Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business Management > Block 6: Corporate strategy > Flashcards

Block 6: Corporate strategy Flashcards

1
Q

Complete the sentence.
From strategy making in a single business enterprise to…

A

Strategy making in a diversified enterprises

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Who is responsible for crafting the corporate strategy?

A

The task of crafting a diversified company’s overall or corporate strategy falls squarely on the shoulders of Corporate executives.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What does corporate strategy entail?

A
  1. Picking new industries to enter and deciding on the means of entry
  2. Pursuing opportunities to leverage cross-business value chain relationships, where there is strategic fit into competitive advantage
  3. Initiating actions to boost combined performance of corporation’s collection of businesses. Actions such as?
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Which actions are used to enhance combined performance?

A
  • Sticking closely with the existing business lineup and pursuing opportunities presented by these businesses
  • Broadening the current scope of diversification by entering additional industries
  • Retrenching to a narrower scope of diversification by divesting poorly performing businesses
  • Broadly restructuring the entire firm by divesting some businesses and acquiring others to put a whole new face on the firm’s business lineup
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

When should an organisation diversify?

A
  1. Growth opportunities are limited as its principal markets reach their maturity and buyer demand is either stagnating or set to decline.
  2. Changing industry conditions—(new technologies, inroads being made by substitute products, fast- shifting buyer preferences, or intensifying competition)—are undermining the firm’s competitive position.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Why do organization diversify?

A
  1. Expand into businesses whose technologies and products complement present business
  2. Employ current resources and capabilities as valuable competitive assets in other businesses.
  3. Reduce overall internal costs by cross-business sharing or transfers of resources and capabilities.
  4. Extend a strong brand name to the products of other acquired businesses to help drive up sales and profits of those businesses.

(Create shareholder value)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

State the test for corporate advantage that will add shareholder value and move to diversify into a new business

A
  • The industry attractiveness test
  • The cost to entry test
  • The better off test
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the advantages of the three tests?

A
  • A higher chance of diversification success
  • They are simple tests to challenge thinking
  • They can be split up and allocated to specialists on the team: HOWEVER….
  • They are mutually exclusive and if done sequentially can save time on ideas that won’t work
  • Diversification moves that satisfy all three tests have the greatest potential to grow shareholder value over the long term.
  • Diversification moves that can pass only one or two tests are suspect.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Why move from a business to a corporate strategy?

A
  1. Embracing digital transformation
  2. Addressing changing consumer behaviour
  3. Enhancing agility and adaptability
  4. Leveraging data-driven decision making
  5. Attracting and retaining top talent
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Explain embracing digital transformation

A

A robust corporate strategy ensures that businesses not only adapt to the latest digital technologies but also proactively seek opportunities to innovate and evolve.
By incorporating digital transformation as a strategic
priority, companies can capitalise on emerging trends, streamline operations, and enhance customer experiences, ultimately gaining a competitive edge in the market.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Elaborate on addressing changing consumer behaviour

A

The digital world has transformed how consumers interact with brands and make purchasing decisions. An effective corporate strategy acknowledges these shifts and focuses on delivering seamless, personalised experiences across various digital touch points.
By understanding and meeting customer needs, organisations can foster brand loyalty, drive growth, and maintain their relevance in a rapidly changing landscape.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Explain enhancing agility and adaptability

A

The rapid pace of technological advancements necessitates that organisation’s remain agile and
adaptable to stay competitive.
A well-crafted corporate strategy enables businesses to anticipate changes, quickly respond to new
challenges, and capitalise on emerging opportunities. By fostering a culture of innovation and adaptability, organisations can maintain their relevance and excel in the digital world.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Explain leveraging data-driven decision-making

A

The digital era has brought about an explosion of data, presenting businesses with invaluable insights that can drive strategic decision-making. A strong corporate strategy leverages data analytics to identify trends, optimise processes, and make informed decisions that fuel growth and profitability.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Explain attracting and retaining top talent

A

In a digital world, having a skilled workforce with expertise in emerging technologies is crucial. A
well-thought-out corporate strategy focuses on attracting, developing, and retaining top talent, thereby ensuring that the organisation has the necessary human capital to navigate the digital landscape successfully.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Disclose the advantage of acquiring an exisiting business

A
  • Quick entry into industry
  • Barriers to entry avoided
  • Access to complimentary resources
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Disclose the disadvantage of acquiring an existing business

A
  • Cost to buy
  • Underestimation of costs
  • Overestimation of potential business
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is internal venture?

