Cooperative strategies + suite de corporate governance

Question 1

What is a cooperative strategy

Answer 1

Cooperative strategy is a strategy in which firms work together to achieve a shared objective

Question 2

When does a firm use cooperative strategy?

Answer 2

-To create value for its customers when it likely could not create by itself

-try to create competitive advantages

-outperform its rivals in terms of strategic competitiveness

-earn above-average returns

Question 3

Name agency relationships problems

Answer 3

• divergent goals of principal and agent
• agent falls prey to managerial opportunism
• agent makes decisions that result in the pursuit of goals that conflict with those of principal
• Shareholders lack direct control of large, public corporations
• It is difficult or expensive for the principal to verify that the agent has behaved appropriately

Question 4

How does a competitive advantage developed through a cooperative strategy is called?

Answer 4

A collaborative or relational advantage

Question 5

What is a strategic alliance

Answer 5

A primary type of cooperative strategy in which firms combine some of their resources and capabilities to create a mutual competitive advantage

Question 6

What does a strategic alliance involves

Answer 6

-It involved the exchange and sharing of resources and capabilities to co-develop or distribute goods and services

-requires cooperative behavior from all partners

Question 7

What are the three types of strategic alliances?

Answer 7

-non-equity strategic alliance

-equity strategic alliance

-joint venture

Question 8

What is a non-equity strategic alliance?

Answer 8

Two or more firms develop a contractual relationship to share some of their unique resources and capabilities

Question 9

What is an equity alliance?

Answer 9

When a company purchases a certain equity percentage of the other company

Question 10

What is a joint venture

Answer 10

Two or more firms create a legally independent company by sharing some of their resources and capabilities

Question 11

What are the 4 levels of business level cooperative strategies

Answer 11

1- complementary strategic alliances

2- competition response alliances

3- uncertainty reducing alliances

4- competition reducing alliances

Question 12

What are the 3 characteristics of the complementary strategic alliances?

Answer 12

1- vertical/horizontale

2- combine partner firms’ assets in complementary ways to create new value

3- include distribution, suppliers or outsourcing alliances where firms rely on upstream or downstream partners to build competitive advantage

Question 13

What are the 2 characteristics of the competition response alliances

Answer 13

1- occurs when firms join forces to respond to a strategic action of another competitor

2- because they can be difficult to revers and expensive to operate, strategic alliances are primarily formed to respond to strategic rather than tactical actions

Question 14

What is managerial opportunism?

Answer 14

Managers seeking self interest
Arising from separating ownership and managerial control
- set of behaviors
-attitude
Prevents maximizing shareholder wealth

Question 15

What are the 3 characteristics of the uncertainty reducing alliances

Answer 15

1- used to hedge against risk and uncertainty

2- these alliances are most noticed in fast-cycle markets

3- an alliance may be formed to reduce the uncertainty associated with developing new product or technology standards

Question 16

Agency costs are…

Answer 16

The sum of incentive costs, monitoring costs, enforcement costs, and individual
financial losses incurred by principals, because governance mechanisms cannot
guarantee total compliance by the agent

Question 17

What are the 2 characteristics of the competition reducing alliances

Answer 17

1- created to avoid destructive or excessive competition

2- tacit collusion: when firms indirectly coordinate their production and pricing decisions by observing other firm’s actions and responses

Question 18

why is it hard to monitor managers and what is the solution?

Answer 18

dispersed shareholders make monitoring harder.
solution: board of directors

Question 19

3 key functions of the board

Answer 19

✓ monitoring the managers’ actions on behalf of shareholders
✓ advising the managers on strategic direction and key strategic decisions
✓ interfacing with stakeholders/ institutions in the external environment to help
provide legitimacy, expertise, and access to critical resources

Question 20

What is a corporate-level cooperative strategy

Answer 20

It is a strategy through which a firm collaborates with one or more companies to expand its scope

Question 21

4 governance mechanisms

Answer 21

Ownership concentration
Board of directors
Executive compensation
Market for Corporate control

Question 22

Why are corporate-level strategies alliances are attractive

Answer 22

1- when a firm seeks to diversify into markets in which the host nation’s government prevents mergers and acquisitions

2- because they can be used as a test to determine whether partners might benefit from a future merger or acquisition between them

Question 23

What does exec compensation do?

