Chapter 9 Flashcards
What are corporate level strategies
Drives the company’s business model over time and determine which types of business and functional level strategies managers will choose to maximize long term profitability
What choice must strategic managers make
- Decide on the business and industries a company should compete
- Select which value creation activities it should perform in those businesses
- Determining how it is should enter, consolidate or exit businesses to maximize long term profits
What must managers adopt when formulating corporate level strategies
Managers must adopt a long term perspective and consider how changes take place in an industry and its products, technology, customers and competitors
What are the three types of corporate level strategies
- Horizontal integration
- Vertical integration
- Strategic outsourcing
What does corporate level strategies enable a company to do
- Perform value chain functional activities
- Lower costs
- Increase differentiation
What are the two levels that a company must do to construct its business model
- Develop a business model and strategies for each business unit or division in every industry where it competes
- Develops a higher level of multi business model that justifies its entry into different businesses and industries
What happens when a business decide to expand into new industries
Must develop a business model and strategies for each business unit in every industry in which is competes
What are the advantages of staying in one industry
- Allows a company to focus on managerial, financial, technological and functional resources and capabilities to successfully compete in one area
- It stays focused on what it knows and does best
What must managers do to ensure they are competing in a changing environment
Improving their company’s existing products or service lines that they fail to recognize
What are the tasks of corporate level managers (technologies)
- Analyze emerging technologies
- Understand why these technologies might change customer needs and customer groups
- Distinctive competencies
What is horizontal integration
Process of acquiring or merging with industry competitors to achieve the competitive advantages that arise from a large size and scope operations
What are the benefits of horizontal integration
- Company can focus all its managerial, financial, technological and functional resources and capabilities on competing successfully
- Company sticks to the knitting meaning that it stays focus on what it knows and does best
- Lower cost structure
- Increased Product Differentiation
- Reduced industry rivalry
- Increased bargaining power
What is an acquisition
When one company uses capital resources such as stock, debt, or cash
What is merger
An agreement between equals to pool their operations and create new entities
What are the problems with Horizontal Integration
- Different company culture
- High management turnover in the acquired company
- Tendency to overestimate the potential benefits and underestimate the costs and problems in merging their operations
What is vertical integration
Expands its operations in backward industry that produces inputs for the company’s product or forward into an industry that uses, distributes or sells the company’s products
What is backward integration
Moving into component parts manufacturing and raw materials production
What is forward integration
Moving into distribution and sales
What is the process of vertical integration
Raw Materials
Component parts Manufacturing
Final Assembly
Retail
Customer
What are the benefits of vertical integration
Increases differentiation, lower costs or reduces industry competition
What must happen to ensure the benefits of vertical integration
- Facilitates investments in efficiency-enhancing, specialized assets
- Protects product quality
- Results in improved scheduling
What does product bundling mean
Offers customers the opportunity to purchase a range of products at a single, combined price; which increases the value of a companys product line because customers often obtain a price discount when purchasing a set of products at one time and customers become used to dealing with only one company and representatitives
What is tacit price coordination in horizontal integration
Helps reduces the numb er of competitors in an industry between rivals to coordinate fix prices without communication
What is cross selling
When a company takes advantage of or leverages its established relationship with customers by way of acquiring additional product lines or categories that it can sell to them to increase differentiation
What are specialized assets
Designed to perform a specific task
How can companies enhance their product quality
By entering industries at other stages of the value added chain to enhance the quality of the product
What is vertical integration
When a company expands its operations either backward into an industry that produces inputs for the companys products or forward into an industry that uses, distributes or sells the companys products
What is holdup
When a company takes advantages of by another company it does business with after it has made an investment in expensive specialized assets to better meet the needs of the other company
What is tapered integration
When a firm uses a mix of vertical integration and market transactions for a given input
What is a strategic advantage for vertical integration
- Quicker
- Easier and more cost effective
- Coordinates the schedule
- Utilizes just in time inventory systems
What are the problems with vertical integration
- Increase cost structure
- Technological change
- Demand unpredictability
What disintegration
When a company decides to exit industries either forward or backward in the industry value chain to its core industry to increase profits
What are transfer prices
The price that one division of a company charges another division for tis products, which are the inputs the other division requires to manufacture its own product
What stages in the raw materials to customer value added chain
- Raw materials
- Component parts manufacturing
- Final assembly
- Retail
- Customer
How can you increase profitability through vertical integration
- Facilitates investment in efficiency enhancing, specialized asset
- Protects product quality
- Results in improved scheduling
What is quasi integration
Realizing benefits associated with vertical integration by entering into long term cooperative relationships with companies in industries along the value added chain
What are the benefits of quasi integration
- Shares the expenses of investment in production assets or inventory
- Makes long term supply or purchase agreements
How do short term contracts work
They establish the price and conditions under which they will purchase raw materials or components from suppliers
Why are suppliers unwilling to make long term investments
Because of short term contracts
What are strategic alliances
Long term agreements between two or more companies to jointly develop new products or processes that benefit all companies that are part of the agreement
What are standardized interface
A point of interconnection between two systems or parts of a system that adheres to a standard to ensure those systems or parts can connect or exchange information, energy or other resource
What are strategic alliances between buyers and suppliers
Long term cooperative relationships where both companies agree to make specialized investments and work to find ways to lower costs or increase product quality
How do suppliers benefit in strategic alliances
Because their business and profits grow as the companies they supply grow and they can continue to invest in more specialized assets
What is modularity
Degree where a systems components can be separated and recombined
What is modular advantages
- Offers choices in function, design, scale and features
- Allows product variety with economies of substitution
What are nonmodular advantages
- Components work better together
- Better monitoring of quality and reliability
What is pure integration
- Combo determined by producers
- High co specialization
- Producer controls quality and compatibility
What is pure modularity
- More choice configurations
- No co specialization
- Quality and compatibility may be uncertain
What are platforms
- Third party components and complements that curated by platform sponsor
- Choice and reconfigurability but shepherded by platform sponsor
- Some co specialization
How do you promote long term, cooperative relationships
- Demand a hostage from its partner (exchanging valuable resources)
- Establish a credible commitment from both companies that will result in trusting, long relationships
What is strategic outsourcing
The decision to allow one or more companies value chain activities or functions to be performed by independent specialist companies that focus all their skills and knowledge on one kind of function
What are virtual corporation
Coined to describe companies that have pursued extensive strategic outsourcing
What are the benefits of outsourcing
- Lower cost structure
- Enhanced differentiation
- Focus on core business
What are the risks of outsourcing
- Hold up; where a company is too dependent on the specialist provider
- Increased competition
- Loss of information forfeited learning opportunities
What are hostage taking
Hostage taking means guaranteeing that each partner will keep its side of the bargain
What are credible commitments
A believable promise or pledge to support the development of a longterm relationship between companies
