Exam 2 Shortened Flashcards
Describe the difference between decentralized and centralized organizations. List two advantages of each.
Centralized organizations have a top-down strategic approach, decision-making authority is made by CEOs and implemented by lower levels. Problems go up the hierarchy, decisions flow down it. One advantage is the ease of organizational and strategic cohesiveness across the organization made possible by one person largely making all decisions. Another benefit is consistently in product quality and employee performance, made possible by clear guidelines and expectations.
In decentralized organizations, regional/local managers are largely empowered to make decisions. One advantage of a decentralized model is that decisions are made by people closer to local markets and knowledge, thus making decisions more relevant and effective. Another advantage is that with regional and local managers being empowered to make decisions, they can be made and enacted more quickly and efficiently.
List the main features of a functional organizational structure.
In a functional organizational structure, employees are groups into functional areas based on domain expertise and which often correspond to distinct stages in the value chain. Leaders of functional areas report to the CEO, who coordinates and integrates the work of each function.
A functional organizational structure works best when a firm has a narrow focus and small geographic footprint.
Benefits include refined expertise and increased focus within each function and corresponding high performance within units.
Drawbacks include the potential of a lack of organizational cohesiveness and communication difficulties across units, as well as the idea that siloed managers do not produce well-rounded CEOs
What does vertical integration mean, and what are two risks of a vertically integrated company?
Speaking to a company’s vertical integration is the degree to which it does everything within the value chain, or the extent of its ownership of inputs and distribution channels.
The benefits of vertical integration include improved quality, ease of facilitating scheduling and planning, and the ability to secure critical supplies and distribution channels.
Risks of vertical integration include increased cost, reduced flexibility, and an increase in the potential for regulatory scrutiny.
List two types of diversification, describing each and contrasting them.
The four types of diversification are single business, dominant business, related, and unrelated.
Most companies start with single business diversification; they receive over 95% of their revenue from one single product or market.
Dominant business diversification occurs when a company receives over 70% but less than or equal to 95% of their revenue from one product or market. In a company doing dominant business diversification they often have multiple segments, but one is doing most of the revenue generating.
Related diversification means a company is receiving no more than 70% of revenue from a single product/market. They have many different products but that are similar in some way.
Companies benefit from diversifying in this way because of value chain similarities and related economies of scope.
However, creating only similar products poses the potential of companies missing out on lucrative industries. They also expose the company to increased risk, as an economic downturn in one industry is likely to drive down the ecosystem.
Related-diversification has the highest mean performance of all of the types of diversification.
Through unrelated diversification, a company makes and generates revenue from several products that have no obvious underlying link behind them.
Engaging in unrelated diversification mitigates a companies risk exposure to economic downturns in the certain industries; unlike related diversifiers if one of their products/markets experiences economic downturn it is unlikely that this will influence others.
However, unrelated diversifiers are difficult to manage, like what GE experienced before they narrowed down their focuses.
Unrelated diversification has the lowest variation and the most predictable performance of types of diversification.
List and explain two reasons that a company would enter into a strategic alliance.
A strategic alliance is an agreement between two or more organizations to cooperate in some way; they involve the sharing of knowledge, resources, and/or capabilities to develop some output.
The reasons a company might engage in a strategic alliance are to strengthen their competitive position, enter new markets, hedge against uncertainty, access critical complementary assets, or learn new capabilities.
Name two kinds of distance from the CAGE framework, briefly explain each.
CAGE: cultural, administrative and political, geographic, economic
Cultural: the disparity between a firm’s home and host country, specifically social norms, morals, beliefs, and values. Cultural distance consists of power distance, individualism, uncertainty avoidance, and long/short-term orientation.
Administrative/political: this type of distance is captured in factors such as shared monetary or political associations, political hostilities, and weak or strong legal and financial institutions. Barriers include tariffs, quotas, and restrictions.
Geographic: more than just physical distance, also is measured by things like physical size and within country distance to borders, topography, time zones, access to the ocean, and public infrastructure like roads.
Economic distance: the wealth and per capital income of consumers, important because wealthy companies trading with other wealthy or poor countries has difference implications.
What is the main difference between global standardization and the multi-domestic approach?
The global standardization approach is marked by high cost reduction and low local responsiveness. There is minimal local adaptation, but companies benefit from economies of scale. Products are the primary organizing rationale. Products are standardized across national markets, and operations are rationalized with centralized coordination and control.
The multi-domestic approach is alternatively marked by low cost reduction and high local responsiveness; when this strategy works local consumers perceive products as local. Locations are the primary organizing rationale. This approach is difficult because it can be costly and inefficient.
International–low cost reduction and low local responsiveness; happens when company has dominant domestic market but wants to sell to foreign markets, works when they have strong reputations and brand names. Transnational–high cost reduction and high local responsiveness; difficult because of many conflicting simultaneous requpremetns like strong central control for efficiency but also decentralization to allow for local market responsiveness.
Name and describe two of the 5 stages of an industry life cycle.
The industry life cycle exists because over time, the number and size of competitors change. Different types of consumers enter the market, and supply and demand sides of the market changes.
5 stages: introduction, growth, shakeout, maturity, decline
Introduction: a product is newly introduced to the market and a companies core competence/overarching focus is research and development as they seek to create a product category that will attract customers. Because of this, barriers to entry are high in the introduction stage in the form of up-front costs. The strategic objectives of this stage are market acceptance and future growth. Companies have to work to overcome technical and market uncertainty. Example: Consumer space travel
Growth: demand increases rapidly as first-time buyers rush to purchase. At this point product/service standards emerge in the form of common set of features and design choices that people will start to expect; the product starts to become more homogeneous. Standards can emerge form competition or be imposed by the government. Example: LLMs/AI
Shakeout: the rate of growth begins to decline and companies have trouble attracting new marginal customers. Firms begin to intensely compete; weaker firms get forced out, only the strongest competitors surgive, and the industry consolidates. At this point price is an importance competitive weapon. Example: Streaming media platforms
Maturity: only a few large firms remain and they experience significant economies of scale. Products and processes are operating at maximum efficiency. Demand is driven largely by replacement or repeat purchases and the market has effectively reached its maximum size.
Decline: demand falls rapidly, innovation efforts largely cease, there is strong downward pressure on prices. This stage is often caused by another breakthrough technology, not always because of poor strategy. Available strategic options include exiting the industry, maintaining a niche, consolidating/merging with rivals, or focusing on next generation technology.