A

New business development to outgrow established business opponent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the other name for internal venture?

A

Corporate venture

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

State the advantage of internal venture

A
  • Avoids acquisition pitfalls
  • Allows access where there are no available acquisitions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

State the disadvantage of internal venture

A
  • Industry barriers
  • Extensive R&D
  • Chance of failure
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

State the factors favoring internal development

A
  • Availability of in-house skills ad resources
  • Ample time to develop and launch business
  • Costs of acquisitions higher than internal entry
  • Added capacity affects supply and demand balance
  • Low resistance of incumbent firms to market entry
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

When is joint venture used?

A
  • The opportunity too complex, uneconomical, or risky for one firm to pursue alone
  • The opportunity requires a broader range of competencies and know-how than the firm now possesses
  • The opportunity involve operations in a country that requires foreign firms to have local minority or majority ownerships partners
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are the joint venture drawbacks?

A
  • Conflicting objectives and expectations of venture partners
  • Disagreements among or between venture partners over how best to operate the venture
  • Cultural clashes among and between the partners
  • Dissolution of the venture when one of the venture partners decides to go their own way
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Where is a joint venture useful?

A
  1. To pursue an opportunity that is too complex, uneconomical, or risky for a single organisation to pursue alone
  2. When the opportunities in a new industry require a broader range of competencies and know-how than any one organisation can marshal
  3. To diversify into a new industry when the diversification move entails having operations in a foreign country
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is critical resources capability?

A

If an organisation has all the resources it needs to start up a new business or will be able to easily purchase or lease any missing resources, it may choose to enter the business via internal development.
If missing critical resources cannot be easily purchased or leased, a firm wishing to enter a new business must obtain these missing resources
through either acquisition or joint venture.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Explain entry barriers

A

If an organisation has all the resources it needs to start up a new business or will be able to easily purchase or lease any missing resources, it may choose to enter the business via internal development.
If missing critical resources cannot be easily purchased or leased, a firm wishing to enter a new business must obtain these missing resources
through either acquisition or joint venture.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Explain speed

A

Acquisition is a favored mode of entry when speed is of the essence, as is the case in rapidly changing industries where fast movers can secure long-term positioning advantages.
In other cases it can be better to enter a market after the uncertainties about technology or consumer preferences through joint venture or internal development.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What is comparative cost?

A
  • Acquisition can be a high-cost mode of entry due to the need to pay a premium over the share price of the target company.
  • Whether it is worth it to pay that high a price will depend on how much extra value will be created by the new combination of companies in the form of synergies.
  • Joint ventures may provide a way to conserve on such entry costs.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What is transaction costs?

A
  • Costs of completing a business agreement or deal of some sort, over and above the price of the deal.
  • They can include the costs of searching for an attractive target, the costs of evaluating its worth, bargaining costs, and the costs of completing the
    transaction.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Disclose the different diversification paths

A
  • Related
  • Unrelated
  • Both related and unrelated
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Discuss the strategic fit with related business opportunities

A
  • Transferring specialized expertise, technological know-how, or other resources and capabilities
    from one business’s value chain to another’s- Google, transfer software developers.
  • Sharing costs by combining related value chain activities into a single operation- Using same
    warehouse for shipping and distribution
  • Exploiting common use of a well-known brand name- use brand loyalty and to give credibility-
    Starbucks (Going into food)
  • Sharing other resources (besides brands) that support corresponding value chain activities
    across businesses relationships with suppliers
  • Engaging in cross-business collaboration and knowledge sharing to create new competitively
    valuable resources and capabilities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What is related diversification specialised resources?

