Chapter 6 Flashcards
The process of firms expanding their operations by entering new businesses
Diversification
A strategy that focuses on gaining long-term revenue, profits, and market value through managing operations in multiple businesses
Corporate-level strategy
A firm entering a different business in which it can benefit from leveraging core competencies, sharing activities, or building market power
Related diversification
Cost savings from leveraging core competencies or sharing related activities among businesses in a corporation
Economies of scope
A firm’s strategic resources that reflect the collective learning in the organization
Core competencies
Having activities of two or more businesses’ value chains done by one of the businesses
Sharing activities
Firms’ abilities to profit through restricting or controlling supply to a market or coordinating with other firms to reduce investment
Market power
The improvement in bargaining position relative to suppliers and customers
Pooled negotiating power
An expansion or extension of the firm by integrating preceding or successive production processes
Vertical integration
A perspective that the choice of a transaction’s governance structure, such as vertical integration or market transaction, is influenced by transaction costs, including search, negotiating, contracting, monitoring, and enforcement costs, associated with each choice
Transaction cost perspective
A firm entering a different business that has little horizontal interaction with other businesses of a firm
Unrelated diversification
The positive contributions of the corporate office to a new business as a result of expertise and support provided and not as a result of substantial changes in assets, capital structure, or management
Parenting advantage
The intervention of the corporate office in a new business that substantially changes the assets, capital structure, and/or management, including selling off parts of the business, changing the management, reducing payroll and unnecessary sources of expenses, changing strategies, and infusing the new business with new technologies, processes, and reward systems
Restructuring
A method of (A) assessing the competitive position of a portfolio of businesses within a corporation, (B) suggesting strategic alternatives for each business, (C) identifying priorities for the allocation of resources across the business
Portfolio management
The incorporation of one Firm into another through purchase
Acquisitions
The combining of two or more firms into one new legal entity
Mergers
The exit of a business from a firm’s portfolio
Divestment
A cooperative relationship between two or more firms
Strategic alliance
New entities formed within a strategic alliance in which two or more firms, the parents, contribute equity to form the new legal entity
Joint ventures
Entering a new business through investment in new facilities, often called corporate entrepreneurship and new venture development
Internal development
Managers acting in their own self interest rather than to maximize long-term shareholder value
Managerial motives
Managers’ actions to grow the size of their firms not to increase long-term profitability but to serve managerial self interest
Growth for growth’s sake
Managers’ actions to shape their firms’ strategies to serve their selfish interests rather than to maximize long term shareholder value
Egotism
Managers’ actions to avoid losing wealth or power as a result of hostile takeover
Anti-takeover tactics
A payment by a firm to a hostile party for the firm’s stock at a premium, made when the firm’s management feels that the hostile party is about to make a tender offer
Greenmail
A prearranged contract with managers specifying that, in the event of a hostile takeover, the target firm’s managers will be paid a significant severance package
Golden parachute
Used by a company to give shareholders certain rights in the event of a takeover by another firm
Poison pill
