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Management > Corporate strategy > Flashcards

Corporate strategy Flashcards

1
Q
  1. corporate strategy - def
A

decision that senior management makes & goal-directed action it takes to gain & sustain competitive advantage in several industries & markets simultaneously

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2
Q
  1. why do firms need to grow
A
  1. increase profitability
  2. lower costs
  3. increase mkt power
  4. reduce risk
  5. motivate management
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3
Q
  1. how can firms grow
A
  1. vertical integration (along industry value chain)
  2. diversification
  3. geographic scope
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4
Q
  1. concepts that guide corporate strategic decisions
A
  1. core competencies
  2. economies of scale
  3. economies of scope
  4. transaction costs
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5
Q
  1. transaction costs
A

all internal & external costs associated with the economic exchange, whether it takes place within boundaries of a firm or in markets

i) internal costs
ii) external costs

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6
Q
  1. make or buy
A
  1. make
    if c inhouse < c market -> vertically integrate
  2. buy
    if c inhouse > c market -> contract w/ mkt players

table with advantages and disadvantages of both

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7
Q
  1. alternatives on the make or buy continum
A

from - to + integrated

  1. buy (market transaction)
  2. short term contracts
  3. SA long term contacts ( licensing, franchising)
  4. SA equity alliances
  5. SA joint ventures
  6. parent-subsidiary relationship
  7. make (activities perform inhouse)
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8
Q
  1. short term contracts
A
  • <1 year
  • firm sends requests for proposals to several companies, which initiates competitive bidding for contracts
  • allows long planning period than individual mkt transactions & the buying firm can demand lower prices due to the competitive bidding process
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9
Q
  1. strategic alliances
A

voluntary arrangements between firms that involve sharing of knowledge, resources, capabilities

  1. > 1 year & help facilitate transaction-specific investments
  2. partnership in which at leat 1 partner takes partial ownership in the other
  3. 2 or + partners create & jointly own a new organization
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10
Q
  1. parent-subsidiary relationship
A

the corporate parent owns subsidiary & con direct via command & control

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11
Q
  1. VERTICAL INTEGRATION ALONG VALUE CHAIN
A

firm’s ownership of its production of needed inputs or of the channel by which it distributes its outputs

  • upstream industries: backward vertical integration
  • downstream industries: forward vertical integration
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12
Q
  1. vertical integration - benefits
A
  • reduce costs
  • improve quality
  • facilitate scheduling & planning
  • facilitate investments in specialized assets
  • securing critical suppliers & distribution channels
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13
Q
  1. vertical integration - risks
A
  • higher costs
  • lower quality
  • lower flexibility
  • increase the potential of legal repercussions
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14
Q
  1. when does it make sense to vertically integrate
A

failure of vertical markets:

  • transactions within industry value chain : too risky
  • alternatives to integration are too costly
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15
Q
  1. corporate diversification: def
A

increase in the variety of products & services a firm offers or markets & geographic regions in which it competes

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16
Q
  1. corporate diversification: types of diversification strategies
A
  1. product diversification
  2. geographic diversification
  3. product-market
17
Q
  1. types of diversification
A

based on % of revenue & relationship of core competencies

  1. single business
  2. dominant business
  3. related diversification
  4. unrelated diversification
18
Q
  1. single business
A

> 95% rev from 1 business, low level diversification

birkensterk

19
Q
  1. dominant business
A

70-95% rev from 1 business, at least 1 other business activity

harley davirson

20
Q
  1. related diversification
A

<70% from 1 business, other businesses linked to the primary business

likely to improve performance & experience diversification premium

J&J

21
Q
  1. unrelated diversification
A

<70% from 1 business, few, if any, linkages among businesses

often experience diversification discount

Tata group

22
Q
  1. Diversification & FIRM performance - BCG matrix
A

QUESTION MARK | STAR
m | |
k | |
t | |
| |
g | ___________________________________
r | DOG | CASH COW
o | |
w | |
t | |
w |____________________________________
relative mkt share

23
Q
  1. QUESTION MARK
A

earnings: low, unstable, growing
cashflow: -

strategy: increase mkt share, harvest/divest

24
Q
  1. STAR
A

earnings: high, stable, growing
cashflow: neutral

strategy: hold or invest for growth

25
Q
  1. DOG
A

earnings: low, unstable
cashflow: neutral or -

strategy: harvest/divest

26
Q
  1. CASH COW
A

earnings: high, stable
cashflow: high, stable

strategy: hold

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