A
  • Related diversification involves sharing or
    transferring specialised resources and capabilities.
  • Specialised resources and capabilities have very specific application and their use is limited to a restricted range of industry and business types
  • Have very specific applications which restrict their use to a narrow range of industry and business types
  • Can typically be leveraged only in related diversification situations
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

State the general resources of related diversification

A
  • Generalised resources and capabilities that can be widely applied and can be deployed across a broad range of industry and business type.
  • Can be deployed widely across a broad range of industry and business types
  • Can be leveraged in both unrelated and related diversification situations
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Disclose potential cross-business fits

A
  • R&D and technology activities
  • Supply chain activities
  • Manufacturing related activities
  • Distribution related activities
  • Customer services activites
  • Sales and marketing activities
35
Q

Explain using economies of scope to convert strategic fit into competitive advantage

A
  • Transferring specialized and generalized skills or knowledge
  • Combining related value chain activities to achieve lower costs
  • Leveraging brand names and other differentiation resources
  • Using cross-business collaboration and knowledge sharing
36
Q

Distinguish the difference between economies of scope and economies of scale

A

Economies of scope
* Are cost reductions that flow from cross-business resource sharing in the activities of the multiple businesses of a firm

Economies of scale
* Accrue when unit costs are reduced due to the increased output of larger size operations of a firm

37
Q

State capturing the cross business strategic fit benefits of related diversification

A
  • Builds more shareholder value than owning a stock portfolio
  • Only possible via a strategy of related diversification
  • Yields value in the application of specialized resources and capabilities
  • Requires that management take internal actions to realize them
38
Q

Explain using an unrelated diversification strategy to pursue value

A
  • Astute corporate parenting by management
  • Cross-business allocation of financial resources
  • Acquiring and restructuring undervalued companies
39
Q

Explain astute corporate parenting by management

A
  • Provide leadership, oversight, expertise and guidance
  • Provide generalized or parenting resources that lower operating costs and increase SBU efficiencies
40
Q

Explain cross business allocation of financial resources

A
  • Serve as an internal capital market
  • Allocate surplus cash flows from businesses to fund the capital requirements of other businesses
41
Q

Explaining acquiring and restructuring undervalued companies

A
  • Acquire weekly performing firms at bargain prices
  • Use turn around capabilities to restructure them to increase their performance and profitability
42
Q

What is corporate parenting?

A

Is the role that a diversified corporation plays in nurturing its component businesses through the provision of:
* Top management expertise
* Disciplined control
* Financial resources
* Other types of generalised resources and capabilities such as long-term planning systems, business development skills, management development processes, and incentive systems

43
Q

What is an umbrella brand?

A

Is a corporate brand name that can be applied to a wide assortment of business types. As such, it is a generalised resource that can be leveraged in unrelated diversification.

44
Q

What is restructuring?

A

Refers to overhauling and streamlining the activities of a business: combining plants with excess capacity, selling off underutilized assets, reducing unnecessary expenses, and otherwise improving the productivity and profitability of the firm.

45
Q

What are the poor rationales for unrelated diversification?

A
  • Seeking a reduction of business investment risk
  • Pursuing rapid or continuous growth for its own sake
  • Seeking stabilization to avoid cyclical swings in businesses
  • Pursuing personal managerial motives
46
Q

Expand on related-unrelated business portfolio combinations

A
  • Dominant business enterprises
  • Narrowing diversified firms
  • Broadly diversified firms
  • Multi-business enterprises
47
Q

Expand on dominant business enterprises

A

Have a major “core” firm that accounts for 50% to 80% of total revenues and a collection of small related or unrelated firms that accounts for the remainder

48
Q

Expand on narrowing diversified firms

A

Are comprised of a few related or unrelated businesses

49
Q

Expand on broadly diversified firms

A

Have a wide-ranging collection of related businesses, unrelated businesses, or a mixture of both

50
Q

Expand multi-business enterprises

A

Have a business portfolio consisting of several unrelated groups of related businesses

51
Q

How is diversified strategy evaluated?