Answer 23

Bonuses, long term incentives to align managers’ interests with shareholders’ interests

Question 24

Explain market for corporate control

Answer 24

Purchase of a firm that is underperforming relative to industry rivals in order
to improve its strategic competitiveness. (always underperforming ones?)

Question 25

Compared to merger and acquisitions, corporate-level strategic alliances:

Answer 25

1- require fewer resource commitments

2- permit greater flexibility in terms of efforts to diversify partners’ operations

Question 26

What is a diversify strategic alliance

Answer 26

It is a strategy in which firms
share some of their resources to engage in product and/or geographic diversification

Question 27

Which type of companies are using a diversify strategic alliance?

Answer 27

Companies using this strategy typically seek to enter new markets (either domestic or outside of their home setting) with existing products or with newly developed products

Managing diversity gained through alliances has fewer financial costs but often requires more managerial expertise

Question 28

(ownership concentration), What is the incentive of large block shareholders?

Answer 28

• to monitor management closely
• large stakes are worth to take the time
• they may obtain board seats

Question 29

What is a synergistic strategic alliance

Answer 29

It is a strategy in which firms share some of their resources to create economies of scope.

Question 30

What is franchising?

Answer 30

It is a strategy in which a firm uses a franchise as a contractual relationship to describe and control the sharing of its resources with its partners (the franchisees)

-a franchise is a form of business organization in which a firm that already has a successful product or service licenses its trademark and method of doing business to other businesses in exchange for an initial franchise fee and an ongoing royalty rate

Question 31

(ownership concentration), what is the effect of growing influence of institutionnal investors?

Answer 31

• have the size and incentive to discipline management
• can affect the firm’s choice of strategies

Question 32

What is the most important competitive advantage for franchisees

Answer 32

The core company’s brand name

Question 33

What are the competitive risks of cooperative strategies?

Answer 33

1-Opportunistic behavior

2- misrepresentation of competencies brought to the partnership

3- a firm may fail to make available to its partners the resources that it committed to the cooperative strategy

4- one firm may make investment that are specific to the alliance while its partner does not

Question 34

(ownership concentration), discuss shareholder activism

Answer 34

• shareholders can convene to discuss corporation’s direction
• if a consensus exists, shareholders can vote as a block to elect their candidates to the board
• proxy fights

Question 35

What is a board of director and its powers?

Answer 35

Group of elected individuals that
acts in the owners’ interests to
formally monitor and control the
firm’s top-level executives
Power to:
- direct the affairs of the organisation
- punish and reward managers
- protect owners from managerial opportunism

Question 36

what are boards composed of?

Answer 36

• insiders
• related insiders
• independent outsiders

Question 37

What can explain opportunistic behavior?

Answer 37

1- partners may fail to make a committed resources and capabilities available to other partners

2- one partner may make investments that are specific to the alliance while its partner does not

Question 38

what are the criticism on board of directors?

Answer 38

– Too readily approve managers’
self-serving initiatives
– Exploited by managers with
personal ties to board members
– Not vigilant enough in hiring and
monitoring CEO behavior

Question 39

how can board of director be enhanced?

Answer 39

– More diversity in the backgrounds of
board members
– Stronger internal management and
accounting control systems
– More formal processes to evaluate
the board’s performance
– Adopting a “lead director” role
– Changes in compensation of
directors.

Question 40

name forms of executive compensation?

Answer 40

Salaries, bonuses, long-term
performance incentives, stock
awards, stock options

Question 41

Factors complicating executive compensation

Answer 41

– Strategic decisions by top-level
managers are complex, non-routine
and affect the firm over an
extended period
– Other variables affecting the firm’s
performance over time