Exam 2 Flashcards
How does porter describe corporate strategy?
overall plan for a diversified company
How does collis + Montgomery describe corporate strategy
it is a way a corporations seeks to create value through configuration and coordination of its multi market activites
What questions so Corporate strategy address
- what is the purpose of our company
- what strategic path should we take?
- what business should we be in
- what is best scope for company
Corporate Advantage and Corporate Strategy
The value a company creates and sustains through the configuration and coordination of multi-business activites
What does corporate strategy focuses on
- resources and capabilities the company possesses
- what businesses the company adopts or should
- form the org that the company adopts or should
What is Asnoffs Market/Product matrix
a company can pursue growth through a combination of market characteristics and product characteristics
Market characteristics
concentrating on exploiting existing market or exploring new markets
Product Characteristics
Pushing existing products into market or producing/offering new products
What is in Ansoffs Market/product matrix
Market development strategy: new Market and existing Products
Diversification strategy: new Market and new products
Market Penetration strategy: Existing market and existing product
Product Development Strategy: Existing market and new product
Market penetration strategy
Produces and sells more of same product in existing market (lowest risk
Product Development Strategy
Produces and sells new product in existing market (moderate risk)
Market development strategy
produces and sells existing products in new markets (moderate risk)
Diversification Strategy
Produces and sells products in new markets (highest Risk)
What is BCG’s Growth/share matrix
Tool to help companies allocate resources based on the attractiveness of their market and level of competitiveness
How can the BCG’s growth matrix be adapted to drive strategic experimentation for unpredictable markets
- accelerating innovation
- balancing investments
-selecting investments in a disciplined way - carefully measuring and monitoring experimentation
What is the BCG growth share matrix
Market Star Question Mark
Growth Cash Cow Dog
Rate. Relative Market Share
What is an SBU
Strategic Business Unit
What is in a balanced portfolio
Star: SBU with high market share and high growth rate
Question mark: SBU with low market share and high growth rate
Cash Cow: SBU with relative market share and low growth rate
Dog: SBU with low relative market share and low growth rate
Limitations and Extensions of Portfolio Frameworks
- Static framework
- Based largely on demand/product sideview; corporate advantage based on adapting to external factors
- Assumed that conglomerate was dominant form of org
- Strategic advantage is achieved through growth but based on redeployment and reinvested of internally generated cashflows
- overemphasis on planning
What is the collis and Montgomery framework
Corporate strategy is the creation of value through the configuration and coordination of the companies multimarket activities
What are the 5 elements of Collis and Montgomery Framework
Vision; Goals and objectives, resources; businesses; structure, systems, and processes
What are the stages in the Raw material to consumer value chain?
Raw materials (upstream)
intermediate manufacturer
assembly
Distribution
End user (downstream)
Vertical integration Backward into supplier functions does what?
- Assures constant supply of inputs
- protects against price increases
Vertical integration forward to distributor function does what?
- Assures proper disposal of outputs
- Captures additional profits beyond activity costs
How to choose vertical integration type?
which value adding activites to compete in and which are better suited for others to carry out
What is full integration
Suppliers straight to customers
What is taper integration
combines vertical integration with market exchange
What are the advantages of a vertical integration strategy
- builds entry barriers to new competitors
- facilitates investments in efficiency enhancing assets that solve internal mutual dependence problem
- protects product quality
- Improves internal scheduling
Disadvantages of vertical integration
- Cost disadvantages of internal supply purchasing
- remaining tired of obsolescent tech
- aligning input and output capacities is difficult for integrated companies
What do burecratic costs do to vertical integration
reduce the value
Why do the costs of running an organization rise with integration?
- lack of incentive for internal suppliers to reduce operating costs
- lack of strategic flexibility in times of change
What are some alternatives to vertical integration?
- Short-term contract and competitive bidding
- strategic alliances and long-term contracting
How to build long-term cooperative relationships?
- hostage taking
- credible commitments
- maintaining market discipline
What is hostage taking
both parties arrange to become mutually dependent on each other
What are credible commitments
believable commitment to support long-term relationships
Maintaining market discipline requires:
- periodic renegotiation of contract
- developing parallel sourcing policy with 2 suppliers for critical inputs
advantages of outsourcing
- subcontractors reduce cost
- better product differentiation
- concentration on available resources
- firm is more flexible and responsive
Disadvantages of outsourcing
- failure to learn from activity
- too much dependence on single supplier
- danger of leading to competitive advantage
Related diversification
Entry into new business activity based on shared commonalities in the components of the value chains of a firm
Unrelated Diversification
Entry into new business area that has no obvious relationship with any area of existing business
How to create value through diversification
- superior internal governance
- acquisition and restructuring strategy
- Economies of scope
What are economies of scope
When production of one good reduces the cost of producing another related good
When is acquisition an attractive strategy
- competencies important in a new business are are lacking
- speed of entry is important
- acquisition is a less risky form of entry
- Barriers to entry can be overcome by acquisition of a firm in the target industry
Limits of acquisitions
- failing to follow through on postaqusition integration of acquired firm
- overestimating and underestimating the economic benefits
- Failing to properly screen candidates before acqusistion
Guidelines for successful acquisition
- properly identify acquisition targets and conduct thorough preacquisition screening of target firm
- use bidding strategy with proper timing to avoid overpaying
- follow through on postacquisition
- dispose of unwanted residual acquisition assets
What are the attractions of a joint ventures as entry strategies
- sharing costs and risks
- increasing probability of success
What are the drawbacks of a joint ventures as entry strategies
- requires sharing control
- requires sharing of profits
- risks giving away critical knowledge
- risks creating potential competitor
What are the causes of corporate decline?
- poor management
- overexpansion
- inadequate financial controls
- high costs
- new competition
- unforseen demand shifts
- organisational inertia
What are the main steps of turnaround
- changing the leadership
- redefining strategic focus
- asset sales and closures
- improving profitability
- acquisitions
What is the 7 S framework
Strategy, Structure, Style, Staff, Skills, Systems, Superordinate Goals
Strategy
plans for allocation of resources to achieve specific goals
Style
approach to leading people and providing direction
Structure
way the orgs business units relate to each other
Systems
practices and procedures that org uses to get things done
Superordinate goals
what org stands for and believes in
staff
number and type of people employed by org
skills
learned capabilities of staff within org
Elements of Organizational Design
- organizational structure
- planning and control systems
- human resource management
- culture and style
Functional Structure
more responsive to related diversification
What is Multi-divisional (M-form) structure more responsive to
More responsive to unrelated diversification
Advantages of the M-form Structure
- Adaptation to bounded rationality
- Allocation of decision making
- minimizing coordination costs
- avoiding goal conflict
What does the M-form address
- challenges of resource allocation through internal capital market and resolution of agency problems
What is corporate governance
relationships between the firms capital providers and top managers
What does a seperation of ownership and control lead to?
Agency Problems
What are some agency conflicts
- maximizing growth, not earnings
- diversifying risk
- managerial risk aversion
- managerial self-preservation
- contextual factors
What are evidence of governance failure
- managerial indulgencies
- empire building
What is empire building
engaging in acquisitions of unrelated business
