much of each dollar that the firm earns in sales is invested to conduct research and development * SG&A/Revenue → how much of each dollar that the firm earns in sales is invested in sales, general, and administrative (SG&A) expenses

Answer 49

Working Capital Turnover = (revenue / Invested capital) Working capital: the amount of money a company can deploy in the short term, calculated as current assets minus current liabilities Broken down into the following financial ratios: * Working Capital / Revenue → how much working capital is tied up in operations * PPE / Revenue → how much of a firm’s revenues are dedicated to covering plant, property, and equipment (PPE) (critical to operations but can’t be liquidated quickly) * Intangibles / Revenue → the missing piece to be added to a firm’s physical base to make up a company’s total asset base

Answer 50

* Accounting data can be used to assess competitive advantage and firm performance * 10-K reports are the primary source of companies’ accounting data available to the public * The data allows us to directly compare performance between different companies

Answer 51

Allows a firm’s managers to: * Accurately assess the performance of their firm * Compare and benchmark their firm’s performance to other competitors in the same industry or against the industry average

Answer 52

Limitations: * All accounting data are historical and thus backward-looking * Accounting data do not consider off-balance sheet items * Accounting data focus mainly on tangible assets, which are no longer the most important * Not everything that can be counted counts. Not everything that counts can be counted.

Answer 53

Total return to shareholders is return on risk capital that include stock price appreciation plus dividends received over a specific time * This is external and forward looking performance * It indicates how the stock market views all available public information about a firm's past, current state, and expected future state with most of the weight on future growth expectations * The weight on future expectation also explains why intangibles are becoming more important where many firms benefits from positive returns to scale

Answer 54

Market capitalization captures the total dollar market value of a firm's outstanding shares at any given point in time Market cap= number of outstanding shares * share price

Answer 55

the loss of potential gains from other alternatives when a choice is made

Answer 56

The difference between a buyer’s willingness to pay for a product or service and the firm’s total cost to produce it

Answer 57

maximum price you’re willing to pay

Answer 58

Allows strategic leaders to: * Communicate and link the strategic vision to responsible parties within the organization * Translate the vision into measurable operational goals * Design and plan business processes * Implement feedback and organizational learning to modify and adapt strategic goals when necessary Balanced scorecard can accommodate both short term and long term performance metrics. Provides a concise report that tracks chosen metrics and measures and compares them to target values. This allows strategic leaders to assess past performance, identify areas for improvement, and position the company for future growth.

Answer 59

Accounting profitability - use financial data and ratios derived from publicly available accounting data such as income statements and balance sheets Most common metric is Return on Invested Capital (ROIC) where you do net profits/invested capital. This is popular because it is a good proxy for firm profitability. If the ROIC is greater than the cost of capital, it generates value

Answer 60

Shareholder value: Total return to shareholders= return on risk capital (includes stock price appreciation plus dividends received over a specific time period). - The measure of competitive advantage that matters most is the return on their risk capital - Risk capital is the money they provide in return for an equity share, money that they cannot recover if the firm goes bankrupt - When assessing and evaluating competitive advantage, a comparison of rival firms’ share price development or market capitalization provides a helpful yardstick for Investors to analyze when used over the long term

Answer 61

Economic value - the difference between a buyer’s willingness to pay for a product or service and the firm’s total cost to produce it

Answer 62

Balanced Scorecard - a framework to help managers achieve their strategic objectives more effectively * Harnesses multiple internal and external performance metrics in order to balance both financial and strategic goals * How do customers view us? * How do we create value? * What core competencies do we need? * How do shareholders view us?

Answer 63

Triple Bottom Line - combination of economic, social, and ecological concerns— or profits, people, and planet—that can lead to a sustainable strategy * Profits - The economic dimension captures the necessity of businesses to be profitable to survive * People - The social dimension emphasizes the people aspect, such as PepsiCo’s initiative of the whole person at work. * Planet - The ecological dimension emphasizes the relationship between business and the natural environment.