A
  • Attractiveness of industry
  • Strength of business units
  • Cross business strategy fit
  • New strategic moves
  • Allocation of resources
  • Fit of firms resources
52
Q

Expand on the evaluation of a diversified organization

A
  • Assess the attractiveness of the industries the firm has diversified into, both individually and as a group
  • Assess the competitive strength of the firm’s business units within their respective industries
  • Evaluate the extent of cross-business strategic fit along the value chains of the firm’s various business units
  • Check whether the firm’s resources fit the requirements of its present business lineup
  • Rank the performance prospects of the businesses from best to worst and determine resource allocation priorities
  • Craft strategic moves to improve corporate performance
53
Q

What is industry attractiveness test?

A
  • Market size and projected growth rate
  • The intensity of competition among market rivals
  • Emerging opportunities and threats
  • The presence of cross-industry strategic fit
  • Resource requirements
  • Social, political, regulatory, environmental factors
  • Industry profitability
54
Q

What is BU competitive strength?

A
  • Relative market share
  • Costs relative to competitors’ costs
  • Ability to match or beat rivals on key product attributes
  • Brand image and reputation
  • Other competitively valuable resources and capabilities
  • Benefits from strategic fit with firm’s other businesses
  • Bargaining leverage with key suppliers or customers
  • Profitability relative to competitors
55
Q

What is competitive value of strategic fit?

A
  • Assessing the degree of strategic fit across its businesses is central to evaluating a company’s related diversification strategy.
  • The real test of a diversification strategy is what degree of competitive value can be generated from strategic fit.
  • The greater the value of cross-business strategic fit in enhancing a firm’s performance in the marketplace or on the bottom line, the more competitively powerful is its strategy of related diversification.
56
Q

What is resource fit?

A
  • Financial resource fit
  • Non-financial resource fit
  • Success sequence: Cash hit > Star > Cash cow
57
Q

What are the ranking factors of ranking BU and assigning priority?

A

Ranking factors
● Sales growth
● Profit growth
● Contribution to company earnings
● Return on capital invested in the business
● Cash flow
Steer resources to business units with the brightest profit and growth prospects and solid strategic and resource fit

58
Q

What is the strategic option of allocating resources?

A

● Invest in ways to strengthen or grow existing business
● Make acquisitions to establish positions in new industries or to complement existing businesses
● Fund long-range R&D ventures aimed at opening market opportunities in new or existing businesses

59
Q

What is financial option of allocating resources?

A

● Pay off existing long- term or short-term debt
● Increase dividend payments to shareholders
● Repurchase shares of the company’s common stock
● Build cash reserves; invest in short-term securities

60
Q

State the strategy options for a firm that is already diversified

A
  • Stick with existing business lineup
  • Broaden the diversification base with new acquisitions
  • Divest and retrench to a narrower diversification base
  • Restructure through divestitures and acquisitions
61
Q

Explain maintain existing business lineup

A
  • Makes sense when the current business lineup offers attractive growth opportunities and can generate added economic value for shareholders
62
Q

Explain broaden diversification base

A
  • Acquire more businesses and build positions in new related or unrelated industries
  • Add businesses that will complement and strengthen the market position and competitive capabilities of businesses in industries where the firm already has a stake
63
Q

Explain narrow diversification base

A
  • Get out of businesses that are competitive weak or unattractive industries, or lack adequate strategic and resource fit
64
Q

Explain focus resources on businesses in a few select industry arenas

A
  • Restructure the firm’s business lineup through a mix of divestiture and new acquisitions
  • Use debt capacity and cash from divesting businesses that are in unattractive industries, or that lack strategic or resource fit and are noncore businesses to make acquisitions in more promising industries
65
Q

What is a diversified company?

A

Is a collection of individual businesses, and thus the strategy-making task is more complicated.

66
Q

What does the strategy making challenge involve in diversified company corporate strategy?

A

The strategy-making challenge involves assessing multiple industry environments and developing a set of business strategies, one for each industry arena in which the diversified company operates.

67
Q

Explain the diversified strategy of picking new industries to enter and deciding on the means of entry

A

Management needs to decide which new industries to enter and then whether to enter by:
- Starting a new business from the ground up
- Acquiring a company already in the industry
- Forming a joint venture or strategic alliance with another company.

