Exam 3 Flashcards
cooperative strategy
means by which firms collaborate to achieve a shared objective
strategic alliance
a cooperative strategy in which firms combine some of their resources to create a competitive advantage
joint venture
strategic alliance in which two or more firms create legally independent company to share some of their resources to create a competitive advantage
- improve a firms ability to compete in uncertain conditions
equity strategic alliance
an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources to create a competitive advantage
non-equity strategic alliance
an alliance in which two or more firm develop a contractual relationship to share some of their resources to create a competitive advantage
Reasons Firm develop Strategic Alliances
- alliances account for up to 25% or more of a firm’s sales revenue
- increase competitiveness
slow-cycle markets reasons for using a strategic alliance
- gain access to restricted market
- establish a franchise in a new market
- maintain market stability
fast-cycle markets reasons for using a strategic alliance
- speed up development of new goods or services
- speed up new market entry
- maintain market leadership
- form an industry technology standard
- share risky R&D expenses
- overcome uncertainty
standard-cycle markets reasons for using strategic alliances
- gain market power
- gain access to complementary resources
- establish better economies of scale
- overcome trade barriers
- meet competitive challenges from other competitors
- pool resources for very large capital projects
- learn new business techniques
business level cooperative strategy
strategy through which firms combine some of their resources to create a competitive advantage by competing in one or more product market
complementary strategic alliances
business level alliances in which firms share some of their resources in complementary ways to create a competitive advantage
vertical complementary strategic alliance
firms share some of their resources from different stages of the value chain for the purpose of creating a competitive advantage.
horizontal complementary strategic alliance
firms share some of their resources from teh same stage(stages) of the value chain for the purpose of creating a competitive advantage.
diversifying strategic alliance
strategy in which firms share some of their resources to engage in product and/or geographic diversification
- typically seek to enter new markets
synergistic strategic alliance
strategy in which firms share some of their resources to create economies of scope
franchising
strategy in which a firm (franchisor) uses a franchise as a contractual relationship to describe and control the sharing of its resources with its partners(franchisees)
- attractive to use in highly fragmented markets (where no firm has a dominant market share)
cross border strategic alliance
firms with HQ in different countries combine their resources to create a competitive advantage
- limited growth opportunities and foreign gov econ policies are reasons to create this alliance
- more complex and risky than domestic strategies
network cooperative strategy
strategy where several firms agree to form multiple partnerships to achieve shared objectives
- effective way to create value for customers by offering many goods in many geographical locations
- effective social relationships are key to a successful network cooperative strategy
alliance network
set of strategic alliance partnerships that firms develop when using a network cooperative strategy
- stable = demand is constant and predictable
- built to exploit economies of scale and/or scope that exist between partners
dynamic alliance networks
used in industries characterized by frequent product innovations and short product life cycles.
competitive risks in cooperative strategies
- inadequate contracts
- misrepresentation of competencies
- fail to use complementary resources
- holding alliance partners’ specific investments hostage
Primary approaches to manage cooperative strategies
- cost minimization: greater cost bc uses more detailed contracts and extensive monitoring
- opportunity maximization: partners take advantage of unexpected opportunities and learn from each other, fewer constraints on partners
3 internal governance mechanisms
- ownership concentration, represented by types of shareholders and their different incentives to monitor managers;
- the board of directors; and 3. executive compensation
corporate governance
set of mechanisms used to manage the relationships among stakeholders and to determine and control the strategic direction and performance of organizations
agency relationship
exists when one party delegates decision-making responsibility to a second party for compensation
- separation between owners (principals) and managers (agents)
- problems can arise when owners(principals) and top level mangers (principal’s agents) have different interests/ goals
managerial opportunism
seeking of self-interest with deceit (both an attitude and set of behaviors)
managerial employment risk
risk of job loss, loss of compensation, and loss of managerial reputation
agency costs
sum of incentive costs, monitoring costs, enforcement costs, and individual costs, and individual financial losses incurred by principals because governance mechanisms cannot guarantee total compliance by the agent
ownership concentration
defined by the number of large-block shareholders and the total percentage of the firm’s shares they own
large-block shareholders
typically own at least 5 percent of a company’s issued shares.
institutional owners
financial institutions, such as mutual funds and pension funds, that control large-block shareholder positions
market for corporate control
external governance mechanism that is active when a firm’s internal governance mechanism fail.
- individuals and firms buy ownership positions in or purchase all of undervalued corporations to form new divisions
organizational structure
specifies the firm’s formal reporting relationships, procedures, controls, and authority and decision making processes
organizational controls
guide the use of strategy, indicate how to compare actual results with expected results, and suggest corrective actions to take when the difference is unacceptable
strategic controls
largely subjective criteria intended to verify that the firm is using appropriate strategies for the conditions in the external environment and the company’s competitive advantages
-fit between what firm might do (external opportunities) and what it can do (internal capabilities)
financial controls
largely objective criteria used to measure the firm’s performance against previously established quantitative standards (ROI, ROA)
relationship pattern between strategy and structure
Chandler found firms grow first by volume, then by geography, then integration (vertical, horizontal), and finally through product/business diversitfication
simple structure
owner-manager makes all major decisions and monitors all activities, and the staff serves as an extension of manager’s supervisory
functional structure
consists of a chief executive officer and a limited corporate staff, with functional line managers in dominant organizational areas such as production, accounting, marketing, R&D, engineering, and human resources
M-form(mulidivisional) structure
consists of a corporate office and operating divisions, each operating division representing a separate business or profit center in which the top corporate officer delegates responsibilities for day-to-day operations and business-unit strategy to division managers
Three important structural characteristics
- specialization (type and # of jobs required to complete work)
- centralization (degree to which decision-making authority is retained at higher managerial levels)
- formalization (degree to which formal rules and procedures govern work)
functional structure to implement cost leadership strategy
contribute to low cost culture:
- few layers in decision making and authority structure
- centralized corporate staff
- strong focus on process improvements through manufacturing function rather than R&D
- work divided into subgroups for specialization and efficiency
using functional structure to implement the differentiation strategy
- cross-selling
- focus on marketing and product R&D
- employees look for ways to differentiated products
- rapid responses, strategic flexibility needed
- jobs not highly specialized
functional structure to implement integrated cost leadership/differentiated strategy
- marketing and new product R&D need to be emphasized while production and process engineering are not
- decision making patterns that are partly centralized and partly decentralized
- jobs semispecialized
cooperative form
- M-form structure in which horizontal integration is used to bring about interdivisional cooperation
- divisions in a firm use related constrained diversification strategy (share resources and activities across BU’s)
matrix organization
organizational structure in which there is a dual structure combining both functional specialization and business product or project specialization
- lead to improved coordination among firms divisions
strategic business unit (SBU) form
M-form consisting of 3 levels; corporate HQ, SBUs, and SBU divisions
competitive form
M-form structure characterized by complete independence among the firm’s divisions that compete for corporate resources (Legal affairs, finance, and auditing)
worldwide geographic area structure
emphasizes national interests and facilitates the firm’s efforts to satisfy local differences
combination structure
characteristics from both the worldwide geographic area structure and the worldwide product divisional structure
strategic network
group formed to create value by participating in multiple cooperative arrangements