Answer 64

The initial product is often sold at a loss or given away for free to drive demand for complementary goods. The company makes its money on the replacement part needed. Advantage: can sell the replacement part for relatively high prices

Answer 65

Traditionally used for print magazines and newspapers. Users pay for access to a product or service for access to a product during a specified time frame Advantage: the business makes money whether they use the product or service during the payment term or not

Answer 66

Users pay for only the services they consume. The pay-as-you-go model is most widely used by utilities providing power and water and cell phone service plans Advantage: can accurately track and charge users based on what they did and didn’t use

Answer 67

Provides the basic features of a product or service free of charge, but charges the user for premium services such as advanced features or add-ons Advantage: business pursuing this model has the goal of driving down costs by providing minimal services and allowing customers to purchase additional services and upgrades at a premium

Answer 68

An entity sells a product to a retail store at a set price. Retailers, are free to set their own price on any product and profit from the difference between their selling price and the cost to buy the product from the wholesaler Advantage: retailer can set their own price which ultimately allows them to determine how much they will profit

Answer 69

The producer relies on an agent or retailer to sell the product, at a predetermined percentage commission. Sometimes the producer will also control the retail price. Most popular in the entertainment industry. Advantage: Producer relies on agencies to sell a given product and take the commission

Answer 70

Sells products or services for which demand is negatively correlated at a discount. Demand for two products is negatively correlated if a user values one product more than another Advantage: you can sell multiple products at a combined discount which can allow you to lead in the market and increase sales segments

Answer 71

Differentiation: seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels, allowing the firm to charge higher prices to its customers * Values: product features, customer service, and complements * Advantages: reduces rivalry amongst competitors and provides protection against: entry due to intangible resources, increase in input prices, decrease in sales, substitutes, and competitors

Answer 72

Cost Leadership: seeks to create the same or similar value that competitors create for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers * Values: cost of input factors, economies of scale, learning-curve effects, experience-curve effects * Advantages: protection against: entry due to economies of scale, increase in input prices, decrease in sales prices, substitutes, and price wars

Answer 73

Focused cost leadership strategy and focused differentiation strategy are essentially the same as the broad generic strategies except that the competitive scope is narrower (focusing on a niche market)

Answer 74

Choices made by SL between a cost position or a value position

Answer 75

There are two fundamentally different business strategies - differentiation and cost leadership. * A differentiation strategy seeks to create higher value for customers than the value that competitors create. * A cost leadership strategy seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors. Cost leadership and differentiation strategies are called generic strategies because they can be used by any organization in the quest for competitive advantage, independent of industry context. Each require distinct strategic positions, and increase a firm's chances of gaining and sustaining a competitive advantage.

Answer 76

Differentiation * A firm using this strategy aims to achieve a level of value in the minds of consumers that competitors can't easily match * The focus on competition tends to be on unique product features, services, new product launches, and on marketing and promotion rather than price Cost leadership * The goal of a cost leadership is to reduce the firms cost below that of its competitors while offering adequate value * Focuses attention and resources on reducing the cost to manufacture a product and on lowering the operating cost to deliver a service in order to offer lower prices to its consumers * Attempts to optimize all of its value chain activities to achieve a low cost position * Can achieve a comp adv as long as economic value created is greater than its competitors

Answer 77

* Value drivers are related to a firm’s expertise in and organization of different internal value chain activities * Value drivers contribute to competitive advantage only if their increase in value creation exceeds the increase in costs * Product features: Adding unique product attributes allows firms to turn commodity products into differentiated products commanding a premium price Complements - When consumed in tandem with a product or service, complements add value - Finding complements is an important task for strategic leaders in their quest to enhance the value of their offerings - Ex. smartphones and cellular services (a smart phone without a service plan is less useful than with a data plan)

Answer 78

The most important cost drivers that SL's can manipulate to keep their cost low are: cost of input factors, economies of scale, learning curve effects, experience curve effects - Cost of input factors: One of the most basic advantages a firm can have over its rivals is access to lower cost input factors such as raw materials, capital, labor and IT services - Economies of scale: Firms with greater market share might be in a position to reap economies of scale, decreases in cost per unit as output increases - Cost per unit falls as output increase up to a point - Economies of scale allow firms to spread their fixed cost over a larger output, employ specialized systems and equipment, take advantage of certain physical properties - Learning Curve Effects: Learning curves go down as people learn how to be more efficient and it takes less and less time to produce the same output; learning by doing drives down cost. -Teams learn from cumulative experiences - Experience Curve Effects: Experience curve effects based on process innovation allow a firm to drive down each per unit cost by leapfrogging to a steeper learning curve

Answer 79

* Economies of scale occur when a firm's average cost per unit decreases as its output increases * Economies of scope are the costs savings from producing two or more outputs or providing different services at less cost than producing each individually with the same resources and technology * Time compress diseconomies is the exponential increase in cost when firms attempt to build a new competence in a shorter amount of time than it takes

Answer 80

* A blue ocean strategy allows a firm to offer a differentiated product or service at a low cost * This is a business level strategy that successfully combined differentiation and cost leadership activities by using value innovation to reconcile the inherent trade offs in these distinct positions * Blue oceans represent untapped market space, the creation of additional demand, and the resulting opportunities for highly profitable growth

Answer 81

* Vertical integration is the firm's ownership of the inputs needed for production or of the channels through which if distributes its outputs * Some firms participate in only one or a few stages while some participate in several of the stages; few firms are fully vertically integrated * Being fully integrated allows companies to achieve economies of scale, resulting in lower cost * Backward vertical integration: changes in the industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain * Forward vertical integration: changes in the industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain * There are large differences in profit potential in different stages of the value chain

Answer 82

20 years from the filing date of a patent application

Answer 83

Non-Equity Alliance, Equity Alliance, Joint Venture

Answer 84

* This is the most common type of alliance * Based on a contract between firms * Firms share explicit knowledge - knowledge that can be codified * Patents, user manuals, scientific publications are all ways to capture explicit knowledge which concerns the notion of knowing about a certain process or product * Most common forms of this are supply agreements, distribution agreements, and licensing agreements * In licensing agreements participants regularly exchange codified knowledge; each focuses on comparative advantage across the industry value chain * Start ups have invention advantage while established firms have an innovation advantage which is an advantage in commercializing an invention * These contractual agreements are vertical strategic alliances, connecting different parts of the industry value chain * These alliances are flexible and easy to initiate and terminate * Because they are temporary in nature they sometimes produce weak ties between the alliance partners which can result in a lack of trust and commitment

Answer 85

* At least one partner takes partial ownership in the other partner * Less common than contractual, non -equity alliances because they often require larger investments * Stronger commitments because they are based on partial ownership rather than contracts * Allow sharing of tacit knowledge - knowledge that cannot be codified * Knowing how to do certain task, it can only be acquired through actively participating in the process * Firms often exchange personnel to make the acquisition of tacit knowledge possible * Corporate venture capital investments, which are equity investments by established firms and entrepreneurial ventures are forms of equity alliances * These create real options in terms of gaining access to new and potentially disruptive technologies * Strategy scholars find that these investments have a positive impact on value creation for the investing firm * These alliances tend to create stronger ties and greater trust between partners than non equity alliances * They also offer a window into new technology that like a real option can be exercised if it is successful or abandoned if it is not promising * These are frequently stepping stones into full integration of the partner firms either through a merger or acquisition * The downside is the amount of investment that can be involved, as well as a possible lack of flexibility and speed in putting together and reaping benefits from the partnership

Answer 86

* This is a standalone organization created in jointly owned by two or more parent companies * It's an exchange of tacit and explicit knowledge through interaction of personnel * Frequently used to enter international markets where the host country requires such a partnership for a foreign company to gain access to the market * The advantages are the strong ties, trust, and commitment that can result between the partners * However there can be long negotiations and significant investments * Undoing the joint venture can take some time and involve considerable cost; a further risk is that knowledge shared with a new partner could be misappropriated by opportunistic behavior * Any rewards from the collaboration must be shared between the partners

Answer 87

* A merger is the joining of two independent companies to form a combined entity; tend to be friendly. * The combining of two firms of comparable size is often described as an merger even if it might in fact be an acquisition. * As a rule firm should go ahead with horizontal integration if the target firm is more valuable inside the acquiring firm than as a continued standalone company.

Answer 88

Horizontal integration is the process of merging with a competitor at the same stage of the industry value chain. Horizontal integration is a type of corporate strategy that can improve a firm strategic position in a single industry

Answer 89

Sometimes companies get into bidding wars for an acquisition, the winner may end up with the prize it may have overpaid for the acquisition

Answer 90

Many mergers destroy shareholder value because the anticipated synergies never materialized

Answer 91

* Structure * Culture * Control

Answer 92

Organizational design is the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization. The goal is to design an organization that allows managers to effectively translate their chosen strategy into a realized one. Structure - A key to determining how the work efforts of individuals and teams are orchestrated and how resources are distributed

Answer 93

Specialization - An organizational element that describes the degree to which a task is divided into separate jobs (i.e., the division of labor).

Answer 94

Formalization - An organizational element that captures the extent to which employee behavior is steered by explicit and codified rules and procedures.

Answer 95

Centralization - An organizational element that refers to the degree to which decision making is concentrated at the top of the organization.

Answer 96

Hierarchy - An organizational element that determines the formal, position-based reporting lines and thus stipulates who reports to whom

Answer 97

Mechanistic organizations are characterized by a high degree of specialization and formalization and by a tall hierarchy that relies on centralized decision making Allow for standardization and economies of scale, and are often used when the firm pursues a cost leadership strategy at the business level

Answer 98

Organic organizations have a low degree of specialization and formalization, a flat organizational structure and decentralized decision making * Tend to be correlated with a fluid and flexible information flow among employees in both horizontal and vertical directions, faster decision making, and higher employee motivation, retention, satisfaction, and creativity * Often exhibit a higher rate of entrepreneurial behaviors and innovation * Organic structures allow firms to foster R&D and are marketing it's a core competency * Firms that pursue a differentiation strategy at the business level frequently have an organic structure

Answer 99

- Where employees are grouped into distinct functional areas based on domain expertise: R&D, Engineering, Sales, HR, etc. - Implemented as sales increase - Allows for deeper domain expertise than a simple structure - Higher specialization allows for a greater division of labor and is linked to higher productivity - More centralized decision making; efficient top down and bottom up communication between the CEO and functional departments

Answer 100

Organizational culture is the collectively shared values and norms of an organization's members. - Values are what's considered important common goals that each organizational member should strive to achieve. - Norms define appropriate employee attitudes and behaviors in their day-to-day work and interactions. Effective cultures allow for smooth execution of strategy while ineffective cultures can lead to unintended, unethical and sometimes even illegal outcomes. For organizational culture to be the basis of a firm's competitive advantage the culture must help it increase its economic value creation. * It must either help an increase in the perceived value of the product service or lower its cost of production / delivery. * According to the resource based view the culture must be valuable, rare, and difficult to imitate and the firm must be organized to capture the value created.

Answer 101

* Threat of entry * Power of suppliers * Power of buyers * Threat of substitutes * Rivalry among existing competitors

Answer 102

1) Who are our stakeholders? 2) What are our stakeholders’ interest and claims? 3) What opportunities and threats do our stakeholders present? 4) What economic, legal, ethical, and philanthropic responsibilities do we have to our stakeholders? 5) What should we do to effectively address stakeholder concerns?

Answer 103

power, legitimacy, and urgency • A stakeholder has power over a company when it can get the firm to do something that it would not otherwise do • When a stakeholder's claim is perceived as legally valid or otherwise appropriate that stakeholder has a legitimate claim • A stakeholder has an urgent claim when it requires a company's immediate attention and response

Strategy Exam Flashcards

(127 cards)