68
Q

Explain the diversified strategy of pursuing opportunities to leverage cross business value chain relationships, where there is a strategic fit, into competitive advantage

A

Management needs to determine whether there are opportunities to strengthen a diversified company’s businesses by:
- Transferring competitively valuable resources and capabilities from one business to another.
- Combining the related value chain activities of different businesses to achieve lower costs.
- Sharing the use of a powerful and well-respected brand name across multiple businesses.
- Encouraging knowledge sharing and collaborative activity among businesses.

69
Q

Explain the diversified strategy of initiating actions to boost the combined performance of the corporations collection of businesses

A

Strategic options for improving the corporation’s overall performance include:
- Sticking closely with the existing business line-up and pursuing opportunities presented by these businesses.
- Broadening the scope of diversification by entering additional industries.
- Retrenching to a narrower scope of diversification by divesting poorly performing businesses or those no longer fit into management’s long-range plans.
- Broadly restructuring the entire company by divesting some businesses, acquiring others, and re-organizing, to put a whole new face on the company’s business line-up.

70
Q

What is industry attractiveness test

A

The industry being entered through diversification must be structurally attractive in terms of the five forces, have resource requirements that match those of the parent company, and offer good prospects for growth, profitability, and return on investment.

71
Q

Explain the cost of entry test

A
  • The cost of entering the target industry must not be so high as to exceed the potential for good profitability.
  • However, the more attractive an industry’s prospects for growth and good long-term profitability, the more expensive it can be to enter.
  • Entry barriers for startup companies are high in attractive industries and buying a well-positioned company in an appealing industry often entails a high acquisition cost.
72
Q

Explain the better off test

A

Creating added value for shareholders via diversification requires building a multi-business company in which the whole is greater than the sum of its parts.

73
Q

What is synergy?

A

A scenario whereby the businesses perform better together as part of the same firm than they could have performed as independent companies (combines the 3 tests)

74
Q

Define related businesses

A

Possess competitively valuable cross-business value chains and resource commonalities.

75
Q

Define unrelated businesses

A

Have dissimilar value chains and resource requirements, with no competitively important cross-business commonalities at the value chain level.

76
Q

Why do businesses with strategic fit respect to their supply chains activities perform better together?

A

Because of the potential for transferring skills in procuring materials, sharing resources and capabilities in logistics, collaborating with common supply chain partners, and/or increasing leverage with shippers in securing volume discounts on incoming parts and components.

77
Q

Explain strategic fit in R&D and technology activities

A

Businesses with strategic fit in R&D and technology activities perform better together than apart because of potential cost savings in R&D, shorter times in getting new products to market, and more innovative products or processes.

78
Q

Discuss manufacturing related strategic fit

A

Cross-business strategic fit in manufacturing-related activities can be exploited when a diversifier’s expertise in quality control and cost-efficient production methods can be transferred to another business. Additionally, this also gives the diversifier the ability to consolidate production into a smaller number of plants and significantly reduce overall production costs.

79
Q

Explain strategic fit in sales and marketing activities

A

Products that are sold directly to the same customers results in reduced sales costs by using a single sales force instead of having two different salespeople call on the same customer. The products of related businesses can be promoted using the same website and included in the same media ads and sales brochures.

80
Q

Elaborate distribution related strategic fit

A

Businesses with closely related distribution activities can perform better together than apart because of potential cost savings in sharing the same distribution facilities or using many of the same wholesale distributors and retail dealers.

81
Q

Annotate strategic fit in customer service activities

A

Strategic fit with respect to customer service activities can enable cost savings or differentiation advantages.

82
Q

How can economies of scope be used to convert strategic fit into competitive advantage?

A

The greater the relatedness among a diversified company’s businesses, the bigger a company’s chances are for converting strategic fit into competitive advantage via:
1. Transferring skills or knowledge.
2. Combing related value chain activities to achieve lower costs.
3. Leveraging the use of a well-respected brand name.
4. Sharing other valuable resources.
5. Using cross-business collaboration and knowledge sharing to create new resources and capabilities and drive innovation.

83
Q

What is the cost of advantage from economies of scope?

A

The cost advantage from economies of scope is because resources sharing allows a multi-business firm to spread resource costs across its businesses and to avoid the expense of having to acquire and maintain duplicate sets of resources

Business Management (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions