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Business Strategy > 2nd Half > Flashcards

2nd Half Flashcards

1
Q

which are the three areas in which a company can either vertically or horizontally integrate?

A
  1. resources
  2. manufacturing
  3. distribution
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2
Q

what is a merger?

A

the combining of two or more firms into a single corporate entity

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3
Q

what is an acquisition?

A

the process in which an acquirer purchases and absorbs the operations of another firm “the acquired”

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4
Q

which factors fuel horizontal acquisitions?

A
  1. wanting to create more cost efficient operations
  2. expanding geographic coverage
  3. extending into new product categories
  4. gaining more access to resources and capabilities
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5
Q

what are the stages of an acquisition process?

A
  1. identify goal
  2. identify strategic options
  3. choose target
  4. due diligence and negotiate
  5. acquire and integrate
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6
Q

why do most mergers and acquisitions fail?

A
  1. strategic issues: overestimation of synergies and long time to materialize them
  2. organizational issues: culture and management style
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7
Q

what are some reasons for integrating backwards?

A
  1. reduction of supplier power
  2. more control of supply
  3. protection of propetary know how
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8
Q

what are some reasons for integrating forward

A
  1. increase bargaining power through control
  2. better access to end users
  3. strengthen brand awareness
  4. increase production differentiation
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9
Q

what are disadvantages of vertical integration?

A
  1. increased business risk
  2. less flexibility in accomodating shifting buyer preferences
  3. may not reach economies of scale
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10
Q

what are some problems with “outsourcing”?

A
  1. loss of direct control
  2. lack of incentives for outside parties
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11
Q

what is a strategic alliance?

A

a formal agreement between two or more separate companies in which they agree to work toward some common objective and share resources and capabilities

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12
Q

what is a joint venture? what are the advantages?

A

a joint venture is a partnership involving the establishment of an independent corporate entity with equity stakes that the partners own and control, sharing its revenues and expenses.

they are less complex than M&A, offer great flexibility, and are fast to execute

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13
Q

which factors contribute to the longevity of alliances?

A
  1. collaborating with partners that do not compete directly
  2. continuing to collaborate in the parties’ mutual interest
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14
Q

what are some drawbacks of joint ventures?

A
  1. culture clash
  2. overly optimistic view of synergies
  3. risk of dependency on partner firm
  4. loss of proprietary knowledge
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15
Q

how do you setup a diversification strategy?

A
  1. pick new industries to enter and decide how to enter
  2. look at how to leverage cross business value chain
  3. establish investment priorities
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16
Q

when should a firm consider diversification strategies?

A
  1. when growth opportunities are limited
  2. when industry conditions are changing and undermining the firm’s competitive position
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17
Q

what is the “three test for building shareholder value”?

A
  1. attractiveness test; are returns equal or better than the present business?
  2. cost of entry: is the cost of overcoming entry barriers greater than potential profitability?
  3. Better off test: does the strategy contribute to the firm’s competitiveness? (i.e., synergies gained from diversification)
18
Q

how can a firm diversify in practical terms?

A
  1. acquire existing businesses
  2. start up
  3. joint ventures
19
Q

which diversification options are there? (not way to achieve diversification, just the scope)

A
  1. related business
  2. unrelated business
20
Q

what are reason why a firm should NOT go for UNRELATED diversification strategies?

A
  1. reduce risk: this is not an investment portfolio
  2. pursue growth for its own sake
  3. seek for stabilization of earnings to avoid cyclical swings: again, this is not an investment portfolio
  4. pursuing personal managerial motives
21
Q

cash hogs, star business, cash cows

A

cash hogs need cash to develop

star businesses are self sustainable

cash cows generate excess cash

22
Q

why do firms decide to enter foreign markets?

A
  1. access to new customers
  2. access to new resources
  3. access to low cost inputs
  4. achieve economies of scale
23
Q

what modes of entry exist to enter foreign markets?

A
  1. exporting
  2. licensing and franchising
  3. foreign subsidiaries (acquisitions)
  4. greenfield
  5. strategic alliances and joint ventures
24
Q

what are some pros and cons of direct exporting?

A

pros:
1. low capital requirements

  1. economies of scale

cons:
1. shipping costs

  1. exchange rate risks
  2. tariffs
  3. loss of channel control
25
Q

what are pros and cons of franchising strategies?

A

pros:
1. low capital AND resources requirements

  1. income royalties
  2. rapid expansion

cons:
1. loss of control and know how

26
Q

what are pros and cons of foreign subsidiary strategy? (acquisitions)

A

pros:
1. large scale entry

  1. high level of control
  2. avoiding entry barriers

cons:
1. high capital requirements

  1. complexity
27
Q

what are pros and cons of foreign greenfielding strategies?

A

pros:
1. high levels of control

  1. learning curve
  2. direct transfer of the firm’s know how and no problem of integration

cons:
1. capital requirements

  1. political and economic risk
  2. slowest form of entry
28
Q

what is business ethics?

A

application of general ethical principles to the actions and decisions of businesses and the conduct of personnel

29
Q

what are some drivers of unethical strategies’

A
  1. faulty oversight
  2. short termism
  3. profitability driven choices
30
Q

why should companies be ethical?

A
  1. moral reason
  2. economic reason: an ethical strategy can be both good business and serve the interest of shareholders.
31
Q

what are costs linked to unhethical practices?

A

In fact there are costs related to unethical practices:

  1. visible costs: fines, lawsuits and litigations which increase costs and might reduce dividends
  2. internal administrative costs: legal and investigative costs, remedy costs, corrective action costs
  3. intangible costs: reputation, customers leave, employee turnover, higher recruiting costs for attracting talent
32
Q

what is corporate social responsibility?

A

the idea that a company should operate in an honourable manner, providing good work conditions and actively improving quality of life in local communities

33
Q

which CSR strategies are you aware of?

A
  1. promote diversity
  2. employee well being
  3. ethical practices
  4. philantropy
  5. sustaining the environment
34
Q

What is ESG? What are the areas it covers?

A

Environmental: climate change, pollution

Social: labor practices, talent management, data security

Governance: board diversity, executive pay and business ethics

35
Q

what are the three sources of organizational culture?

A
  1. beliefs and values of founders
  2. learnign experiences
  3. new beliefs and values of new members
36
Q

how can managers change a company’s culture if needed?

A
  1. replace key executives
  2. promote individuals who support cultural shifts
  3. appoint outsiders
  4. hire only people who align with new culture
  5. design incentives to support culture change
  6. revise policies and procedures
37
Q

which three actions are necessary to build an organization capable of good strategy execution?

A
  1. staffing the organization with employess with the needed experience, technical skills, and intellectual capability
  2. acquiring and developing resources
  3. structuring the organization: deciding which activities to outsource and which to performe internally and determining how much authority to delegate
38
Q

what are the two organizational approaches to decision making?

A
  1. centralization: authority is retained by top management
  2. decentralization: authority is delegated to lower level managers and employees
39
Q

which are the pros and cons of centralized decision making?

A

Pros:
1. no conflict of interests

  1. quick decision making IN CRITICAL SITUATIONS

Cons:
1. Long response time

  1. not stimulating employees
  2. not encouraging accountability
40
Q

What are pros and cons of decentralized decision making?

A

pros:

  1. accountability
  2. greater motivation
  3. flexibiltiy
  4. entails less levels of management

cons:

  1. information asymmetry between higher and lower level management
  2. conflicts of interests and ideas

Business Strategy (2 decks)

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