Chapter 10 -BUSN 450

Question 1

Organic development

Answer 1

where a strategy is pursued by building on and developing an organisation’s own capabilities. This is essentially the ‘do it yourself’ method.

Question 2

Corporate entrepreneurship

Answer 2

refers to radical change in the organisation’s business, driven principally by the organisation’s own capabilities.

Question 3

A merger

Answer 3

is the combination of two previously separate organisations, typically as more or less equal partners.

Question 4

An acquisition

Answer 4

involves one firm taking over the ownership (‘equity’) of another, hence the alternative term ‘takeover

Question 5

Strategic motives can be categorised in three ways

Answer 5

Extension – of scope in terms of geography, products or markets.
Consolidation – increasing scale, efficiency and market power.
Capabilities – enhancing technological know-how (or other competences).

Question 6

Financial motives can be categorised in three ways

Answer 6

Financial efficiency – a company with a strong balance sheet (cash rich) may acquire/merge with a company with a weak balance sheet (high debt).

Tax efficiency – reducing the combined tax burden.

Asset stripping or unbundling – selling off bits of the acquired company to maximise asset values.

Question 7

Absorption (approaches to integration)

Answer 7

– strong strategic interdependence and little need for organisational autonomy. Rapid adjustment of the acquired company’s strategies, culture and systems.

Question 8

Preservation (approaches to integration)

Answer 8

– little interdependence and a high need for autonomy. Old strategies, cultures and systems can be continued much as before.

Question 9

Symbiosis (approaches to integration)

Answer 9

strong strategic interdependence, but a high need for autonomy. Both the acquired firm and acquiring firm learn and adopt the best qualities from each other.

Question 10

Holding (approaches to integration)

Answer 10

with little to gain by integration. The acquisition will be ‘held’ temporarily before being sold on, so the acquired unit is left largely alone.

Question 11

A strategic alliance

Answer 11

is where two or more organisations share resources and activities to pursue a strategy.

Question 12

Collective strategy

Answer 12

is about how the whole network of alliances of which an organisation is a member competes against rival networks of alliances.

Question 13

Collaborative advantage

Answer 13

managing alliances better than competitors

Question 14

two main kinds of ownership in strategic alliances

Answer 14

• Equity alliances involve the creation of a new entity that is owned separately by the partners involved.
• Non-equity alliances are typically looser, without the commitment implied by ownership.

Question 15

Motives for alliances

Answer 15

• Scale alliances (lower costs)
• Access alliances (provides capabilities)
• Complementary alliances (offset weaknesses)
• Collusive alliances (increase market power)

Question 16

Four key factors in choosing the method of strategy development

Answer 16

1) Urgency 2) Uncertainty 3) Type of capabilities 4) Modularity of Capabilities