Corporate Strategy 2

Question 1

Transaction costs are low when:

Answer 1

• Organizations are exchanging nonspecific goods and services
• Uncertainty is low
• There are many possible exchange partners

Question 2

Inter-organizational Strategies for Managing Resource Dependencies

Answer 2

-Linkage mechanisms, while controlling interdependency, require coordination
-Coordination reduces each organization’s freedom to act
-Organizations aim to choose the inter-organizational strategy that offers
the most reduction in uncertainty with
the least loss of control

Question 3

Inter-organizational Strategies for Managing Resource Dependencies

Answer 3

Transaction costs vs. Bureaucratic costs

Symbiotic interdependencies

Competitive interdependencies

Question 4

Keiretsu

Answer 4

Japanese system for achieving the benefits of formal linkages without incurring its costs

Question 5

Basic Diversification Strategies

Answer 5

Concentric Diversification  (RELATED)
Growth into a related industry
(Search for synergies)

Conglomerate Diversification (UNRELATED)
Growth into unrelated industry
(Concern with financial considerations)

Question 6

Value-Creating Diversification: Related Strategies

Answer 6

• Operational Relatedness: Sharing activities
• Corporate Relatedness: Core competency transfer
• Market Power

Question 7

Operational Relatedness: Sharing activities

Answer 7

• Can gain economies of scope
• Share primary or support activities (in the value chain)
• Risky as ties create links between outcomes
• Related constrained diversified firms to share activities in order to create value
• Not easy, often synergies not realized as planned

Question 8

Corporate Relatedness: Core competency transfer

Answer 8

• Complex sets of resources and capabilities linking different businesses through managerial and technological knowledge, experience, and expertise.
• Two sources of value creation
• Use related-linked diversification strategy

Question 9

Two sources of value creation

Answer 9

• Core competence can be developed in one business unit and transferred to other business units at no additional cost
• Intangible resources difficult for competitors to understand and imitate, so immediate competitive advantage over the competition can be achieved through the transfer of corporate-level core competence

Question 10

Market Power

Answer 10

• Exists when a firm is able to sell its products above the existing competitive level or to reduce costs of primary and support activities below the competitive level, or both.
• Can come from increasing scale or size

Question 11

Market power can also be created through

Answer 11

Multipoint Competition
Exists when 2 or more diversified firms simultaneously compete in the same product or geographic markets.

Vertical Integration
Exists when a company produces its own inputs (backward integration) or owns its own source of output distribution (forward integration)

Question 12

Corporate Parenting Strategy

Answer 12

-Strategic factors
Examine each business unit in terms of its strategic factors
-performance improvement
Examine each business unit in terms of areas in which performance can be increased
-Analyze fit
Analyze how well the parent corporation fits with the business unit

Question 13

The primary job of corporate headquarters

Answer 13

is to obtain synergy among the business units by providing needed resources to units, transferring skills and capabilities among the units, and coordinating the activities of shared unit functions to attain economies of scope.

Question 14

(LEARNING ORGANIZATION)

Answer 14

This is especially important given that 75% or more of an organization’s market value stems from its intangible assets – the organization’s knowledge and capabilities.

Question 15

Unrelated strategies, Creates value through two types of financial economies

Answer 15

Efficient internal capital market allocation (versus external capital market)
Restructuring of acquired assets
Firm A buys firm B and restructures assets so it can operate more profitably, then A sells B for a profit in the external market

Question 16

financial economies

Answer 16

cost savings realized through improved allocations of financial resources based on investments inside or outside firm

Question 17

Portfolio Analysis 1

Answer 17

Resource commitment on best products to ensure continued success

Resource commitment on new costly products high risk

Question 18

Portfolio Analysis 2

Answer 18

Puts the corporate headquarters into the role of an internal banker

Top management views its product lines and business units as a series of investments from which it expects a profitable return

Question 19

Portfolio Analysis –

Requires the continual evaluation of a firms portfolio of business units

This involves

Answer 19

• Assessing the attractiveness of the industries the firm competes in
• Assessing the competitive strength of a firm’s business units
• Checking the competitive advantage potential of sharing activities and/or transferring competencies across business units
• Checking the potential for capturing financial economies

Question 20

Best Case Scenario

Answer 20

-All of a firm’s business units compete in attractive industries and have strong competitive positions
and
-There are ample opportunities to capture economies of scope and/or financial economies

Question 21

Useful Tools for Portfolio Analysis Include:

Answer 21

Nine cell industry attractiveness and competitive strength matrix
BCG growth share matrix
GE Business Screen

Question 22

Portfolio Analysis – Disadvantage:

Answer 22

because it tends to primarily view matters financially, it regards business units and product lines as separate and independent.

It fails to deal with the question of :

• • what industries a corporation should enter or
• • with how a corporation can attain synergy among its product lines and business units.

These questions are addressed by;
“Corporate Parenting Strategy”

Question 23

International Entry Options

Answer 23

Exporting
Licensing
Franchising
Joint Ventures
Acquisitions
Green-Field Development
Production Sharing (Outsourcing)
Turnkey Operation
BOT Concept (Build, Operate, Transfer)
Management Contracts

Question 24

Growth Strategies

Answer 24

• Internal mechanisms
• External mechanisms

Mergers

Acquisitions

Strategic alliances

Question 25

Strategic alliances

Answer 25

- To obtain technologies and/or manufacturing capabilities
		GM and Chresyler
- To obtain access to specific markets
		Tuborg in Turkey
- To reduce financial risk
		Airbus (France, British, Spain, Germany)
- To reduce political risk
		Mytag with Chinese RSD

Question 26

CONTROVERSIES IN DIRECTIONAL

GROWTH STRATEGIES

Answer 26

Although research is not in complete agreement, growth into areas related to a company’s current product lines is generally more successful than in growth into completely unrelated areas

Question 27

Cisco’s three criteria for takeover:

Answer 27

It must be relatively small
It must be comparable in organizational culture
It must be physically close to one of the existing affiliates