Comp Strat Ch 10

Question 1

What is the process of taking a distinctive competency developed by a business unit in one industry and implanting it in a business unit operating in another industry.

Whereas what is the process of taking a distinctive competency developed by a business unit in one industry and using it to create a new business unit in a different industry

Answer 1

Transferring competencies

and using a competency to make a new business is:
Leveraging competencies

Question 2

Some kind of skill or competency that when shared by two or more business units allows them to operate more effectively and create more value for customers.

Answer 2

Commonality

Question 3

When one or more business units from a diversified company can lower costs or increase differentiation due to pooling, sharing, and utilizing expensive resources or capabilities, it is called what?

Answer 3

Economies of scope

Question 4

What are the competencies that result from the skills of a company’s top managers that help every business unit within a company perform at a higher level than it could if it operated as a separate or independent company.

and what are the types of these?

Answer 4

General organizational competencies:

1. Entrepreneurial capabilities
2. organizational design capabilities
3. strategic capabilities

Question 5

What is the ability of the managers of a company to create a structure, culture, and control systems that motivate and coordinate employees to perform at a high level.

Answer 5

Organizational design skills

Question 6

What is it when managers of a diversified company identify inefficient and poorly managed companies in other industries and then acquire and restructure them to improve their performance—and thus the profitability of the total corporation.

Answer 6

Turnaround Strategy

so kinda like Mitt Romney…

Question 7

What are the two types of diversification and some notes on each?

Answer 7

Related Diversification

• So making as many linkages as possible between different functions of different business units divisions
• An advantage is that a company can use any general organizational competency it possesses to increase the overall performance of ALL its different industry divisions

Unrelated Diversification

• These are the conglomerates, such as P&G.
• benefits are internal capital markets that let company shift money to promising business units and take away from others

Question 8

What is a corporate-level strategy whereby the firm’s headquarters assesses the performance of business units and allocates
money across them. Cash generated by units that are profitable but have poor investment opportunities within their business is used to cross-subsidize businesses that need cash and have strong promise for long- run profitability.

Answer 8

Internal capital market

Question 9

What are the costs associated with solving the transaction difficulties between business units and corporate headquarters as a company obtains the benefits from transferring, sharing, and leveraging competencies.

What are the two factors that determine the level or bureaucratic costs?

Answer 9

Bureaucratic costs

and it is a function of two factors:

1. number of businesses
2. and degree to which coordination is required between these different business units to realize the advantages of diversification

Question 10

What is the process of transferring resources to and creating a new business unit or division in a new industry to innovate new kinds of products.

Answer 10

internal new venturing

Question 11

What are the 3 pitfalls of internal new ventures?

Answer 11

1. Market entry on too small a scale
2. poor commercialization of the new-venture product
3. poor corporate management of the new-venture division

Question 12

What are 4 acquisition pitfalls?

Answer 12

1. Integration problems with culture and structure
2. Overestimating potential economic benefits from acquisition
3. Acquisition can be so expensive that profitability isn’t increased
4. Companies often don’t screen their targets enough and fail to recognize problems in their target’s business

Question 13

What are the 4 guidelines for successful acquisition?

Answer 13

1. Target identification and pre-acquisition screening
2. Bidding strategy
3. Integration
4. Learning from experience

Question 14

What is the process of reorganizing and divesting business units and exiting industries to refocus upon a company’s core business and rebuild its distinctive competencies

Answer 14

Restructuring

Question 15

When do strategic managers often pursue diversification?

Answer 15

When they have excess cash flow that isn’t needed for their core industry that can be used for new business ventures

Question 16

What are the 6 ways a diversified company can create value?

Answer 16

1. Transferring competencies
2. Leveraging competencies
3. sharing resources for realizing economies of scope
4. product bundling
5. general organizational competencies that enhance performance of all business units within company
6. operating an internal capital market

Question 17

Diversification motivated by what two things often result in falling profitability?

Answer 17

Diversification motivated by a desire to pool risks or achieve greater growth often results in falling profitability.

Question 18

What are the 3 methods companies use to enter new industries?

Answer 18

1. internal new venturing
2. acquisition
3. joint ventures

Question 19

If the company lacks the competencies required to compete in a new industry, what is often the best way to enter a new industry?

Answer 19

Acquisition

because it can purchase a company that has those competencies at a reasonable price.

This also knocks down high barriers to entry by jumping into the industry via acquisition

Question 20

What are the two main reasons for entering a new industry via joint ventures?

Answer 20

1. The risks and costs associated with setting up a new business are more than a company is willing to assume on its own
2. Company can increase the probability that its entry into a new industry will result in a successful new business by teaming up with another company that has skills and assets that complement its own

Question 21

Restructuring is required when what 4 things are going on in a business?

Answer 21

1. business model no longer creates competitive advantage
2. Investors can’t tell the competitive advantage of highly diversified company from financial statements
3. Empire building managers created company that is too diversified
4. If there are new innovation in strategic management such as strategic alliances and outsourcing that making diversification and vertical integration unnessacary